Fed's first foray into unsecured loans

Fed's first foray into unsecured loans

www.ft.com

The Federal Reserve is working with the US Treasury on plans for a dramatic move into unsecured lending in the hope that this extreme step could help bring credit markets back to life.

As well as unsecured lending to banks, this could lead to the Fed directly purchasing commercial paper or funding a special purpose vehicle set up to do this.

Any unsecured lending would be a radical departure for the Fed. Central banks the world over almost never make unsecured loans, and the Fed has never done so in its history.

(visit the link for the full news article)

I'm absolutely stunned that this is something that could even be considered.

The Fed issued a press release before the US markets closed today indicating that they were exploring the possibility of issuing unsecured loans to banks. The announcement came at about 3:30pm EST, shortly after the DOW fell to 9525 - an 800 point drop from open.

An unsecured loan is exactly what it sounds like - it's a loan given without any collateral to back it up. It would be like borrowing $100 from your buddy for a couple weeks to hold you over until your next paycheck. You don't need to give him your stereo to hold until you pay it back; he just gives you the money and trusts that he'll get that $100 back.

The Fed is looking to do this, only on a multi-billion dollar scale. Banks that are hurting for cash on a temporary basis would be able to hit up the Fed like they were old buddies for a billion or two bucks to "tide them over" if this plan were to be put in place.

Ask yourself - if the Fed is going to loan out money without requiring any collateral in return....where is that money coming from?

www.ft.com
(visit the link for the full news article)

Wow you have been on top of these stories along with the CDS story. Good find. Im trying to figure out the overall objective in this whole mess. Is it to make people beg for a new one world currency? Is it to have people beg for more of their own slavery? What is it? I mean a broken system does not do the leaders of the system any good. Is this more of a power grab? Alls I know is now they are wanting to lend with no collateral...pfft that puts the tax payers on the hook once again only in an indirect way. Disgusting.

Just a thought, Isnt that why were in the mess. Because people were givin loans without collateral, or backing up their loans. Why would we let Banks do this, when its what messed us up in the first place. I thought a lot more banks will be going bankrupt within the next year. so if the Feds gave them money with out any backing and the bank went bankrupt where are back where we started .

Originally posted by anachryon

Ask yourself - if the Fed is going to loan out money without requiring any collateral in return....where is that money coming from?

From someone typing the sum into some software and hitting return.

This kind of 'Money Creation' is a huge part of what got the Global banking system into this mess in the first place.

It's not as simple as it sounds, on the same news:

...However, the US central bank does not believe it has the legal mandate to make unsecured loans on which there is a reasonable likelihood of some loss. So it needs the Treasury to guarantee losses on the loans, probably under new authorities granted by Congress last week with the passage of the $700bn (€518bn, £402bn) Paulson plan. ...

It is a dangerous way of using those newly issued powers, if it works, it will be a brilliant plan, it it fails though... very risky business.

That's insane!

The financial world is in a deep hole, and the Federal Reserve's answer is to keep digging?! This serves as symptomatic evidence of just how desperate things must be.

Originally posted by Dermo
From someone typing the sum into some software and hitting return.

This kind of 'Money Creation' is a huge part of what got the Global banking system into this mess in the first place.

Eggs-acktly, mi amigo. It's quite potentially an inflationary move, which either means there are other forces at work (if you're into those kinda thoughts) or ... we're in more serious trouble than we realize.

Originally posted by mybigunit
Wow you have been on top of these stories along with the CDS story. Good find. Im trying to figure out the overall objective in this whole mess.

In my opinion....the bailout news didn't loosen up the credit markets, didn't help stocks recover, didn't do a darn thing. I believe Hank and Friends truly thought that the bailout passing would have an immediate effect for the positive, buying them some time to try and come up with a workable long term plan.

That didn't happen. Markets tanked across the world today. Banks failed. Governments everywhere are scrambling, putting themselves in deeper debt, trying to stave off the inevitable.

I think this is a last-ditch attempt to try and pull us back from the edge. I believe we are at the edge of the precipice. Did you hear the Bank of America news today? First nearly $1B in writedowns for the last quarter, then they cut their quarterly dividends in half - their first div cut in the company's history. A lot of bad BoA news today in general; if BoA falls, it's probably time to run for the hills.

And for you guys to have a look at the sort of people being bailed out:

news.bbc.co.uk...


Short summary:


Lehman Bros head took home $300m

Richard Fuld: "I don't expect you to feel sorry for me"

The head of failed US investment bank Lehman Brothers has told Congress that he took home about $300m in pay and bonuses over the past eight years.

Eggs-acktly, mi amigo. It's quite potentially an inflationary move, which either means there are other forces at work

This is exactly what my opinion is on the whole Global situation. This has been meticulously planned and executed to a tee. The US federal reserve is like an open book.

They are going to keep flooding the US with dollars until the USD is extremely weak.
By getting the US treasury to guarantee the unsecured loans, the FED can open a doorway to crash the US markets even more!!!

Then the main shareholders of the FED will buy up the cheap Financial shares and stocks on Wall st before reversing the problem over a couple of years.
By that stage, they will have done almost exactly what Baron Rothschild did to the London stock market directly after the battle of Waterloo, the first big US crash and numerous other market collapses and legal coups that have occoured in almost every country that uses the Anglo Capitalist monetary system we currently use.

But.. i could be completely wrong