"Joe, who own the Federal Reserve?" "Owns...Owns."
Posted on 02/09/2014 7:58:51 AM PST by Errant
The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.1 In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world’s largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a “government takeover,” but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:
“The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.”2
This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly “the lender of last resort” created to fund the banks and the federal government? Yahoo Finance reported on September 17:
“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”
(Excerpt) Read more at marketoracle.co.uk ...
That’s basically the way my cousin described it, but he didn’t know about the family function. JP sent around 50 people in over the weekend to value it - it was in horrible shape - which was why the initial offer was so low compared to the price it was trading at.
The point is that the Fed pretty much ordered JP to buy Bear Stearns - and JP didn’t want to. The Fed got their way - JP paid back all of the loan the Fed forced them to take.
I think you are finally hearing the rest of the story - why that chart looks like it does.
The Treasury (TARP) got the stock, not the Fed.
Finally? LOL! I knew it real time.
I think that the Federal Reserve Bank of New York held the government’s interest in AIG.
Getting even deeper into the weeds, the NY Fed Bank website details a series of transactions. Initially, the NY Fed holdings of AIG assets pledged as collateral were held in a trust for the benefit of the US Treasury, with later transactions having the NY Fed gradually turn them over to the Treasury or otherwise releasing them back to AIG and its successors. In any event, the economic reality is that the Fed provided the cash and structured the transactions for its convenience.
The Fed lent, the Treasury bought stock.
"Joe, who own the Federal Reserve?" "Owns...Owns."
Interesting article, I was wrong about 50 JP employees checking out Bear that weekend, it was 150:
“The deal followed a weekend of frantic negotiations to save the ailing firm. With the Fed and Treasury Department patched in by conference call from Washington, Bear Stearns executives held the equivalent of a speed-dating auction over the weekend, with prospective bidders holed up in a half dozen conference rooms at its Madison Avenue headquarters. More than 150 JPMorgan employees descended on Bear Stearns to examine the firm’s books and trading accounts.
Even as those talks took place, Bear Stearns simultaneously prepared to file for bankruptcy protection in the event a deal could not be struck, underscoring the severity of its troubles.
On Sunday night, Jamie Dimon, the chief executive of JPMorgan, held a conference call with the heads of major American financial companies to alert them to the deal and allay their concerns about doing business with Bear Stearns.
“JPMorgan Chase stands behind Bear Stearns,” Mr. Dimon said in a statement. “Bear Stearns’s clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns’s counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner.” While Bear Stearns toyed with suitors like big private equity firms like the J.C. Flowers & Company, the only meaningful bidder was JPMorgan.
The deal is a major coup for Mr. Dimon, who slept only a handful of hours over the weekend while negotiating with Bear and government officials. Over the last few years, he has focused intensely on cutting costs, improving technology and integrating JPMorgan’s disparate operations. But he also has been adamant about preparing the company for an economic downturn. “
http://www.nytimes.com/2008/03/17/business/17bear.html?pagewanted=all&_r=0
Traded as low as $2.84. Stock holders stomped their feet, threatened to vote against the deal, JPM upped their bid to $10.
Bump for later.
Bfl
The stock traded through May.
Yes, that was before TARP.
Idiot. It's created out of thin air by the Federal Reserve
How the Federal Reserve Creates Money
You can find pages and pages of explanations for the creation of money by the Federal Reserve. By the time you are done wading through it all you will be just as confused and in the dark as when you started. However if you start with a the basic premise that,
- it isn't rocket science.
- it's created out of thin air.
- it's not done to protect the wealth or security of the common citizen.
Then it gets pretty simple pretty quickly.
The typical way money is created by the FOMC – The short form
It's a simple four-step process.
- The FOMC first approves the purchase of US government bonds on the 'open market'. [When the government is short of funds, the Treasury issues bonds and delivers them to independent bond dealers, which auction them off.}
- When the FED wants to "expand the money supply'"i.e. create money the New York Fed bank buys these government bonds from the independent securities dealers (financial markets always have an equal number of buyers and sellers).
- The Fed pays for its purchases with electronic credits to the sellers' banks, which, in turn, credit the sellers' bank accounts. These credits are literally created out of nothing.
- The banks receiving the credits use them as reserves and loan out several times the amount of the money held in reserve due to the magic of fractional reserve banking. If their reserve requirement is 10% then 10 times the money put into reserve can be loaned out. The banks can create new loans because of these increased reserves. As the money is loaned the money supply in the U.S. increases.
Or a short and simple way to look at it is:
"The Federal Reserve uses open-market operations to either increase or decrease reserves. To increase reserves, the Federal Reserve buys U.S. Treasury securities by writing a check drawn on itself. The seller of the Treasury security deposits the check in a bank, increasing the seller's deposit. The bank, in turn, deposits the Federal Reserve check at its district Federal Reserve bank, thus increasing its reserves" [ 1 ] When a bnak increases it's reserves it can loan more money due to the magic of fracional reserve banking.
"When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check." [ 2 ]
Another way to create money
The FOMC can also change the reserve requirements for the banks. This allows banks to increase or decrease the loans it makes. Once again creating money from nothing.
And one more way to create money
The FED also loans money to banks for short periods of time. This is called the discount rate. If the discount rate is low enough then banks can borrow from the FED and loan the loan out to the bank's borrowers. in fact the bank can loan multiple times the FED loan out to borrowers due to the magic of fractional reserve banking.
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