Publication Note – Professional Edition Fed Report

7 Responses to Publication Note – Professional Edition Fed Report

1. 

   Stuart on September 30, 2008 at 10:35 pm

   Interesting comment I came across re: this bailout bill.

   “What I don’t think most folks know is the fact that most of that initial $700B was going to go to the foreign based PDs, through their US subs to take illiquid CDOs off their balance sheets and enable them to continue to buy Ts at the auctions. That will never hit the MSN, because it would piss off J6P to see the money is not going help him buy a new car at all.”

2. 

   Lee Adler on September 30, 2008 at 11:44 pm

   I don’t give any credence to unsourced, unsubstantiated comments from 3rd party postings. I suggest that you, and our readers not do so either.

   Quotes of other sources should always include a link to the source, whether it’s a message board, blog, or mainstream site, so that we can judge its credence.

3. 

   caliboy on October 1, 2008 at 8:28 am

   Despite the lack of a source, this hypothesis sounds reasonable to me.

   The $620 billion the Fed is swapping out to the FCBs is in turn being used as a lifeline for major foreign PDs like DB, holding highly leveraged, bad CDOs and MBS on their balance sheets, has to get paid back somehow or else the FCBs and the Fed will be rendered insolvent.

   The fact that AIG is no longer available to “insure” the Euro banks against default means the bell is now tolling.

   If the balance sheets of the PDs, both foreign and domestic, are not cleaned up soon then the primary mechanism for distribution of US Treasuries would be cut off.

4. 

   Lee Adler on October 1, 2008 at 8:51 am

   Here’s why that’s wrong. The Primary Dealers have direct and unlimited access to the fountainhead of dollars– The Fed. They can get them through OMO, PDCF, and their banking affiliates can get them through the DW and TAF. It is the institutions who do not operate in the US who do not have access to dollars.

   The initial comment is just illogical since the PDs already have pretty much unlimited access to the dollars they need from the Fed. No legislation is required.

5. 

   caliboy on October 1, 2008 at 9:57 am

   “The initial comment is just illogical since the PDs already have pretty much unlimited access to the dollars they need from the Fed. No legislation is required.”

   There is a big difference between borrowing dollars from the Fed that have to be paid back and having the Treasury buy the bad debt allowing the IBs to take the bad debt permanently off their balance sheets. It is not a question of liquidity it is a question of solvency which the Fed cannot fix without monetizing the bad debt. Either the IBs have to take the hit, the CBs have to take the hit or the taxpayer steps up and takes the hit.

   By the way, there is a WSJ article today that specifically addresses the fact that the world’s CBs are quickly running out of options because their liquidity injections are simply coming back to the CBs as deposits by the banks rather than going to support to the interbank market as intended.

   http://online.wsj.com/article/SB122280129299491349.html?mod=todays_us_page_one

6. 

   caliboy on October 1, 2008 at 10:00 am

   By the way, I mean PDs rather than IBs in my last comment.

7. 

   caliboy on October 1, 2008 at 10:15 am

   By the way, I agree the PDs do not need to access the $620 billion from the currency swaps to FCBs as the PDs have direct access to the Fed and that money is going to other non-PD foreign banks.