Fed Pumps Further $630 Billion Into Financial System

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

Comments

[JimPivonka]

Houston, we have a problem.

Our people, and our representatives think the financial system rescue plan is about protecting financial institutions from failure resulting from bad judgement about mortgage backed securities.
It is actually about protecting the worldwide supply of money and credit from collapse due to deleveraging, the vanishing value of leveraged collateralized debt obligations and credit default swaps.
These have become, under the market fundamentalist initiated financial deregulation regime, the source and underpinning of the money supply. If they collapse the money supply will have to be re-created by central banks and governments. Doing that will require dealing with extraordinarily difficult political and distributional issues.
Any delay in restoring the money supply will kill economic activity, and throw the world economy back 20 to 30 years, I suspect. People will become homeless, illness will go untreated, starvation will become common, and civil unrest and warfare even more common.
Absent the "rescue" package, the sooner the printing presses roll, the better.

[lizr]

Not sure that we dont need the giant wakeup call and some spanking of wall street butts.

[sparkal]

This was a ploy to make the Dems look stupid! I think deep down the dems knew they would not vote for it. Its politics folks. If the dems would have voted against this in the beginning, then Barack would have been labeled as not caring about the American people. the repubs knew all along that they would do the opposite of what the dems did. They will do anything to swing some momentum back in the way of John McCain.... Watch and see how they are gonna spin this

[zuffaloo]

Actually both parties are pretty divided over this. After all, government interference in the markets is the opposite of what the republicans stand for, so the idiologically driven republicans HATE the idea of a bailout. The repubs who want the bailout are the ones who don't stand for anything other than building their own personal fortunes (and to a lesser extent, the fortunes of their friends).

Dems are also divided between those grossly influenced by lobbyists & therefore big business, & those idiologically driven ones who want to at least appear to help Joe Blow.

[sparkal]

No taxation without representa­tion......­.Come on people....­wake up!!!!!

[KillTheMessenger]

You are represented. Your telephone and email votes counted more in this matter than you can imagine. The vote against the bill was almost orthogonal to party lines. When was the last time you had that in Washington? This was as non-partisan as something can be.

People, can't you tell any more when you actually have a voice? This was it.

[joebaggadonuts]

Hmm. So Congress says no and Ben loans them the money anyway.

[TrooAmerican]

This was different. No one publicized that they were going to add 330 billion to global liquidity along with foriegn central banks.

[KillTheMessenger]

The fed gave short term loans, which it always can. No big deal. But these loans do not solve the long term crisis. At best they keep some of the failing banks operating a couple more days or weeks. And when those banks fail, these loans will fail, too. The feds will never see this money again. The provisions in the bill, on the other hand, would have been tied to some equity. So the bill might actually be better for the tax payer than what the fed has to do without it. And I am not even sure the fed has a choice in the matter. They might be bound by their mission as a federal agency to provide fiscal stability to the system. And these short term loans do just that.

[joebaggadonuts]

So what if they did not do it? Mushroom clouds over Miami? My credit card no longer pays for dinner or groceries? My bank account is inaccessible? What? And more than that, why or more precisely how? These are answers the public needs and does not have. Don't tell them 350 billion in new loans in no big deal. Put it in context. The White House has accomplished its ALL PERVASIVE FEAR mission, so people are once again unable to think. Every time they do that they are about to cut off another one of our fingers. We remember that much and we want to be able to continue to use our hands. The Dow is where it was in April of '99. So most people's retirement accounts (as opposed to their social security) is back there too.

As for Fed choice...

Since the start of this crisis they have been making up their own rules.

[Lpeter]

The Feds have caused this mess. It's there game anyway.

No bailout. We can't keep borrowing money. Let the true values of assets emerge thru free flowing Capitaism like it is supposed to be.

I don't get why democrates are in favor of this.

[KillTheMessenger]

"The Feds have caused this mess."

No more than first time home buyers who got homes for no money down and interest only.

[lizr]

think you are forgetting about Greenspan and the mortgage brokers?

[AcitizenNJ]

this bill would have passed if there was one ounce of accountability in it.

[Shaddup]

Great, F*ckiin' groceries just went up another twenty cents. Inflation will kill the middle and poor classes--The rich will have lots of worthless money funded by bad mortgages.

[NicoleAnon]

The people here who say this is bad for JM must be crazy - the bailout was supported mostly by Democrats who bullied other members of congress about voting for it.

Many Americans are angry right now at Democrats, not Republicans so if you think this helps your candidate you're wrong. And also both of them share blame for getting us into this in the first place.

[Shieldmaiden]

The Republican ideology is what got us into this mess. They have run things for six years. Bush is the worst president in history and yes, the Democrats can't get their act together to fix the mess the Republicans made. Why is it that every time the Republicans make a mess the Dems have to clean it up?

[freshnotbitter]

It helps Obama because the plan was the White House's plan and democrats said they would support Bush because Bush said the country's fate was at stake.

Then the House republicans came along and said no, President Bush is wrong.

Maybe you republicans should get your story straight before you start throwing accusations at dems who are here to help if you need it because we care about our country.

[lizr]

LOL- you got it!

[Minotaurus]

The bullies are the Republicans ,they thought that was the right time to dictate once more their "out of touch" terms just as they were going out the door.
Their scare tactic didn't work this time,the Congress knows what's behind all this mess and who was gonna benefit the most from this Bailout ,so they denied access to the funds.
If the terms were within reason the Bailout would have past.

[zuffaloo]

Instead of feeding on anger and bitterness, you might want to try to open your mind to other possibilities. None of us knows everything, believe it or not, so we can always learn new things. It's long past time for this country to stop looking at everything in black & white, Dems & Repubs. They're ALL politicians. The wealthy corporations are running things. We've seen what happens when the repubs have almost total control (2001-2006). They certainly didn't solve all our problems. I don't believe by any stretch of the imagination that the dems would bring about world peace & end hunger if they ran the world.

We have to unite as the CITIZENS, and demand more from our representatives. Demand that they represent more than the 2% wealthiest citizens.

[lostinNJ1]

Hear, hear! Very good point and one I've been meaning to make. Wealthy corporatio­ns/institu­tions = lobbying power = legislation AND= access to the executive branch. Also, I wonder who supports all of those "think tanks" that also seem to have significant influence?

[lizr]

more like .5 % that own and control the vast majority of resources in this country.

[funkalicious]

Bernake is lurching along on his own bailing and printing bailing and printing moneuy like he is cutting hay.
A trillion here a trillion there Bailout schmailout we dont need no stinking bailout we got Bennie with a Hay Bailer and a helicopter.

[SaltySaltillo]

McCain with his "stop the earmarks and everything will be fine" song-and-dance is just another Hoover Republican. This year is 1932. And I suggest Obama begin a careful study of the first year of the Roosevelt administration to understand the monster problem facing him next year and his available options for reacting to it. The seriousness of the problem has not sunk in apparently. The bailout of Fortis overnight should have caused alarms to go off but apparently not.

[lizr]

YOU ARE SO RIGHT.

Roosevelt revisited. I just hope Obama can handle what is coming his way.

Be careful what you ask for and all that..

[eddiebly]

I thought printing more money just made the dollar more worthless?

[KillTheMessenger]

It just did.

[bootcamp]

McCain has nowhere to go now but down. He can run away from President Bush, but he can't run away from the Republican Party. The Republicans will be regarded from now on as "the party that wrecked America." Over the weeks ahead, as carnage in the economy and the financial markets ramps up, it will become increasingly clear. It is important that this meme be spread through the internet. I urge all commentators to adopt and spread the idea that the Republicans are "the party that wrecked America." It will work because it is the truth. Use it freely. Just spread the word.

[lizr]

YUP>

[foomonkey]

ok, pardon the dumb question, just trying to understand all this...

what does this actually mean? where does the $630 bln come from? they will literally just "print" more money?

[LilyK]

Yes, Bernanke's down in his basement printing away as we speak.

[43P04T34]

The value of $630 billion in paper will be taken from, transferred from the value of the paper that the Federal Reserve has already placed in circulation. The value of the paper in circulation yesterday will be diminished by the value of the paper that was injected by the Federal Reserve today. You could say that $630 Billion was stolen from those of us who are holding its paper so that it could assign the value of $630 billion to the extra paper it added today. The Fed can't actually 'create' value. What it CAN do, however, is TRANSFER value, away from you, from us, to the banks. This should be a crime.

[KillTheMessenger]

"where does the $630 bln come from? "

It's short term loans from the fed to the banks. It has to be paid back with close to 4% interest (right now)

http://en.wikipedia.org/wiki/Term_Auction_Facility

In a sense it's like "printing money", but it's money that has to be repaid. It only amounts to printing if the loans are not being paid back.

[PT6]

"TRICKY" WALL STREET! AGAIN AND AGAIN!

I SUPPOSE THAT THE REPUBS WERE TOLD ABOUT THIS IN ADVANCE!

TRICKS! TRICKS! TRICKS! TRICKS! TREATS! TREATS!

WHAT "COOKS" - YOU KNOW WHAT I MEANS!

[schatsie]

Yes, maybe that is why they had to do it now, so the insiders could make big bucks....T­here was a rumor about Bush himself...

[PT6]

SO INSTEAD OF $700 BILLION THEY PUT UP $630

--------WHY DIDN'T THEY DO THAT BEFORE??--------

--------HERE ARE THREE CREATIVE SOLUTIONS!-------

A MAN SO DISLIKED HE IS DISRESPECTED BY HIS OWN PARTY!

THIS IS A MASSIVE FAILURE IN LEADERSHIP BY A MAN THAT HAS ALLOWED CORRUPT ACTIVITY IN EVERY MARKET!

THE VERY PARTY THAT CREATED THIS CRISIS IS NOT BRAVE ENOUGH TO HELP SOLVE THE CRISIS!
WE NEED TO CLEAN THE REPBS OUT OF THE HOUSE, SENATE, AND THE EXECUTIVE BRANCH!


---------TRY AND CONVICT ROVE!---------

WHY SHOULD HE BE GETTING A MASSIVE CHECK FROM "FOX EM" FOR HIS COMMENTS WHEN HE IGNORES SUBPOENAS FROM CONGRESS!

HE IS ALSO WORKING FOR McFlipFlop and probably is getting a BIG CHECK THERE ALSO!

CONFLICT OF INTEREST!


TRY AND CONVICT!

----START IMPEACHMENT HEARINGS WEDNESDAY---------

[KillTheMessenger]

There are different types of moneys. You fail to understand the difference. And obviously your caps key is stuck, too.

[brenner21]

So the Fed has almost $700 billion? Fancy that!

[fuel4thefire]

No. they had to do currency swaps..... read the article in its entirety..­....

[brenner21]

You mean wave their magic wand that "creates" money out of thin air, exactly!

[ErnestineBass]

Heh heh

This is a classic game of chicken, and Paulson and the big boys of banking just blinked.

NO TO THE BAILOUT!!!­!!!!!!!!!!

[KillTheMessenger]

Nobody blinked. You just don't understand what is going on.

I say no to the bailout, too, by the way. But mostly because I would like to see the US self destruct so we can pick up the pieces and make a better country out of them. Personally I have nothing to lose. Unless you don't have anything to lose, either, I would suggest you will root for the bailout, because if you don't, the consequences might come back and nip you somewhere.

[KillTheMessenger]

No, the fed does not have $700 billion. They have "to make" it. They can make it in several different ways, some of which are backed by a legislative vote and some which are not. In this case they just used their own authority without getting political backing. The mechanism seems to be the Term Auction Facility which provides short term loans to banks:

http://www.federalreserve.gov/monetarypolicy/taf.htm

The problem for banks is that these short term loans are much more expensive than the discount rate and as of now the fed is acting as lender of last resort. It has become a giant lender of last resort, actually, and since the moneys it lends are not insured, when the banks that are requesting these loans go down, the moneys are lost. If the fed gets a different legal framework to operate in than the one it already has, it could control the loans better and actually insure them by "buying" into real assets, which this does not.

As of today the fed can only do one thing: offer moneys and and pray that they will come back.