Earlier in the week I jokingly suggested that the federal government was limiting itself to one financial industry bailout per day. Well, that was sure wrong.
Let’s review the week so far:
- The Fed announced it will lend even more to financial institutions (many of them not under the Fed’s regulatory authority) in exchange for even more dubious collateral than before. This allows everyone to continue to pretend that the collateral, such as some subprime mortgage backed securities, is worth more than it actually is, which in turn allows everyone to pretend that financial institutions have more money than they actually do.
- Because the Fed has run low on funds due to all of that lending, the Treasury announced it will borrow more money to give to the Fed so that they can keep up their lending and continue the charade described above.
- The Fed nationalized insurance giant AIG (also not under its regulatory authority).
- The Fed pumped a hundreds of billions of dollars into the system both domestically and globally via loans to foreign central banks.