Nowhere man, please listen, you don't know what you're missin', nowhere man, the world is at your command" (Beatles, Nowhere Man)
Banks qualifying to borrow at the "Fed Window" are receiving money at virtually zero interest rates. They are then using that money to purchase government bonds, aka, Treasuries, (backed by the full faith and credit of the United States) that pay more than their cost of borrowing and are pocketing the difference as profits, purporting to be financial geniuses worthy of billions in bonuses.
It would not be worth the effort for you or me to engage in that transaction for $100, as the "profit" would be about 6-12 cents. But, do that at the trillion dollar level, and the "profits" begin to pay for more than shoe-shines and massages.
To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives...for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer's voice has entertained a packed stadium. No batter has hit a walk-off double. No "risk"has even been "managed", the current mantra for what big banks do that is so goddamned important that it is doing "god's work".
Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.
Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.
And, stiff criminal penalties should be enacted for those banks that mislead the Fed about the destination of the money they are borrowing. Bernie Madoff needs company.
THE
FED
No more private corporate involvement in the nation's monetary affairs!
We should have let them go down the drain. Sure it would have been a shock to their stockholders and to associated banks, but it's not like our comeback is so swift, sure, and overwhelming. Some form of federal insurance to preserve our neighborhoods should have been more direct. At that, some of the housing loans were like total frauds going to people who never had an income to cover them. Clearly, some ordinary people would have taken a bath but their losses could easily be minimized since they had so little to lose.
The whole situation is but a model of capitalism abused.
I can't help but wonder how it is that, if average citizens can plainly see the truth, why our "best" and "brightest" can't? Could it be that they are in on the great scam? Yes, yes they are. Which is why we end up with "legislation" like Dodd's finance piece of cr.ap.
These crooks are all going down. No incumbents, third party. Criminal investigations to follow.
Oh, I forgot. Our laws are for private citizens, not public "servants" or rich folk. D'oh!
Our future is bound up in leadership. And the only leadership appearing to lead is timid and full of sound and fury and simple solutions requiring no pain or suffering form any citizens, especially the burgeoning oligarchs. Selflessness and common sacrifice and unity of purpose are non-existent terms in the lexicon of President Obama or his despicable allies and opponents. We are a nation headed for foreign domination and indentured servitude. We must pray that war is not a pathway towards this dismal failure of another democracy.
The final step is obvious: have regulators enforce that this portion of the profits cannot contribute to bonus pools. It is a subsidy of the taxpayer to banks - which is hard to avoid unless the recovery is allowed to be put in danger. Alright, hence the subsidy. But don't think for one second you can talk like you don't know how much of that subsidy goes into your pockets. Because if you really don't know that, you know nothing about your risk taking and should be closed down: today.
Your anger is understandable but even your view doesn't escape the need to have a lawmaking and an enforcement process. Of course you can always ask about who watches the watchdogs. And you have to. That's why these things are being discussed out in the open. It doesn't get any better than that.
I basically agree, but I think it's slightly more complicated.
That the profit opportunity exists results from the low rates and while there is some reason to ultimately raise them, it is clear that raising them now would inflict collateral damage on the economy. So you don't necessarily want that.
Does it mean that we are FORCED to fork over money to executives? No, of course not.
It's all part of risk-adjusted performance measurement and transparency and disclosure.
The way to eliminate this is simple: it is perfectly possible to track down each and every cent of profit to its source, since this has to happen anyway before its risk can be measured.
And hence in particular, the profits generated from the spread of treasuries over Fed Window are determinable. Not just directly when the assets are treasuries themselves, but across the whole balance sheet, in the form of profits generated from maturity or liquidity or funding mismatches.
Banks know perfectly well how many cents or dollars or billions they make this way.
For the same reason there is very little incentive to make new loans to companies or individuals. They can enjoy a modest return on every cent they borrow from the safest possible borrower, the US Government.
I am not an expert either, but I try not to pretend about the things I don't know.
It seems natural to be suspicious about the Fed, as an opaque club of private banksters, to which Congress appears to have delegated huge and unchecked authority over our national economy, and which appears to have accomplished precisely the opposite of its ostensible purpose (controlling inflation) since its inception. Actually, I don't understand why anyone would be so sanguine about the matter... as if assuming "Its all in competent hands, why question? why worry?".
The FED is a giveaway to the 12 "dealer" banks, where they get the cream off the top for nothing.
Audit the FED.
The money loaned to the banks is "printed money", created from nothing.
The banks owe it to us taxpayers, not the other way around.
If they don't pay it back, no big deal, we'll print more. It will inflate the money supply, but that's good: it just shrank by about $12T from the crash. That's less than our national debt; we could print that much, buy back all government bonds, get out of debt and restore the economy.
There would be inflation which is good!
The crisis was caused by too much consumer debt, and inflation wipes out debt.
If wages and prices go up 10% a year, soon all mortgages are above-water.
Assets like money and T Bills lose their value, but that mainly hurts the rich, who can afford it.
This sounds crazy, but inflation is the solution.
We are "printing money" and giving to the banks, to reinflate the economy. It's the right approach.
Problem is too, too many Americans are financially illiterate.
If they can`t even reconcile their checking acct every month or for that matter operate their DVD how can they ever understand Wall St. high finance?
Unfortunately, although inflation will re-inflate asset values it will also lead to the gov having to print even more money bc the interest on the national debt will increase exponentially.
Higher interest rates will also raise the cost of money to Corp`s as well as to homeowners and credit card users, etc..
In many aspects the cure (inflation) may be worse than the ailment (v deflated assets).
The value of your home will increase but at a cost...IMO
And how do you figure that poor people are the folks with the assets?