FED responds to failed bailout by dumping $630 Billion into foreign banks

[e-brake]

http://www.bloomberg.com/apps/news?p...7Jg&refer=home

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.
The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.
``Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''
The MSCI World Index of stocks in 23 developed markets sank 6 percent, the most since its creation in 1970. Credit markets deteriorated further as authorities tried to save more financial institutions from collapse.
European Rescue
European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor's 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.
``If people think the authorities may give in to fears, they are wrong,'' Financial Stability Forum Chairman Mario Draghi said today in Amsterdam, where the international group of regulators and finance officials is meeting. ``There is willingness and determination on winning the battle to restore confidence and stability.''
Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn't be repaid by counterparties, driving up the cost of short-term loans between banks.
Funding Risk
``By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,'' the central bank said.
The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.
All the banks extended their facilities until the end of April 2009.
The Fed is also increasing the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans. The central bank will keep the sales of 28-day credit at $75 billion.
Special Sales
In addition, the Fed will hold two special TAF sales in November totaling $150 billion so banks can have funding available for one or two weeks over year-end. The exact timing and terms will be determined later, the Fed said. The TAF program began in December, totaling $40 billion.
The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system.
Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month.

[matias]

I don't understand - the feds just gave money out without any approval from anyone?

[St. Stalin the Apathetic]

Originally Posted by matias

I don't understand - the feds just gave money out without any approval from anyone?

Whose permission do you think the FED needs?

And they don't give away money they lend it.

[matias]

I was under the impression congress would have to be involved in something like this

been learning a lot about econ in the last few days :X

[St. Stalin the Apathetic]

No. Why do you think that?

[matias]

it just seems strange to me that they can do as they please with every other aspect of the government having so many checks and balances

[St. Stalin the Apathetic]

Originally Posted by matias

it just seems strange to me that they can do as they please with every other aspect of the government having so many checks and balances

The FED isn't a government institution. Its "quasi" governmental. Basically its a private lending system with some very serious gov't oversight. That's over simplified but fair.

[matias]

so if there is so much oversight - what government bodies "recommended" that they pump all this money out

[St. Stalin the Apathetic]

Originally Posted by matias

so if there is so much oversight - what government bodies "recommended" that they pump all this money out

there probably wasn't any entity that recommended it - the FED most likely operates autonomously w/in given regulated margins and these loans fell w/in those regulated margins... my best guess

The FED is a strange and mysterious thing very few people, including myself, understand well.

[e-brake]

Originally Posted by matias

it just seems strange to me that they can do as they please with every other aspect of the government having so many checks and balances

The FED is a privately owned bank with way to much unchecked control over the value of the dollar. That is why Ron Paul has been calling for Congress to abolish the FED for over 10 years now. They have dumped almost a Trillion US dollars into the international markets in just the last three weeks with virtually no concern about the long term effects on the value of the dollar from those actions.

[matias]

seems like a money laundry organization kekek

[St. Stalin the Apathetic]

I thought it had now exceeded $1T?

[matias]

The Federal Reserve System is an independent government institution that has private aspects. The System is not a private organization and does not operate for the purpose of making a profit. The stocks of the regional federal reserve banks are owned by the banks operating within that region and which are part of the system.[26] The System derives its authority and public purpose from the Federal Reserve Act passed by Congress in 1913. As an independent institution, the Federal Reserve has the authority to act on its own without prior approval from Congress or the President.[27] The members of its Board of Governors are appointed for long, staggered terms, limiting the influence of day-to-day political considerations.[28] The Federal Reserve System's unique structure also provides internal checks and balances, ensuring that its decisions and operations are not dominated by any one part of the system. It also generates revenue independently without need for Congressional funding. Congressional oversight and statutes, which can alter the Fed's responsibilities and control, allow the government to keep the Federal Reserve System in check. Since the System was designed to be independent whilst also remaining within the government of the United States, it is often said to be "independent within the government."[27]

http://upload.wikimedia.org/wikipedi...rve_System.jpg

anyone else find it odd that they don't make a profit but they generate revenue?

[e-brake]

Originally Posted by St. Stalin the Apathetic

I thought it had now exceeded $1T?

680 billion into US banks, 620 Billion into international banks last week, now $600 Billion more going into international banks today = 1.9 Trillion Us dollars leaving the FED in the last 3 weeks.

To put that into perspective they have handed out more Us dollars in the last three weeks than all of the loans they have handed out over the last 30 years combined (including the S&L bailouts in the 80's)

[St. Stalin the Apathetic]

Originally Posted by e-brake

680 billion into US banks, 620 Billion into international banks last week, now $600 Billion more going into international banks today = 1.9 Trillion Us dollars leaving the FED in the last 3 weeks.

To put that into perspective they have handed out more Us dollars in the last three weeks than all of the loans they have handed out over the last 30 years combined (including the S&L bailouts in the 80's)

or roughly 1/7 of our 2007 GDP