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Thread: More Fed relief?

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    Default More Fed relief?

    NEW YORK/FRANKFURT (Reuters) - The U.S. Federal Reserve prepared to pump $75 billion into frozen credit markets following moves by European central banks on Thursday to help lenders who scrambled to meet quarter-end funding needs.
    http://biz.yahoo.com/rb/080327/markets_money.html

    WASHINGTON (AP) -- The Federal Reserve announced Friday it will auction an additional $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.
    http://biz.yahoo.com/ap/080328/fed_credit_crisis.html

    Whose game is up next?
    NEW YORK: Shares of Lehman Brothers fell by nearly 10% in early New York trading on Thursday on rumours that the fourth largest US investment bank could see a run on the bank similar to what happened to Bear Stearns, traders said.
    http://economictimes.indiatimes.com/...ow/2905553.cms
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    Default Re: More Fed relief?

    It's quite the show isn't it?

    Was watching BBC last night and they told of a bank having the biggest loss in their 200 year history.

    Kinda makes Bear Sterns 85 year history look a bit bland.

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    Default Re: More Fed relief?

    Was watching BBC last night and they told of a bank having the biggest loss in their 200 year history.
    Kinda makes Bear Sterns 85 year history look a bit bland.
    I heard of some British guy going to an American "The pub up my street is older than your entire country!".

    I haven't been watching Europe as closely (Bloomberg, Reuters et al. are all focused on America) but I hear Britain and Germany are all worried too.
    http://www.spiegel.de/international/...543588,00.html
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    Default Re: More Fed relief?

    WASHINGTON - The Bush administration is proposing a sweeping overhaul of the way the government regulates the nation's financial services industry from banks and securities firms to mortgage brokers and insurance companies.

    The plan would give major new powers to the Federal Reserve, according to a 22-page executive summary obtained by The Associated Press.
    http://ap.google.com/article/ALeqM5g...WHImgD8VMUUKG0

    That'll fix it.
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    Default Re: More Fed relief?

    Certain parts of Europe are indeed very worrled about their loss of international export competitiveness, due to the strong Euro. At the same time, certain parts of Europe are worried about the growing bad debts / capital evaporation occurring in other parts of europe.

    For example, a whole lot of new homeowners in the 'emerging' european countries have taken out mortgages denominated in a currency that isn't their home currency ... which involves even more risk factors than an adjustable interest rate. Can you imagine how deep the 'subprime' problem in America would have been if the monthly mortage payments had to be made in Euros !!!???

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    Default Re: More Fed relief?

    Some historical perspective for young uns like me:

    Several times in the past few months I have reminded readers of the problem that developed in 1980 when every major American bank was technically bankrupt. They had made massive loans all over Latin America because the loans were so profitable. And everyone knows that governments pay their loans. Where was the risk? This stuff was rated AAA. Except that the borrowers decided they could not afford to make the payments and defaulted on the loans. Argentina, Brazil and all the rest put the US banking system in jeopardy of grinding to a halt. The amount of the loans exceeded the required capitalization of the US banks.


    Not all that different from today, expect the problem is defaulting US homeowners. So what did they do then? The Fed allowed the banks to carry the Latin American loans at face value rather than at market value. Over the course of the next six years, the banks increased their capital ratios by a combination of earnings and selling stock. Then when they were adequately capitalized, one by one they wrote off their Latin American loans, beginning with Citibank in 1986.


    The change in the rule allowed the banks to buy time in order to avoid a crisis. It did not change the nature of the collateral. They still had to eventually take their losses, but the rule change allowed both the banks and the system to survive.
    http://www.safehaven.com/article-9880.htm

    Which I guess is the reasoning behind

    Fed Loosens Capital Rules for JPM

    Up to $220 billion of Bear Stearns assets can be excluded from J.P.Morgan’s risk-weighted assets.
    Up to $400 billion of Bear Stearns assets can be excluded from the denominator of the tier 1 leverage capital ratio.
    http://www.aleablog.com/fed-loosens-...rules-for-jpm/

    So will solving the liquidity problem ("we have no cash, no one will trade this mortgage security stuff with us") make everything okay? Most other businesses just shut down when they run out of money, even if they would have possibly made some more given a bit of time, but these guys are special and might take everyone else down with them I think ("Too Big To Fail" http://globaleconomicanalysis.blogspot.com/2008/03/poole-paulson-bernanke-on-bailouts-and.html). Or are they just screwed?
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Default Re: More Fed relief?

    ^^^ arguably, it is we as US taxpayers that are 'just screwed'. Since the Bear Stearns episode began, resulting in an emergency measure by the Fed to open up Fed lending to financial houses in the same way that it has always been open to banks, the Fed has in effect swapped hundreds of billions of dollars worth of US treasury notes/bonds for 'illiquid' mortgage backed paper formerly held by financial houses. During Bernakke's congressional testimony he stated (paraphrase) that the measured sale of such mortgage backed paper, if conducted over a long enough period of time, might result in the gov't not having to take a loss. What he didn't state is that, as the percentage of 'backing' behind the US dollar rises from 100% treasury bonds to 50-50% treasury bonds versus mortgage paper, the rest of the world is going to start worrying that the US dollar isn't really all that different than Bear Stearns stock shares in terms of financial stability !

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    Default Re: More Fed relief?

    Quote Originally Posted by Melonie View Post
    as the percentage of 'backing' behind the US dollar rises from 100% treasury bonds to 50-50% treasury bonds versus mortgage paper, the rest of the world is going to start worrying that the US dollar isn't really all that different than Bear Stearns stock shares in terms of financial stability !

    TEHRAN, Iran (AP) — Iranian President Mahmoud Ahmadinejad is urging OPEC members to form a joint bank and stop pricing oil trades in U.S. dollars.

    Oil is priced in U.S. dollars on the world market, and the currency's depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.
    http://ap.google.com/article/ALeqM5h...oG8pgD8VSICH81
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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