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Investment Firms Tap Fed for Billions

By Jeannine Aversa, AP Economics Writer

Investment Houses Borrow Billions From Fed's Emergency Lending Program

WASHINGTON (AP) -- Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.

The lending is part of a major effort by the Fed to help a financial system in danger of freezing.

Those large firms averaged $13.4 billion in daily borrowing over the past week from the new lending facility. The report does not identify the borrowers.

The Fed, in a bold move Sunday, agreed for the first time to let big investment houses get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, got under way Monday and will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Goldman Sachs, Lehman Brothers and Morgan Stanley said Wednesday they had begun to test the new lending mechanism.

On Wednesday alone, lending reached $28.8 billion, according to the Fed report.

The Fed created a way for financially strapped investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

The Fed, in another rare move last Friday, agreed to let JP Morgan Chase secure emergency financing from the central bank to rescue the venerable Wall Street firm Bear Stearns from collapse. Two days later, the Fed back a deal for JP Morgan to take over Bear Stearns.

Thursday's report offered insight on how much credit was extended to Bear Stearns via JP Morgan through the transaction the Fed approved last Friday. Average daily borrowing came to $5.5 billion for the week ending Wednesday.

Separately, the Fed said it will make $75 billion of Treasury securities available to big investment firms next week. Investment houses can bid on a slice of the securities at a Fed auction next Thursday; a second is set for April 3.

The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral.

By allowing this, the Fed is hoping to take pressure off financial companies and make them more inclined to lend to people and businesses.

The housing collapse and credit crunch have led to record-high home foreclosures and forced financial companies to rack up multibillion losses in complex mortgage investments that turned sour.

In the past day and weeks, the Fed has taken extraordinary moves aimed at making sure that problems in credit and financial markets do not sink the economy.

http://biz.yahoo.com/ap/080320/fed_credit_crisis.html?.v=6

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The housing collapse and credit crunch have led to record-high home foreclosures and forced financial companies to rack up multibillion losses in complex mortgage investments that turned sour.

.....hardly complex ....when I was young we used to find gold coloured material in slate stone on the beach ...it was simple and in abundance ....it was called fool's gold ...we knew that when we were nine years old....all that glitters is not...etc.....maybe these people have not attained the mental age of nine yet ...possibly never will........ <_<

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Will any of these institutions, or the ones in the UK ever have to pay these huge amounts of money back?

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Will any of these institutions, or the ones in the UK ever have to pay these huge amounts of money back?

Lets worry about that later. (suussssssss goto sleep now, no need to worry, nighty night).

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Will any of these institutions, or the ones in the UK ever have to pay these huge amounts of money back?

...if they go bust the answer is 'not able to' ....if they survive .....yes..... <_<

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Sudden Debt Blog Entry for Wednesday, 19/03/08

The Fed as Bank

Wednesday, March 19, 2008

The Fed As Bank

The Federal Reserve may be a central bank with special rights and obligations, but in the end it, too, is a bank and has to be very careful who it lends to and what kind of collateral it accepts in exchange.

From a bank analyst perspective, during the last few months the Fed has become increasingly more lax in its lending practices. It is financing highly leveraged investment banks and brokers and accepting a wide range of illiquid securities as collateral, particularly MBSs.

Let's look at the Fed's consolidated balance sheet (click to enlarge):

As of March 12, 2008 the Fed had almost $900 billion in assets, of which $700 billion were in Treasury bills and notes and the rest in an assortment of repos, the TAF facility, etc. The most recently announced programs like the TSLF ($200 billion), the open-ended discount window facility for investment banks/brokers and the $30 billion loan to Morgan (i.e. Bear's toxic assets) are not shown yet.

When those hit the books in the next few weeks, the asset mix will change drastically. The Treasury holdings will go down and be replaced by an assortment of GSE and private label securities. The Fed's risk exposure will jump higher, and significantly so.

Like any other bank, the Fed does not have an unlimited amount of money to lend - all it has is about $700 billion in Treasurys that it can exchange for other, less marketable securities (and it has already announced programs for a big part of that). In contrast, US home mortgages alone amount to $10.5 trillion; if things keep unraveling, the Fed's balance sheet will prove very small for the role it has now chosen for itself.

As for the liability side, the Fed has issued about $800 billion of its own Federal Reserve Notes, i.e. dollars. Our currency is thus increasingly going to be backed by lower quality, riskier assets that no one else wishes to buy or lend against, instead of Treasurys. In effect, Mr. Bernanke is betting the farm on a quick real estate/mortgage turnaround and a very shallow recession. Worse still, instead of charging a higher interest rate for the loans made against the riskier collateral, the Fed keeps cutting rates.

And just how sound is Mr. Bernanke's "bet the farm" wager on a quick turnaround of the US real estate market? Judging from the following chart, not very sound at all. Unlike previous real estate boom cycles that lasted 2 to 4 years and peaked at 700-800.000 new homes sold per year, the one now busting lasted 13 years and peaked in 2005 at 1.300.000 units. There has been a lot of housing demand satisfied for many years to come and the downturn will not likely end soon.

Without Greenspan's negative real interest rates after 2000, the cycle would have probably turned down (red line), avoiding the bubble of 2002-06. Based on this hypothesis, there have been almost 3 million "extra" homes sold (black line minus red line), creating a fundamental housing demand deficit that won't go away even if credit becomes cheap again.

Let's summarize: riskier borrowers, low quality collateral concentrated on real estate, questionable appraisals for market prices and "low, low rates". Is the Fed turning itself into a sub-prime lender? If I were a bank examiner, I would want to have a quiet word with Mr. Chairman about his lending practices.

And if I were a shareholder or creditor of the Federal Reserve Bank (remember what its liabilities are), I would be worried. As, indeed, so many already are - they are those who are exchanging their dollars for other currencies and commodities.

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Investment Firms Tap Fed for Billions

By Jeannine Aversa, AP Economics Writer

Investment Houses Borrow Billions From Fed's Emergency Lending Program

WASHINGTON (AP) -- Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.

The lending is part of a major effort by the Fed to help a financial system in danger of freezing.

Those large firms averaged $13.4 billion in daily borrowing over the past week from the new lending facility. The report does not identify the borrowers.

The Fed, in a bold move Sunday, agreed for the first time to let big investment houses get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, got under way Monday and will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Goldman Sachs, Lehman Brothers and Morgan Stanley said Wednesday they had begun to test the new lending mechanism.

On Wednesday alone, lending reached $28.8 billion, according to the Fed report.

The Fed created a way for financially strapped investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

The Fed, in another rare move last Friday, agreed to let JP Morgan Chase secure emergency financing from the central bank to rescue the venerable Wall Street firm Bear Stearns from collapse. Two days later, the Fed back a deal for JP Morgan to take over Bear Stearns.

Thursday's report offered insight on how much credit was extended to Bear Stearns via JP Morgan through the transaction the Fed approved last Friday. Average daily borrowing came to $5.5 billion for the week ending Wednesday.

Separately, the Fed said it will make $75 billion of Treasury securities available to big investment firms next week. Investment houses can bid on a slice of the securities at a Fed auction next Thursday; a second is set for April 3.

The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral.

By allowing this, the Fed is hoping to take pressure off financial companies and make them more inclined to lend to people and businesses.

The housing collapse and credit crunch have led to record-high home foreclosures and forced financial companies to rack up multibillion losses in complex mortgage investments that turned sour.

In the past day and weeks, the Fed has taken extraordinary moves aimed at making sure that problems in credit and financial markets do not sink the economy.

http://biz.yahoo.com/ap/080320/fed_credit_crisis.html?.v=6

http://www.telegraph.co.uk/money/main.jhtm...21/cnboe121.xml

..../

Mr King yesterday demonstrated his commitment to funding by renewing the Bank's £5bn offer of three-day money until the monthly financing period ends in April. Separately, the ECB offered €15bn (£11.7bn) to see banks through the Easter weekend..../

That is $10bn for the weekend from Merv and about $22bn from the ECB. Get those presses rolling Claude and Merv--quick as you can as MOnday will be here sooner than a blink of the eye!

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  • 293 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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