US goverment to buy bad debt

I did not read your link, but want to point out that the FED can open the discount window, but like the horse lead to water, the FED can not make the banks borrow, especially now.

For several years now, the banks have been reluctant to do so as it is a clear public sign that the bank is in financial trouble. They have been borrowing from each other instead, (so called "over night" loans) as that can be keep private, but now none will lend to another, so all are holding on to the money they have to make sure they met the reserve requitements at the end of the day. (Especially now, as scared depositors are taking money home to stuff under the mattress. None wants to exercies the "fine print" that permits them to tell the depositor wanting his money to: "Come back a month from now.")

 

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So basically liquidity is now effectively zero? What happens next?

 

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Liquidity is not zero, that's what the bail out was supposed to prevent, but it hasn't happened yet. If if had, we'd see massive numbers of business failures as business's were unable to get the normal loans they need to do business.

 

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So now what we're betting everything on is for the American people not to pull bank runs on the big 3 (Citi, Chase, and Bank of America)?

 

Who knows?, but if paid by paper check tomorrow, go to the bank and cash it directly from work.

 

The banks have stopped loaning each other. Where are the businesses getting their loans?

I'll get paid. No fears.

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Here is the answer:

"...Citigroup is too big to fail. American International Group is too big to fail. So is Bank of America. If $25 billion is not enough, shovel in $20 billion more in taxpayer money. Still not enough? Guarantee that taxpayers will pick up the tab for losses on $100 billion, $200 billion, $300 billion in shaky assets. There's no choice, right? Keep shoveling the cash into the black hole, because if we stop, the whole U.S. economy -- wait, make that the whole global economy -- will fall into disaster.

But how about the Federal Reserve, the key conduit for so many of these taxpayer billions? Is it too big to fail?

Bet you've never even thought about that question. Or what it means to anyone who lives in the United States. But you should. ...."

From: http://articles.moneycentral.msn.co...msnnl_6009.13.2.17&REFCD=emmsnnl_6009.13.2.17

The US is not too big to fail - in fact it is well along in the process of doing so. At recently, Treasury treasury bonds and the dollar were with high demand, but that now seems to be changing. If confidence in FED's pringint press money is begining to errode, the process will feed on itself and rapidly accelerate. Then the more bonds the Tresasury sells to the FED, (making more printing press dollars) the more rapidly will both dollars and Treasury bonds lose value.

US is definitely not "too big to fail" - it may be in the early stages of doing so as I post.

 

It was not the employees of the firms involved, but rather the executives of the firms. They were smart enough and wealthy enough to buy off congress with the repeal of the Glass-Steagall Act in 1999. They covered their bases before the crime was committed. They cannot now be prosecuted because they changed the law to make what was formerly illegal not legal.


merchantaccountsllc . com

 

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M2 is I think a measure of the money that is circulating. Graph shows it is now a much reduced "multiplier" of the money that exists than normal. This is because as the FED/ Treasury create more money, gives it to the banks, etc. the banks do not lend it out, but buy non-circulating Treasury bonds with it. This makes FED and Treasury get frustrated with their failed efforts to make money circulate (and not being very smart) they do more of the same. So the banks buy still more Treasury bonds, with that new money also.

All this buying of Treasury bonds has forced short term interest rates to zero! Fortunately, the leveling off of the curve at the very end seems to indicate that the FED has finally learned that giving money to the banks, with no requirement that they lend it out, does not work.

So what is the new plan? - Answer: buy other than Treasury bonds also. I am betting the new recipients of this cash do what the banks have done as they too are scared. I.e. No one is investing in production and hiring* as few customers are buying what is already in inventory. Home values continue to drop. Foreclosures continue to rise. Monthly job lose rate is more than 500,000 and climbing (for last three months, at least).

Brother can you spare a buck? (A dime will not buy cup of coffee as it did in 1929.)

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*Thousands waited in line, some for days thru the rain storms even, in Florida as there were 35 firefighter jobs to fill today.

PS If you want to read the whole depressing article (by C. Schwab) from which the above graph comes, go to:
http://www.schwab.com/public/schwab...market/recent_commentary/bad_to_the_bone.html

Article is called "bad to the bone" - about the "bad bank" idea and much more.