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

[ClaireSolt]

This may seem like a quibble, but they don’t print money. What they do is extend credit. Almost all of this is electronic leger transfers, not currency in circulation.

[TheBattman]

You know - I personally have no sympathy for these banks. They have given so much “easy” credit in all forms that should never have been given, and now want to be able to bend (break) the rules to sweep it under the rug. Unfortunately, the rug isn’t big enough to cover it, so they want permission to get a bigger rug...and the Feds appear ready to let them have that rug.

And guess who will eventually be footing the bill - taxpayers.

[blam]

Thanks.

[ClaireSolt]

Well the government lender Freddie Mae and Mac are capped and cannot buy more, but big private banks get their limits raised. Sounds like something Republicans would like to me.

[SampleMan]

This may seem like a quibble, but they don’t print money. What they do is extend credit. Almost all of this is electronic leger transfers, not currency in circulation.

Of course. We don't have a paper dollar for every dollar of net worth in the United States. I was using "printing money" figuratively for increasing the money supply.

[savedbygrace]

You are wrong. Increased prices are the EFFECTS of inflation.

[Oystir]

investor

[OpusatFR]

We should take bets on

1. System restored with inflation upswing

2. Recession

3. Hyperinflationary depression

4. Deflation

5. Creation of megagigantic Resolution Trust body to sweep
the toxic waste into some nether world.

[master_obvious]

Two of the worst banks I can say that I wouldn't shed one tear for if they went belly up, Citibank and Bank of America. Let them suffer the consequences of their greed let them sink!

"Rulers do not reduce taxes to be kind. Expediency and greed create high taxation, and normally it takes an impending catastrophe to bring it down." -- Charles Adams

[Grampa Dave]

Will someone explain what all this means.

[Grampa Dave]

[SampleMan]

You are wrong. Increased prices are the EFFECTS of inflation.

I don't think so. The "inflate" in inflation refers to prices. You are arguing that if money supply were doubled, but somehow prices did not increase at all, that inflation would still exist. I'm curious as to how you would measure such inflation.

Inflation rates are set based on increases in prices. If there is no increase in price, there is no measured inflation.

[Grampa Dave]

[ArtyFO]

The huge market of loans to illegal aliens (undocumented loans) has snuck up on the Fed. They didn’t realize that the estimated 12 million illegals is a myth, that the real number of illegals is near 50 million. They buy houses, cars, and have huge credit card balances and commit crimes with phony baloney names and social security numbers. Then they skip out on the house of cards they have built on credit and move to another city or state, adopting new identities and get new loans to start anew. The banking system is taking a big hit from the sieve of a border with Mexico. The illegals are learning to take advantage of the loose identity/easy credit game we play in America. We are doomed until we round them up and close the border.

[SampleMan]

Put another way, if everyone in America woke up tomorrow and found twice as much money in their bank accounts, it would be an inflationary pressure. However, if they all showed self restraint and didn’t increase spending at all, then there would be no resulting inflation.

[rebel_yell2]

And gee, I thought over 1,000 S&Ls were CLOSED by the Feds while taxpayer funds were used to "bail out" the DEPOSITORS at those institutions.

But what do I know . . . ?

[rebel_yell2]

Freddie and Fannie are and have been more highly levered than the most reckless hedge fund, and they both have demonstrated that they can’t be counted on to accurately report their financials. They were created to foster “affordable” housing, which now has been stretched to include loans of $400K+, but they want MORE. They want to be able to extend their guarantees (and YOUR potential tax liability) to the jumbo mortgage market. Never in the history of Washington has there been a more effective lobbying machine than the one put together by Freddie and Fannie. We DON’T want to go down this road; let the private market work.

[savedbygrace]

No, inflation refers to the money supply. When the money supply is inflated, the result will ultimately be price increases.**

How long that process takes, and to what degree it happens vs time, depends on many factors.

For your argument to hold, there would be a number of historic periods when the money supply increased without corresponding price increases within a few months of the increased supply.

Also, you do know that, in general, when the Fed inflates the money supply, it often does it regionally, rather than nationally, right? That results in regional price increases over time, which tends to mitigate the national rates of price increases. (I’m pretty sure the current inflation of the money supply will be more of a nationwide happening, rather than regional.)

** There will be isolated price increases that result from supply shortages, but that’s not generally a result of an inflated money supply.

[SampleMan]

For your argument to hold, there would be a number of historic periods when the money supply increased without corresponding price increases within a few months of the increased supply.i>

No. For my argument to hold, the price index must rise before inflation exists.

For your argument to be true, inflation could not exist without an increase in the money supply. But this is proven to be wrong. Any event which triggers hording or a fall in production can trigger inflation. It is well possible to have inflation and a lack of capital at the same time.

Money supply is not the only economic pressure on prices. Employment rates, productivity, availability, etc. all have an effect on inflation. This is why the Fed measures inflation using prices.