Sorry to rain on your gateway day to the weekend (and a long, three-day weekend for those living in Suffolk County, Cambridge and Somerville, Massachusetts - and no, it's not because it's St. Patrick's Day), but lost in the din of Eliot Spitzer's sexcapades, and Geraldine Ferraro's Stars and Bars sermon, some seriously huge financial news was quietly slipped into the news cycle;
Fed Hopes to Ease Strain on Economic Activity
"In an action that sent stock prices soaring, the central bank offered to let the biggest investment banks on Wall Street borrow up to $200 billion in Treasury securities in exchange for hard-to-sell mortgage-backed securities as collateral. And the Fed made clear that it was prepared to do more as needed.Notice how disarming they are.
The Fed’s hope is to relieve some of the pressure on institutions to sell at fire-sale prices, easing the strains on economic activity and making the credit markets feel more comfortable in buying mortgage bonds again."
The employ words and phrases such as "ease strain" and "relieve some of the pressure", like this is merely someone stubbing their toe and that these prescribed remedies will do the trick.
From the same article;
“They are essentially creating a $300 billion bank out of nothing,” said Lou Crandall, chief economist at Wrightson ICAP, a financial research firm.There, don't you feel better now?
The new twist is that the investment banks will be allowed to pledge as collateral a wide variety of securities that include hard-to-sell, privately issued mortgage-backed securities.
Fed officials, in a conference call with reporters on Tuesday, said that they were minimizing risk by accepting only securities that still had the highest triple-A ratings and that they would impose a “haircut,” or discount, on mortgage bonds that appear to carry additional risk."
Good thing Federal Reserve Bank Chairman Ben Bernanke is only accepting as collateral, those dead, decaying "highest triple-A ratings" housing securities, or we'd really be in a pickle.
Well, Paul Krugman today has taken in a look in that barrel, and it ain't just pickles that he's seeing.
"So Mr. Bernanke and his colleagues have been doing the usual thing: printing up green paper and using it to buy bonds. Unfortunately, the policy isn’t having much effect on the things that matter. Interest rates on government bonds are down — but financial chaos has made banks unwilling to take risks, and it’s getting harder, not easier, for businesses to borrow money.Ohhh ... Why didn't the government just say that in the first place - a bailout!
As a result, the Fed’s attempt to avert a recession has almost certainly failed. And each new piece of economic data — like the news that retail sales fell last month — adds to fears that the recession will be both deep and long.
Officially, the Fed won’t be buying mortgage-backed securities outright: it’s only accepting them as collateral in return for loans. But it’s definitely taking on some mortgage risk. Is this, to some extent, a bailout for banks? Yes."
We like bailouts ... Chrysler certainly likes bailouts...
The people being bailed out like bailouts, they'll, most likely, never have to pay back the bailout because Jane and Joe Doe, taxpayers residing on Main Street USA will be the ones doing the bailing via they're the ones stuck with the paying.
The people, in this case, Chairman Bernanke and the U.S. Government, like bailouts, because it hides (and delays) one huge, MF'ing problem that they can't figure out, and they must, simply must, serve their corporate masters ... And, if they are lucky, they'll be out of office before the ramifications of the bailout take place, leaving it to the next schmucks who take office.
Fester, over on Newshoggers, sees a ray of sunshine in this bailout;
"The Pain Caucus is much weaker today than it was five years ago or twenty years ago, so Baby Boomer retirement programs are relatively safe. The other big pool of cash floating around in the government is the defense budget and the biggest discretionary portion of that budget is Iraq. $200 billion per year is some serious money. There are already large pre-existing political groups (most of the Democratic Party) that thinks this is a damn dumb idea for one reason or another already, and as we move forward more people will be screaming for relief. The ability to propose non-trade-off solutions will decrease.Now, that would be nice, and certainly would be a good spin on the bailout.
A debt crisis could provide very convenient political cover to withdraw from Iraq and save $150 billion per year in expenditures (some money will be spent to maintain 'containment forces', and other funds will be used to pork out the supplier's districts). And pulling out of Iraq could be one of the strings attached to any implicit or explicit foreign bail-out."
However, in the, at least, short term, as we rocket towards paying $5 for a gallon of gas, $5 for a half-gallon of milk and $5 for a loaf of bread, remember that bailouts are "good" and that the pain you suffer is only part of "easing strain" and "relieving some of the pressure".
And, depending on when you receive it, you may very well be able to spend your $600 Government Tax Rebate Check all in one place.
Bonus Bailout Riffs
Bloomberg News: Bush Says Policy Makers to Take `Appropriate Steps' (Update5)
Bridget Magnus/TMV: All Hell Breaking Loose in our Columbo Economy
Yahoo News/Reuters: Bear Stearns gets Fed funding, shares plummet
CNBC/Reuters: US Faces Severe Recession, Feldstein Says
Danny Schechter: "An Entity We Can't Even See" - Mythifying Markets and Mystifying The Public About The Financial Crisis