The so-called Term Auction Facility (TAF) is, Wikipedia asserts, an instrument of monetary policy that was introduced by the Federal Reserve in Dec. of last year in an attempt to increase liquidity of U.S. financial markets. TAF was intended to be a temporary measure, an emergency discount window that banks could use to ease short-term liquidity problems.
Well, TAF ain't no temporary no more.
The program initially auctioned off $20 billion in funds, then $40 billion ... This month, it was authorized to auction $60 billion, a number that has ballooned to $100 billion ... The idea here is for the Federal Reserve to make funds available to banks whose operations are freezing up because of the current crisis.
$100 billion, woo! We're starting to talk about real money.
The funds are made available to banks as loans that are secured by collateral that the institutions offer to the Fed. The funny thing is, can you guess what kind of collateral the Fed is accepting for the loans?
Everything but the kitchen sink.
Including the toxic sludge of shady financial instruments generated by the housing bubble.
So, let's re-cap ...
The Fed is using its "temporary" auction facility to trade tens of billions of dollars with distressed banks in exchange for collateral that consists of financial instruments whose value no one can determine and may, in fact, represent only a fraction of what the banks advertise it to be.
This isn't just a "discount window." This is a "super-discount window." The Fed is allowing banks to borrow against collateral that might be worthless (or merely worth a whole lot less than its stated value). How is that for cheap money!
At the same time, apparently, our nearly-insolvent banking giants might go under if they don't have access to these funds.
So, in that sense, the Fed action makes, well, sense.
As gratifying as it might be to see the shameless Thieves of Wall St. go under and take their stinky banks with them ...
Well, we need these banks to live on in order for our economy to be healthy.
And we need the banks themselves to be healthy.
So, we let them nurse at the teat of Mother Citizen and Mother Taxpayer, give them whatever cheap or free money they need, and allow the value of our savings and our household financial futures to fall as required to keep them afloat.
What I don't understand is ...
Why hasn't there been any discussion so far as to what these banks need to do in exchange for what seems to be (at the moment) a slow-motion bailout? When do Mother Citizen and Mother Taxpayer get their recompense?
Shouldn't we be insisting that the banks reform their practices if they want to have access to government guarantees for their health?
Why haven't all these bank CEOs been fired, like the chiefs of Citibank and Bear Stearns?
Why isn't Congress telling the banks that, if they want help from the government, they need to agree to the restoration of the Depression Era banking laws which, for sixty years, prevented a meltdown like this from happening?
I understand that this is complicated by the fact that the Federal Reserve is a body that acts independently of the White House and Congress.
But I think it's time that we start asking for a bit of quid pro quo.
You want a bailout? Fine. But you'll have to agree to some common-sense regulation that protects both you and the public from the excesses that appear to be inherent in your line of business.
And your billion dollar executives and money managers should be fired and publicly humiliated for bringing this whole disaster upon us.
© Kos Media, LLC
Site content may be used for any purpose without
explicit permission unless otherwise specified.
Privacy Policy
Powered by Scoop.
Permalink | 10 comments