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

[TLV]

During the Clinton era we saved alot, spent alot, and enjoyed a very comfortable lifestyle. Since Bush has ruined things, we have not been able to save very much, we never have the money to go out to dinner anymore, we rarely spend on big ticket items, and we are beginning to worry that we will not be able to put more into our sons' college savings plans. No - we have not gone into outrageous debt. We own our home, refinanced on a fixed mortgage early in the "refi bubble." That and a small home equity loan are our only debts. My and our son's cars are paid for and my husband drives a company car. How on earth does the Bush administration think people like my husband and I will be able to boost the economy when we have less to do it with? Meanwhile, the Fed bails out stupid people who loaned money to borrowers who couldn't pay it back.

[civilbehavior]

Plain and simple answer.

They don't care what happens to you and your husband. I live right next to Palm Beach. I go over there for work. Not one of those elite privileged snobs care a damn bit of whether or not you survive. In their book YOU are not entitled.

[leftLibertarian]

OH Big Mummy Gummit, Please Help this poor Billionaire.

I'm so sorry I called you names when times were good!!

Sniff, sniff, sniff.

[RoseMerry]

Thank you! As if the raiding of the U.S Treasury by the megacorps of the last few years was not enough, failing banks are holding our economy hostage until Uncle Sugar ponies up their unfair share.

Which is why I sometimes think that the phase, "Eat the Rich" is not really THAT bad.

I would at least like to see them improvised!

[deke33]

Why is it a MORAL HAZARD for the poor and the needy not to have to pay copays for medical services and medications? Why is it a MORAL HAZARD for the poor and the needy to have to pay something for going bankrupt? Why is it not a MORAL HAZARD for those CEOs and those bankers and home mortgage lenders who made loans to people who could not, in many cases be able to pay subprime loans for the government to step in and bail their asses out.
Now remember, it is the very same people who spoke for the MORAL HAZARD doctrine, who are now receiving exorbiant compensations in retirement bonuses, retirement plans and resignations for making their companies go belly up if the government applied the MORAL HAZARD DOCTRINE equally.

[Pleidian]

Well finally we get to it....socialized corporate and banking processes. In the US, which does not have socialized medicine. If I were a journalist on this site, I'd be very serious about unravelling the Fed and it's private foundations - the illegal oligarchy of America. Seriously guys, you deserve much betterb than kleptocracy.

[oneeyedodin]

So very correct. But the same oligarchy has brainwashed the masses that getting something back for their money is socialism. And enough of the marks fall for the BS to make the 'system' continue to work for that oligarchy. Ya gotta give the elites credit...they know Americans.

[LivingStardust]

Calling them "elites" is part of the problem. Please consider different terminology.

[CAPTAINSKIPPY]

Two questions: first, confidence in our financial markets will be restored for investors and the public by giving money to investment banks, thus diluting the value of any dollars I have saved? And second, when will another effort be underway to privatize social security, so I can invest my retirement money in stocks like Bear Stearns?

[researcher]

reagan you were a genius. once and for all we can get rid of that pesky middle class. all they do is whine.

once we can get rid of the middle class americans will be easier to control. the have nots dont ask for much like the middle class.

wealth in the hands of the few capitalism at its best. god bless america the land of opportunity. I did ok now drive around in a new BMW.

[TLV]

That was the plan that Bush's grandfather, Prescott, and his similarly wealthy friends had back when they tried to overthrow FDR.

His gift to them was Pearl Harbor. They backed off from taking away The New Deal. They should have gone to prison.

[Boboday555]

Prescott Bush was a NAZI collaborator.
And the neo-children are worried about Obama's Grandmother?

[dgscol]

In the last crash I lost alot of money, and this time I've lost some, and because of this I have had to change my lifestyle. I made my investments in items that changed with time, but were not that risky.
When I take a hit and erred in my investments, no one offered me low interest loans and called it a good thing, If they did what I would do is place it back in some high risk investments and try to get my money back quickly. Would that be smart?

[EinChicago]

Depends on the high risk. The problem is that the IBs are likely just plowing it into commodities, which is a two fold screw: it drives up prices of oil and it doesn't "flow down" to the ordinary lenders.

[totalliberal]

Why is the Federal Reserve considered private money and Social Security isn't? They are both federal entities.

[Barbarossa03]

The Federal Reserve is a federal entity BY NAME ONLY. They had you fooled didn't they! Look it up. The Fed is the bank of the United States, they, not our Treasury control the money supply of the US. When the USGOV needs cash the Fed gives it to them...with interest. Part of that national debt we have is the interest that we need to pay to the Fed for printing the US money. That's why Ron Paul was big on getting rid of the Federal Reserve.

[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..

[Rog49Thomas]

As part of its assets, the Fed Reserve system holds US Govt bonds and the interest payment by the US Govt on these bonds is the source of the overwhelming bulk of the Fed's earnings. The Fed does not get "interest" on the outstanding money supply. Only on the bonds its holds. Other than the Fed, a variety of other parties hold US Govt bonds - domestic and foreign financial institutions, individuals, foreign governments, etc.

If the Fed wants to increase the money supply, it buys US Govt bonds - thus the public sellers get $.

If it wants to decrease the money supply, it sells US Govt bonds - the Fed gets the $ which come out of the hands of the public sellers.

According to a US Govt study done in 2007 (RL31590 Brian Cashell CRS), the total federal debt was held as follows:
Fed Govt itself 42%
Fed Reserve 9%
Foreigners 26%
State & Local
Goverments 6%
US Private 17%

The piece for the Fed Govt "itself" are programs like Social Security, etc.

If you look at Fed Stats, you'll generally see the debt broken down into two categories - intergovernmental holdings and all others.

.

[Boboday555]

Short of Revolution, we couldn't get rid fo the Federal Reserve if we tried.
They IZ dug in like a Texas tick sucking the life blood out of this country and pumping it ino pro right-wing programs.

And here you thought your voice was being heard in Washington.
Oh we children can be so naive at times!

[bogananda666]

The Federal Reserve is owned by its member banks. I has taken over the task of printing money, an onerous task that the government formerly did. The Fed was established in 1913 by the Democratic Senators at a meeting on Jekyll Island, off the coast of Georgia. This was the privatization of the money supply to the bankers, the foxes managing the hen house.

[plainsman]

I was trying to explain to my (brainwashed) father about the Fed the other day, and he defended them, saying "we had to have the system implemented so we don't have the run on the banks that plagued the U.S. before 1913." When I pointed out that the Fed manufactured the bank run of the 1930s (that caused the depression) with these type of loans and a clamping down on money being printed, he looked at me like I was crazy. Take that stupidity and multiply it by 295 million people who have no clue what is going on and think the Fed is actually part of the U.S. government....as my father said..."just like the Federal Postal Service." Fed Ex delivery straight to the international bankers pockets is more like it.

[jaschrod]

I have this discussion almost daily, and find it just amazing that hardly anyone understands how this all works. One of the comments that I get most often, is that the government has taken steps to head off what is going on right now. Sometimes, I feel like my head is going to explode. Like Willie Nelson says, give me another drink of that worry be gone.

[LivingStardust]

Ditto.

[brokenarrow]

Insightful and funny at the same time................sure wish there was more of this intelligent discourse at HuffPo. Will look for more of your comments............I've become adept at skimming over the troll dookey.

REPUBLICANS / CONSERTIVES=OXYMORON. SEE YOU ALL ON THE BREADLINES..........THANKS FOR DESTROYING OUR COUNTRY IN LESS THAN EIGHT YEARS, BUSHCO.

[TrevorAlan]

Destoryed our country in less than eight years? Come on, like any genius he stood on the shoulders of giants. His deficits and government malfeasance weren't original, they just compounded the train wreck Regan and W's dad had begun which had only temporarily abated under Clinton.

Bush shouldn't be credited with the whole kill like some sole Matador, he really only finished off what his father's generation started.

[Rule Of Law]

For some folks, mine included, the dream of a USA that's always right and working for us, not against us, dies hard. A lot of people want somebody to take care of them. They voted for Bush. If this were a real family Child Protective Services would have hauled him away to the slammer 5 years ago.

[Novista]

Hey, guys, don't forget it was a Democratic president that signed the effing Fed into life.

As far as 'the free market', when have you ever seen one? I was born in 1936 and the only one I can say for sure works that way is ... the illicit drug trade!

Now, I'm not totally caught up on my reading, so not sure of the 'Bank of North America' ... bute the 'Bank of the United States' and the 'Second Bank of the United States' were both government chartered, and averaged out sucking 42% of the life of American citizens. Nothing really changes.

Near as I can understand, it is not 'taxpayer dollars' underpinning this latest lark. No, it's Fed owned Treasuries (but you have to ask yourself how they got those?!)

You really have to ask yourself, regarding transparency in government, how the Fed gets away with not reporting the hawgs sucking on the national teat. Oh yeah, I forgot, Fed is ... what did Volcker say on Charlie Rose? "Well ... it's ... independent." Always has been right back to Dec 23, 1913 when Woodrow signed it into law. and the seed planted at Jekyll Island in 1910. So much for hating 'privatization' eh???

[flibbertygibbet]

Hey guys. don't forget there is no difference between a dem. or rep. when it comes to stealing or hard earned money !!!!!!!flbgbt

[WIpatriot]

True dat, political parties are just a smoke screen.

[fignozzle]

what is this policy and why is it so accepted......i mean... they take alot of money from educators and firemen and miners so that they can bail out investment firms...........?
they put our nation in harms way (wink wink) because congress would not give RETROactive immunity to telcoms.......
facists!
who ya gonna vote for????

[Boboday555]

I'm voting for an American for a change!

[scoobynooby]

Makes no difference who you vote for the real candidates were drummed out by Main stream Media so all thats left are the sheeples representitives. The elections mean nothing, you elect only those the rich want you to vote for. obama, hitlery, mcnoodle, makes no difference. I find it funny how in my state they talk about how they have dems in congress but those same dems got elected on ending the war than turned around and said No Impeachment, even when confronted by hundreds in an auditorium blumenmonster the traitor said no Impeachment. Why? Because you don't get elected unless you are CFR. Just loook at who obama hangs with and you will see. The fix is in and has been since Kennedy was assaninated and was in partially before that.

[scoobynooby]

These are but some of the final nails in the coffen. Soon to come. Complete collapse and a then nothing to be owned privately or publicly and the NWO begins. The north american union will arise from the ashes and the Amero as its currency. The Us population has been dumbed down and dpped and after billions die from famines and earthquakes the Zionists will have thier new world order and the technological All seeing Eye will keep whats left of the populous in complete control. Tis only the birth pangs of distress.

[fignozzle]

you are bummin' me out scooby....

[bogananda666]

You're referring to the christian Zionists I presume.

[Boboday555]

Remember America?
Now that was a cool country.

[fignozzle]

twas.........

[ErnestineBass]

...and 'twil be again. You can count on it.

[Boboday555]

I hear hear Oliver Stone's upcoming movie 'BUSH' was originally entitled:
'The Madness of King George II: The Burning Of The Constitution!'

[fignozzle]

an excellent title indeed.
he shoulda stuck with it.