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$16 Trillion dollar bailout revealed from Fed Audit

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LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
What should have been done was due diligence. That a mortgage crisis was inevitable based on how business was done and the painfully obvious fact that the taxpayer was ultimately the one to get screwed does not in any way mitigate subsequent actions. The ripple effects may be less but we're on the hook and the only ones who get a pass are the financial institutions and their lapdog politicians on both sides. I find I must accept the unacceptable, and that does not sit well.

This election cycle we're going to put right back into power those who failed their duty regardless who wins. That sucks.
Most of the liquidity provided, such as CPFF, were short term loans. The Fed didn't invest equity, just loans. Those loans rolled time and again which results in the large numbers discussed. If you lent somebody $30bn overnight and then did that for a month the number becomes large but ultimately the number at any given time isn't.

As far as "taking over" foreign banks, that's a joke. These banks weren't just there buying securities, they also lent to small businesses and large businesses in the US.

The world is interconnected now.
 

wirednuts

Diamond Member
Jan 26, 2007
7,121
1
0
The world is interconnected now.
yep and thats why they cant dissolve the federal reserve, and why you cant punish corporations for moving overseas to avoid taxes. and its not like the international market concept is a bad idea, its just how it is now the playing field is not level so the working class are the ones suffering for it.
 

Hayabusa Rider

Admin Emeritus & Elite Member
Jan 26, 2000
50,872
4,212
126
Most of the liquidity provided, such as CPFF, were short term loans. The Fed didn't invest equity, just loans. Those loans rolled time and again which results in the large numbers discussed. If you lent somebody $30bn overnight and then did that for a month the number becomes large but ultimately the number at any given time isn't.

As far as "taking over" foreign banks, that's a joke. These banks weren't just there buying securities, they also lent to small businesses and large businesses in the US.

The world is interconnected now.
I'm not for taking over since that's ridiculous on the face of it. Nevertheless transactions which apply to US holdings or corporations doing business within our borders are subject to regulation. The only purpose of a business from a corporate perspective is to make money. Not for freedom nor jobs nor any other consideration. It tries to have as much net profit as possible. If they can offload adverse risk and consequences it will be done. Clearly the institutions involved understood the real effect of their strategy well. Regulation relevant to those actions did not exist or were not enforced. That leaves just two possibilities, incompetence, complicity, or some mix of both. Which of the two served our interests?
 

mshan

Diamond Member
Nov 16, 2004
7,868
0
71
Whose Capital Are They Gambling With Anyways?:
"In the old days when banks were local, and owned either as partnerships or mutuals, bankers had a stake in promoting the prosperity of their clients. They wanted to see their clients do well so that savings in the bank would increase, and then the banker could lend more and do better too. Bankers were meticulous in evaluating the credit quality of local borrowers, because a loss hit their own capital and equity in the business.

Largely as a result of this happy local alignment of depositor/banker/borrower interests, bankers came to be regarded as trusted fiduciaries. Depositors expected the banker to exercise discretion in the lending of capital. Borrowers expected the banker to provide loans on fair and reasonable terms which would help the borrower's business to grow and perform on repayment obligations.

As we know, those days are long past. Banks are rarely partnerships or mutuals. Remuneration models that promote fierce competition and short term bonus mania are unlikely to leave much scope for ethical reflection on the promotion of either depositor protection or borrower prosperity. Modern bank funding models are focused on money markets and shadow banking conduits rather than making depositors secure long term. Their lending models are seeking ever higher margins on transactional speculation, cross-selling and hidden fees. They seek opportunities globally rather than the long duration lending that sustained growth of local businesses. Banks are no longer geographically dependent on the local community for either deposits or borrowers."


http://londonbanker.blogspot.com/2012/03/your-bank-fiduciary-or-predator.html




I Can Always Get Out Before It Is Too Late...

"Time and again, otherwise canny investors fall for the salve that in a liquid market, they can always get out, therefore what’s the problem? At Lehman, in the mid 2000s, executives took comfort in the notion that that the bank was in the “moving business” not the “storage business.” Then, the mortgage market froze, and everyone was in the storage business.

Liquidity is a backward-looking yardstick. If anything, it’s an indicator of potential risk, because in “liquid” markets traders forego trying to determine an asset’s underlying worth - - they trust, instead, on their supposed ability to exit. Investors now in low-yielding U.S. Treasury bonds may, one day, discover this lesson for themselves.

It’s hard to overestimate the extent to which the siren of liquidity has seduced even ordinary Americans. During the housing bubble, anyone who took out a mortgage they couldn’t afford, upon advice they could always refinance, was tacitly assuming they could trade their old loan for a new one. They were counting on continued liquidity in the mortgage market--and so were the banks that lent them the money."


http://www.bloomberg.com/news/2011-11-02/corzine-forgot-lessons-of-long-term-capital-roger-lowenstein.html




London and Financial Deregulation
:
"In fact this is exactly what Lehman Brothers did through Lehman Brothers International (Europe) (LBIE), an English subsidiary to which most U.S. hedge fund assets were transferred. Once transferred to the UK based company, assets were re-hypothecated many times over, meaning that when the debt carousel stopped, and Lehman Brothers collapsed, many U.S. funds found that their assets had simply vanished.

A prime broker need not even require that an investor (eg hedge fund) sign all agreements with a European subsidiary to take advantage of the loophole. In fact, in Lehman’s case many funds signed a prime brokerage agreement with Lehman Brothers Inc (a U.S. company) but margin-lending agreements and securities-lending agreements with LBIE in the UK (normally conducted under a Global Master Securities Lending Agreement).

These agreements permitted Lehman to transfer client assets between various affiliates without the fund’s express consent, despite the fact that the main agreement had been under U.S. law. As a result of these peripheral agreements, all or most of its clients’ assets found their way down to LBIE."


http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/
 
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tweaker2

Lifer
Aug 5, 2000
12,112
3,399
136
The bailout was the necessary result of the players in financial markets becoming grossly over-leveraged under the free market self regulated rah-rah of the Bush years & Admin, and because of the interlocking nature of their operations.

Everybody was playing everybody else on the basis of imaginary value in the housing market, and when that fell down, there was insufficient liquidity to cover all the bets, even though it was a zero sum game anyway.

The players depended strongly on the Repo market for liquidity- borrowing short term against the value of paper assets, and when investors saw the risk as too large, that source of cash disappeared.

What the bailout accomplished was providing enough liquidity for the bets to be paid and the balance sheets to balance. Yes, enormous sums were moved around in circles, which was what needed to happen to preserve the system. The FRB went even further, paying cash for long term securities, as well, to enable those payoffs.

And now what? How do we protect ourselves from future occurrences of the same thing? According to Repubs, nothing at all, because the bad boys of Wall St have seen the light, come to Jesus, promised to be good... Honest!

And if you believe that, then you're ready for the idea that cutting spending to force layoffs of govt workers & contractors will create jobs, too... along with all of the other Repub blather that can easily destroy this country if implemented.
Well, we all know what the stock Repub answer is to any kind of "disturbance in the force" on Wall St.: Deregulate to the satisfaction of the banksters and THEN enforce whatever's left "for show" of the gutted FTC reg's.
 

Jhhnn

No Lifer
Nov 11, 1999
61,988
14,152
136
Thank you, mshan-

It’s hard to overestimate the extent to which the siren of liquidity has seduced even ordinary Americans. During the housing bubble, anyone who took out a mortgage they couldn’t afford, upon advice they could always refinance, was tacitly assuming they could trade their old loan for a new one. They were counting on continued liquidity in the mortgage market--and so were the banks that lent them the money."
Indeed. When that adjustable rate ARM hit the end of its term, and the value of the asset have fallen below the loan value, lenders jacked the rates through the sky. Default? So what? They already packaged the loan into an MBS, sold it to investors, like pension funds, bet heavily against the whole class of MBS in the derivatives market. Oh, yeh- As servicers, for every late or non-payment, they pocket the late fees out of good mortgages in the pool, taking it out of investors' hides.

The sad part of it all is that we depend on the bastards. Lots of businesses, going concerns, run on borrowed money, and it's not like the FDIC actually had the money or even covered a lot of the investors/ depositors at the point of the sword. Not to mention that there's simply not enough currency in existence for the economy to function w/o electronic banking.

We had two realistic choices- bailout or nationalization, and the latter simply wouldn't happen with Bush in the White House.

Hostages? You bet, all of us. And so long as financial reform can be thwarted, we'll remain vulnerable.
 

papadage

Member
Oct 4, 2001
141
0
71
Why all this attention to a fake article, as if it was fact? Even a cursory reading of the linked article would reveal it linked back to a report that was published last year, and that said nothing of the kind. And the other two articles don't say what he says either. Especially retarded is the notion that each dollar of debt rolled over is counted as a new dollar of debt, so that a series of monthly loans for a year become $12 for the purposes of this trash article in Forbes.

There is a real lack of quality in critical thinking in the OP, and anyone who took it seriously.
 
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blackangst1

Lifer
Feb 23, 2005
20,763
784
126
The bailout was the necessary result of the players in financial markets becoming grossly over-leveraged under the free market self regulated rah-rah of the Bush years & Admin, and because of the interlocking nature of their operations.

Everybody was playing everybody else on the basis of imaginary value in the housing market, and when that fell down, there was insufficient liquidity to cover all the bets, even though it was a zero sum game anyway.

The players depended strongly on the Repo market for liquidity- borrowing short term against the value of paper assets, and when investors saw the risk as too large, that source of cash disappeared.

What the bailout accomplished was providing enough liquidity for the bets to be paid and the balance sheets to balance. Yes, enormous sums were moved around in circles, which was what needed to happen to preserve the system. The FRB went even further, paying cash for long term securities, as well, to enable those payoffs.

And now what? How do we protect ourselves from future occurrences of the same thing? According to Repubs, nothing at all, because the bad boys of Wall St have seen the light, come to Jesus, promised to be good... Honest!

And if you believe that, then you're ready for the idea that cutting spending to force layoffs of govt workers & contractors will create jobs, too... along with all of the other Repub blather that can easily destroy this country if implemented.
And what is the bill number written by the Dems to regulate or outlaw, or where is the push from Obama to regulate what was really the downfall of the economy (credit default swaps)?

No where you say? Looks like the Dems and Obama have the same plan as the Republicans eh? But no. Doing nothing isnt good enough. You promote a man like Gary Gensler to run the Commodity Futures Trading Commission. But that isnt enough either. Nooooo. Lets put Larry Summers as director of the National Economic Council.


BWAHAHAHAHHA guffaw!
 
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LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Where exactly is this money going towards that requires trillions of dollars? The subprime mortgages couldn't have been worth more than a trillion or so at most.

The entire money supply in the US is only about $10 trillion.
http://www.marketoracle.co.uk/images/2012/Jan/us-ms_image008.jpg
If you had even bothered reading what I posted you'd understand that it wasn't a one-time injection of $12tr. It was multiple borrowings under the Fed lines overnight, for a week, for a month...etc, rolled time and again.

So, for example, if Citibank needs to borrow $30bn per day overnight, every night, for the next year they'd be borrowing $10.950tr over the next year. Did they borrow $10tr or did they borrow $30bn 365 times? Was there a $30bn injection or a $10tr injection of liquidity?

Obviously the answer is both, but the differences are subtle and easily skewed by people who want to shift public opinion one way or another. This article wants to make it sound like there was this huge injection and grand bailout when, in fact, the Fed was doing its job of providing banking system liquidity.
 

papadage

Member
Oct 4, 2001
141
0
71
The adding up or rolled over debt is not a valid count in any way, shape or form, as the original loan is wiped by the new one.

That kind of math is used solely by tools.
 

yhelothar

Lifer
Dec 11, 2002
18,403
36
91
Thanks for the info. It's great to get some perspective from some of the folks here that are knowledgeable on finance.
 
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airdata

Diamond Member
Jul 11, 2010
4,987
0
0
The fact that you didn't get a penny while the crooks at Wall St. are getting trillions only makes it more outrageous.

But then again, who cares right? It's not like we can do anything but vote for the same two faced candidates that are bought by the same crooks on Wall St.
Wish somebody would start a movement to raise awareness about this sort of stuff and bring the crooks to justice.
 

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