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View Diary: Fed Audit: $16T in secret loans (228 comments)

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  •  not just that (1+ / 0-)
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    JTinDC

    Example:
    Goldman-Sachs takes out 10 billion for an overnight, since they are Goldman and the government is 'bailing them out' they get the money for something like 10 basis points. (That's 1/10th of a percent interest)

    That 10B gets transferred though their electronic brokering system in to an overseas market, or after-hours market, or active cash account.

    That 10B overnight loan earns Goldman 200-300 basis points in about 12 hours. (roughly) We'll go crazy and give them 300, for a total of 13B.

    Goldman doesn't pay the loan back, so the Fed automatically makes them another overnight for 10B.

    Goldman "defaults" on this initial 10B for a period of 30 days.

    Goldman finally pays back the initial 10B, with some interest (and here's the tricky part) and that interest goes right back to Goldman.

    Why? They are servicing their own loan, using money electronically created by the Fed and put in charge of handling their own interest. This means that Goldman is essentially printing their own money.

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