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.

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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

[Opus007]

The corporations will definilely get bailed out. What else do you expect to happen from our fascist government? Our goverment serves at the pleasure of corporations.

[KingGeorgetheShrub]

It is quite amazing how Big Biznees never wants any social programs but at the drop of a hat will socialize their losses.

[WIpatriot]

Especially after they have sucked the nectar from other people's money.

[lastams]

While chipping away at the American middle class, the globalized corporate giants have failed to notice that the ice on which they stand is becoming increasingly thin.
At the end of the day, consumer spending drives the economy.
Kill the middle class and you kill consumer spending.
Perhaps corporations will eventually wake up, on their own, and note that without investment in the infrastructure of this country, the very foundation of the economy will collapse.
Perhaps.
But perhaps it is better still that our “leaders” begin to take on the responsibility of government; to insure prosperity and opportunity for the American people, to do what is in the interest of the COUNTRY, and not just the money shufflers on Wall Street.
Isn’t it amazing how the right-wing spin machine predicts dire results with “socialized medicine” but have no qualms about socialized bailouts of large corporations?
What could more illuminate the difference between capitalism and a government owned lock stock and barrel than to see our tax dollars being used as a corporate piggy bank.
It’s time to take off the blinders and take a long hard look at our current SYSTEM of government, and understand that what is good for General Motors, may no longer be good for America.
Free enterprise is a far cry from corporate ownership of the government.
It is far past time for the government to represent the governed.

[sarge]

Where are these billions of borrowed from taxpayers dollars going? It said "Backed by securities". Is this a Fed funded day-trading operation for Wall Street?

Why do I smell the savings and loan debacle, part 2...and you know the sequels are always much worse than the originals.

[lastams]

Agreed.
But perhaps instead of looking at the symptoms we should examine the disease.
We’ve installed a corporate run government enforcing a “this quarter” mentality on the American economy.
Until and unless this government sees itself as a representative of the American people, the economy, the REAL economy, where people work and consume and pay taxes, will continue to slide downhill.

Least we forget,

“Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

When a long train of abuses and usurpations, evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

[LITU]

If these are loans against financial losses, how then are we to believe the loans can be repaid? Secured assets as collateral? You mean, like, houses? Yep, more back room negotiations.

[LeBelAge]

If conservatives actually believed in the invisible hand of the free market, they would not be using tax payer money to save these banks who are going under due to their own greed and incompetency. The market would be left alone to sort it out.

As always the conservative philosophy can be summed up by, "do as a I say, and not as I do."

[Sundialsvc4]

Isn't it just amazing how much "money" can just materialize right out of thin air when you "borrow" it?

The Germans after World War I, with their poor paltry banknotes and cook-stoves ... how twentieth-century.

[WIpatriot]

LOL...good one, Sundial.

[Chavez08]

Yeah, BEN! Screw the millions who are homeless, sick and in despair and help out the elite in fear of losing one of their winter chalets...

To the elites, the New Deal sucked when it helped the less fortunate but when the richest, most affluent squeak their wheels, the bucket drops quickly into the "Welfare Well"

...and, still, the politicians remain silent

[Bobby]

More Big Brother Huff Po?

[Bobby]

One of the reasons JFK was assassinated was because of the changes he was going to impose on the Federal Reserve. Big Banking and Wall Street were not thrilled at all about the proposed JFK intervention. Ironic then that Dumbya Bu$h and his friends at the Federal Reserve were able to bail out a Wall Street Icon...Bear Stearns and other firms. With Bu$h and his criminals, it's ALL about Corporate America, war profiteering, Big Banking and Big Oil, the very rich and their tax cuts and NEVER about the REAL people.

[LITU]

Actually, one of the reasons JFK was assassinated was because he insisted upon showing his face in public without a kevlar shield. That remains the only reason Bush does not.

I wasn't arguing your point. I have always felt, though, that Kennedy failed to recognize the sincerity of his enemies.

[Bobby]

I can't argue with your point. JFK had a LOT of enemies. The CIA hated him. The Mob hated him. The anti-Castro Cubans hated him. Big Oil hated him. Big Banking and Wall Street hated him. Not to mention some other politicians and federal officials like J. Edgar Hoover. It all came to a head in Dallas on 11/22/1963.

[provgrays]

What more proof do you need that corporations have the rights and privileges that every day people should have.

[patriotscholar]

If there are two things about these guys that is supremely evident, it is that these guys that think that they are so smart, and entitled to govern the rest of us, aren't and can't.

[gcallaghan]

"Please, sir, I want some more."

[BPCentrisAmerican]

But, but isn't that socialism? As long a it's for wealthy ivestment banks it's OK.

[princessofnowt]

what a f***ing scam.

we, the American people appear to be the most gullible idiots on the planet.

Is anybody going to jail for selling/stealing our country? I think someone needs to sue their asses and GIVE IT BACK.

Then maybe we could have decent schools, maybe some homes, a bit of healthcare, that sort of thing.

[momofsonofwar]

dito

[bluesnot]

We aren't gullible. We just don't have any power. That has been stolen too.

[princessofnowt]

Have you looked up the NI4D?

Its a new Legislative Branch for the People, that could be enacted with enough online votes.

It might be the fighting chance we need. Its worth a shot!!

on the other hand, I'm beginning to think 1984 was written based on meetings and interviews with those who are in charge. REALLY in charge, I mean.

[Mark701]

Not only are they NOT going to jail, they are starting new companies! For example the ex-financial officer at Countrywide Home Mortgage (the poster child for bad mortgage lending) is starting a new company that will BUY bad mortgages. Only in America.

[princessofnowt]

Corporate reform, anybody??????

Isnt it great that once you figure out nobody's gonna getcha for it, you can just keep going and going, taking all of everything?

And that you know blackwater will have your back when the little people have had enough?

[JohnFromCensornati]

For about thirty years now we've been bombarded by all manner of RepubliCon economic voodoo propaganda.
All their buzzwords like "trickle down" & "free market" are just euphemisms for economic predation by those that already have more than their share.
We can only hope that the independent voters out there will finally wake up to the scam.
I'm not holding my breath, though.
We have too many other important things to deal with like March Madness and American Idol.

[GrainOSand]

We do seem distracted.