Fed bends rules to help two big banks (Fed. Res. to benda fundamental principle in banking regs.)

http://money.cnn.com/2007/08/24/magazines/fortune/eavis_citigroup.fortune/index.htm?postversion=2007 ^ | 8-24-07 | Peter Eavis

[Elle Bee]

This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets.

Calls to mind the old line:

"If I had understood anything that you just said I might still be a virgin"

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[durasell]

They’re letting the banks loan more money to their brokerage subsidiaries in order to pump more money into Wall Street.

[Tim n Texas]

Hope you’re wrong. BofA is a great company. I just added some BAC to my portfolio, during last week’s “back to school” stock sale.

[Elle Bee]

If they don't cut the rate upon all this expectation the markets will take a hit

I think they'll cut ... how much they'll cut is the question

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[snowsislander]

I imagine the banks are telling the Fed explicitly what's going on.

I am sure that they are.

However, the Fed must share a strong perception that this is necessary, because it is a significant departure in my opinion from any normal course of action.

[nathanbedford]

They are now bending banking rules for soem banks

From your mouth to CNN's ears.

[ExSES]

For a discussion of the Fed's decision not to publish M3 data (there are many more) go to:

http://prudentinvestor.blogspot.com/2005/11/unpleasant-trend-fed-counters-by.html

[Moonman62]

The Fed isn’t perceptive at all. Every six or seven years it does significant economic damage with interest rates, and is the last to see the resulting problems.

[savedbygrace]

Tell me if I'm wrong, but when the Fed "loans" money. It is increasing the amount of money in circulation by printing more, and if this is done when there is no need to cover an increase in economic output, it too fuels inflation.

It doesn't FUEL inflation - it IS inflation. What it fuels are the effects of inflation, higher prices for products and labor.

[durasell]

We’ve got the mortgage crunch, record high gas prices, “hidden inflation” locked up like a crazy uncle in the basement, and the dollar get the snot beat out of it overseas ...if Wall Street takes a header, then folks might start to get genuinely worried.

[Amalie]

These SOBs have gotten themselves so leveraged, my feeling is that it is as bad as it sounds. The Fed realizes that the turmoil is already global in nature - the subprime market is mostly here, but the US banks and investment firms have wallpapered the world with the useless paper. So, if you see a big US bank tank, the WORLD will begin dumping US financial securities enmass, and there will be a depression.

The truth is, greed is bad - the fund managers have gotten caught with thier pants off, not down. There was no way this train would roll forever; those numbers on paper are suddenly found wanting, but the game went on so long that nobody really knows where the real value is, so the investors are either staying put or moving into other securities as quickly as possible. This article shows the Fed is doing what it can to stave off pressure, but there are only so many fixes. That they are suspending additional fiscal disciplines on Citi and BoA is a very telling sign on just how desperate the situation has become.

My fear is - this universe has already collapsed, and now we are waiting to see how big the black hole it created is. Hate to be a doomsayer, but thats how I am seeing it...

[SampleMan]

It doesn't FUEL inflation - it IS inflation.

Increased money supply isn't inflation in itself. Prices must rise and the Fed can't raise prices. Thus excessive supply technically only leads to it.

[Oystir]

Ihey don’t need loans and don’t have subprime exposure. The article is misleading; but that is the msm these days.

[Hydroshock]

If you do see a cut it will be teh smallest one possible. Not a huge 1% many want.

[FReepaholic]

Didn't Congress recently pass more stringent laws making it harder for the average guy to actually declare bankruptcy?

Now the federal reserve (which ain't Federal, by the way) is helping the big boys.

[Hydroshock]

You are now figuring this out.

[ClaireSolt]

There is another important aspect here. Freddie Mac and Fannie Mae buy the good mortgages and they are maxed out. Bush says that Congress must pass reforms before he would consider raising their limits. Apparently, these reforms have been stalled. One of Cavuto’s experts said that they were created to buy mortgages and provide liquity, but right now they are closed. would it surprise you to learn that the government screwed up?

[TheBattman]

It means that the Federal Reserve is showing again why it is a corrupt and evil entity that should never have been established, and why it will eventually completely bankrupt this country..

But that is my humble tin-foil-hat theory...

But in simple terms - the Feds are allowing these banks to break the rules regarding how much money they can lend themselves (a rather shady business practice the way they do it) to keep their own subsidiaries “liquid”. You see, the banks made many bad decisions (mostly bad loans) and now they are short of money and risk their own defaults. So they need more cash via their parent companies beyond what is legal...so the Federal Reserve is going to allow them to break the rules.

Kind of think of it as you are late on your car payment and your house payment and don’t have the funds to meet those bills. So you write yourself a check for the amount needed, deposit it and write checks off that deposit (makes sense, huh????heheh). Kind of like the consumer practice of kiting. Not smart.