Saturday, May 26th, 2012

The Devil and The Details

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Thursday, April 03, 2008 at 3:45 pm

As expected, Federal Reserve Chairman Ben Bernanke got a grilling today from the Senate Banking Committee over the Bear Stearns takeover. But the hearing only touched a bit on the details of the Fed’s move to engineer the deal, which are becoming increasingly intriguing as we learn more about them.

The Fed only on Tuesday released some details about those nearly $30 billion in loan guarantees it provided. Turns out the securities backing the loan are mortgage backed securities and related hedge investments, according to the Fed’s description. JPMorgan Chase Chief Executive Jamie Dimon denied to the committee today that the Fed had taken on the riskiest securities as collateral.

Maybe not. But Bloomberg columnist Caroline Baum points out that the Fed may have violated its own charter, which doesn’t allow it to own those types of financial products. And she says that in order to hold them, the Fed set up an off-the-balance sheets vehicle, with no capital. Hmm….Aren’t those the things that got investment banks and Enron in trouble in the first place?

You can see the terms for yourself here. If the whole Bear Stearns event didn’t already make you nervous about the Fed and the state of the nation’s financial system, this should do it.
Categories & Tags: Congress| Economy/Finance|

Comments

1 Comment

kittycat
Comment posted April 3, 2008 @ 6:15 pm

Nobody seems to notice that this bailout covers up large, well organized and developed cooperation between financial institutions and developers.

Namely, the public was purchasing property overpriced 50 -300%, depending on region.

It was classically build pyramid, which means it was a bubble.

The first reaction should be investigation, prosecution and taking over assets of those who were involved in creating this bubble.

Yet instead of anything like that we get a proposal for transfer more power to the Federal bank and consolidating its steely grip on the economy.

Guess what: it does not matter who sits in the white House as long as the extreme conservatives sit in the Federal bank. By cutting off the money they can, and often do, effectively strangle any changes.

LB

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