Investment Firms Tap Fed for Billions

WASHINGTON — Big Wall Street investment companies have jumped all over the Federal Reserve's unprecedented offer to obtain emergency loans, borrowing more than doubled than in the program's debut week.

Those firms averaged $32.9 billion in daily borrowing over the past week from the new lending program, compared with $13.4 billion the previous week, the central bank reported Thursday. The program, which began last Monday, is part of the Fed's effort to aid the financial system.

On Wednesday alone, lending reached $37 billion.

The Fed, for the first time, agreed on March 16 to let big investment houses temporarily get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Last week, Goldman Sachs, Lehman Brothers and Morgan Stanley said they had begun to test the new lending mechanism. The Fed does not release the identity of the borrowers using the facility.

The Fed created a way for investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

Banks averaged $550 million in daily borrowing, for the week ending March 26, from the Fed's discount window, compared with $81 million the previous week.

Story continues below

advertisement

Fed Chairman Ben Bernanke is scheduled to give lawmakers an updated assessment of the economic and financial situation at a hearing on Capitol Hill next Wednesday.

Also Thursday, the Fed debuted a separate lending facility where Wall Street firms can borrow Treasury securities and put up risky home-loan packages as collateral.

The Fed auctioned $75 billion worth of Treasury securities. Bidders paid an interest rate of 0.330 percent. The Fed received bids of $86.1 billion worth of the securities. The identity of bidders is not released.

It was the first time the Fed conducted an auction of this kind. The next one is set for April 3.

Demand for Treasury securities at the auction was less than some analysts expected, although that was viewed as a possible sign of less stress in the financial system. Still, many remain wary about financial conditions.

"It seems like the TSLF passed its first test," said T.J. Marta, a fixed-income strategist at RBC Capital Markets. "On the one hand I'm fairly positive about the auction. But on the other hand, we survived today. ... there is a whole lot more pain to come," in terms of more financial losses from the housing and credit debacles, he predicted.

The auction program is intended to help financial institutions and the troubled mortgage market. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions that started Thursday.

The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing crisis. Since the Fed's announcement of this new program, rates on some mortgages have eased somewhat.

Federal Reserve Governor Randall Kroszner said in a speech Thursday that curbing shady lending practices that contributed to the housing and credit debacles should help revive the confidence of the public and investors.

"Effective consumer protection can help to restore confidence in the mortgage markets and help to preserve the flow of capital to consumers who wish to purchase a home," Kroszner said.

Under fire from Congress for being too lax in its oversight, the Fed has proposed a way to protect homeowners from dubious lending practices. Subprime borrowers _ those with tarnished credit histories or low incomes _ have been hurt the most, although problems have spread to more creditworthy borrowers.

The Fed wants to:

_restrict lenders from penalizing risky borrowers who pay loans off early.

_require that lenders make sure these borrowers set aside money to pay for taxes and insurance.

_bar lenders from making loans without proof of a borrower's income.

_prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.

_curtail misleading ads for many types of mortgages.

_bolster financial disclosures to borrowers.

___

On the Net:

Federal Reserve: http://www.federalreserve.gov/

Comments

[jimmyaj]

A pretty fancy way to pull off a bank robbery. But then, size matters.

[Rule Of Law]

In regard to the Fed and today's news that Bush intends to use this recession as the excuse they've long looked for to gut Federal protections--

* "People who will not turn a shovel full of dirt on the project (Muscle Shoals Dam)nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest ...But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an addi- tional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People. If the currency issued by the People were no good, then the bonds would be no good, either. It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold. Interest is the invention of Satan".

-- THOMAS A. EDISON

[Rule Of Law]

* "The Federal Reserve banks, while not part of the government,..."

-- United States budget for 1991 and 1992 part 7, page 10

[speakingtruth2power]

My small business would like to borrow a measly hundred grand

to get over this recession too. Does anyone think I'll see any $$?

[MetalCanuck]

You see this folks, this is your money being drained away.

[43P04T34]

Can't decide if this whole mess is more criminal or immoral. It's certainly both.

[WIpatriot]

It's certainly a LOT of both. Read more here:

http://www.theinternationalforecaster.com/item.php?topicId=2&articleid=234

[Rule Of Law]

Well Patriot, I straped my cap on real tight this AM and found this most damning of all evidence concerning the so-called Mortgage Crises we face now. Is it a conspiracy if they come right out and say that they are going to rob you and beat you senseless?

"Capital must protect itself in every way...Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principal men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd."

--Taken from the Civil Servants' Year Book, "The Organizer" January 1934.

[Rule Of Law]

Hope it posts this time--but look for it twice, just in case--

Patriot, WOW! can you help me with this?

Put together a consortium of wealthier shareholders (i.e. billionaires like Mr. Lewis) and hedge funds and, depending on the size of your kitty, threaten to buy anywhere from 100 to 400 metric tonnes of gold in one week, using mainly physical gold markets, but also gold futures on the COMEX to take advantage of leverage. Both together could be used quite effectively. This potential gold rally would threaten the number one priority of the Illuminati - gold suppression - because gold is the alarm bell that is warning everyone that the Illuminati and the Fed have destroyed the US economy.

[Rule Of Law]

And if you are still hanging out here, any words on this debate I'm having on page two?

Rog49Thomas See Profile I'm a Fan of Rog49Thomas

Au contraire.

The Fed is controlled by the US Federal Govt.

The president of the US appoints (with the advice and consent of the Senate) the 7 members of the Board of Governors. This body controls the actions of the Fed. Members of the BOG (no, not ZOG) are appointed for 14 year terms and terms are staggered so no single president can appoint all.

The 12 Federal Reserve Banks are "privately owned" by banks in the local FR district. They are compelled to be shareholders. However, the BOG must approve the president of each of the 12 FR Banks - who serves a 5 year terms.

The FOMC which sets monetary policy is composed of 12 members, 7 of whom are the BOG, one the President of the FR to NY, and 4 FRB presidents who serve one year rotating terms. For purposes of selecting the latter 4, the 11 FR districts (absent NY) are divided into 4 so that each "geographic" area is always on the FOMC. The Chairman of the FOMC is the Chairman of the BOG. The Vice Chair of the FOMC is the President of the FRB NY.

If the FOMC decides to take an action in the FX markets, it must co-ordinate with the US Treasury before doing so..

[Rule Of Law]

I forgot to ask the question--What is gold suppression , how is that to their advantage?

[GrainOSand]

Tax and spend is the label the republicans hang on the dems. The “repugnants” were against welfare yet they seem to like corporate welfare. There is this game called Three Card Monte. The politicians (of both parties) have engaged in this game with the American people for a long time now. Perhaps we the people need to stop playing this dreadful game that is robbing us blind. Manufacturing jobs lost, high school drop-out rate soaring, apathy at an all time high, the gulf between rich and poor is now measured in universes. Until we get revolutionary in our thinking and actions nothing will change. The lure of the lazy boy, the cold cut sandwich, the cold beer, and the plasma TV cannot be so great, so hypnotic that it allows a small group to sell out an entire country, or can it? I do not hold any love for either party. Elitist reside in both of the parties. It is this elitist thinking that is the cancer we are living with.

http://en.wikipedia.org/wiki/Three-card_Monte

[speakingtruth2power]

Populism is the cure for the cancer of corporatism &

the DLC is the neocon wing of the Democratic Party.

[chuckieboy]

PLAIN AND SIMPLE. CAPITALISM FOR THE POOR-----SOCIALISM FOR THE RICH.

[bogananda666]

you got it right, no BS. Furthermore, these investment bankers are known to be corrupt, which is how and why they exist and now the American Taxpayers are paying to guarantee their loans from the Fed. It's like that a group of con men, known and not indicted, have squandered all their money running their companies into bankruptcy because of corruption which includes absurdly outrageous salaries and bonuses into the $10,000,000,000 of billions looting their companies. They are being bailed out by the American taxpayers, the very same whose Social Security they want to privatize. howl and whine whenever the Congress want to give an aspirin away crying socialism.That's capitalism for the poor.

[GrainOSand]

With few words you summed it up perfectly.

[Grannysue]

Hey Corporations and Millionaires free money available in D.C. just send in your political donation to McBush and you will get all you want. The public oh they can simply pound sand, per McBush!

[Boboday555]

'We the People?'
...more like 'We the Chidlren' if you asked me.

[plainsman]

I think Petronius sums it up well:

"Now of dumb animals the ones who have things worst are oxen and sheep. Poor dumb oxen, because it's their work that puts the bread in our mouths, and sheep because the clothes on our backs we owe to them. And it's a dirty shame, I think, the way we eat their mutton and wear their wool when the poor dumb sheep pay the bill."

[Boboday555]

May company has come up against some pretty hard times because of the recession and is in danger of going under.
Hey Federal Reserve guy; what laws might I have to break in order to get some help from you guys?
Should I go steal from my clients?

[Sundialsvc4]

Let's zero in on some basic brass-tacks fundamentals here: there is no such thing as a free lunch. By Definition, there is no such thing as "money for nothing." If you can get it "for nothing," then it's not "money."

In the last 40 years, yes, during most of our lifetimes, we've watched an unholy leprechaun working "the Inverse Rumpelstiltskin Effect," spinning America's gold into straw. They did it with computers and they gloated in all the "money" that they had. "Ike" Eisenhower clearly saw that they would spend all that money on "defense" because in that world the money flowed thick and easy.

Or... did it?

Fact is, the world isn't beating a path to this "superpower's" door any longer, because not only are we not a "superpower," we never were. America is simply a leech, and a dangerous one at that. As the Americans are bound to figure out eventually, the world's economy does NOT "revolve around them." Nor does it bow-down to nuclear bombs.

The world is passing us by, as the investment bankers program their computers to move meaningless numbers around at light-speed... the debits always dutifully equalling the credits "but so what."

You .. must .. PRODUCE.

[LivingStardust]

Oh, we WERE a superpower once upon a time, but you are dead on about the need to restore us to a manufacturing based economy. A service economy is the ultimate vaporware.

[westreal]

Hey, I'm broke. Can I get at least $5,000.

Help a brother out.

[princessofnowt]

I'm pretty sure that soon you will be able to live debt free in servitude to one of our excellent corporations, be able to shop free at the company store, all kinds of lovely improvements to Freedom.

So, be happy! It's all good!

[BeyondKen]

If you're an investment banker or Iraqi militiaman, yes.

If you're a hard-working American you're SOL.

[chuckieboy]

SPEAKING OF IRAQI MALITIAMEN, THE LAST ARROW IN THE QUIVER OF bush and his gang of fascists, HAS BEEN USED. WE BRIBED SADR, HE TOOK THE MONEY, NOW HIS FOLLOWERS ARE FIGHTING. WHAT TO DO?

[bogananda666]

You might include the Israeli's who get $500 a year U.S. aid for each Israeli, having received it for the last 30 years with commitment for the next 10 years. $500 a year US aid for each Israeli paid for by the American taxpayers who may get a one time $300 so called tax stimulus payment, which will be financed by loans which the recipients of the $300 will have to pay back with interest. On the other hand, THE CORPORATE WELFARE KINGS get loan proceeds from the governments debt, deficit spending, and others pay back the principal and interest for the LOAN PROCEEDS GIVEN TO THE CORPORATE WELFARE KINGS, a sweet deal when you get the loan proceeds and others pay off the loans.

[TrevorAlan]

So big financial institutions get a lifeline to go on making profits. Does the people's treasury see any benefit if they survive to pay their CEOs billions in stock options for weathering the storm? Are there any provisions for fair taxes on the profits made by scooping up almost failing loans at firesale prices?

No... I didn't think so.

[LITU]

While we vent our angst against this violation of our trust, the wheels of fascism roll on.

There can be no political solution to the ails of America. The corporate entity, by virtue of its wealth and influence, enjoys all the freedoms promised to the individual, while degrading individual rights to the point of nonexistence. Lobbyists promote the legislation. Bureaucrats write the nuance of the laws because the legislators fail to read the fine print. Trade unions, the backbone of the middle class, are denounced and mediated into oblivion, or worse, irrelevance.

Pardon my cynicism. There can be no political solution no matter the candidate. They're all caught up in the flow. The wheels of fascism roll on.

[LivingStardust]

Break the wheel.

[WIpatriot]

Toss a stick in the spokes.