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I'm an idiot, completely unqualified.  But last I remember, mortgage backed securities were what were at the center of the economic meltodown of 2008, at the center of bank/mortgage company meltdowns, at the center of the disaster.

So isn't this just another citibank/wellsfargo/etc bailout?

I apologize for being so clueles - I have little financial background - but it astonishes me that no one is questioning this.

I understand Obama has already made it clear that he will not renew Bernanke as Chairman when his term is up in 2014.  

Dunno.  Something going on.  I'm depending on the sterling posters I follow regularly to help me make sense of what seems to me to be a completely senseless policy decision at the Federal Reserve.

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Comment Preferences

  •  Tip Jar (4+ / 0-)

    Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

    by Gustogirl on Fri Sep 14, 2012 at 01:11:56 AM PDT

  •  Tell me how (2+ / 0-)
    Recommended by:
    corvo, OooSillyMe

    buying $40 billion or million a month in mortgage bacced securities is going to ease unemployment?

    Meanwhile, the MSM assumes this is such a good thing that i is a political move designed to enhanvce Obama's prospects????

    This is a stink bomb.

    Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

    by Gustogirl on Fri Sep 14, 2012 at 01:32:15 AM PDT

    •  My advice (5+ / 0-)

      If you don't understand a topic, make an effort to learn something about it before deciding there's an evil conspiracy afoot.  

      History will be kind to us because we will write it.

      by Sky Net on Fri Sep 14, 2012 at 05:03:22 AM PDT

      [ Parent ]

      •  Well, I came to the place (0+ / 0-)

        I trust the most to try and learn something about it.

        I'm hoping some of the diarists I trust will write about this.  I'm sorry you interpreted that as my  thinking wishfully for a conspiracy theory.

        "Mortgage securities" should leave a bad taste in all our mouths, considering the crash we still haven't shaken.

        Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

        by Gustogirl on Fri Sep 14, 2012 at 08:03:58 AM PDT

        [ Parent ]

    •  Because it means $40 billion worth of new (2+ / 0-)
      Recommended by:
      Gustogirl, Neuroptimalian

      housing construction, employing bricklayers, carpenters, plumbers and electricians, who in turn buy groceries, baby clothes and appliances.

      They are not just buying assets from banks.  They've created a new pipeline, basically a nationalized mortgage finance system, to pump money into the real economy.

  •  Bernanke is the Chairman of the (1+ / 0-)
    Recommended by:
    Gustogirl

    Federal Reserve. Geithner is the Secretary of the Treasury.

    I'm not sure what the mechanism is that Bernanke employed, what it intends or what it will actually do. Somehow I think it all floats around on the top and stays there.

    •  Yep, this is another floater (4+ / 0-)
      Recommended by:
      Gustogirl, Ralphdog, corvo, WheninRome

      The Fed is printing money to give to the banks in exchange for a lot of loans they now hold.  So the banks will take that new money and go play at the Wall Street Casino forcing the stocks higher.  IMHO, creating another bubble that has no basis in any kind of value.  It's just moving money around at the top.

      Congressional elections have consequences!

      by Cordyc on Fri Sep 14, 2012 at 02:06:25 AM PDT

      [ Parent ]

    •  honest, I knew that (2+ / 0-)
      Recommended by:
      corvo, WheninRome

      Thanks much for the corrections.

      It's not the first time I've noticed a tad of cognitive loss...

      It's like my greatest pleasure in life thought and knowledge and learning is slowly draining away.  

      Uselessness is the worst feeling in the world.  I'm not quite there yet.  But I feel it coming on... :)

      Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

      by Gustogirl on Fri Sep 14, 2012 at 02:13:26 AM PDT

      [ Parent ]

  •  Play Money for Monopoly. I don't get it either. (1+ / 0-)
    Recommended by:
    Gustogirl

    But then I still cannot even envision a million dollars...OY!

    I've never been money-minded, addicted to it or chased the Almighty Dollar so what do I know?  :(

    "Time is for careful people, not passionate ones."

    "Life without emotions is like an engine without fuel."

    by roseeriter on Fri Sep 14, 2012 at 02:20:58 AM PDT

  •  No, but it's a good question. (5+ / 0-)

    What he's doing is telling the money hoarders that their strategy of withholding money in hopes of making interest rates rise won't work. The Fed will continue to pour in money and the base rate, by which the banks and other financial institutions set their lending costs, won't be increased beyond the nominal cost of keeping the accounts.  In other words idleness will not pay.
    Too many people have gotten into the habit of using money, which is supposed to be a tool that is used to facilitate trade and exchange into a fetish -- something to be admired and played with, but not used or shared. It is sort of like the fascination with women's boobs as objects to be oggled and fondled, but not sucked by babes.
    Also, the lesson being taught is that our currency is something we can always make more of and the ratings' agencies' claim that they have some authority over the dollar is entirely bogus. The ratings they give to U.S. bonds is about as significant as the ratings issued by the Legion of Decency for movies. They only signify, if people boycott the product on the basis of the rater's advice.

    We organize governments to provide benefits and prevent abuse.

    by hannah on Fri Sep 14, 2012 at 03:01:30 AM PDT

    •  Another word for "money hoarders" (0+ / 0-)

      is "prudent savers." My financial planner keeps explaining to me that being cautious, saving money in the bank, and refusing to play stock market roulette with my savings is the road to ruin, because inflation will eat my savings up. So we have an economy in which saving for a rainy day doesn't pay.

      Please visit: http://www.jkmediasource.org

      by Noisy Democrat on Fri Sep 14, 2012 at 07:50:33 AM PDT

      [ Parent ]

      •  What you need for a rainy day is an umbrella. (0+ / 0-)

        Money is worthless. It is a tool, like a measuring stick that transmits information, but instead if distance, it measures the value of one's contribution to someone else and the other's obligation to repay. Trade and exchange can occur regardless of whether money is used as an intermediary. Money just makes it possible to have a larger network of exchange over greater distances and longer periods of time. In that sense money is much like writing, a visible symbol of meaning and the spoken word. People can communicate without writing, but not as far or to as many people.
        Letting some people monopolize money is like letting some people monopolize the printing press or the Internet.

        We organize governments to provide benefits and prevent abuse.

        by hannah on Fri Sep 14, 2012 at 08:30:50 AM PDT

        [ Parent ]

  •  Not really (8+ / 0-)

    Basically, all of the Fannie Mae and Freddie Mac backed securities were already guaranteed by the Treasury back in 2008, under Paulson, near the end of the Bush administration.  So the Fed can basically treat them as government obligations. So this isn't that different from standard Fed monetary policy, which is normally accomplished by buying and selling government bonds.  

    Are the benefits of this somewhat limited? Yes.  In a healthier economy, there would be stronger benefits, through a lowering of interest rates.  This would basically encourage more borrowing by business and consumers.  

    But with interest rates already near zero, the current economy really is much more in need of fiscal stimulus (more spending), rather than monetary stimulus.  Even there though, monetary policy can play a role.  If you spend $500B creating jobs, and then have the Fed buy up $500B in bonds, you haven't increased the publicly held national debt any; it's basically the same as printing money to finance your spending.

    But with no political ability to get the spending we need, at least getting the monetary policy is still better than nothing.  Mark Thoma explains it pretty well:

    Even with the policy commitments issued today and the actual actions the Fed will take, there is some question about how effective the Fed will be at stimulating the economy. The policies work mainly through lowering long-term interest rates and elevating stock market values. But there is not much room for long-term interest rates to fall, and the stimulative effects of higher stock values aren't that large. In addition, some analysts worry that this will make it far less likely that Congress will initiate tax cuts, additional spending, or direct job-creation measures, though political gridlock likely eliminates that possibility in any case.

    Not everyone, however, agrees that the Fed is relatively powerless, and with fiscal policy off the table, inflation worries very low and the unemployment problem very large, the Fed decided that more action was justified. It may not be able to completely fix our economic problems, but it does believe it can help.

    http://www.cbsnews.com/...

    Basically where the money goes in this case is into providing more support for asset prices, especially housing and equities markets.  The Fed isn't doing this directly, but by buying MBS, other investors who would be buying them are pushed instead into these other alternatives.

    Since housing and equities are broadly held (not only held by the 1% for example), this does have some benefit for middle class balance sheets, and so has some effect on consumer spending.  

  •  It's really pretty simple. (2+ / 0-)
    Recommended by:
    corvo, Gustogirl

    The banks and their fellow travelers own a ton of bad debt, in the form of those constructed "bonds" ("collateralized debt obligations", CDOs) they've sold each other. And sold each other. And sold each other. Not so secondarily, there's insurance on all of them, to be paid when (not if) they fail -- AIG, anyone?. All the slicing and dicing and reselling and insuring has served to inflate the value (on the books) of all the paper, while the housing market has tanked. In a logical world, the paper should be worthless, and the insurance should pay up. Banks don't like owning worthless paper, and insurance isn't supposed to ever have to pay for anything; it all upsets balance sheet lies.

    Enter Bernanke, bearing money. Banks dump their worthless paper, and for however long they can get away with it, at a rate of half a trillion per year they're "re-capitalized", and the Fed owns the bad paper. The potential insurance claims disappear.

    Eventually, when reality bites, the worthless paper gets written off on our dime, because the real rules are that nobody pays at that level, and the losses just float off into the sunset. The banks keep the payments, the insurance companies keep the premiums, "business" continues. Nobody has to "unwind" the spaghetti; somebody else (us) eats it.

    And it's never gambling, it's just business. "Gambling" is when you get caught with all your chips on black and the wheel comes up red. This wheel has no red numbers.

    It all seems antiseptic and painless, except that eventually "something for nothing" means our currency is debased, no matter what pleasantries are passed around. The bad paper "disappears", no actual debtors are helped, the bank balance sheets get magically better, wall street valuations go up.

    Once again, no risk and all reward.

    What could ever go wrong?

    The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

    by semiAdult on Fri Sep 14, 2012 at 03:19:49 AM PDT

  •  No he's keeping economy afloat, paying salaries (10+ / 0-)

    It always disturbs me when someone says they know nothing about finance and economics but then propose a theory about what's going on.

    Bernanke is pretty much the only reason the economy isn't in a Great Depression.  He's been paying the salaries of McDonald's hamburger flippers and Harley Davidson assembly line workers, lending money to consumers to refinance their mortgages, to students in the form of  student loans, making car loans to keep the auto industry afloat, and lending people the money to use their credit cards among many, many other things.

    If you feel you don't know what the Fed is doing, why not actually go to the Fed website, read what they're doing and report back rather than allege an incorrect conspiracy theory about bailing out the banks?

    •  Not the only reason. There was the (7+ / 0-)

      stimulus.  It may have been inadequate to jump start the economy following the Bush Crash, but it did keep us (together with TARP and the other Fed easings) from falling off the cliff into a Depression.

      Ultimately, the only thing that matters with respect to preserving choice is who will be nominating the next Supreme Court Justices.

      by Its the Supreme Court Stupid on Fri Sep 14, 2012 at 03:37:40 AM PDT

      [ Parent ]

      •  My rhetoric was meant to say... (6+ / 0-)

        You are correct that the stimulus and TARP and several other policies kept us from falling off the cliff.  So did Bernanke's quantitative easing.

        What I meant was take away any one of them and we probably would have had a Great Depression.  Since the administration couldn't get a second stimulus through Congress, the main thing propping up the economy has been the Fed.

        What's astounding about the Fed program is the depth of its reach.  When I wrote that the Fed was paying the salaries of fast food workers, I'm not exaggerating.  It's right there on line for people who want to read about it, but who can also decode the somewhat difficult documents that explain it.

        Yet the myth remains and is perpetuated by diaries like this that the Fed bailed out Wall Street but not Main Street.

        •  Bailed out Wall Street... (2+ / 0-)
          Recommended by:
          bluedust, Gustogirl
          Yet the myth remains and is perpetuated by diaries like this that the Fed bailed out Wall Street but not Main Street.
          Wall Street was bailed out, the Wall Street banks are making enormous profits and the executives are receiving enormous bonuses. These are facts.

          Main Street is not making enourmous profits, and the people who work on Main Street are not making enormous bonuses. These are facts.

          So the effects of Fed policies have been good for Wall Street, in an extragavant way, but not so good for Main Street. These are facts.

          So it is a fact that the Fed policies work for the powerful and work against the weak.

          Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

          by hestal on Fri Sep 14, 2012 at 05:03:41 AM PDT

          [ Parent ]

          •  I know you think that makes logical sense (7+ / 0-)

            But the reality is without the Fed's actions the real economy would be far worse off than it is now.  Letting the financial system collapse is not a recipe for economic growth.

            History will be kind to us because we will write it.

            by Sky Net on Fri Sep 14, 2012 at 05:19:32 AM PDT

            [ Parent ]

            •  I know you think that makes logical sense, (0+ / 0-)

              but the reality is that I did not say what you just accused me of saying.

              It is obvious to the most casual observer that "letting the financial system collapse is not a recipe for economic growth." And, consequently, neither that casual observer not I would ever suggest that we should let the financial system collapse.

              It is also obvious that you are asserting that we should be satisfied with the current system. That is foolish in the extreme and flies in the face of human history. Dissatisfaction with the status quo has driven positive changes for millennia.

              Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

              by hestal on Fri Sep 14, 2012 at 05:24:48 AM PDT

              [ Parent ]

              •  Oh (1+ / 0-)
                Recommended by:
                Neuroptimalian

                So how do fed poicies work against the weak exactly?  

                History will be kind to us because we will write it.

                by Sky Net on Fri Sep 14, 2012 at 05:29:28 AM PDT

                [ Parent ]

                •  I knew that you did not read (0+ / 0-)

                  my comment above: "Bailed out Wall Street."

                  There I summarize the net effects of the Fed's policies. Once you digest those, you, as an expert in all things financial, should be able to deduce the ways in which Fed policies work against the weak.

                  It ain't rocket surgery.

                  Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

                  by hestal on Fri Sep 14, 2012 at 05:33:10 AM PDT

                  [ Parent ]

                  •  so you can't explain it (1+ / 0-)
                    Recommended by:
                    Neuroptimalian

                    Figured as much.

                    History will be kind to us because we will write it.

                    by Sky Net on Fri Sep 14, 2012 at 05:51:57 AM PDT

                    [ Parent ]

                    •  It doesn't matter whether I can (1+ / 0-)
                      Recommended by:
                      Gustogirl

                      explain it.

                      When one sees his neighbor's house burning one does not need to know how the fire started in order to know that his neighbor is suffering.

                      So, the People's house in on fire, and the actions taken by the Fed are to protect the arsonists. This is a shame, and a perversion.

                      So, why is that the Fed protects arsonists?

                      Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

                      by hestal on Fri Sep 14, 2012 at 06:12:12 AM PDT

                      [ Parent ]

                    •  If the Fed's policies worked for (0+ / 0-)

                      the weak, then Main Street would be making enormous profits and the people who work on Main Street would be making enormous bonuses.

                      Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

                      by hestal on Fri Sep 14, 2012 at 06:13:51 AM PDT

                      [ Parent ]

          •  I think you misunderstood the sentence (3+ / 0-)

            I could have been clearer.

            I did not mean to say that the Fed (but actually more importantly the Treasury) did not bail out Wall Street.

            My point is that they did not JUST bail out Wall Street.  They bailed out both Wall Street and Main Street.  

            The Fed did not want the public to know the depths of the crisis so they did not publicize what they did, but they did post a lot of difficult to understand for laymen documents on the Web, and when they finally released documents to Bernie Sanders, they revealed that they were effectively keeping Main Street alive.

            The Fed literally -- and I mean literally -- was paying the salaries of people who worked at McDonalds across the country.  How is that not bailing out Main Street?

            Most people have no clue of the scope of the Fed's activities over the last 4 years.

            Virtually every home sale, every mortgage refi, every student loan, every car loan and every credit card balance has been in effect a loan from the Fed.  It has become like a nationalized city bank.

            Moreover, the Treasury as everyone knows made a few gigantic short term loans under TARP in the fall of 2008.  The government charged high rates of return (not interest but a mandatory preferred stock dividend plus warrants), and the Treasury made billions of dollars on the TARP preferred and warrants, which actually reduced the deficit.  

            What they don't know is that the allocation only used about half of the money and when the Obama administration came in, the lent the rest to regional and small banks and credit unions across the country keeping thousands of small banks (and hence Main Street) afloat (here's a small sample):

            Community First Guam Federal Credit Union     Bank     Guam     $2,650,000     -$2,562,992
            Shreveport Federal Credit Union     Bank     La.     $2,646,000     -$2,559,858
            Deerfield Financial Corporation     Bank     Wis.     $2,639,000     $644,339
            Manhattan Bancshares, Inc.     Bank     Ill.     $2,639,000     -$1,995,654
            Community Investors Bancorp     Bank     Ohio     $2,600,000     -$2,119,008
            Northern State Bank     Bank     N.J.     $2,571,000     $416,782
            Goldwater Bank     Bank     Ariz.     $2,568,000     -$2,422,250
            Community 1st Bank     Bank     Calif.     $2,550,000     -$2,410,980
            Plato Holdings Inc.     Bank     Minn.     $2,500,000     -$1,965,712
            Atlantic City Federal Credit Union     Bank     Wyo.     $2,500,000     -$2,417,917
            Pyramid Federal Credit Union     Bank     Ariz.     $2,500,000     -$2,417,917
            AmeriBank Holding Company     Bank     Okla.     $2,492,000     $468,023
            Grand Financial Corporation     Bank     Miss.     $2,443,320     -$1,902,424
            Citizens Bank & Trust Company     Bank     La.     $2,400,000     -$2,151,117
            CSRA Bank Corp     Bank     Ga.     $2,400,000     -$2,219,060
            Green Circle Investments     Bank     Iowa     $2,400,000     -$1,979,260
            Brogan Bankshares, Inc.     Bank     Wis.     $2,400,000     -$1,997,280
            NEMO Bancshares Inc.     Bank     Mo.     $2,330,000     -$1,761,802
            IBT Bancorp     Bank     Texas     $2,295,000     -$1,903,020
            Columbine Capital Corp     Bank     Colo.     $2,260,000     $429,480
            CenterBank     Bank     Ohio     $2,250,000     -$1,877,217
            Alternatives Federal Credit Union     Bank     N.Y.     $2,234,000     -$2,160,650
            Union Financial Corporation     Bank     N.M.     $2,179,

            http://projects.propublica.org/...

            •  The difference is huge. (1+ / 0-)
              Recommended by:
              Gustogirl

              Wall Street has prospered and Main Street has not.

              I own a retail business located in a high traffic area that has been a mecca for tourists for decades. My store has long been very successful. My store sales are now only 33% of what they were when the Bush crash started. I have good merchandise, well-priced, in a desirable location, but if I did not have enough personal capital to keep the thing going then I would have closed a year ago. But I have loyal employees who would probably not be able to find jobs if I closed. So, I keep it going. But I have told them all that I will reevaluate everything at the end of next May.

              My business is located on an historic square which has many attractions for the citizens of nearby large cities. On my side of the square, every retail business but mine and one other, a sandwich shop, has changed hands. Buildings have been sold because mortgage payments could not be met.

              The same is true of the other sides of the square. People have tried for years to hold on , and most of them are gone. The replacement businesses on my side of the square are already in trouble. They get lots of traffic, but few sales.

              My neighbor on one side works for UPS and has done so for years. But his financial outlook is depressed. UPS has suffered and so has he. He is discouraged.

              My neighbor across the road works for one of the largest power plants in Texas and they have now dropped the pension plan for employees, plus many plans for enlarging the facility have been dropped because of the cost of capital. So where is the Fed?

              I am lucky. But even then, I may outlive my money if I have to close my store.

              So I am part of Main Street and I see no sign of any help at all from the Fed or anyone else.

              These are facts.

              Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

              by hestal on Fri Sep 14, 2012 at 06:51:56 AM PDT

              [ Parent ]

              •  So you would have been better off (0+ / 0-)

                if all those local credit unions had been allowed to fail?

                Okey dokey.

                Carry on.

                •  You know, your argument is so small- (0+ / 0-)

                  minded. The fact that our economic system is a failure means that the Fed has failed as well.

                  Just because it follow policies that you approve, does not mean that they are very effective. People like you seem to insist that the status quo is okey dokey, and most Americans disagree with you. Get used to it. You are on the wrong side of history.

                  Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

                  by hestal on Sat Sep 15, 2012 at 05:01:34 PM PDT

                  [ Parent ]

            •  I didn't misunderstand anything. nt (1+ / 0-)
              Recommended by:
              Gustogirl

              Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

              by hestal on Fri Sep 14, 2012 at 06:53:00 AM PDT

              [ Parent ]

        •  Is there a good place online to read about (1+ / 0-)
          Recommended by:
          Gustogirl

          the effects of QE3 on ordinary people?

          Please visit: http://www.jkmediasource.org

          by Noisy Democrat on Fri Sep 14, 2012 at 07:52:19 AM PDT

          [ Parent ]

    •  Fascinating. (1+ / 0-)
      Recommended by:
      Gustogirl

      So the FED purchases agency mortgage-backed securities from a bank, and it takes the money it receives and lends it to the local hamburger joint, at low interest rates, and the cook gets paid? Is that how it works?

      I presume that the bank is a commercial bank that does business with the local community.

      But if the bank were a Wall Street investment bank, what is to prevent the bank from investing the money in the derivatives casino?

      In either case the banks in question have improved their balance sheets, or perhaps merely made them more liquid?

      In either case, the FED apparently can print money without increasing our national debt, but it can only use that money by getting it in the hands of the banks, so they can get their piece of the pie, the liability-free pie created by the printed money?

      So, the whole thing is a system employed by the big boys to keep them in business, because they, after all, created the bad MBS’s, right? In the meantime, we the People, languish, except from time to time we are refreshed by our betters, those who have read the dense, complex documents posted on the FED. If only our betters would deign to write a ten-page, or fewer, document that explains how we should just keep our mouths shut and be grateful for the crumbs that fall from table where the mighty feed.

      I have not been able to find on the FED website any document that explains to me why I should be happy with the current system. But this is not surprising, the men in power are not likely to tell us how to take that power away from them.

      Whenever I, and others, ask questions about the current system we are subjected to a tongue-lashing or worse, a process that reminds me of the history of the cure for peptic ulcers.

      In 1958, a Greek physician began treating patients with peptic ulcers by giving them antibiotics. It worked but the authorities of that day ignored the cure. After all, he was Greek, and the cause and treatment of peptic ulcers were already known.

      Time passes as millions of people suffer unnecessarily.

      In 1982, two Australian scientists asserted that the ulcers had a bacterial cause. Their paper on the subject was largely ignored.  In order to make a point, one of them actually drank a culture from the stomach of a patient who had symptoms of the ulcer. This scientist developed the symptoms himself five days later. This experiment was published in 1984.

      Time passes as millions of people suffer unnecessarily.

      Finally, in 1997, the American medical establishment launched a program to educate medical practitioners and things began to change. Suffering of millions of people was ultimately eased.

      In 2005 the two scientists were awarded the Nobel Prize in Medicine. All’s well that ends well.

      So this discussion about our financial system reminds me of the story of peptic ulcers. So many authorities are so sure of themselves, while people suffer unnecessarily. Some day someone will propose changes to the system, perhaps those proposals have already been made, and the suffering will end. Who knows? But what we do know is that most, nearly all, of those who are currently financial experts will not come up with the ideas, and they will bitterly oppose the ideas when they do emerge.

      Until then, millions of people suffer unnecessarily.

      Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

      by hestal on Fri Sep 14, 2012 at 04:51:45 AM PDT

      [ Parent ]

      •  You basically have no idea what happened (2+ / 0-)
        Recommended by:
        sewaneepat, Neuroptimalian

        They are not buying MBS from banks.  They are creating new asset backed securities to finance new loans to homeowners, car buyers, students and credit card holders.

        As for McDonalds employees, that happened because McD is a complicated structure of a central corporation and mostly small proprietors who own restaurants and buy a package of services from McD.  That's why they are called fast food franchises.  Many of these proprietors have trouble getting revolving credit, so McD created a special purpose company to lend them money when they have trouble buying supplies or meeting payroll.  That special purpose company relied on commercial paper to raise money to pass on to the franchisees to make payroll.

        In 2008, there was zero money for McD in the commercial paper market, which meant there was zero money for McD to pass on to mom and pop franchisees.  

        The Fed purchased McD special sub commercial paper so that mom and pop franchisees could make payroll in the middle of the crisis.

        But hey, this is the internet, and one thing I've learned about the internet is that people are going to believe whatever they want to believe so carry on.

        •  You basically have no idea what is (1+ / 0-)
          Recommended by:
          Gustogirl

          happening. The Fed's announcement said that they are buying agency MDS's from banks. It is plain English.

          McD gets money because it is a big business with stock prices that need to be kept up. If the market crashes then the Wall Street banks crash. So, the Fed keeps the market up.

          But Main Street, you see, McD is not on Main Street, does not have stock on the big exchanges so they get no help.

          The last remark in your comment is truly offensive. But, hey, this is the Internet, and one thing I've learned is that there are a lot of people out there who think they know more than they actually know. So carry on.

          Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

          by hestal on Fri Sep 14, 2012 at 07:05:17 AM PDT

          [ Parent ]

  •  If Fed just spent that cash on bridges or paying.. (2+ / 0-)
    Recommended by:
    corvo, Gustogirl

    off underwater consumer mortgages, it would do far more good for the real economy and individual citizens.

    But it wouldn't be bail-out #4 (or is it 5?) for the billionaire banksters, so we can't have it.

    •  That would be fiscal policy (5+ / 0-)

      The Fed isn't allowed to spend money.
      They can only make loans, or buy up government debt.
      Congress has to do the spending (which creates the debt).

      •  Okay. How about nationalizing bankrupt banks? (3+ / 0-)
        Recommended by:
        OleHippieChick, corvo, Gustogirl

        Can the Fed do that? Because I'd love to see them look at the balance sheet at Citi or Wells Fargo and say, "We're sorry,  but you're bankrupt. The CEO and entire board of directors are hereby fired, and you're now in taxpayer-owned receivership. The new board of directors will be there this afternoon".

        I can dream.

        •  The Treasury DID nationalize the banks (0+ / 0-)

          This is what I don't get about the whole counter factual narrative people are invested in.

          So what is "nationalization"?  It's the government "owning" a corporation.

          How does a government own a corporation?  By owning the securities it issues that are "equity" rather than debt -- that is by owning "stock" in the corporation.

          But that's exactly what TARP was.  It was the government forcing the banks to sell the government hundreds of billions of dollars in equity (preferred stock) with a high rate of return (5% mandatory dividend payable quarterly in arrears, plus warrants).

          I don't get the counter narrative at all.

          •  they could have taken them over (0+ / 0-)

            They could have thrown out the failed management, broken up the biggest of them, done much more restructuring.  They really didn't do any of that.

            •  Well, now yer talkin (0+ / 0-)

              I agree that the terms could have been more severe.  But they were mainly concerned about getting their money back with interest, which they did.

              I also think that the management terms could have been harsher.  But there was a trade off -- the govt wanted its money back which meant taking preferred stock, not common stock.  Taking common stock would have given them more power but if things went wrong, then they would have been out of more money.

              It was definitely a debate worth having back in 2008, but in retrospect, considering they made tens of billions in profit for the Treasury by not taking control arguably they did the right thing.

      •  On the button! And all these laws are passed... (1+ / 0-)
        Recommended by:
        gramofsam1

        ...by Congress. So if you don't like what the Fed does, or want to build bridges and highways, change Congress:

        1. Change the Senate rule that allows 41 Senators, representing perhaps 15% of American voters (i.e., those getting 51% in the LEAST populous states!) to thwart the will of the 85%.

        2. Insist on removing private funding from campaigns.

        3. VOTE! And work in GOTV efforts.

        The Fed is an important tool that helps us all -- that's right, hard as it is to believe, the Fed saved us from a bigger crisis and 3.5 years later, we are clearly recovering. Compare that to what used to happen before there WAS a Fed (1837 + 5 years; 1873 + 5 years; 1893 + 6 years; 1907 + 5 years) and before the Fed understood how to provide liquidity to, yes, prop up banks (1929 + 10 years).

        A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

        by Obama Amabo on Fri Sep 14, 2012 at 05:57:13 AM PDT

        [ Parent ]

        •  Doesn't always help though.... (0+ / 0-)

          When the Fed hurts us though is when monetary policy is too tight.  The Fed played a definite role in leading us into recession by raising interest rates when they shouldn't have.  And they failed badly on the regulatory end as well under Greenspan.

          But, this is the exact opposite of what the Ron Paul types argue, but it is pretty clear that the bankers who control the Fed are much more concerned about keeping inflation low than creating jobs.  

          The idea that banks benefit from excessive money printing is laughable.  They always benefit most from the opposite.  Of course they do benefit from excessive borrowing, but that tends to go hand in hand with insufficient curency expansion.  

          This was well understood historically.  The banks were always the ones who wanted the gold standard.  And it was the populist William Jennings Bryan who railed against the "cross of gold".

          The genius of Ron Paul has been to create a corporate approved form of libertarianism.  What he preaches is entirely a corporate agenda.  He rails against the banks, while supporting everything they most want.  But I guess as long as they think corporations are people, the corporate libertarians can claim to be fighting for "individual rights".

          •  Well, the opposite was true in 1979... (0+ / 0-)
            When the Fed hurts us though is when monetary policy is too tight.
            Back then, the Fed had been pumping up the money supply for years in an attempt to keep interest rates low and stop the high cost of gasoline from causing a recession. But everyone got used to the fact that the Fed would continue to pump in money, so they just kept borrowing, and the Fed kept pumping in money, and prices continued to rise.

            When Volcker stopped pumping in money, interest rates went through the roof -- bitter medicine, but at least inflationary expectations were wrung out. (Of course, at the exorbitant cost of getting Arthur Laffer and Reaganomics for the next 30 years!)

            Usually, the Fed tries to balance four things:

            1. Economic growth (approx 4% per year).
            2. Full employment (usually defined as < 4% unemployment).
            3. Low inflation (< 4% per year).
            4. A strong dollar in foreign exchange.

            The Fed's most recent Open Market action (which triggered this diary) is aimed at reducing unemployment.

            A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

            by Obama Amabo on Fri Sep 14, 2012 at 10:24:48 AM PDT

            [ Parent ]

            •  Agree.... (0+ / 0-)

              But yes, in 1979 you had high interest rates, high inflation, high capacity utilization.  The recovery from the Fed induced recession that year was rapid because of this.  There was no shortage of demand, the problem was on the supply side.

              But 30 years of falling real wages, shipping jobs overseas, cutting taxes for the rich while raising them on workers, and a monetary policy targetting a too low inflation rate (you want it under 5%, but long term it probably should also be over 3%) has got us to this point where we are now at the other extreme.

              And the point is the bankers are always in favor of the latter form of error, not the former.

  •  It truly is amazing how little the public... (5+ / 0-)

    ...knows about the functions of an organization like the Fed, which has a tremendous impact on our lives every day.

    As several above have written, recent Fed actions are basically nothing new -- they come under the category of Open Market Operations, which is how the Fed controls the money supply: increasing it by buying securities so that the dollars to pay for them enter the economy, and selling securities so that the supply of money is reduced and replaced by securities.  

    Why should the Fed want to increase the money supply? To make money easier to borrow -- more money in the economy allows it to become cheaper (i.e., lower interest rates).

    Why should the Fed want to decrease the money supply? To rein in inflation when "too many dollars are chasing too few goods". This is what happened in 1980 when the Consumer Price Index reached a 13.3% annual rate and everyone and his grandmother was borrowing in expectation that the value of money would continue downward.

    On Oct 6, 1979, Carter's new Fed Chair appointee Paul Volcker announced the Fed would sell securities rather than buying them. The shortterm result was that the prime rate went above 22% (and my first mortgage was at 18%!), the country went into a double-dip recession, and Carter lost the election. The long term result was that inflation was wrung out of the economy and normal (i.e., < 4%) inflation rates returned in a few years.

    All these Fed actions, responding to perceived needs in the economy, would be impossible if the Paulists (many of the craziest of whom, by the way, believe that I personally am responsible for many of the economic travails of the past 30 years!) got their way and put us back on the gold standard. Sometimes the Fed's actions are unwise -- but it is often the only tool we've got: like now.

    Maybe I'll turn this into a diary sometime...

    A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

    by Obama Amabo on Fri Sep 14, 2012 at 05:07:39 AM PDT

    •  Please do write that diary- (1+ / 0-)
      Recommended by:
      sewaneepat

      it's getting depressing that the anti-Fed rhetoric from the Tea Party and Ron Paul is showing up in liberal circles.  And as you say, it's because of a lack of understanding.
      You do a great job in your comment, I'd love to see it expanded into a diary.

    •  One disagreement (1+ / 0-)
      Recommended by:
      Obama Amabo
      recent Fed actions are basically nothing new -- they come under the category of Open Market Operations, which is how the Fed controls the money supply: increasing it by buying securities
      What the Fed has done since 2008 IS new -- or hadn't been done since the Great Depression.

      That is, buy lots of securities that WERE NOT treasuries, and thereby intervening directly in the economy by buying debt of homeowners, car purchasers, students, credit card holders, and lots of businesses that issue bonds and commercial paper.

      The reason they did this is that the banking system was effectively dead in 2008 and has remained dead.  It's like the Fed has become Citibank, but hides behind special purpose entities.

      In 2007, the private sector mortgage backed security market issued about $700 billion in MBS.  In 2009, the amount was negligible (I think around $10 billion).  But the Fed purchased $500 billion in new MBS.  

      As the NY Times pointed out, about 90-95% of all mortgage, car, student and credit card loans in recent years have come indirectly from the Fed.  That is new.  And the banking system is still very, very ill.

      •  You are correct. This is a new "flavor" of... (1+ / 0-)
        Recommended by:
        Noisy Democrat

        ...open market operations -- a slightly different tool to inject liquidity into a specific ailing sector because, as you say, "the banking system is still very, very ill."
        But the overall purpose, increasing liquidity throughout the economy (basically the ONLY tool available since fiscal stimulation seems to be off the table) by replacing securities with money, remains the same.

        One can certainly blame the Fed (and especially the Greenspan Fed) for policies that reduced banking regulation. (It should have strongly resisted the repeal of Glass-Steagal, for example).  And some of its recent policies may be thin gruel, and overly cautious. That said, this country would currently be SO MUCH worse off without it.

        A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

        by Obama Amabo on Fri Sep 14, 2012 at 07:21:15 AM PDT

        [ Parent ]

  •  A narrative in search of some facts? Why was this (1+ / 0-)
    Recommended by:
    JoanMar

    written?  Just to throw some mud around, on the usual scapegoats?  

    •  I think that's a bit unfair to Gustogirl. She... (4+ / 0-)

      ...admitted she didn't know and, although she had preconceived ideas, she was asking. She is hardly unique in American society in not understanding the Fed and its actions -- check some other other comments!

      In general, the Fed tries to run under the radar, and that provides grist for all manner of conspiracy theories. I know because I used to work for them 30 years ago and bomb threats and lunatic phone calls from anti-Trilateral Commission nuts were very much the order of the day.

      As I mentioned in another post, 30 years later there's a cottage industry on the Internet blaming me personally for many of the economic woes experienced in the past four decades! Would I were so powerful...

      A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

      by Obama Amabo on Fri Sep 14, 2012 at 06:14:01 AM PDT

      [ Parent ]

      •  I think you're right, Amabo. I was a bit unfair. (2+ / 0-)
        Recommended by:
        Obama Amabo, HamdenRice

        My apologies to Gustogirl for that.

        But that said, blaming the government is a Republican meme.  It's the finance world that's to blame for the economy's collapse.  

        Just look at where their money's going in this election, to see if the Gov is doing what they want.

        •  Thanks for the apology - I'm asking questions (0+ / 0-)

          far more than I'm tossing around conspiracy theories.

          Should it be any surprise that I had worries as soon as I heard the term "mortgage backed securities"?

          I used to have more time to investigate these issues on my own, but I came out of retirement to help my local government with a big problem and now don't even have time to read this blog regularly, much less thoroughly.  But this is a site wherein I trust the expertise of many, so I tossed the question - and my fear - out there.  And thank you, I am learning.

          And just one more thing:  I don't know whether it is accurate or not, but there are a lot of people out here in ordinary-land who don't see much of a dividing line between the fed and the finance world.  Would we be in the fix we are in if Greenspan had never led the Fed? Is the Shock Doctrine  in full flower, world-wide now?  I don't know enough to say  yea or nay, much less "here's the evidence trail".   But I'm not alone in having the heebie jeebies because I do not know enough and don't have time to instruct myself.

          Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

          by Gustogirl on Fri Sep 14, 2012 at 09:07:13 AM PDT

          [ Parent ]

          •  Some (attempted) answers: (2+ / 0-)
            Recommended by:
            Gustogirl, hooper
            Should it be any surprise that I had worries as soon as I heard the term "mortgage backed securities"?
            Sho' nuff makes sense to me!
            I used to have more time to investigate these issues on my own, but I came out of retirement to help my local government with a big problem

            And you've solved it! Getting the GOP to nominate Mitt was a great idea! There'll be blue skies from now on!

            And just one more thing:  I don't know whether it is accurate or not, but there are a lot of people out here in ordinary-land who don't see much of a dividing line between the fed and the finance world.
             

            Biggest difference: the Fed is a creation of Congress and answerable to Congress. So-called "Member banks" have no power over the Fed other than to lobby (which they do). Each of the seven members of the Fed Board of Governors is appointed by the POTUS and approved by the Senate for a (staggered) fourteen-year term.

            Since a deep understanding of both macroeconomics and banking are both needed on the job, most Board members are economists and former bankers. This might lead to a certain "financial-industry bias," but to do otherwise would be like having a Supreme Court Justice who's not a lawyer -- possible, but certainly fraught with risk.

            Would we be in the fix we are in if Greenspan had never led the Fed?

            Ten years ago, most people thought Greenspan was doing a good job, including Greenspan. Hubris intervened eventually, and Greenspan at least had the honesty to admit his "model was flawed." He could have fought harder against the deregulation momentum, but political forces, including the Dems, were against him. In hindsight, there were many screwups, but it's honestly hard to envision anyone else in those years taking a better approach. As Greenspan himself expressed, it's hard to throw cold water in times of economic exuberance.

            Is the Shock Doctrine  in full flower, world-wide now?
             

            Personally, I would say that, for the first time in years, we have stepped back from the Shock Doctrine.  And I give both the Occupy movement and a thoughtful and analytical President credit for that.

            But I'm not alone in having the heebie jeebies because I do not know enough and don't have time to instruct myself.
            Hang in there! You are clearly willing to admit where you don't know something and to listen to new information. Not everyone (even in this thread!) is so amenable. I have enormous time for your questions, but none at all for others whose knowledge is just as limited but whose mind starts out closed.

            Peace.

            A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

            by Obama Amabo on Fri Sep 14, 2012 at 10:11:35 AM PDT

            [ Parent ]

          •  Great book on this: The Restructuring of (0+ / 0-)

            Capitalism in Our Time, by Tabb.  Pretty wonky but I couldn't stop reading.

            One factoid...in 1964 the financial share of corporate profits was 2%.  In 2004 it was 40%

            They basically stole almost half of all the money being made in America.  And continue to do so.

            All the Fed-bashing I think misses the point, that the finance world has become so large that nobody can stand up to it.  Not politicians, not countries, not even business.

            And if they win this Nov (Romney's their guy) they'll take down the regulation just put in place, including the CFPB.  We need more, not less, regulation.  And we need that money back.  Not that I know how to go about getting it back.

      •  Thank you (0+ / 0-)

        Mr. President.   :)

        Government of the people, by the people, for the people, shall not perish from the earth - Abraham Lincoln

        by Gustogirl on Fri Sep 14, 2012 at 09:08:19 AM PDT

        [ Parent ]

    •  Back in the old days of DailyKos (0+ / 0-)

      there was a 0-4 rating system for comments.

      This one ^^^ merits a 0.5.

  •  The Fed operates under a charter that alows it (1+ / 0-)
    Recommended by:
    Gustogirl

    to do certain things.  Other things that might help the economy are the responsibility of Congress and the executive branch.  Criticizing the Fed for not doing what it cannot do makes no sense.  There are legitimate arguments about whether or not the Fed is wisely using the mechanisms available to it to benefit the public at large or to improperly support corrupt banks.  

    Where are we, now that we need us most?

    by Frank Knarf on Fri Sep 14, 2012 at 07:56:32 AM PDT

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