Bank reserve requirements and the TAF

[JWM in SD]

JWM in SD

Old Karl is fun to read but tends to overstate and overshoot things.

You beat me to it Dave. I also read that post on CR as well this morning during breakfast. The more interesting part of that post was what they said about Bernanke and the Fed attempting to inflate to cover the borrowing and only up to that amount. I wouldn’t be surprised if this is true, but it seems like a long shot to me and I don’t think that the FED has the degree of control necessary to accomplish equilibrium between Hyper-Inflation and Deflation.

[Anonymous]

Yeah, ok. Nice try Dave.

Now for extra credit, how much did Citibank pay for their last round of “hard money” to apply to their Tier Capital?

That’d be a double-digit coupon from Abu Dhabi, right?

So yes, the TAF is cheaper. A lot cheaper. But let’s talk a bit about that.

Was there a lot of demand for the TAF? Hmmmm.. what was the “Bid To Cover” on the last TAF? Pretty poor, right?

The premise of my blog entry isn’t that banks are insolvent (and if you read it, you’d know that.) Its that commercial credit demand is collapsing, which is why The Fed is following that collapse down in rate (and will, in fact, likely all the way to zero) and even “sub-market” rates aren’t stimulating credit demand.

Why?

Several reasons, with the most important being a lack of good collateral to post for the loans that people might WANT.

Evidence? How are the sales of all that LBO debt that’s clogging up the bank balance sheets going? Oh, you mean its not selling so well, with bids coming in – when you can find them at all – at 90 at best?

Well now that’s the point, isn’t it?

“No Mas!” – or Guido-style terms being demanded for hard money, The Fed trying to push on a string via the TAF, and yet credit demand continues to collapse, because all the good collateral has already been margined (pledged).

We’re witnessing the velocity of credit creation heading for the ditch – sure, if you practice selective reporting you can find “ramping” areas, but those are the acts of desperate people (e.g. homeowners whacking on their plastic to try to take the place of HELOCs which no longer can be drawn) – and won’t last long.

Bottom line: The Fed is attempting to “restart” the credit creation engine, the attempt is failing, the TAF has replaced the hard money (which has left or demanded extremely high rates of return to come play) and yet even that “artificially-stimulated” demand is anemic and falling quickly.

This is how a deflationary credit collapse gets legs…..

Is it assured? No.

Not yet, anyway, but the markers are there.

http://tickerforum.org – Investing discussions

[Anonymous]

Yeah, ok. Nice try Dave.

Now for extra credit, how much did Citibank pay for their last round of “hard money” to apply to their Tier Capital?

That’d be a double-digit coupon from Abu Dhabi, right?

So yes, the TAF is cheaper. A lot cheaper. But let’s talk a bit about that.

Was there a lot of demand for the TAF? Hmmmm.. what was the “Bid To Cover” on the last TAF? Pretty poor, right?

The premise of my blog entry isn’t that banks are insolvent (and if you read it, you’d know that.) Its that commercial credit demand is collapsing, which is why The Fed is following that collapse down in rate (and will, in fact, likely all the way to zero) and even “sub-market” rates aren’t stimulating credit demand.

Why?

Several reasons, with the most important being a lack of good collateral to post for the loans that people might WANT.

Evidence? How are the sales of all that LBO debt that’s clogging up the bank balance sheets going? Oh, you mean its not selling so well, with bids coming in – when you can find them at all – at 90 at best?

Well now that’s the point, isn’t it?

“No Mas!” – or Guido-style terms being demanded for hard money, The Fed trying to push on a string via the TAF, and yet credit demand continues to collapse, because all the good collateral has already been margined (pledged).

We’re witnessing the velocity of credit creation heading for the ditch – sure, if you practice selective reporting you can find “ramping” areas, but those are the acts of desperate people (e.g. homeowners whacking on their plastic to try to take the place of HELOCs which no longer can be drawn) – and won’t last long.

Bottom line: The Fed is attempting to “restart” the credit creation engine, the attempt is failing, the TAF has replaced the hard money (which has left or demanded extremely high rates of return to come play) and yet even that “artificially-stimulated” demand is anemic and falling quickly.

This is how a deflationary credit collapse gets legs…..

Is it assured? No.

Not yet, anyway, but the markers are there.

http://tickerforum.org – Investing discussions

[Anonymous]

Yeah, ok. Nice try Dave.

Now for extra credit, how much did Citibank pay for their last round of “hard money” to apply to their Tier Capital?

That’d be a double-digit coupon from Abu Dhabi, right?

So yes, the TAF is cheaper. A lot cheaper. But let’s talk a bit about that.

Was there a lot of demand for the TAF? Hmmmm.. what was the “Bid To Cover” on the last TAF? Pretty poor, right?

The premise of my blog entry isn’t that banks are insolvent (and if you read it, you’d know that.) Its that commercial credit demand is collapsing, which is why The Fed is following that collapse down in rate (and will, in fact, likely all the way to zero) and even “sub-market” rates aren’t stimulating credit demand.

Why?

Several reasons, with the most important being a lack of good collateral to post for the loans that people might WANT.

Evidence? How are the sales of all that LBO debt that’s clogging up the bank balance sheets going? Oh, you mean its not selling so well, with bids coming in – when you can find them at all – at 90 at best?

Well now that’s the point, isn’t it?

“No Mas!” – or Guido-style terms being demanded for hard money, The Fed trying to push on a string via the TAF, and yet credit demand continues to collapse, because all the good collateral has already been margined (pledged).

We’re witnessing the velocity of credit creation heading for the ditch – sure, if you practice selective reporting you can find “ramping” areas, but those are the acts of desperate people (e.g. homeowners whacking on their plastic to try to take the place of HELOCs which no longer can be drawn) – and won’t last long.

Bottom line: The Fed is attempting to “restart” the credit creation engine, the attempt is failing, the TAF has replaced the hard money (which has left or demanded extremely high rates of return to come play) and yet even that “artificially-stimulated” demand is anemic and falling quickly.

This is how a deflationary credit collapse gets legs…..

Is it assured? No.

Not yet, anyway, but the markers are there.

http://tickerforum.org – Investing discussions

[Anonymous]

Yeah, ok. Nice try Dave.

Now for extra credit, how much did Citibank pay for their last round of “hard money” to apply to their Tier Capital?

That’d be a double-digit coupon from Abu Dhabi, right?

So yes, the TAF is cheaper. A lot cheaper. But let’s talk a bit about that.

Was there a lot of demand for the TAF? Hmmmm.. what was the “Bid To Cover” on the last TAF? Pretty poor, right?

The premise of my blog entry isn’t that banks are insolvent (and if you read it, you’d know that.) Its that commercial credit demand is collapsing, which is why The Fed is following that collapse down in rate (and will, in fact, likely all the way to zero) and even “sub-market” rates aren’t stimulating credit demand.

Why?

Several reasons, with the most important being a lack of good collateral to post for the loans that people might WANT.

Evidence? How are the sales of all that LBO debt that’s clogging up the bank balance sheets going? Oh, you mean its not selling so well, with bids coming in – when you can find them at all – at 90 at best?

Well now that’s the point, isn’t it?

“No Mas!” – or Guido-style terms being demanded for hard money, The Fed trying to push on a string via the TAF, and yet credit demand continues to collapse, because all the good collateral has already been margined (pledged).

We’re witnessing the velocity of credit creation heading for the ditch – sure, if you practice selective reporting you can find “ramping” areas, but those are the acts of desperate people (e.g. homeowners whacking on their plastic to try to take the place of HELOCs which no longer can be drawn) – and won’t last long.

Bottom line: The Fed is attempting to “restart” the credit creation engine, the attempt is failing, the TAF has replaced the hard money (which has left or demanded extremely high rates of return to come play) and yet even that “artificially-stimulated” demand is anemic and falling quickly.

This is how a deflationary credit collapse gets legs…..

Is it assured? No.

Not yet, anyway, but the markers are there.

http://tickerforum.org – Investing discussions

[Anonymous]

Yeah, ok. Nice try Dave.

Now for extra credit, how much did Citibank pay for their last round of “hard money” to apply to their Tier Capital?

That’d be a double-digit coupon from Abu Dhabi, right?

So yes, the TAF is cheaper. A lot cheaper. But let’s talk a bit about that.

Was there a lot of demand for the TAF? Hmmmm.. what was the “Bid To Cover” on the last TAF? Pretty poor, right?

The premise of my blog entry isn’t that banks are insolvent (and if you read it, you’d know that.) Its that commercial credit demand is collapsing, which is why The Fed is following that collapse down in rate (and will, in fact, likely all the way to zero) and even “sub-market” rates aren’t stimulating credit demand.

Why?

Several reasons, with the most important being a lack of good collateral to post for the loans that people might WANT.

Evidence? How are the sales of all that LBO debt that’s clogging up the bank balance sheets going? Oh, you mean its not selling so well, with bids coming in – when you can find them at all – at 90 at best?

Well now that’s the point, isn’t it?

“No Mas!” – or Guido-style terms being demanded for hard money, The Fed trying to push on a string via the TAF, and yet credit demand continues to collapse, because all the good collateral has already been margined (pledged).

We’re witnessing the velocity of credit creation heading for the ditch – sure, if you practice selective reporting you can find “ramping” areas, but those are the acts of desperate people (e.g. homeowners whacking on their plastic to try to take the place of HELOCs which no longer can be drawn) – and won’t last long.

Bottom line: The Fed is attempting to “restart” the credit creation engine, the attempt is failing, the TAF has replaced the hard money (which has left or demanded extremely high rates of return to come play) and yet even that “artificially-stimulated” demand is anemic and falling quickly.

This is how a deflationary credit collapse gets legs…..

Is it assured? No.

Not yet, anyway, but the markers are there.

http://tickerforum.org – Investing discussions

[JWM in SD]

JWM in SD

Hey Karl, thanks for stopping by 😉

[JWM in SD]

JWM in SD

Hey Karl, thanks for stopping by 😉

[JWM in SD]

JWM in SD

Hey Karl, thanks for stopping by 😉

[JWM in SD]

JWM in SD

Hey Karl, thanks for stopping by 😉

[JWM in SD]

JWM in SD

Hey Karl, thanks for stopping by 😉

[davelj]

Actually, Karl, I didn’t read your whole post or the entire thread. (Who’s got that kind of time?) However, here is a direct quote from your post, which I think cuts to the heart of your position:

“But what it does indicate is that the banks are continuing to lend into a locked “hard money” environment – that is, they are failing to attract capital against which to lend, and are instead borrowing from The Fed to keep the debt initiation cycle going.”

I happen to agree with a lot of what you wrote in your post. What I think you’re doing here, however, is creating causation where none exists. That is, “Because the banks are borrowing from the Fed and only maintaining “X” in liquidity then there’s a problem.”

My point is that there’s nothing sinister about borrowing from the Fed when the rates are (relatively) attractive. Anyone would do this almost regardless of the economic climate.

This is a SEPARATE issue, however, from paying a big price for equity capital which Citigroup – as you point out – and others are doing. The TAF is about liquidity; equity capital via Abu Dhabi (or whomever else) is about solvency. Two largely separate issues in the banking world… UNTIL there’s a run on the bank, as in the case of Countrywide.

Anyhow, I think we agree that the banking complex is in deep trouble. Where we disagree is that you think the Fed borrowing is indicative of something sinister going on while I do not. It’s merely expedient.

However, if you want to continue to believe this, it’s ok with me. No skin off my back. I mean, hell, if you’re bearish on banks – as I am – I think you’ll end up being right, even if it’s partially for the wrong reason. In investing, luck often trumps (faulty) reasoning. Fortunately.

Although I am curious, since you seem very sure of yourself on this topic, what’s your background in banking? Former CEO, CFO, loan officer, Director, private equity investor, examiner? Personally I’m generally wary of providing strong opinions outside of my very few areas of expertise, one of which is banking. But that’s just me.

[davelj]

Actually, Karl, I didn’t read your whole post or the entire thread. (Who’s got that kind of time?) However, here is a direct quote from your post, which I think cuts to the heart of your position:

“But what it does indicate is that the banks are continuing to lend into a locked “hard money” environment – that is, they are failing to attract capital against which to lend, and are instead borrowing from The Fed to keep the debt initiation cycle going.”

I happen to agree with a lot of what you wrote in your post. What I think you’re doing here, however, is creating causation where none exists. That is, “Because the banks are borrowing from the Fed and only maintaining “X” in liquidity then there’s a problem.”

My point is that there’s nothing sinister about borrowing from the Fed when the rates are (relatively) attractive. Anyone would do this almost regardless of the economic climate.

This is a SEPARATE issue, however, from paying a big price for equity capital which Citigroup – as you point out – and others are doing. The TAF is about liquidity; equity capital via Abu Dhabi (or whomever else) is about solvency. Two largely separate issues in the banking world… UNTIL there’s a run on the bank, as in the case of Countrywide.

Anyhow, I think we agree that the banking complex is in deep trouble. Where we disagree is that you think the Fed borrowing is indicative of something sinister going on while I do not. It’s merely expedient.

However, if you want to continue to believe this, it’s ok with me. No skin off my back. I mean, hell, if you’re bearish on banks – as I am – I think you’ll end up being right, even if it’s partially for the wrong reason. In investing, luck often trumps (faulty) reasoning. Fortunately.

Although I am curious, since you seem very sure of yourself on this topic, what’s your background in banking? Former CEO, CFO, loan officer, Director, private equity investor, examiner? Personally I’m generally wary of providing strong opinions outside of my very few areas of expertise, one of which is banking. But that’s just me.

[davelj]

Actually, Karl, I didn’t read your whole post or the entire thread. (Who’s got that kind of time?) However, here is a direct quote from your post, which I think cuts to the heart of your position:

“But what it does indicate is that the banks are continuing to lend into a locked “hard money” environment – that is, they are failing to attract capital against which to lend, and are instead borrowing from The Fed to keep the debt initiation cycle going.”

I happen to agree with a lot of what you wrote in your post. What I think you’re doing here, however, is creating causation where none exists. That is, “Because the banks are borrowing from the Fed and only maintaining “X” in liquidity then there’s a problem.”

My point is that there’s nothing sinister about borrowing from the Fed when the rates are (relatively) attractive. Anyone would do this almost regardless of the economic climate.

This is a SEPARATE issue, however, from paying a big price for equity capital which Citigroup – as you point out – and others are doing. The TAF is about liquidity; equity capital via Abu Dhabi (or whomever else) is about solvency. Two largely separate issues in the banking world… UNTIL there’s a run on the bank, as in the case of Countrywide.

Anyhow, I think we agree that the banking complex is in deep trouble. Where we disagree is that you think the Fed borrowing is indicative of something sinister going on while I do not. It’s merely expedient.

However, if you want to continue to believe this, it’s ok with me. No skin off my back. I mean, hell, if you’re bearish on banks – as I am – I think you’ll end up being right, even if it’s partially for the wrong reason. In investing, luck often trumps (faulty) reasoning. Fortunately.

Although I am curious, since you seem very sure of yourself on this topic, what’s your background in banking? Former CEO, CFO, loan officer, Director, private equity investor, examiner? Personally I’m generally wary of providing strong opinions outside of my very few areas of expertise, one of which is banking. But that’s just me.

[davelj]

Actually, Karl, I didn’t read your whole post or the entire thread. (Who’s got that kind of time?) However, here is a direct quote from your post, which I think cuts to the heart of your position:

“But what it does indicate is that the banks are continuing to lend into a locked “hard money” environment – that is, they are failing to attract capital against which to lend, and are instead borrowing from The Fed to keep the debt initiation cycle going.”

I happen to agree with a lot of what you wrote in your post. What I think you’re doing here, however, is creating causation where none exists. That is, “Because the banks are borrowing from the Fed and only maintaining “X” in liquidity then there’s a problem.”

My point is that there’s nothing sinister about borrowing from the Fed when the rates are (relatively) attractive. Anyone would do this almost regardless of the economic climate.

This is a SEPARATE issue, however, from paying a big price for equity capital which Citigroup – as you point out – and others are doing. The TAF is about liquidity; equity capital via Abu Dhabi (or whomever else) is about solvency. Two largely separate issues in the banking world… UNTIL there’s a run on the bank, as in the case of Countrywide.

Anyhow, I think we agree that the banking complex is in deep trouble. Where we disagree is that you think the Fed borrowing is indicative of something sinister going on while I do not. It’s merely expedient.

However, if you want to continue to believe this, it’s ok with me. No skin off my back. I mean, hell, if you’re bearish on banks – as I am – I think you’ll end up being right, even if it’s partially for the wrong reason. In investing, luck often trumps (faulty) reasoning. Fortunately.

Although I am curious, since you seem very sure of yourself on this topic, what’s your background in banking? Former CEO, CFO, loan officer, Director, private equity investor, examiner? Personally I’m generally wary of providing strong opinions outside of my very few areas of expertise, one of which is banking. But that’s just me.

[Author]

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