Questions on the FED’s spending spree

[cr]

From MSN:

The markets are spooked, so the Fed has stepped in again to try to provide some calm. But it’s not having the desired effect.
The Fed has pumped another $17 billion into the financial markets today in two separate infusions of money. But although stocks had pulled off their lows after the Fed’s second repurchase agreement operation, they turned lower again shortly afterward.
At 10:25 a.m. ET, the Dow Jones Industrial Average was down 148 points to 12,713. The Standard & Poor’s 500 Index had lost 17 points to 1,389, and the Nasdaq CompositeIndex had shed 28 points to 2,431.
One strategist was worried about the sentiment on Wall Street. “Feels like we’re on the edge of a panic to me,” Jeffrey Saut, chief investment strategist at Raymond James, said to Bloomberg News. “In our business, psychology is everything and psychology has changed real quick on Wall Street.”

This brings the total to $88 BILLION dollars just thrown into a spiraling economy in about a week, but it doesn’t seem to be helping. This raises a lot of questions that maybe some of you who know far more about this than I ever will can answer:

– Where does this money come from? Who pays for it?
– Where exactly does it go?
– What will it’s effect be on the value of the dollar?
– Who stands to benefit from these “injections”?
– Will this help or hurt our economy in the long run?
– What will the effect be on housing?

I could speculate on some of these, but I’d like to hear what others think, particularly those who deal with this stuff in detail.

[XBoxBoy]

I’m no expert but I’ll take a stab at answering your questions:

– Where does this money come from? Who pays for it?

The money is essentially “printed” by the fed. Not actually, but what happens is the fed credits the account of a bank with the money and allows that bank to then spend that money. Effectively creating the money out of thin air. (Bet you wish you could do that, huh?)

– Where exactly does it go?

Wherever the bank spends it. Effectively, this puts more cash into the system. Or as is often said, more liquidity.

– What will it’s effect be on the value of the dollar?

Well, assuming that when the repo comes due, the bank will repay the money back to the fed, and take back the bonds it offered in collateral, nothing will really change. On the otherhand, if the fed, continues to renew the repo indefinitely that is the same as increasing the money supply and would have the effect of lowering the value of the dollar. (Note that in the last week the value of the dollar has risen while the fed has done this, thus world currency traders are believing that the value of the dollar is NOT falling)

– Who stands to benefit from these “injections”?

Well, everyone really. If the banks get into a situation where they do not have enough cash to function, all hell will break loose, there will be runs on banks, etc. So by adding this liquidity to the market, the fed makes sure that the banking system continues to function.

– Will this help or hurt our economy in the long run?

Well, making sure that the banks keeps function is beneficial, so think of it as avoiding seriously hurting our economy. But this action should not (at least theoretically) hurt or help our economy. Our economy is going where it is going. The fed could “juice” the economy by lowering the fed rate, but that is something they are currently not doing. Don’t confuse lowering the fed rate with opening the discount window.

– What will the effect be on housing?

Again, assuming that the banks repay the repos in a fairly short period of time, probably nothing. Bottom line to housing is that lots and lots of people have overextended themselves, and that’s got to be unwound.

Hope this is informative/helpful

XBoxBoy

[XBoxBoy]

I’m no expert but I’ll take a stab at answering your questions:

– Where does this money come from? Who pays for it?

The money is essentially “printed” by the fed. Not actually, but what happens is the fed credits the account of a bank with the money and allows that bank to then spend that money. Effectively creating the money out of thin air. (Bet you wish you could do that, huh?)

– Where exactly does it go?

Wherever the bank spends it. Effectively, this puts more cash into the system. Or as is often said, more liquidity.

– What will it’s effect be on the value of the dollar?

Well, assuming that when the repo comes due, the bank will repay the money back to the fed, and take back the bonds it offered in collateral, nothing will really change. On the otherhand, if the fed, continues to renew the repo indefinitely that is the same as increasing the money supply and would have the effect of lowering the value of the dollar. (Note that in the last week the value of the dollar has risen while the fed has done this, thus world currency traders are believing that the value of the dollar is NOT falling)

– Who stands to benefit from these “injections”?

Well, everyone really. If the banks get into a situation where they do not have enough cash to function, all hell will break loose, there will be runs on banks, etc. So by adding this liquidity to the market, the fed makes sure that the banking system continues to function.

– Will this help or hurt our economy in the long run?

Well, making sure that the banks keeps function is beneficial, so think of it as avoiding seriously hurting our economy. But this action should not (at least theoretically) hurt or help our economy. Our economy is going where it is going. The fed could “juice” the economy by lowering the fed rate, but that is something they are currently not doing. Don’t confuse lowering the fed rate with opening the discount window.

– What will the effect be on housing?

Again, assuming that the banks repay the repos in a fairly short period of time, probably nothing. Bottom line to housing is that lots and lots of people have overextended themselves, and that’s got to be unwound.

Hope this is informative/helpful

XBoxBoy

[XBoxBoy]

I’m no expert but I’ll take a stab at answering your questions:

– Where does this money come from? Who pays for it?

The money is essentially “printed” by the fed. Not actually, but what happens is the fed credits the account of a bank with the money and allows that bank to then spend that money. Effectively creating the money out of thin air. (Bet you wish you could do that, huh?)

– Where exactly does it go?

Wherever the bank spends it. Effectively, this puts more cash into the system. Or as is often said, more liquidity.

– What will it’s effect be on the value of the dollar?

Well, assuming that when the repo comes due, the bank will repay the money back to the fed, and take back the bonds it offered in collateral, nothing will really change. On the otherhand, if the fed, continues to renew the repo indefinitely that is the same as increasing the money supply and would have the effect of lowering the value of the dollar. (Note that in the last week the value of the dollar has risen while the fed has done this, thus world currency traders are believing that the value of the dollar is NOT falling)

– Who stands to benefit from these “injections”?

Well, everyone really. If the banks get into a situation where they do not have enough cash to function, all hell will break loose, there will be runs on banks, etc. So by adding this liquidity to the market, the fed makes sure that the banking system continues to function.

– Will this help or hurt our economy in the long run?

Well, making sure that the banks keeps function is beneficial, so think of it as avoiding seriously hurting our economy. But this action should not (at least theoretically) hurt or help our economy. Our economy is going where it is going. The fed could “juice” the economy by lowering the fed rate, but that is something they are currently not doing. Don’t confuse lowering the fed rate with opening the discount window.

– What will the effect be on housing?

Again, assuming that the banks repay the repos in a fairly short period of time, probably nothing. Bottom line to housing is that lots and lots of people have overextended themselves, and that’s got to be unwound.

Hope this is informative/helpful

XBoxBoy

[cr]

Thanks XBox that helps.

So as long as the banks can repay the money the FED is essentially loaning them to float their operations, then everything will be hunky dory? That of course assumes the FED does that in a timely manner, and that the banks can repay the loans.

Enter the mortgage crisis

So if banks need borrowed liquidity to operate as a result of deliquent loans, and those loans continue to go bad, the borrowed money is virtually gone, right? Do the banks go under, or is that considered a bailout?

I view lowering rates as adding fuel to this fire. People need to be encouraged to curtail their spending to fit within what they can afford. Heresy! I know, saving money?!? Lowering rates may help banks, but once consumers are out of money and buried in hopeless debt, the economy will be toast anyway.

Thanks again.

[cr]

Thanks XBox that helps.

So as long as the banks can repay the money the FED is essentially loaning them to float their operations, then everything will be hunky dory? That of course assumes the FED does that in a timely manner, and that the banks can repay the loans.

Enter the mortgage crisis

So if banks need borrowed liquidity to operate as a result of deliquent loans, and those loans continue to go bad, the borrowed money is virtually gone, right? Do the banks go under, or is that considered a bailout?

I view lowering rates as adding fuel to this fire. People need to be encouraged to curtail their spending to fit within what they can afford. Heresy! I know, saving money?!? Lowering rates may help banks, but once consumers are out of money and buried in hopeless debt, the economy will be toast anyway.

Thanks again.

[cr]

Thanks XBox that helps.

So as long as the banks can repay the money the FED is essentially loaning them to float their operations, then everything will be hunky dory? That of course assumes the FED does that in a timely manner, and that the banks can repay the loans.

Enter the mortgage crisis

So if banks need borrowed liquidity to operate as a result of deliquent loans, and those loans continue to go bad, the borrowed money is virtually gone, right? Do the banks go under, or is that considered a bailout?

I view lowering rates as adding fuel to this fire. People need to be encouraged to curtail their spending to fit within what they can afford. Heresy! I know, saving money?!? Lowering rates may help banks, but once consumers are out of money and buried in hopeless debt, the economy will be toast anyway.

Thanks again.

[XBoxBoy]

I don’t think that the banks needed to borrow money as a result of delinquent loans. The banks needed to borrow money due to a cash flow problem caused by the fear in the credit markets. So, in most cases I suspect those loans will get repaid. (Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)

Potentially, we could see a major bank who is borrowing from the discount window collapse, but I suspect that’s not a big risk at this time. Regardless if that happens the fed will step in and try to make the process of dissolving the failed bank orderly. (And this process could be viewed by some as a bailout, but we haven’t reached that point yet)

XBoxBoy

[XBoxBoy]

I don’t think that the banks needed to borrow money as a result of delinquent loans. The banks needed to borrow money due to a cash flow problem caused by the fear in the credit markets. So, in most cases I suspect those loans will get repaid. (Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)

Potentially, we could see a major bank who is borrowing from the discount window collapse, but I suspect that’s not a big risk at this time. Regardless if that happens the fed will step in and try to make the process of dissolving the failed bank orderly. (And this process could be viewed by some as a bailout, but we haven’t reached that point yet)

XBoxBoy

[XBoxBoy]

I don’t think that the banks needed to borrow money as a result of delinquent loans. The banks needed to borrow money due to a cash flow problem caused by the fear in the credit markets. So, in most cases I suspect those loans will get repaid. (Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)

Potentially, we could see a major bank who is borrowing from the discount window collapse, but I suspect that’s not a big risk at this time. Regardless if that happens the fed will step in and try to make the process of dissolving the failed bank orderly. (And this process could be viewed by some as a bailout, but we haven’t reached that point yet)

XBoxBoy

[Nancy_s soothsayer]

“(Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)”

How we casually treat these investors (the bagholders) as if they don’t deserve much weight or are inconsequential in the whole scheme of things is almost immoral. They were just there to help Americans buy into the stupid “American Dream”. And now they are getting abused and fleeced. They trusted Wall Street; they got sold “investment-grade” assets. Now they wake up to find out Wall Street is really full of lying robber-baron bastards.

The best cure that the Bush Inc. could mete out is to parade the CEO’s and top dogs of these lying, conning, entities in front of the world and give them the most public humiliation.

In China, they would be shot. Here, a similar more humane public humiliation is necessary, if there is such a thing. For one, make them give back all the fraudulent wealth they have amassed – take CFC’s Mozillo for instance. Insider trading is a good start to charge him with to haul him off to prison pronto.

What the Fed is doing now – bailing out these bastards – is almost sickening to these investors.

[Nancy_s soothsayer]

“(Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)”

How we casually treat these investors (the bagholders) as if they don’t deserve much weight or are inconsequential in the whole scheme of things is almost immoral. They were just there to help Americans buy into the stupid “American Dream”. And now they are getting abused and fleeced. They trusted Wall Street; they got sold “investment-grade” assets. Now they wake up to find out Wall Street is really full of lying robber-baron bastards.

The best cure that the Bush Inc. could mete out is to parade the CEO’s and top dogs of these lying, conning, entities in front of the world and give them the most public humiliation.

In China, they would be shot. Here, a similar more humane public humiliation is necessary, if there is such a thing. For one, make them give back all the fraudulent wealth they have amassed – take CFC’s Mozillo for instance. Insider trading is a good start to charge him with to haul him off to prison pronto.

What the Fed is doing now – bailing out these bastards – is almost sickening to these investors.

[Nancy_s soothsayer]

“(Remember that most of the failed mortgages that we are always talking about on Piggington have been sold off to investors. There losses are seperate from what the fed is trying to deal with here.)”

How we casually treat these investors (the bagholders) as if they don’t deserve much weight or are inconsequential in the whole scheme of things is almost immoral. They were just there to help Americans buy into the stupid “American Dream”. And now they are getting abused and fleeced. They trusted Wall Street; they got sold “investment-grade” assets. Now they wake up to find out Wall Street is really full of lying robber-baron bastards.

The best cure that the Bush Inc. could mete out is to parade the CEO’s and top dogs of these lying, conning, entities in front of the world and give them the most public humiliation.

In China, they would be shot. Here, a similar more humane public humiliation is necessary, if there is such a thing. For one, make them give back all the fraudulent wealth they have amassed – take CFC’s Mozillo for instance. Insider trading is a good start to charge him with to haul him off to prison pronto.

What the Fed is doing now – bailing out these bastards – is almost sickening to these investors.

[Nancy_s soothsayer]

Without delving into severe paranoia yet, did we just see the big footprint of the plunge protection team late in the afternoon trading in Wall Street today? Did they unleash the Cayman Islands “catch the falling knife” war-chest scheme to soak up most of the plunge? For the sake of silly discussion if PPT exists and if the printing presses were real in the stock markets, is this good or bad?

[Nancy_s soothsayer]

Without delving into severe paranoia yet, did we just see the big footprint of the plunge protection team late in the afternoon trading in Wall Street today? Did they unleash the Cayman Islands “catch the falling knife” war-chest scheme to soak up most of the plunge? For the sake of silly discussion if PPT exists and if the printing presses were real in the stock markets, is this good or bad?

[Author]

Posts