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

[Boboday555]

The hyper-rich monopolize our politcal system with the billions they pump into their K-Street Lobbying firms, effectively drowing out the voice of 'We the People'.
This results in the 'few' dictating the course of the country, regardless of what the 'many' might want.
And the course these hyper-rich 'few' have set is a path that funnels ever larger sums of money into fewer and fewer gold lined pockets.

I'm sorry but that ain't a Democracy.­..its a Monarchy.
The very Monarchal system that caused the creation of America in the first place!
We've come full circle...w­e've become what we hate!

[ReasonIsMyReligion]

So much for the stock market as an independent anything.

The fed controls interest rates.

The fed injects cash.

The fed bails out its Wall Street buds.

And some dare call it free enterprise, and a NON-centrally controlled economy.

[Irons]

The Wall Streeters and the War Pigs - these two groups are gonna sack as much treasure as they can as the Repuglicans are forced from power.

[Boboday555]

We can afford to spend $12 billion per month in 'Eye-Raq' for a grand total, so far, of $1 trillion, over 4,000 dead American soldiers, scores and scores of dead British soldiers and upwards of a 1/4 million of dead Iraqis (a very conservative estimate) but, God frobid we spend our tax dollars insuring our uninsured children.

But don't worry, because we're the Christian Nation right BUSHIES?
I ask because my Jesus would puke up a lung if he saw what our, so called, Christian leaders on the far-right where doing to His planet in His name.

[LivingStardust]

HuffPost's Pick

I hope Jesus does come back. According to their faith, he's supposed to come back as a lion, not a lamb. And I know if I were him, I would certainly be pissed about what was done in my name. Yeah, if Jesus comes back, Bush and Cheney better run. Go Jesus! Buddha has your back!

[JacobSinger]

Unless of course you're a Christian heretic, like the Gnostics; some factions [as described in the Gospel of Thomas] believed that the kingdom of heaven is HERE, NOW, and that the power and wisdom to change the world and our perception of it comes from within....

If the Gnostic doctrine happened to be the true doctrine rejected, how much more pissed would Jesus be to see the world we currently live in, approved and promoted by rightwing "Christians"?

In that case, perhaps he would be even more of a lion than a lamb, and his message just might be:

REVOLUTION

[plainsman]

Don't fret. The table has to be fully set up before he flips it over.

[plainsman]

Time to pull out the money, cash in the 401ks, and covert to Euros. The ole' Fed is setting up another depression.

[Boboday555]

China, which holds several trillion in loans made to the United States, is doing that very thing.

Yeah, those MULTIPLE WAR TIME TAX CUTS Bush's gave to his owners/base is working out swell ain't it?

[plainsman]

If they did that on a large scale, wouldn't that be an act of war?

[fignozzle]

fortunately, mccain wants to make them permanent.


obama 08

[Antisana]

The Fed bailout of Wall Street reminds me of the billions of dollars spent on Iraq all for nought. I wish it was not true, but perhaps we are a mirror image of the Romans and our Country will fall in the same way as the Roman Empire. What a shame.

[dgscol]

Where is the free market now? This is another hedge for the rich boys.

[rixhex56]

Further raids on the national treasury. Where does it end?

[Boboday555]

Our Federal Reserve...­rewarding criminal behavior since 1913.

[Rule Of Law]

It should be on their business cards! LOL

[doug108]

I'm sick and tired of having my income from my crappy job taxed, then my tax money used to bail out the bastards who only offer me crappy jobs in the first place.

[Boboday555]

"$32 billion on Wednesday alone..." to reward the fradulent corporations for their robber baron behavior.
...and the stilly uninformed BUSHIES are always the ones whining about Welfare for single moms.

Man, I can't wait unitl we put an American back in the White House and the pinhead from Crawford and his War Deferments pal slither away into the back pages of history.

God Save America!

[ZHarris]

Along with the proposed regulations I would add:

Ban ARMs

Prohibit banks from refinancing loans or demanding more collateral due to a drop in housing prices.

As long as the borrower is making his payments, leave him alone!

[NoFactsJustTruth]

Just where the hell are these weekly BILLIONS coming from???

If printed out of thin air, the dollar is then worth 'less' EVERY day.

If OUR tax dollars are being used instaed, it's perhaps time for some Boston-type investment firm 'tea parties'.

[bogananda666]

Michael Blomberg called it when he declared that the USA is acting like a third world government, Zimbabwe comes to mind, because this is what third world countries do just print up money. This is what he meant by his remarks.

[iPolitics]

Corporate WELFARE. Republicans love hand-outs for those who don't need it

[realitytrumpsbull]

Oversight, standards, practices, and THEN a 'mercy loan', but NOT beFORE....­.