I know you don't want to read about the financial crash. Tough! With Citibank, Bank of America, J P Morgan Chase and Wachovia getting "helicopter drops" of money from the Federal Reserve, it's a little hard to ignore. But, for the doubting, here's a bit more evidence, from the latest Fortune Magazine.
It seems the Federal Reserve made another desperate lunge forward this week, sending letters to both Bank of America and Citigroup on Aug. 20 allowing them to "blow through" the legal limits on how much they are allowed to lend to their own brokerage firms, it was revealed today by Fortune. Fortune comments: "This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets."
Fortune also notes that the other big banks have probably received the same exemption, which allows each to lend $25 billion to its brokerage (i.e., Citibank can lend $25 billion to Citigroup Global Markets, its brokerage), which is about 30% of their capital, as opposed to limits of 10% under the regulations.
This move is linked to the Fed's reduction of rates on their discount window last Friday. "This is just a technicality to allow us to use our regular channels of business with funds from the Fed's discount window," said Bob Stickler, spokesperson for Bank of America, to Fortune's Peter Eaves.
The Fed even claimed to be acting in the "public interest," because it allows Citibank to get liquidity to the brokerage in "the most rapid and cost-effective manner possible," they told Fortune.
Friday, August 24
Crash Baby Crash- Beyond Real Estate
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