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Author Topic: Audit and Abolish the Federal Reserve, Another Secret Bailout  (Read 1677 times)
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WhiskeyGirl
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« on: April 01, 2010, 04:51:11 PM »

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The Fed has finally came clean. It now admits it bailed out Bear Stearns – taking on tens of billions of dollars of the bank’s bad loans – in order to smooth Bear Stearns’ takeover by JPMorgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.

The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed – then run by Tim Geithner – was very much in the center of the action.

This raises three issues.

First, only Congress is supposed to risk taxpayer dollars.
The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself...

Second, if the Fed can secretly bail out big banks, the problem of “moral hazard” – bankers taking irresponsible risks because they know they’ll be rescued – is far greater than anyone assumed after Congress and the Bush and Obama administrations bailed out the banks...

Third, the announcement throws a monkey wrench into the financial reform bill now on Capitol Hill, which gives the Fed additional authority by, for example, creating a consumer protection bureau inside it. Only yesterday, Sen. Jim DeMint (R-S.C.) blasted the Dodd bill for expanding the Fed’s authority “even as it remains shrouded in secrecy.”

The Fed has a big problem. It acts in secret...But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.

That it chose to reveal the truth about its activities during a week when Congress is out of town, when much of official Washington and the Washington media have gone on vacation, and only after several federal courts have held that the Fed must release documents related to its bailout of Bear Stearns, suggests it would rather remain secret than become transparent.

more here - http://www.csmonitor.com/Money/Robert-Reich-s-Blog/2010/0401/Fed-in-hot-water-over-secret-bailouts
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WhiskeyGirl
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« Reply #1 on: April 01, 2010, 04:57:53 PM »

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Overnight the Federal Reserve Bank of New York released detailed holdings in its Maiden Lane LLC accounts, the vehicles created to take on assets from the Bear Sterns and American International Group rescues. The portfolio is a mix of distressed securities, such as collateralized debt obligations, government-sponsored enterprise debt, and, of course, real estate loans.

Yes, the New York Fed, as today’s Wall Street Journal points out, now owns loans to a great many pieces of commercial real estate, including many hotels. The Fed has hired professional managers to run these portfolios, but it may do more to directly preserve the shrunken value of those impaired assets.

The Fed can help itself by supporting the hotels that owe it money. For instance, the major annual Federal Reserve Bank research conferences are mostly held in secluded resorts like Cape Cod, Massachusetts, and Jackson Hole, Wyoming. Conveniently enough, the hotel mortgages it holds appear to be spread across the 12 districts of the Federal Reserve System and provide ready substitute locations.

more here - http://blog.american.com/?p=12165
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It doesn't do any good to hate anyone,
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WhiskeyGirl
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« Reply #2 on: April 01, 2010, 05:05:13 PM »

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“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”

The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.

The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages...

Lending Standards

For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.

The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late...

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“The trust of the taxpayer was abused,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said.

Are Goldman's fingerprints on those CDO's somewhere?

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Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”

more here - http://www.bloomberg.com/apps/news?pid=20601087&sid=aZA_RWY3IJ2I&pos=4
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
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