FED BANK BAILOUT: $29 TRILLION AND RISING

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EDITOR’S COMMENT: This is truly worthy of Jonathan Swift’s Gulliver’s Travels. (I recommend reading or re-reading it). If someone wrote this book a few years ago, critics would have said it strains credibility. The Federal Reserve, also known as the Fourth Branch of Government but completely immune from control or balance from the other three branches (and possibly unconstitutional as a result) has extended overnight loans that once upon a time might be rolled over once or  twice for a total of three days, to THREE YEARS. The total of all money given to the banks, $22 trillion, is about the same as all the money that was invested in mortgage backed bonds. ALL OF IT!

Of course it goes without saying that 99% of the 7,000 banks and credit unions in this country never get to touch or hear about this money. And the presence of massive amounts of non-interest loans to a few large banks means they can out-compete anyone on the price of a loan. A Handful of mega banks have turned the world of finance into their own personal playgrounds. The country is held hostage by their avarice and their arrogance. The government is owned by them so there is no place to redress grievances, except hopefully the Court system which moves ever so slowly the way it was intended to act.

The amount of the mega bank bailout keeps rising because the mega banks are not paying back the “loans” — at least not within the time that customarily applied — hours, or days, and rarely weeks. The money keeps going out to the banks to create the illusion that the mega banks are solvent. They are not solvent and never were since they started this farce called “securitization of debt” and applied it with reckless abandon to the effect of the destruction of our financial system and the collapse of other financial systems around the world. The crazy thing is everyone knows they are not solvent and those in power insist on buying into the notion that if 4-5 mega banks fail, the world will come to an end.

So let’s start with why they are not solvent. The principal reason is that they are holding entries on their balance sheet reflecting nonexistent or overvalued assets. They didn’t fund those mortgages and they were never at risk. They sold the mortgage bonds and THEN went looking for borrowers. The more money they had, the more pressure they put on the downstream originators of loans.

What would happen if the truth was treated as reality instead of the myth that everyone seems to insist upon placing their hopes and dreams? The resolution of these massive incoherent marketing machines would result in many investors getting far more money back than they could ever imagine. Confidence in the financial system would rise to levels not seen since 10 years ago or more.

And the creditors having received their money, the balance due from the “borrowers” whose signature was just a ploy to get money from investors and the government would be correspondingly reduced by PAYMENT. It is simple arithmetic. The balance due if any, would be easily susceptible to modification of the original invalid mortgage papers, thereby restoring the enforceable mortgages that were originally intended at values and pricing that are beneficial to both investors and borrowers.(You need to get rid of the servicers for this to happen, of course).

This would reverse household wealth depletion. Last quarter alone it was $2.4 trillion in the U.S. alone.

see http://www.housingwire.com/2011/12/08/mortgage-debt-and-household-wealth-decline-in-3q-fed

As household wealth and home equity starts to rise by eliminating foreclosures by intermediaries who have no interest in the mortgages, the confidence of consumers rises, tax revenues rise as more sales occur in the consumer sector, more jobs are created, and it becomes possible for an economic recovery to commence, whereas at the present time there is no such possibility.

We need only abandon illusion for reality. The hard truth is that this is really about power. If those who have the levers of power near to them wanted to change this, they would. But when you have tapped into the “mother lode” and you have received twice the amount of the Country’s GDP just for you and a couple of your friends, I guess it is hard to give that up.

SEE FULL ARTICLE FROM RITHOLZ.COM BLOG

There is a fascinating new study coming out of the Levy Economics Institute of Bard College.  Its titled “$29,000,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient” by James Felkerson. The study looks at the lending, guarantees, facilities and spending of the Federal Reserve.

The researchers took all of the individual transactions across all facilities created to deal with the crisis, to figure out how much the Fed committed as a response to the crisis. This includes direct lending, asset purchases and all other assistance. (It does not include indirect costs such as rising price of goods due to inflation, weak dollar, etc.)

The net total? As of November 10, 2011, it was $29,616.4 billion dollars — (or 29 and a half trillion, if you prefer that nomenclature). Three facilities—CBLS, PDCF, and TAF— are responsible for the lion’s share — 71.1% of all Federal Reserve assistance ($22,826.8 billion).

One comment about some of the folks pushing back against this massive total: Yes, there is a big difference between a $100 lent for 3 days, and a $100 lent overnight rolled over 2 more times. And there is an enormous difference when temporary overnight lending lasts for three years.

Overnight lending, by its definition, is temporary, short term, lower risk, modest impact. It exists to allow slightly over-extended banks to meet their reserve requirements. But rolling overnight lending repeatedly for 3 years is none of those things. And it makes a mockery of these same reserve requirements, and the protective purposes they are supposed to serve.

The amount of overnight lending reflects how broken our financial system really is. A well capitalized, moderately leverage system does not require this massive liquidity from a central bank — interbank lending should be sufficient. What the data reveals is that the financial sector remains dangerously under-capitalized and overleveraged.

To pretend these were merely minor overnight loans, rolled over once or twice, is foolish, dangerous nonsense.

Tags: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
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