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Nytimes - The Bank Run We Knew So Little About

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IN August 2007, as world financial markets were seizing up, domestic and foreign banks began lining up for cash from the Federal Reserve Bank of New York.

That Aug. 20, Commerzbank of Germany borrowed $350 million at the Fed’s discount window. Two days later, Citigroup, JPMorgan Chase, Bank of America and the Wachovia Corporation each received $500 million. As collateral for all these loans, the banks put up a total of $213 billion in asset-backed securities, commercial loans and residential mortgages, including second liens.

Thus began the bank run that set off the financial crisis of 2008. But unlike other bank runs, this one was invisible to most Americans.


For example, on July 23, 2007, Henry M. Paulson Jr., the Treasury secretary at the time, said the housing slump appeared to be “at or near the bottom.” Two days later, Timothy F. Geithner, then the president of the New York Fed, declared in a speech before the Forum on Global Leadership in Washington: “Financial markets outside the United States are now deeper and more liquid than they used to be, making it easier for companies to raise capital domestically at reasonable cost.”

Within about a month’s time, however, foreign banks began thronging to the Fed’s discount window — its mechanism for short-term lending to banks. Over four days in late August and early September, foreign institutions, through their New York branches, received a total of almost $1.7 billion in Fed loans.

As the global run progressed, banks increased their borrowings, the documents show. For example, on Sept. 12, 2007, Citibank drove up to the New York Fed’s window. It extracted $3.375 billion of cash in exchange for $23 billion worth of assets, including commercial mortgage-backed securities, residential mortgages and commercial loans.


“The striking thing was the large amount of borrowing that the New York Fed accepted during the crisis from European banks that had only a minimal presence in the U.S. and arguably posed no threat to the U.S. payment system,” said Walker F. Todd, a research fellow at the American Institute for Economic Research and a former assistant general counsel and research officer at the Federal Reserve Bank of Cleveland. Such a thing would never have occurred 20 years ago, he added.

All of the discount-window borrowings extended to institutions during the debacle have been repaid. But the precedent was set: The Fed was the financial backstop to the world.

Some interesting stuff here. It would appear the Fed was pumping liquidity into the system a long time before it finally collapsed.

No wonder the Fed has been fighting to keep this out of the public domain, its been exceeding it's mandate and rescuing banks and investors when making poor decisions. I suspect this moral hazard has slowly grown over the past couple of decades and has now created the possibility of the ultimate crash.

Still at least all of those who are being foreclosed in the US can rest assured that the bankers will be bailed out no matter what the cost.

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Meet The 171 Banks For Which The Margin Of Failure Is One Thousand Dollars


Tired of poring through thousands of PDF files from the Fed's Bloomberg FOIA release? Curious why Ron Paul said that he "was surprised and deeply disturbed ... to learn the staggering amount of money that went to foreign banks" and is planning to hold a hearing over emergency loans to the branches of non-U.S. banks? Then here is the excel file for you: the following publicly shared google docs spreadsheet contains the complete Discount Window loan origination data from March 14, 2008 through March 16, 2009. We offer it so that anyone who wishes to perform their own analysis on the primary data can do so (and needless to say banks noted as FORI in the markstat entity type are foreign borrowers).

Discount Window spreadsheet link

Direct zerohedge ODS link.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
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