Largest Banks Likely Profited By Borrowing From Federal Reserve, Lending To Federal Government

Originally posted by Vikus

Originally posted by Dance4Life
reply to post by daynight42

 

Not correct.

The TREASURY ( something like the office of engraving? ) prints money. In fact most of what you read about this whole thing is misinterpretation / purposeful misinformation.

What the FR does MAINLY is just set interest rate policy. In fact there are plenty of speeches where Fed Presidents have stated that they do not want any more responsibility nor do they think it is a good idea.

If you would like to read more about this you can check out these links. Our real problems start in Washington with your elected representatives. Not the FR, no matter what most drones will tell you.

Cornell Law

Wiki : Open Market Operations (Auction)

The Fed sets interest rates and reserve rates.

Banks lend to each other all the time, with the Fed setting the reserve limit, and this creates a ton of money out of thin air, all of it debt.

Bank A has $1,000 and has to keep 20% in reserve. So they loan $800 to bank B. Bank B loans $640 to Bank C who in turn loans $512 to Bank D.

From $1,000 that Bank A originally had, $1952 ($800+$640+512) was lent out. Imagine this formula on a grand scale equaling the size and complexity of the U.S. economy. The problem is that not all of it can be paid back with interest. The system is designed to be over-leveraged and unless new money comes in, everything crashes hard.

As for the straight printing of money, the Fed purchases bonds from the U.S. Treasury then the Treasury coins the money. Of course the bonds have to be paid back, with interest. The thing is, where does the Fed get the money to buy U.S. bonds? From member banks? How did they get so much damn money to buy hundreds of billion in bonds? Ron Paul wants to know. Either they made the money up or they have been gaming the system for a long time, or both.

So long as the current currency system remains in place, not even Jesus himself can fix things from a political point of view without drastically reforming the currency system.

Speaking of Jesus, throughout history, banks and money-changer types have been viewed with suspicion and if we are to learn anything from history we should view them with suspicion today as well.

I'm not good at figuring out how to quote exact statements, so I will reply specifically to each paragraph as best I can.

Yes, banks led to each other all the time. You might have heard of the Interbank lending market before? Most likely in passing, if at all. These are short term loans, 24-100+ hours.

Let's say that my bank has a withdrawl of $50,000 cash. My bank then goes into this market to essentially withdraw liquidity. At a price of course. They have to borrow money because they are deemed to need a reserve requirement.

Now, if you have to go to the Discount Window, this is a slightly different story. The DW is probably where if there was going to be some behind the scenes funny business, it would be here. I can't say for sure, so there is no point speculating. The rate they pay to the FR for this is called the Repo Rate.

This Repo Rate is actually more expensive to partake in ( speaking in terms of interest ). Not that I have received this access personally, but AFAIK these amounts of money are very large when they happen. Let me also state ( if this is even possible in the big bank environment ) this is also seen as shameful, and you are pretty much looking like a d-bag if you partake in this. Yes, this was happening all the time late 2008.

As far as addressing the next question.

You are making further assumptions without realizing what should / should not happen in your example I believe. How does Bank A have $1952 all the sudden? Not trying to be mean but I do not understand this. Perhaps you mistyped. When a bank - bank transfer happens, Bank A would collect interest on this amount loaned out. But there would be no reason to ever transfer in the first place if there was not equal demand going the other way through another venue. Remember, we need to all have a certain amount. So one of the Banks has it. Hopefully this makes sense and is not confusing. Because otherwise the bank is going to the FED and not another bank.

Let's push this example further. How did Bank A or any bank for that matter have MORE than the reserve limit? Most likely it was deposits ( the other side of your equation you failed to list ). The bank can have MORE than the reserve, but NEVER LESS.

If we think about this entire equation in a more dynamic manner we begin to see that due to the large pool of transactions that are always occurring during the day that we do in fact need to be able to move the decimal point digitally for a small time. ( of course, we pay for that small time because of opportunity cost ) Then move the decimal point back because we are never in a stand still. We are always in motion.

I am guessing that most of the missing dollars in the equation that are hard to account for is money that is not known by the IRS. Venture a guess how many greenbacks are lined with coc aine? Think about the cash that is out there that is sitting on the proverbial sidelines.

Our bond market is hands down ( x1000 ) the most liquid - active market on the planet. In fact people collect far less to buy our debt because we are the sure thing. I agree in some form, there is shady stuff going on somewhere. What profession doesn't have shady people? None that I know. I am sure minor atrocities are performed daily, never to be known about.

Where did the FED originally get the money from? Well think about who actually runs the FR. JP Morgan and "friends" basically. They all own shares.

Why do we need the FR? Why did we resurrect this model? ( Remember George Washington I believe started the first central bank ). Basically because of a centralized station of liquidity. It really makes sense actually. During the early 1900's when we had emergency conditions we figured out that instead of having the entire country lock up it would be better to "smooth" the down hill transition. It worked again ( IMO ) during 2008-early 2009. The stockmarket might have dropped violently ( which is a forward looking indicator ) but from the economy POV it was, and has been, a slower downhill grind - which will hopefully be turning around soon.

I don't think BBernanke would fault you to say things are really messed up. If you think about it his only real job this whole time has been to soften the "death blow" over the past 2+ years. IMO, he has done a very good job. He also knows how to keep his mouth shut unlike other Central Banking authorities.

In fact during his speeches he has stated that our spending is out of control. He cannot and will not comment further though. He is correct when he states the FR should be totally independent from Congress. Would you really trust Michelle Bachmann to have a say in interest rate policy? Who spends again? It isn't BBernanke. Really, I promise to god, the FR is not our real problem.

Originally posted by Billmeister
reply to post by Dance4Life

 

I have to agree with Vikus

Yes, paper currency is printed by the "U.S. Bureau of Engraving and Printing" and coins are made by the "U.S. Mint", all at the tax-payer's expense mind you, but this is not how the Treasury raises (or "creates" money).

When Congress requires funds from the Treasury, the Treasury creates Bonds, essentially pieces of paper backed by the guarantee that taxes will be collected to pay for the amount of the Bond plus whatever guaranteed interest is added to it.

These bonds are sold to other nations and private banks in exchange for tangible, spendable currency.

The Federal Reserve, in this particular case, used tax-payer "bail-out" money to lend to these private banks at 0.25% interest, so they could be use it to buy T-Bonds with a guaranteed interest of 3.5%. Heck, anybody would jump at the opportunity to do that!

The "elephant in the room" question that is implicit here is "why would a government set-up a system that requires it to borrow money, at interest, from a private bank, that it has the powers and infrastructure to print for itself?".
The short answer is, "what would be in it for the banks?"...
The long answer depends on how much global control you believe these banking entities have had throughout history, and how much influence they have in national governments to influence policy in their favor.

the Billmeister

p.s.
Of course, my understanding may be wrong...
"The process by which money is created is so simple that the mind is repelled." - John Kenneth Galbraith

You are correct with bonds. Or me or you could purchase them as well. We just need to go to a primary dealer.

Yes, this interest was low. But if you think about it so were consumer loans. How cheap was the 30 year rate during 2009? I don't recall personally, but it wasn't much.

These bonds were an obvious investment. Basically investing in America. I don't see a problem with that. It was also an obvious trade from the banks POV. ( "Flight to quality" trade )

If the FR wanted to privately buy those bonds, don't you think they would have just done that exact thing? I mean they really can't be the evil empire when they go out and loan BOA money to then go in through a paper transaction and try to trick you. They would have just tricked you and you would have never known.

I don't really see it like that.

Originally posted by Dance4Life
These bonds were an obvious investment. Basically investing in America. I don't see a problem with that. It was also an obvious trade from the banks POV. ( "Flight to quality" trade )

If the FR wanted to privately buy those bonds, don't you think they would have just done that exact thing? I mean they really can't be the evil empire when they go out and loan BOA money to then go in through a paper transaction and try to trick you. They would have just tricked you and you would have never known.

I don't really see it like that.

This is probably far beyond my scope of expertise, but bare with me.

I believe that the bonds were more than an obvious investment, but probably a required one, as the confidence in the American dollar was at an all-time low, and the potential for the global economy to get away from the dollar as the currency for international trade was looming. This was an artificial boosting of confidence in the American Treasury bond by a manipulation of the markets.

Again, the Fed's preferred rates to these banks insured they would make huge profits, while creating the illusion of consumer confidence in the bond market. In reality, as you state, there is nothing wrong with that, unless, as I suspect, there is a very close relationship with those at the head of the Fed and the banks who benefited from these assured profit interest rates.

As you say, you and I can buy bonds (though this is a negligible percentage of the bond market), so why did the FED not hand the "bail-out" money (which was the tax-payers) back to the tax-payers for them to benefit from this sure deal?

That said, I see where you are coming from, and I am an admitted hard-core cynic when it comes to politicians and their relationship to the finance sector, so my opinion should definitely be viewed with that in mind.

Cheers,

the Billmeister

reply to post by Billmeister


I know where you are coming from.

This will help. The flight to quality / flight to safety in tough times works like this

Buy US Dollar ( Sell all other currencies ), Buy Longer Dated Maturity Bonds ( but all bonds as well - 30 Yr Bond will do the best - then 10 yr - then 5 -> etc). Selling equity markets, especially overseas equity markets ( US Equity markets percentage-wise will always do better than anyone's, although still down of course ).

This is not only known by banks but major institutional holders of stock and this is co-mingled with the Hedge Fund scene. Basically everyone with money that has a say in the game.

The point behind this whole trade is this. If everything in the world turns to total ****, then the USA is at least the most athletic, best looking fat kid on the block.

Originally posted by Dance4Life
reply to post by Billmeister

 

I know where you are coming from.

This will help. The flight to quality / flight to safety in tough times works like this

Buy US Dollar ( Sell all other currencies ), Buy Longer Dated Maturity Bonds ( but all bonds as well - 30 Yr Bond will do the best - then 10 yr - then 5 -> etc). Selling equity markets, especially overseas equity markets ( US Equity markets percentage-wise will always do better than anyone's, although still down of course ).

This is not only known by banks but major institutional holders of stock and this is co-mingled with the Hedge Fund scene. Basically everyone with money that has a say in the game.

The point behind this whole trade is this. If everything in the world turns to total ****, then the USA is at least the most athletic, best looking fat kid on the block.

I thought the natural "flight to quality/safety" in times of economic instability is towards commodities (more likely precious metals).

Thus the "manipulation" tactic of Fed in "manufacturing" consumer confidence in the U.S. Treasury bond market.

I will agree with you that, no matter what happens, the most elastic and versatile market has always been (well in modern history, of course) the U.S. And it will undoubtedly come out of this most recent economic "debacle" relatively unscathed.

But my point is that a select few has been deemed "worthy" of being given very favorable investment opportunities (low borrowing rates with guaranteed returns) while the rest of us were not privy to this favorable treatment. (So much for a "free market" I guess.)

the Billmeister

reply to post by Billmeister


Not really, and yes at the same time. Metal prices *usually* move with the dollar.

Dollar Gaining Strength = Metals down

" " Losing Strength = Metals up

Look at 2008 - 2009 silver prices. Almost 100% a function of US Dollar prices. Go to finviz and click on Futures Tab. Then click on Silver -> Weekly Chart. Do the same the US DOLLAR INDEX FUTURES. If you haven't been privy to this previously you will find this interesting.

But yes, metals could possibly be viewed as *safety* depending on the situation. More so with a currency crisis ( the talk lately ) than anything. At that point most likely correlations will go out the window.

Good luck

reply to post by Dance4Life


10-4.

Thanks for the intelligent discussion and thinking points, though we may disagree on some points, this is why I joined ATS.
If everyone agreed 100% on everything, both life and ATS would be bland.

take care,

the Billmeister

EDIT: Yes, I have been buying silver, as it is the "poor man's gold" but it has been fluctuating in mysterious ways... but it's all good, that is the nature of speculative markets is it not?

I already "knew" this had happen, it was evident.

At least one good thing I see in this, maybe socialism is better then capitalism if the ones that can afford it, choose socialism. Just saying.

Humans are just too corrupted and greedy to have either a capitalism or communism system anyway.