2007/08/26

Bu$hCo's Liquidity Solution: Heap Risk On Savers

Admittedly, I'm no export on capital markets. I don't really understand why the crisis in the mortgage industry has caused liquidity in the bond market to "dry up". But this latest move by the Federal Reserve, allowing our largest banks to expose up to 30% of their total regulated capital by lending it to their brokerage subsidiaries, seems like a dangerous move--a move that heaps risk on low and middle-income savers in order to cover the asses of institutional investors and the mega-wealthy who've become exposed to the liquidity crisis through the reckless investment practices of their brokers.

And what's most egregious about this whole thing is the Bush Administration's cynical announcement that there will be no bailout for the poor schmucks who face foreclosure. "Compassionate Conservatism" apparently doesn't include people who make bad decisions about mortgages and their financial capacity. It does, however, include brokerages that make bad decisions about investing in a shaky, poorly regulated market, and it includes the customers they serve. And who end's up holding the bag? Maybe savers. Maybe the Feds, but you can bet it won't be Citibank, Chase, JP Morgan, and BofA or any of the other institutions getting discounted billions from Uncle Sam to shore up their brokerage arms.

9 Comments:

It does make one want to bang their head against a wall, doesn't it? Between his attitude and Arnold's eliminating the $55 million for mental health care, it has been a really bad week.

I'm tired of being angry, but they just won't let up. Every time I think they are on my last nerve, they find another one to irritate. In this regard, and no other, they are ingenious.
Poor schmucks don't qualify for corporate welfare. I doubt Bush and his crew even recognise the existence of the serfs or schmucks.
There's only bailouts if you're a memeber of the Bush Dynasty knee deep in an S&L scandal...lest we forget Bush Sr. helped bailout Neil Bush in the 80's.

Again, it's ok if you are Republican.
I doubt Bush and his crew even recognise the existence of the serfs or schmucks.

Can't recognize something that doesn't exist. The booming Bush tide has lifted all boats. Thank you, Mr. Bush!

Now that this whole thing has become less nebulous (was the big story on the local paper's front page today) I really wonder how much of a ruckus the average joe will make. Not that it'll matter since Congress, full of wimpy Democrats and vile Republicans won't do zip to alleviate anything.
polishifter makes a good point about the S&L bailouts which by the way cost the American taxpayers $123.8 billion dollars. See S&L. Bush seems to be running this country on the supply-siders theory and we are paying the bills or getting the fall outs for his actions and the greed of the banks that looked for ways to make as much as possible by financing those that did not qualify. Now the Federal Reserve has come to their rescue and the regular folks, as Bush would say, "reap what they sow".
Deb... Arnold talks the good talk but only walks the progressive walk when it's within 6 months of an election.

Cartledge... Sadly, I suspect you're right. The most depressing aspect of this is that the danger is fairly abstract and relies on one's knowledge of financial and Federal Reserve policy. So, as Randal points out, nothing is likely to be done to protect savers.
Randal... Not much ruckus, I fear. As I pointed out to Cartledge, the danger is real but fairly abstract.

PoliShifter, Let's Talk... Bailouts for corporations, but nothing for Joe and Jane homeowner. I sure hope that this time, the average investor/saver is not left holding the bag.
So what's new? There is corporate welfare for the rich, the poor..er, not so much. Republicans are the biggest fucking hypocrites alive.
The history behind the mortgage fiasco and bank liquidity is a complex long intertwined affair.
After the Great Depression new financial regulations were put in place. For one, banks were barred from equity deals or brokerage operations. Then, fairly recently, Congress and the Fed gave in to the natural greed of the banks and let them return to brokerage/equity dealings. That, subsequently, the present catastrophe should occur is axiomatic to allowing banks to invest outside of a regulated asset lending scenario.

As many have said there is a tie in here to the S & L debacle.

Congress and the Fed deregulated the S&Ls to give in to the natural greed of the big banks. Prior to deregulation the S&Ls were allowed to pay ne half percent more for savings than other banks. That attracted long term secure savings/ assets to the S&Ls which they lent out long term in mortgages. It was a stable arrangement and as a side affect the money stayed local. Coveting these assets the big banks, Congress and the Fed made a devil's pact allowing S&Ls with no experience in non mortgage financing to go deregulated into risky areas. They crashed but the big banks got their hands on the trillions in mortgage assets which became speculative assets, leading to excess and our present liquidity crunch.

My point is that Congress and the Fed have bent to the greed of the big financial institutions and dismantled well thought out needed protections apparent from The Great Depression.

Now, John and Jane Doe will have to pay higher interest rates for their car loans, etc until the banks eroded capital (much of which was stripped off as fees to individuals) is replaced.

More organized theft (!**!) like CEO salaries which are actually a form of embezzlement.

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