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07:57 PM on 04/27/2011
I forgot to comment on this gem. Correct me if I'm wrong, but I think Bernie Sanders leans Keynesian. Keynesian's believe that government deficit spending when the economy is performing below potential is investing in the economy. But then Sanders goes on to contradict himself.

"The cash likely was lent back to Uncle Sam in the form of Treasuries and other debt "instead of using the Fed loans to reinvest in the economy," Sanders added."
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rotorhead1871
who are you jivin' with that cosmic debris?...
07:44 PM on 04/27/2011
we need to know...did they or didn't they????
07:50 PM on 04/27/2011
See it depends. When you have a maturity mismatch your return will depend on changes in the slope of the yield curve. The author is identifying the strategy to go "short" short-term rates (borrowing from the Fed) and "long" long-term rates (buying nominal coupon Treasuries). The banks will earn a profit anytime the spread between long- and short-term rates narrow (flattening of the yield curve). However, in periods when the yield curve steepens, banks lose money borrowing from the Fed at short-maturities and lending to the Treasury at long-maturities.
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HUFFPOST SUPER USER
rotorhead1871
who are you jivin' with that cosmic debris?...
09:23 PM on 04/27/2011
thanks much.....its those darn yield curves that hold the mystery....
NOSOCIALNETS
Facebook is EVIL
04:47 PM on 04/27/2011
Banks? How about banker's wives? Read the "Real Housewives of Wall ST. " In this months Rolling Stone Mag. The wife of Morgan Stanley Chairman, Mrs Christy Mack and her BBF got a 250 Million Dollar loan from the Fed. Why? Because they are rich and they like your tax dollar.
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muck-raker
give me liberty or give me death
06:15 AM on 04/28/2011
I am outraged over this...and anyone that can read and understand should be to:
http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411
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HUFFPOST COMMUNITY MODERATOR
ChasG
Unborn, unchanging, undying Universe
02:06 AM on 04/29/2011
The Rolling Stone article distorts what TALF was about.  It was a lending program, not a gift program, and it made these loans to TALF-eligible investor groups to combat the deflationary effects of the loss of markets for credit-backed securities, to try to restore markets, not to give money away.
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hrpmap
Retired man still active..
04:10 PM on 04/27/2011
Gee...ya think?
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lafemme
03:06 PM on 04/27/2011
There's nothing likely about it - it's a done deal. Not to mention each of the bond traders responsible for losing billions of dollars were all allowed to exit their profession with contracted-for millions.
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dfed813
08:43 PM on 04/27/2011
and still no consequences...
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mynamesyow
Scientist, Gonzo, Champion of the Poor
02:59 PM on 04/27/2011
Well, this about sums it up...
THERE YOU HAVE IT.

The fleecing is now complete. The Republic has become an Empire.
to the thunderous applause of the rich and those marching to their cause.
Enjoy...
01:55 PM on 04/27/2011
"During one three-month period in 2009, Bank of America borrowed more than $48 billion at rates ranging from 0.25 to 0.5 percent. Meanwhile, the largest U.S. lender tripled its holdings of Treasuries and other taxpayer-backed debt to about $15 billion -- securities that yielded 3.5 percent."

Right. So you borrow $100 billion from the Federal Reserve for 4 weeks. You spend all the money buying 10-year Treasury securities. Then in 4 weeks when the 10-year Treasury securities have paid you $0 in cash how do you repay the $100 billion loan to the Fed?
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Ruthless1
Enough TEA already!
02:04 PM on 04/27/2011
CDO and CDS and pieces of loans from different borrowers packaged for investors. What happens to these packages when loans is payed off but not the entire package?

Maybe the answer to your question is simple - "Money laundering"
02:06 PM on 04/27/2011
Ever heard of the bond market? Buy, sell, trade.
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Ruthless1
Enough TEA already!
02:10 PM on 04/27/2011
What is it called when you give someone the money you print to buy your investment products you sell?
02:12 PM on 04/27/2011
And if the price of the 10-year Treasury has declined? Oh that is right. The author is not describing risk-free arbitrage.

http://futures.tradingcharts.com/chart/NO
01:20 PM on 04/27/2011
Yes - this is faux capitalism at its best or crony capitalism (the likes of al capon would have a hay day with this bushel of cash) at its worst. so all of our tax dollars goes to bank welfare and wars…. is that how you want your tax dollars spent? i think we should get to vote on how our tax dollars are spent - not let the congress and senate 'speak' for the people. yes - they are certainly speaking for the people - the people (because corporations are now people) who line their palms with big bucks. and this is the country that sets the bar for all other countries to achieve? good job america…but remember, we elect these creeps into office and their job is to keep the public poor, stupid, out of work, in debt, and off message……they get As for achieving that objective.
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Ruthless1
Enough TEA already!
02:09 PM on 04/27/2011
There are "People" and "Consumers" one group is covered by the constitution of the country and the other is not. The people are the farmers and the consumers are the crop. Financial harvesting at its best, because you only need to plant the crop once and forever reap the benefits.
12:33 PM on 04/27/2011
this is stealing from the American people. why didn't they put oversight into the bailouts? i'm getting so frustrated with this phony capitalism. I think they should of failed instead of get our money and prosper. i THOUGHT this was suppose to help them help us not give billions in bonuses to millionaires. where's the beef?
12:40 PM on 04/27/2011
There is no stealing going on. The author (and apparently you) do not understand what it means for a 10-year Treasury security to YIELD 3.64%.
12:55 PM on 04/27/2011
It was wrong even if there was no profit made.
01:21 PM on 04/27/2011
It's fraudulent use of taxpayer money. To claim that goldmans is losing money is preposterous!
12:25 PM on 04/27/2011
"Likely Profited".....what a joke. The banksters are making a killing. Fed could start loaning to the American taxpayers at the same rate it gives the banksters.......watch the American economy turn on a dime for the better.
12:34 PM on 04/27/2011
How do you make a profit borrowing at 0.1% and then lending to the US government at 0.06%?

http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
http://www.bloomberg.com/markets/rates-bonds/key-rates/
12:45 PM on 04/27/2011
0.05% on trillions.....you are talking some serious money.
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Andrew C Orr
I have passed the 3rd grade
12:56 PM on 04/27/2011
"In another period, JPMorgan Chase, the second-largest bank, swelled its holdings of taxpayer-backed federal debt by $20 billion, which yielded 2.1 percent, while at the same time borrowing $29 billion from the Fed at a rate of 0.3 percent."

What is it about this that your CPA egghead cannot understand?
12:21 PM on 04/27/2011
Thank Ron Paul!

Ron Paul has been telling us of the FED's practices for decades, even while the establishment/media goons were painting him as a "conspiracy theorist" nut for it! Everyone els was afraid to even whisper the name of the Federal Reserve! He's been pushing for FED transparency for decades. Biggest set of balz in congress and he doesn't even get a mention in this story?

"The report was requested by Sen. Bernie Sanders (I-Vt.)…"

It was Paul's "Audit the FED" bill that Bernie Sanders helped water down to a limited, one-time, partial audit. If this amount of corporate welfare disgusts you, imagine what we would learn with a full, ongoing audit of the FED's activities!

Want truth? Look to Ron Paul!
11:49 AM on 04/27/2011
You people are so financially illiterate. Please shock me. One person describe the trades that would enable a bank to make a GUARANTEED profit if they can borrow from the Fed at 0.25% for 4-weeks and they can buy a 10-year Treasury yielding 3.64%.
HansB
The only good certainty is a dead certainty
03:26 PM on 04/27/2011
Both percentages are annual rates. Not 0.25% for 4 weeks, nor 3.64% for ten years. Annual rates. That is, yearly rates. If you prefer, one-tenth of a decade rates. It is customary for financial illiterates - including all those people at banks, in government and in the media - to express interest in annual rates. Not four-weekly rates, annual rates. That is, yearly rates. If you want to find out how much that is in 4 weeks or in ten years, you need a calculator.

And yes, if you borrow at 0.25% annually, and lend at 3.64% annually, you make a profit.
06:59 PM on 04/27/2011
I know those are annual rates. It is convention to quote them that way. The point you obviously don't understand is that a 10-year Treasury yielding 3.64% (annualized) only earns 3.64% interest if you hold the security to maturity and reinvest the coupon payments at 3.64%.

If you hold a 10-year Treasury yielding 3.64% for 4 weeks you can, and many do, incur a loss.

http://futures.tradingcharts.com/chart/NO/W

See prices go up and down.
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knewsreply
PhD: International Educator and Marketer
11:36 AM on 04/27/2011
How sad. Banks use to help the "little guy" before big bonuses.
12:10 PM on 04/27/2011
When was that?
12:28 PM on 04/27/2011
Late 40's thru early 60's I think.
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knewsreply
PhD: International Educator and Marketer
12:42 PM on 04/27/2011
Correction based on comments: It's sad that banks make the "little guy" tax payer help pay for bankers bonuses, so they can show they are making a profit, while they help their rich friends and forget the "little guy" who's taxes saved them.
11:35 AM on 04/27/2011
"Money for nothing and the chicks for free"....New FED Reserve Member Banks Motto...
11:32 AM on 04/27/2011
4. Prior the the Emergency Economic Stabilization Act/TARP Act of September 2008, commercial banks were required to hold 10% of deposits as reserves. This placed a limit on the potential amount of money creation at around 9x the original deposit. An obscure clause in the TARP Act changed the reserve requirement to 0%, immediately making the potential money supply infinite.
5. The reason for the credit spread blowups in 2008 was because in the same TARP Act the Fed was allowed to pay interest on deposits without publicly stating the interest rate. Before the TARP Act, there was around $20 billion deposited by commercial banks at the Fed. After the TARP Act, deposits immediately jumped 50x to $1 TRILLION. This resulted in a disappearance of demand for risky assets, which led to blowouts in credit spreads.
6. As a result of various acts of Congress in 2008, the Federal Reserve now has the authority to buy all sorts of assets (commercial paper, corporate bonds, mortgage loans, etc.). A cynical person would say this essentially allows the Fed to seize all valuable assets in this country directly by exchanging fancy bits of green paper for them without having to go through the intermediate step of coercing the US Government into spending more money and taking on more debt.
7. Much of the Fed's activity is not made public because of the use of off-balance sheet vehicles.
8. There is debate over the constitutionality of the Fed's various powers.
12:12 PM on 04/27/2011
You're too smart to be here wasting your vast knowledge on knuckle heads like me. I do appreciate the way you put it on my level of understanding though. You need top run for something. You'll get my vote no matter what it is.
12:12 PM on 04/27/2011
Do you have a link for that?
01:25 PM on 04/27/2011
I posted the link somewhere else in response to a fed comment so they aren't letting me link the whole thing, but try this:

http://seekingalpha.com/article/115275-8-important-facts-about-the-federal-reserve