Skip to comments.Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The
Posted on 06/12/2011 12:13:59 AM PDT by Nachum
Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers,
(Excerpt) Read more at zerohedge.com ...
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It’s criminal that we are devaluing our currency to bail out foreign banks. They knew PRECISELY what they were investing in with the bundled mortgages.
They gambled and lost,, i don’t see how thats my problem.
It’s amazing how often the people taking the loans are blamed for everything except bad weather, (and sometimes they are blamed for THAT too) but these massive banks and insurance companies like AIG are somehow naive innocent victims that must be rescued.
This whole article is so outrageous,, im pretty sure it actually justifies us to conduct a violent revolution.
2012 might be too far away and might not even offer someone who can stop this looting of our nation.
How the hell do we stop this? Romney and most repubs would continue it,, what do we do?
That last post was slightly sarcastic. I guess i should explain that in case someone gets frightened.
Those bundled mortages or ‘securities’ were underwritten by American investment banks.
Underwritten. So when they turned out to be (in part) based on fraudulent mortgages they were returned to sender.
The problem for the American taxpayer came because the Government chose to bail out the underwriting banks. The Government wants you to blame the foreign banks - but the problem was the Government socialising the debt.
Still, when we bail out AIG et al,, they merely channel the money straight to foreign banks who were in it just as deep as the Americans underwriting the securities in the first place. The foreign banks need to eat it just like the American banks that sold em. Everyone in the process was fully aware of the what those pproducts were.
As far as i can see, the ONLY person penalized is the homeowner who is usually the least sophisticated link in the chain. They get foreclosed. But the Political class is held harmless. For gods sake, Frank and Dodd are the ones in charge of finding out what went wrong. The investment banks in Europe and the USA are made whole, and so are the underwriters.
This is garbage. The Euros are not the only problem, but they are as guilty as anyone else, so no pass for them.
When we discuss foreign aid, we generally speak of direct grants. But we need to start including massive transfers such as this. Essentially we are giving foreign aid to these Eurobanks and their nations. It is money we dont have. Furthermore, it is not my problem if a bank collapses.
Legitimate banks will soon spring up in their place to service legitimate banking needs.
SO even though they were underwritten, the underwriter should have folded when they exhausted their ability to pay. This is foreign pressure, and also pressure from the brotherhood of bankers to make the USA underwrite the underwriter, so the national banks in Europe won’t have to eat losses that they legitimately should.
And the people who sold toxic assets as grade A when they were nothing of the sort should go to prison. How many people wer eprosecuted out of the S&L crisis?,,, out of Enron? They were pikers compared to this,,,
We need a modern Andrew Jackson.
I was thinking the same thing. Think Palin would be good?
....”But implication #4 is by far the most important. Recall that Bill Gross has long been asking where the cash to purchase bonds come the end of QE 2 would come from. Well, the punditry, in its parroting groupthink stupidity (validated by precisely zero actual research), immediately set forth the thesis that there is no problem: after all banks would simply reverse the process of reserve expansion and use the $750 billion in Cash that will be accumulated by the end of QE 2 on June 30 to purchase US Treasurys.
The above data destroys this thesis completely: since the bulk of the reserve induced bank cash has long since departed US shores and is now being used to ratably fill European bank balance sheet voids, and since US banks have benefited precisely not at all from any of the reserves generated by QE 2, there is exactly zero dry powder for the US Primary Dealers to purchase Treasurys starting July 1.
This observation may well be the missing link that justifies the Gross argument, as it puts to rest any speculation that there is any buyer remaining for Treasurys. Alas: the digital cash generated by the Fed’s computers has long since been spent... a few thousand miles east of the US.
Which leads us to implication #5. QE 3 is a certainty. The one thing people focus on during every episode of monetary easing is the change in Fed assets, which courtesy of LSAP means a jump in Treasurys, MBS, Agency paper, or (for the tin foil brigade) ES: the truth is all these are a distraction. The one thing people always forget is the change in Fed liabilities, all of them: currency in circulation, which has barely budged in the past 3 years, and far more importantly- excess reserves, which as this article demonstrates, is the electronic “cash” that goes to needy banks the world over in order to fund this need or that. In fact, it is the need to expand the Fed’s liabilities that is and has always been a driver of monetary stimulus, not the need to boost Fed assets. The latter is, counterintuitively, merely a mathematical aftereffect of matching an asset-for-liability expansion. This means that as banks are about to face yet another risk flaring episode in the next several months, the Fed will need to release another $500-$1000 billion in excess reserves. As to what asset will be used to match this balance sheet expansion, why take your picK; the Fed could buy MBS, Muni bonds, Treasurys, or go Japanese, and purchase ETFs, REITs, or just go ahead and outright buy up every underwater mortgage in the US. This side of the ledger is largely irrelevant, and will serve only two functions: to send the S&P surging, and to send the precious metal complex surging2 as it becomes clear that the dollar is now entirely worthless.
That said, of all of the above, the one we are most looking forward to is the impeachment of Ben Bernanke: because if there is one definitive proof of the Fed abdicating any and all of its mandates, and merely playing the role of globofunder explicitly at the expense of US consumers and borrowers, not to mention lackey for the banking syndicate, this is it.”
That’s truly a mind-numbing well-researched article w/ the last paragraph as a good summary. I kept asking where our money went and just knew in my gut what they did with it as it was obviously not spent here.
But Dudley and Beranke tell us it’s slow but...need accomodating money policies aka want more money...
lol..both houses and the president is allowing this. just who in government is looking out for our interests?
Unfortunately the US banks, backstopped by the Federal Reserve and the US taxpayer, have “insured” up to 47% of the debt of Greece, Ireland, and Portugal. When one or more of those nations goes bust we will have another banking crisis in the US because the US banks do not have enough capital to absorb a bankruptcy of this magnitude.
The US government will again be faced with the choice Bush faced in 2008. Bail out the banks or watch the US banking system collapse. The bankers are making these loans because they expect the bailout.
This 650, actual amount, was before QE anything, happened about the time AIG got its second 280 billion. The most of which went to foreign as well.
AIG was insuring risk, they were not insuring mortgages. The concept of insuring something of which you have no insurable interest. Which was and is a really dumb concept.
So in essence, we weren’t giving it away fast enough through wars and building infrastructure in foreign lands. This method was much more expeditious.
Run the bums out in 2012 and start over. We also need to start the long and exhaustive process of investigating the politicians and judges who have ruined this Country. Americans deserve justice.
“Which brings us to point #2: prepare for the Bernanke hearings and possible impeachment. For if it becomes popular knowledge that the Chairman of the Fed, despite explicit instructions to enforce the trickle down of “printed” dollars to US banks, was only concerned about rescuing foreign banks with the $600 billion in excess cash created out of QE2, then all political hell is about to break loose, and not even Democrats will be able to defend Bernanke’s actions to a public furious with the complete inability to procure a loan. Any loan. Furthermore the data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks! This also resolves the mystery of the broken money multiplier and why the velocity of money has imploded.”
HOORAY Tyler Durden! Imprison Bernanke. Eliminate the FED.
Unfortunately, our nearly illiterate electorate will never understand what was done to them.
yes. look what happened to the Irish.
they had almost ZERO national debt.
then the politicians passed a law, that made the taxpayers on the hook for the banks.
...then, shockingly, it turned out the banks were underwater.
...now, the Irish and their children will be paying for decades.
(and, btw, i think the Founding Fathers would applaud your earlier righteous anger. just because we less violent and more restrained than our Founding Fathers, doesn’t mean we care less about our children’s freedom.)