Fed Lends $200 Billion to Banks

[Vermouth]

So ... are we just printing money? Is this even financially sound? What are the consequences?

"In an action that sent stock prices soaring, the central bank offered to let the biggest investment banks on Wall Street borrow up to $200 billion in Treasury securities in exchange for hard-to-sell mortgage-backed securities as collateral. And the Fed made clear that it was prepared to do more as needed.

[...]

Despite the staggering sums being offered by the Fed over the past week, some analysts warned that the new infusion of money might not be enough to fill the hole caused by the losses on ill-conceived mortgages during the housing bubble.

“They are essentially creating a $300 billion bank out of nothing,” said Lou Crandall, chief economist at Wrightson ICAP, a financial research firm.

But while the Fed’s moves may relieve short-term cash problems, Mr. Crandall said, “it doesn’t solve the fundamental issue, which is the decline of capital in the banking system.”

Indeed, some analysts warned that the central bank might make things worse in the long run by postponing the repricing of mortgage assets that financial institutions are holding, or by further weakening the value of the dollar and aggravating inflation.

“The Fed is saying if you don’t want those mortgages, then give them to us,” said Peter D. Schiff, president of Euro Pacific Capital, an investment firm in Darien, Conn. “The Fed thinks that inflation is the way to solve our problems, but all this does is create bigger problems.”"

http://www.nytimes.com/2008/03/12/business/12fed.html

[Gunit Hussein Sangh]

Corporate welfare at it's finest 

Yesterday the stock market had a great day. I'm not sure if they were just celebrating over Spitzer's resignation or really thought borrowing money to finance borrowed money gone bad was truly a great idea.

But look at the stock market today ... down 46 points -- and just wait until the retail numbers come out in a day or two. It will tank again.

Not being a pessimist ... just a realist.

[conley]

yeah, the stock market went up 400 points yesterday, but wasnt it down more than that if you add up the two preceding days?

anyhow, just look at the numbers...we're at 11.8

that AINT good

there are a finite number of times the banks can be loaned money, the interest rate cut (unless they start making it negative) etc

i suggest buying plenty of canned foods and bottled water. probably should arm yourselves too, as another great depression is coming

[trex]

Thats what happens when you extend credit to those who cant afford it just so they can have a home.

Thats what happens when uneducated people sign up for mortgages they cannot afford and dont know any better because they are uneducated.

Now what happens?

The educated people who actually know what they are doing pay the price.

People who have invested well pay the price.

[Gunit Hussein Sangh]

There is plenty of blame to go around ... and it wasn't just *uneducated* people who caused this problem. Plenty of *educated* home owners refinanced a fixed rate mortgage to an ARM. They used the equity in their home as an ATM. Many bought a home they couldn't afford thinking they would be able to refinance to a fixed rate when the equity in their home increased. Many bought homes thinking they could flip them for a profit.

The only homeowners I feel any sympathy for are those who were swindled by unethcial mortgage brokers. Proving they were swindled would probably be kinda tough with all the legalese in mortgage contracts anymore.

[Vermouth]

Thats what happens when you extend credit to those who cant afford it just so they can have a home.

Thats what happens when uneducated people sign up for mortgages they cannot afford and dont know any better because they are uneducated.

Now what happens?

The educated people who actually know what they are doing pay the price.

People who have invested well pay the price.

Credit was extended, as it generally is, for the purpose of increasing profit. Many investors were unaware of the high-risk nature of these mortgages because the mortgage companies "repackaged" them in such a way as to hide the risk. Now that the government is bailing them out - both the homeowners and the banks - we can look forward to it happening all over again.

[trex]

Would you agree with the statement that if one had a general college education the probablity that they would be able to figure out that these mortgages were being re packaged would be considerably higher?

Alot of people gambled on the market and LOST.....Shoudl I be able to have a bill sponsered that helps me get all th e money I lost in vegas back?

[Gunit Hussein Sangh]

Shoudl I be able to have a bill sponsered that helps me get all th e money I lost in vegas back?

Depends on how many millions in bribes, errr, campaign contributions you're willing to spend.

[Peter1469]

So ... are we just printing money? Is this even financially sound? What are the consequences?

No… it is not financially sound.  It devalues the dollar.  It creates inflation.  It keeps normal market cycles from operating – recessions squeeze out inefficient and unsustainable business practices.  By preventing a recession today you are creating a bubble that will burst harder in the future.  It could create a depression- which is not a natural part of the market cycle.   

Some of the more conspiratorial minded will add that devaluing the dollar will lead to a collapsed economy and make a North American Union seem like a great idea.  (As discussed in another thread.)  When your dollar is worth $0.10 of what it is today you may think that the Amero is a wonderful idea.  http://en.wikipedia.org/wiki/Amero

[wow]

Thats what happens when you extend credit to those who cant afford it just so they can have a home.

Thats what happens when uneducated people sign up for mortgages they cannot afford and dont know any better because they are uneducated.

Now what happens?

The educated people who actually know what they are doing pay the price.

People who have invested well pay the price.

The alternative could have been massive class-action lawsuits across the country suing lenders for discrimination/not granting the loans.
Transferring wealth to Lawyers and Plaintiffs through the court system.

[trex]

Liberal decsions.

[trex]

Conservative judges say

Established credit = more loans

Liberal Judges say

Everyone deserve a home even those who can't really afford it

[Vermouth]

Guys, Bush did this. In 2004, he proposed that the down-payment requirement for Federal Housing Administration loans be eliminated.

"Nothing-down options are available on the private mortgage market, but, in general, they require the borrower to have pristine credit. Bush's proposed change would extend the nothing-down option to borrowers with blemished credit."

[trex]

Again, whether Bush did this or not.

People gambled and lost so why is this mess Bushs?

Thats what Demos were pushing for and they got it?
They cried discrimination

Socio-economic and racial discrimination.

Uneducated people got ripped off...I REALLY DO feel bad....
However, Bush DID NOT sign thier name on the dotted line.

Maybe people should educate themselves.

[Gunit Hussein Sangh]

hell conservatives like to blame liberals for everything under creation so we can blame bush for this 

No bush didn't force people to sign on the dotted line, but they did relax regulations that allowed mortgage brokers to swindle people into taking out mortgages they couldn't afford and let wall street package these in a way that deceived investors. Common sense should tell anyone that someone making $80,000 a year can't afford a half-million dollar home ... but they could with a low teaser rate for a year or two and then saw their payments double and triple.