Fed Help Kept Banks Afloat, Until It Didn’T

[interestrateripoff]

http://www.nytimes.com/2011/04/05/business/economy/05fed.html?_r=1&ref=business

During the frenetic months of the financial crisis, the Federal Reserve stretched the limits of its legal authority by lending money to more than 100 banks that subsequently failed.

The loans through the so-called discount window transformed a little-used program for banks that run low on cash into a source of long-term financing for troubled institutions, some of which borrowed regularly from the Fed for more than a year.

The central bank took little risk in making the loans, protecting itself by demanding large amounts of collateral. But propping up failing banks can increase the eventual cleanup costs for the Federal Deposit Insurance Corporation because it keeps struggling banks afloat, allowing them to get even deeper in debt. It also can clog the arteries of the financial system, tying up money in banks that are no longer making new loans.

County Bank, the largest bank in Merced County, California, took a $4.8 million loan from the discount window in March 2008 after announcing the first annual loss in its 30-year history, news that prompted depositors to withdraw $52 million.

By the fall of 2008, the bank was borrowing regularly from the Fed, taking more than two dozen loans in amounts that peaked above $60 million. It continued borrowing until the day it failed, taking a final loan for $55 million on Friday, Feb. 6, 2009.

Excellent.

Not that any of this matters as no one will take action against the Fed over this. Failure is only for the proles.