Lehman and other reading
Good morning. Yves describes this one as a critter crawling out from under a rock.. This garbage never ends. Lehman has some questionable accounting and it appear that the investment banks that are now allowed to borrow from the fed are "taking their hung leveraged buyout loans and bundling them into collatearlized loan obligations so they can use them as collateral for loans fromt the Fed."
Go to the link to read more about what you are subsidizing.
I have been in the deflation camp, but I think what the fed is doing puts the US currency at risk for a hyper-inflation. In simple terms this mess has to correct one of two ways
- The magical money that was created from nothing needs to go back to where it came from, or
- The magical money works it way into the system at the peril of the masses.
Credit expansion has increased the money supply far, far beyond the price increases we seen. Well, we've seen some, housing prices, oil, base metals, and now wheat and agricultural commodities. So, what happened to make investors their average 20% per year for the last 5 years, or total 150%? Input costs went up 500%. I don't see that the increase in money supply has worked its way into the economy until every thing is up 500%.
The wealthy made the majority of this money and the masses simply find themselves with an inability to make ends meet. The rules are being changed to protect the wealthy and I am increasingly seeing less and less correcting in credit. Or perhaps, credit is being corrected, but taxpayers are increasingly on the hook for the losses for the correction and the government is more than broke.
With increase in money supply from credit expansion, money supply can disappear and it doesn't have to completely work its way through the economy. With the fed having that money supply on its books in the form of debt, it doesn't disappear. I think to fix it they eventually have to increase the money supply with a printing press.
I saw a piece yesterday that showed the breakdown of the decreasing quality of the federal reserve. It was something like 85% treasuries and now it is 57% treasuries and the rest is banking garbage.
I definitely have to think what is happening here through more.
I just headed over to The Big Picture to find the link to the story on the quality of the federal reserve (not where I saw it...) and there is a post about inflation. Personally, I think the "inflation" or expansion of the money supply, has already happened and this isn't further expansion of the money supply, but the gross level of increased money supply working into the economy. There simply is a delay between when the money supply is increased (inflation) and when price increases show up.
Put this with the stagnant wages. I have no idea where I saw the piece on the quality of the federal reserve, nor what day I saw it.
On another of Yves posts, "Banks are still hoarding cash, which means the Fed's heroic and ever-larger efforts have still not resolved the initial problem, namely, high interbank spreads."
I have no idea what historic interbank spreads were before the fancy computer models, but I did work in banking from 79 to 84 and the banking spread of what the bank charged and what customers got was several hundred basis points. I never saw daily interest rates go above 12% yet mortgages went as high as about 20%, to that's an 800 basis point spread. It seems to me there was always about a 500 basis point spread for clients. So I am not so sure I'd call a comparison to the 12 basis point spread for interbank loans prior to the market problems starting last summer reasonable. It has absolutely no risk built into it and I think artifically low due to banking activities that ought to have been illegal.
Apparently if you put a frog into cold water on the stove and heat that water up, the frog won't notice the water temperature increasing and won't save itself. Bankers are a bunch of frogs.