Fed quietly putting taxpayers on the hook for the subprime fiasco
US banks borrow $50bn via new Fed facility
US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch.
The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.
And what might we mean by "wider range"?
However, the move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.
"The TAF ... allows the banks to borrow money against all sort of dodgy collateral" says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America’s banking system.”
"Dodgy collateral..." Those Brits! Their humor is so dry!
Needless to say, the banks are finding the prospect of handing the Big Shitpile over to the Fed, and from the Fed to you and me, increasingly attractive:
The Fed has not yet indicated how long the TAF will remain in place.
But the popularity of the scheme is prompting speculation the reform will stay in place as long as the financial stresses last.
“Some Fed officials have expressed an interest in keeping and possibly expanding the TAF,” says Michael Feroli, economist at JPMorgan.
Hey, I've got an idea! When the "dodgy collateral" turns out to be complete crap, as it certainly will, because if it was performing, the banks wouldn't be handing it over to the Fed in the first place, maybe we can use all that loose cash that's lying around for Social Security to meet the obligations the banks incurred? After all, in a "crisis," everybody has to sacrifice. For the good of the country.
The word of the day is kleptocracy. We really do need to get past the idea that the people who are running the country having anything else in mind besides looting as much as they can, as fast as they can, and getting away clean. Iraq should have taught us that, if nothing else did.