Fed and Treasury Bailouts

[Skydaemon]

Bloomberg.com: Worldwide (http://www.bloomberg.com/apps/news?pid=20601087&sid=alCncP3b8qYY&refer=home)

Introducing the new TALF.

Upshot:
-Fed committing another $800 billion.

-includes $200 billion for “newly and recently originated loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration"

Apparently the fed is writing legislation itself now, as it's including clauses that executives need to restrict compensation to use this new facility. They seem to have a lot of new authority all of a sudden.

-includes $600 billion for repurchase of mortgage backed securities issued by fannie and freddie. This is one part bank bailout, and 9 parts a bailout for "asset managers". I think that means they're rescuing pension funds, money market funds and who knows what else.

-The fed is taking on large credit risk by buying mortgage assets, so the treasury is selling credit insurance to the fed out of the old TARP funds to the tune of $20 billion to backstop losses the fed might take on it's books from this. This is some pretty scary stuff now, if the fed's balance sheet ends up in the same credibility category as your other banks the punishment will be delivered to your currency. Your federal reserve is saying that they need insurance from the treasury to guarantee the soundness of your money. As far as I can tell this is pure sophistry. You can't guarantee the value of a currency with insurance denominated in that currency.

The fed has turned itself into a bank now, as I'm suspecting it's "finding this new money" by leveraging it's balance sheet. It didn't come from congress and their balance sheet would otherwise be full. And it's getting it's own insurance and bad assets. The fed seems to be turning itself into a bank just like the bad ones to take over the risk for them.

Other opinions?

[Skydaemon]

The Fed Is Out of Ammunition - WSJ.com (http://online.wsj.com/article/SB122748912533552007.html)

Here's another article from before this latest TARF was announced, I think end of last week.

[TNTrader]

I contacted both my senator and my Congresscritter this morning. There has been no additional authorization from congress to cover Mr. Paulsons stated expenditures. Both professed to be unaware of Mr. Paulsons actions and were as confused as I as to his authority to take such measures upon himself.

I also sent a rather lengthy note to Foxnews and CNBC asking why they had not questioned Mr. Paulson on his authority to commit the taxpayer to trillions in debt when he is constitutionally prohibited from doing so. Only congress can tax, only congress can spend. Any argument that the central bank can print money at will falls flat on the constitutional mandate that only congress can raise moneys in the name of the people of America. The fed has no money, congress must authorize its expenditures. Period.

Mr. Paulson appears to be busily commiting fraud upon the market by any definition. He has willfully made false statements with the deliberate intent to manipulate the markets. The only way in which his statements do not meet the standing for fraud upon the market is if:

A: Congress secretly met, voted and authorized further bailout money.

B: Mr. Paulson has cash in his personal checking account to cover his statements.

There are no other explanations. Creating public debt is taxation. Taxpayers have to meet the public obligations and only congress can tax.


Good Luck



ps. 5 bucks says that Paulson got a blanket pardon yesterday.






Good Luck

[Skydaemon]

Thanks for that TNT. Any insight into what congress knows is helpful, although sometimes I'm not sure all the members know what the leaders are agreeing to in the "interest of the nation". After watching the iraq thing and secret talks about wiretapping which only the leaders of congress ever knew about, I'm not convinced everyone there gets told about the important things.

I was thinking more about the treasury's guarantee of the fed's balance sheet. If I'm not mistaken, the mechanical/technical definition of money printing is when the treasury gives money or securities to the fed to enlarge its balance sheet. So this insurance is essentially an auto-triggering money printing clause in the event of losses on MBS. Basically the US just decided to monetize the MBS losses of asset managers taking it as straight up dilution to the value of the currency instead.

Do I have that right?

[Skydaemon]

Also, I have nothing to point to, but if I'm not mistaken, the way the fed is creating leverage will be by creating separate companies which they fund, which in turn create the leverage. Let's call them... FSIVs (fed backed SIVs).

Anyway, I figure these SIVs are just like in the banking sector, meaning even though the fed hides them off balance sheet, they are responsible for losses and assets there. So really they are part of the fed balance sheet which isn't reported.

This is pure speculation based on ideas the fed floated previously, I don't actually know if they implemented this, I just remember it being brought up a few months back, and now fed leverage seems to be appearing out of nowhere.

[Skydaemon]

msnbc.com Video Player (http://www.msnbc.msn.com/id/21134540/vp/27915877#27915877)

msnbc figures out we're printing money

[TNTrader]

msnbc.com Video Player (http://www.msnbc.msn.com/id/21134540/vp/27915877#27915877)

msnbc figures out we're printing money

Sadly, the fed cannot just print :money:. The fed can only print debt. Debt that you and I must pay , literally at the point of a gun. Today we mark a 7.2 trillion dollar tax increase on one mans say so. Hank Paulson has abrogated Congress. We no longer are represented in matters of taxation. Congress did not authorize a blank check, yet Mr. Paulson is allowed to increase our debt, and therefor our taxes at his will. Taxation without representation, by definition. Mr. Paulson has no statutory or constitutional authority to tax the American people. Only congress has that power.

If Paulson is not arrested for his actions immediately, we no longer have a republic. We have a dictatorship.


Good Luck

[TNTrader]

From the Constitution:


Section. 7.
Clause 1: All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.




Section. 8.
Clause 1: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Clause 2: To borrow Money on the credit of the United States;










So, tell me. Where does it say that Mr. Paulson can raise my taxes, borrow in my name and commit me , you or any other American to pay for his unauthorized public mandate?


Good Luck

[TNTrader]

Thanks for that TNT. Any insight into what congress knows is helpful, although sometimes I'm not sure all the members know what the leaders are agreeing to in the "interest of the nation". After watching the iraq thing and secret talks about wiretapping which only the leaders of congress ever knew about, I'm not convinced everyone there gets told about the important things.

I was thinking more about the treasury's guarantee of the fed's balance sheet. If I'm not mistaken, the mechanical/technical definition of money printing is when the treasury gives money or securities to the fed to enlarge its balance sheet. So this insurance is essentially an auto-triggering money printing clause in the event of losses on MBS. Basically the US just decided to monetize the MBS losses of asset managers taking it as straight up dilution to the value of the currency instead.

Do I have that right?


No. the fed prints money by "borrowing" via the issuance of sovreign debt in the form of treasury notes. These are bonds issued in the name of the American people, guaranteed by the ability to pay via the public tax rates. Each sovreign note issued is repaid, interest and all, by taxing the American people. The treasury has no money. Every dime they issue is fiat based on the governments ability to levy taxes.

For example: Paulson "loans" 306 billion to various banks to let them loan it back to the American, or foreign, credit consumer. He does this by selling bonds at , say, 6%. That puts the tax rolls in debt by the 306 billion plus the 6% or 324.6 billion. The banks then , maybe, loan out 306 billion at 8% or 330.48 billion. TO THE SAME PEOPLE THAT "LOANED" THE MONEY IN THE FIRST PLACE!!! BUT.... The 306 billion is now owed TWICE. Once to the bond holders. And now to the banks. The bond holders have a 10 year term. The banks issue 30 year fixed. Do you see the problem? In ten years the tax riolls must repay the total debt. The banks have thirty years, if ever.

Come hell or high water, the tax rolls owe a minimum of 126 billion and thats if every single loan is repayed on time and in full. Believe it or not, there were no repayment mandates in this round of debt issuances other than the guarantee tio the bond purchasers. If the banks fail, default or bankrupt we lose it all. If the banks decide simply to not repay, there is no legal recourse.

Paulson screwed us all yet again.


Good Luck

[BadThad]

Excellent explainations and insight TNT. I have the utmost respect for you.