What does this have to do with Tiger Woods?

I wonder how many "not tremendously unusual" days we have ahead of us. This could be like the Fed or Treasury every few weeks saying that the housing market is worse than expected but the problems are contained.

How much do we know (or can sagely speculate) to what extent what the Fed does is to help certain investors etc, and not for the "public good"?

The American Federal Reserve is a fiercely professional organisation. Needless aspersion on their motives aside, there is a hard call to make between enabling unworthy risk taking - what we call moral hazard - by cowboys (as in your NY fellow bleating on one of the US channels about Fed injustice) and watching out for a cowboy who has punched a whole in the big financial system boat.

In the abstract it's clear, in reality it is not. Making some of the Hedgies suck up pain is a healthy and good thing, their snake oil sales of black-box financial gambling has been out of hand since at least 2005.

However, if liquidity dries up out of sheer fright - because quite frankly no one knows how much or who is exposed - then money gets sucked away from the real economy, and bang. Insolvencies, etc.

The technicians at the NY Fed are quality people and are not looking out for "certain investors" - indeed the guys I knew took a strange pleasure if fucking over the big boys when policy calls gave them the reason. Policy calls also mean that unpleasant people Lefties don't like may be rescued in the interest of not having a financial panic get out of hand and cause major damage.

The fact that you people are even aware of a Fed operation says that, of course, things are quite unusual and that a liquidity panic is around.

What happens when the banks or whomever tomorrow? It sounds like the Fed was trying to prevent another drop on Friday. Does anyone know if we are in for a 2 or 300 point drop tomorrow?

As one hoping to sell my house, I for one can assert that the housing market is wonderful.

"Nothing to see here. Go back to your homes."

"If you still have them."

"How much do we know (or can sagely speculate) to what extent what the Fed does is to help certain investors etc, and not for the "public good"?"

That's a question that's been running through my head since Friday. I, quite frankly, don't believe much of what was written in the e-mail from Kevin's Fed friend. I understand that it's important to all of us to have a functioning stock market, even if we don't own stock, but this looked to me like a Fed move to save the rears of a lot of investment bankers and mortgage businesses. Too bad we as individuals and small business owners don't have similar institutions to get us out of financial hot water. Still, the story behind this Fed intervention varies depending on who you read. Someone like Paul Krugman or the Wall Street Journal. Obviously the business news people are trying to allay panic.

One question: Is it true that the Fed took on the mortage-backed securities (obviously the cause of the problem) only for the weekend???

Gore/Edwards 08: "What does this have to do with Tiger Woods?"

It means that any chance of his leaving his wife and running off to Fire Island with Rupert Everett is moot.

With all due respect, who does Prof. Spear think he is -- Judith Miller?

The FED action smacked of panic and desperation. A financial institution was (is) in trouble and needed to get cash quickly. Going to the discount window would signal trouble.

The FED went through this charade to get the funds into the hands of the troubled institution.

I suspect that the FED took less than acceptable collateral with some kind of agency guarantee as 'fig leaf' cover.

The technicians at the NY Fed are quality people and are not looking out for "certain investors" - indeed the guys I knew took a strange pleasure if fucking over the big boys when policy calls gave them the reason.

While that's generally true, the fact is the big boys do get access that the little guys don't. Fed has been a lender of last resort for the big boys when they shouldn't, and I certainly can't count on the Fed organizing a bailout for me if I'm about to lose my house, as in the cast of LTCM. I do think keeping the interest rate the same was a good thing, though.

First, like nepeta, I was surprised to learn that Open Market Operations are just overnight (or over-weekend) loans. I had assumed otherwise.

I would not have imagined that overnight liquidity was so critical in such situations. That's very interesting information. I guess it means they don't want firms to be unable to settle up at the close of business, or be forced to borrow under desperate circumstances -- from Shylock?

Second, how do we know Kevin's friend of a friend isn't just leaking a reassuring story to the blogosphere in order to help "calm the markets"?

Already discussed in Brad's comment section on Friday. DeLong FTW!

Yeah, Ralph, that was my first thought on reading the e-mail from Kevin's friend. This isn't unusual, blah, blah, blah. Well, it is unusual to the extent that it is only done in times of crisis. The last time was September 12, 2001. I've read some really scary stuff about a potential economic meltdown. Unfortunately, I'm simply an ignoramus about all the subtleties of the market at this level (all the debt instruments, leveraged buyouts, junk bonds, etc., etc.) and can't come to an independent analysis of my own. I do trust Krugman though.

Krugman's analysis, probably early Friday after the first infusion of cash from the Fed:

Krugman on the subprime market crisis:

'And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.

The Fed normally responds to economic problems by cutting interest rates — and as of yesterday morning the futures markets put the probability of a rate cut by the Fed before the end of next month at almost 100 percent. It can also lend money to banks that are short of cash: yesterday the European Central Bank, the Fed’s trans-Atlantic counterpart, lent banks $130 billion, saying that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion.

But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults.

There are other, more exotic things the Fed and, more important, the executive branch of the U.S. government could do to contain the crisis if the standard policies don’t work. But for a variety of reasons, not least the current administration’s record of incompetence, we’d really rather not go there.

Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it."

In historical perspective, what's going on now in the financial marketplace is eerily familiar, but not quite comprehensible.

History never repeats itself until we have the benefit of 20-20 hindsight. Until then, t's all very mysterious.

That's why we have panics, not just miscalculated plays in a financial game.

Buckle up!

I just got one question for any finance experts out there-on the Fed's site you see the dollar amount that is "submitted" and the dollar amount that is "accepted". On the surface it would appear that the Fed was approached by financial institutions and *asked* to borrow X, but only received a portion or their loan requests or some were turned down outright. Is that accurate?

....OR is it that the *collateral* that was "submitted" was screened and only a portion of the *collateral* was "accepted"?

Some general reactions to the post.

I work for the Fed. I suppose I shouldn't be surprised at the relatively high incidence of conspiracy theories as to whom the Fed might be trying to help. The Fed is, after all, a powerful organization, and one that operates with a considerable degree of independence. (The President appoints the Board of Governors, and Congress can amend the Federal Reserve Act whenever it likes; but day-to-day operational independence is nearly complete.) It's a little more surprising to see questions as to whether the recent open market operations were "really" only for three days, or that the lending (against collateral) went to some favored institutions, or that "Kevin's friend was only telling a reassuring story to calm the markets." The Fed operates under a high degree of transparancy. The terms under which open market operations are conducted is public doman information, released immediately, as has been the case for years. Even a whiff of favoratisim of deceit would would harm the Fed's reputation in an irreperable way, destroying its effectiveness. Like anyone who has worked for a long time for an organization, and developed a degree of attachment to it, I can't be entirely objective. But even trying to correct for that, I think "fierce professionalism" is a fair characterization.

A couple of factural points. Some readers seem to think there is something unusual about overnight lending. No--this occurs all the time, as a normal part of operations, not just for the Fed, but for private banks. Banks that have more cash than they need at the end of the day want to put it to work; banks that have less then they need (maybe withdrawls have come in ahead of forecasts, or a customers' open credit line has been tapped) are the borrowers. Collateral is required in essentially all such transactions.

On the last question, yes, some loan requests were turned down or satisifed only in full. The reason isn't differences in the quality of the collateral--that's all AAA. Rather, the Fed staff made an estimate as to how much overall lending needed to occur to keep the Federal Funds rate on target. The second and third operations on Friday were follow-on, as the initial liquidity injection turned out to be not quite enough.

Thanks for the commentary Matt. Is there any truth to the assertion making the rounds that some of the mortgage backed securities labelled AAA are not of the same ilk as the standard AAA?

Good bloody fuck.

Primo, the Fed is not working the bloody stock market. It is working the banking system. Not the same bloody thing. The Fed is not concerned with a "Monday drop" in the NY Stock Exchange or others. It is concerned with a lock up in liquidity in lending. Bank loans, the kind Joe Corporate walks into a branch to get (a corporate branch perhaps, but you should get the picture).

As for Open Market Operations, and overnight liquidity: well one needs a course in bank economics to get the importance here, but the issue is not one that on any given period its so crucial, but rather that experience has shown that if institution X due to a shortfall is not able to make its daily commitments (say because it has to meet cash calls on some dumb-ass placements in CDOs), that (i) this can often trigger a cascade of escalating problems given inter-locking engagements between financial institutions, and (ii) in moments of crisis or perceived lack of liquid capital available, the perception of failures can kick off escalating "calling in the bets" or pulling back money out of pure fear that the last guy holding the bag gets fucked.

The international central bank operations were roughly to inject plenty of extra cash to ensure that no one is/was left short during a key psychological moment (and also to keep rates in line with targets, since pulling back and hoarding away cash has this tendency to make cash more expensive, i.e. kick up rates).

Take a bloody drink and calm down.

The American Federal Reserve is a fiercely professional organization….The Lounsbury at 2:17 PM

....Take a bloody drink and calm down. The Lounsbury at 7:20 PM

The Fed saves the investment bankers - at times - because that is where the system is, in the investment banks. That's the Fed's job.

I don't see anyone referring to any interesting numbers. Go to here and put in 1987:
http://futures.tradingcharts.com/hist_TR.html

You will see that on Thurs before the Oct 19 collapse, participants could see in the WSJ that the Wed T-bond futures volume spiked amazingly, about to change an already strong downtrend into a major rout. I was there. I shivered when I saw it. As the bonds were getting creamed, the stock market was going to follow. I don't shiver now because I don't see any numbers that are scary.

Show me the numbers. Any fool can dream up a story to fit. Even the trolls can do it on demand.

(I shorted the S&P's that Thurs morning, but got taken out by a stop that was too close. Damn. Knowledge alone does not make a trader, although the subsequent Tues, Oct 20 injection of funds by the Fed was a no-brainer, something that many traders, like Richard Dennis, for example, just missed. They really got hurt. )

Take a bloody drink and calm down.

I am all in favor of drinks, but it is too soon to calm down. The liquidity crisis arose because all at once everybody was willing to admit publicly what everybody has known for 2 years - a large number of CDOs are shite, and nobody knows which ones are any good. This may have been a key psychological moment, but the lack of liquidity caused by nobody knowing what anything is worth will not go away too soon.

From what I have heard very second-hand, deals that have begun are mostly going to finish. No new deals are getting approved until people figure out who is OK and who is ruined. This could take a while.

"On the last question, yes, some loan requests were turned down or satisifed only in full. The reason isn't differences in the quality of the collateral--that's all AAA."

I read that the collateral was the 'bad' mortgage security bundles that no one wants anymore. Not true? If true, hardly AAA.

I know one thing for sure. This makes me despise the 'extreme' capitalism we're experiencing today in the US. It's like a big poker game or casino, and most of us weren't invited. When I hear of one of these fat cats taking a big 'loss' it probably means that he lost 90 million but still has 10 million in the bank. Ah, so, so sad. And excuse my underestimation. Ninety million probably isn't lots of money in these circles.

Why the heck should we care if these 'cowboys' are hurt by all of this?

They gambled and lost. So what!

Let's get the Fed to focus on something other than protecting members of their old-boy financial club.

On the last question, yes, some loan requests were turned down or satisifed only in full. The reason isn't differences in the quality of the collateral--that's all AAA. Rather, the Fed staff made an estimate as to how much overall lending needed to occur to keep the Federal Funds rate on target. The second and third operations on Friday were follow-on, as the initial liquidity injection turned out to be not quite enough.
Posted by: Matt on August 12, 2007 at 6:18 PM
-------

Thanks Matt, but if overall lending in the *aggregate* was the target then how is the queue determined-first come first serve? I don't think the process is quite transparent enough. *This* form of opacity isn't helping to quell and calm markets-IMO.

What I'm wondering is that if the Fed is so transparent and such, why was the M3 discontinued?

From Wiki:

* M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
* M1: M0 - those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts).
* M2: M1 + most savings accounts, money market accounts, and small denomination time deposits (certificates of deposit of under $100,000).
* M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements.

As of March 23, 2006, information regarding M3 will no longer be published by the Federal Reserve, ostensibly because it costs a lot to collect the data but doesn't provide significantly useful data[1]. The other three money supply measures will continue to be provided in detail.

Why would we not be interested in CD's, Euro's and repurchases?

"the media is trying to make the story a lot more sensational than it truly is."

They did not have to try very hard. It was pretty damn sensational. Let's try to stay real.

If you're going to comment on the the mechanisms the Federal Reserve uses to influence the money supply, please take the time to do some research first. In fact, this applies to the mechanisms of the investment world in general.

1) The words "overnight loan" and "bought" have been used to describe the transactions in question. In a sense, both are true. The loan is structured as a sale with subsequent repurchase. They are known as "Repos". These are, as Kevin Drum said, perfectly normal transactions.

2) One of the risks that the street is worst at managing is liquidity risk. Specifically, that an event in the market forces you to sell at the point when your assets are worth the least. If your positions are leveraged, this can happen because your lender wants more collateral (a margin or collateral call) or your investors suddenly decide they like cash. Liquidity crises can make the impact of moderate (but unexpected) events extreme.

3) The Fed's actions were probably intended to keep poor liquidity in these securities from draining too much cash from the markets. Doesn't sound like a horrible idea to me. Tinkering with the money supply by transacting in the repo market is what the Fed *does*.

4) I haven't heard of anything that sounds like a bailout. But the most important thing to remember about bankers is the phrase "Other People's Money". Yeah, some of it belongs to the hyper-rich. But an awful lot of it belongs to pension funds or other vehicles that ultimately benefit some little old lady in Peoria.

Yes, I've worked in the securities business for years. But my politics are to the left of most of the Democratic party (admittedly an easy test to pass). Yes, we're paying for an excess of greed in the mortgage business. Yes, the Bush administration is being idiotic about it. But the Federal Reserve is not conspiring to help Wall Street over the interests of the rest of the country.

-r

As of March 23, 2006, information regarding M3 will no longer be published by the Federal Reserve, ostensibly because it costs a lot to collect the data but doesn't provide significantly useful data[1]. The other three money supply measures will continue to be provided in detail.

Why would we not be interested in CD's, Euro's and repurchases?
Posted by: Maruk on August 12, 2007 at 9:54 PM

Umm, yeah. If it is so costly to collect the data and it isn't statistically significant why doesn't the Federal Reserve explain why or show a study they've conducted that illustrates this point-anybody? The timing of that policy change is rather suspicious. Does anybody show a link that has graphical data showing all four money supply measures graphed together over a long period of time? I suspect M3 has shown quite a bit of whiplash of late.

I don't know how reliable the author of this article is, but it sure is an interesting read.

"The unsupervised expansion of credit through interest rate manipulation is the fast-track to tyranny. Thomas Jefferson fully understood this. He said, “If the American people ever allow private banks to control the issue of our currency, first by inflation, then by deflation, the banks and the corporations that will grow up will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.�

We are now in the first phase of Greenspan’s Depression. The stock market is headed for the doldrums and the economy will quickly follow. Many more mortgage lenders, hedge funds and investment banks will be carried out feet first.

As the disaster unfolds, we should try to focus on where the troubles began and keep in mind Jefferson’s injunction: “The issuing of power should be taken from the banks and restored to the people to whom it properly belongs.�

Rep. Ron Paul is the only presidential candidate who supports abolishing the Federal Reserve.

-Mike Whitney

Stock Market Meltdown

The FOMO has been using this type of "feed" to the markets for years, the biggest previous feed was when the markets opened after 9/11/01. This type of pumping is a way of rigging the markets. When bankers, Goldman Sachs, Bear Stearns and the lot do stupid, ill-advised things, the Fed minimizes their exposure by giving them billions in short-term loans to turn the market and bail them out.

If this were a Democratic administration, I doubt they'd be so generous. The Fed is not only keeping the market afloat, they're enabling Bush to make claims about his administration's economic planning. The so-called bull market is about the only good piece of economic news the administration can point to.

First, a clue for the heavy breathers: the Fed - like all central banks in free markets - does interventions daily and has done so for decades. There is nothing about saving a bank or whatever. This is one of the main ways the Fed manages interest rates. On a daily (indeed live in real time) basis.

Now when silly Left gits right things like: The Fed always, always puts Wall Street over Main Street, always puts the investment class over the working class, ..... I am amused. Insofar as of course the working class benefits greatly from easier money combined with stable interest rates, you're wrong. Queer, old American populism as I recall was all about easier money. As the Fed has been positively whorish with liquidity...

But it's an easy analysis for the illiterates to make: "big Fed bad, in service of Wall Street" ergo all that follows, regardless of internal cohesion and facts will be part of a Big Money conspiracy.

Despite your primative understanding, the only difference in interest here is between those who are in debt (or need/want debt) and those who are not (or less so). Higher rates of course impact in the end the little guy the most.

....Take a bloody drink and calm down. The Lounsbury at 7:20 PM

This comment was by the way in regards to the collective ill-informed and primative shrieking on about the Fed, not per se the liquidity issue.

They are working to save the bacon of banks, hedge funds, and brokers whose greed led them to make extremely unsound financial deals.

Other people's money mate, other people's money.

If the big banks start to go pop, or in this financial round, pension funds and retirement funds, its depositors, and the little guy who suffers. Not the i-banker, or hedgie that already pocketed his fee.

Joe Six-pack makes a bad investment and it's tough shit; billionaire bankers do, and it's Oh my god, save them save them because "The Lounsbury" panties

Yes, that's the mythology. Coming from people who barely understand what a central bank is and who have no idea how markets work.

I am an Aussie who is looking with interest at the US financial situation. Just wanted to comment on some of the user comments.

M3 stats being no longer published by the Fed is significant - and ironically it was not reported much in the press.

Some people have taken it upon themselves to comb through economic data and attempt to reconstruct M3. This is available here.

http://www.shadowstats.com/cgi-bin/sgs/data

Notice something ? After M3 was discontinued, the reconstructed data shows M3 spiking upwards.

The inflation of the money supply greatly increased once they ceased publishing M3. Their use of "core cpi" when commenting on inflation is also highly dubious.

Conspiracy nuttiness aside,there is little doubt that your USD is losing much of its purchasing power rapidly - the decline of the USD to historic lows shows this.

Response by the rest of the world ? The gulf states are accepting currencies outside USDs when selling petrol (euros) - Russia and China are also (quietly) diversifying out of the USD.

I think most people well versed in economics/politics recognise that America power lies in its military and the status of the USD as the world's reserve currency. But confidence in the USD is eroding rapidly and sometime in the near future the US is going to lose much of its global influence. Yet somehow this is not a huge issue in the upcoming elections in your country

Curious, that

I suspect M3 has shown quite a bit of whiplash of late.
Posted by: Doc at the Radar Station

Discontinued because M3 was, in an economy which is slowing down in the 1-2% range, growing in the 10-13% range which is wildly inflationary. That's the underlying problem of a fiat currency created out of thin air.

"In a financial bubble, the real economy may not be growing, but the monetary value of financial assets rises, and is defined as growth, not inflation. Thus we have robust "recoveries" that continue to lose jobs, with the value of money protected by high unemployment and stagnant income from wages. Or we can have a recovery with low unemployment with rising nominal income that is accompanied by a decline in real aggregate income, with wages falling behind inflation."
- Henry C K Liu - How currency devaluation destroys wealth
http://www.atimes.com/atimes/Global_Economy/
IF14Dj01.html

CuriousAussie, the reserve currency status cannot be a factor in elections because the electorate does not understand it. Not even close.

I would question your emphasis on it, for the US was an economic and military power before Bretton Woods.

Where the electorate is right is just trusting in the incredible wealth of the US. Betting against that has always been a mistake since the early Depression.

Try this one:

Central banks' easy virtue, easy money
By Julian Delasantellis

http://www.atimes.com/atimes/Global_Economy/
IH14Dj01.html

Why don't we cut the BS and the Fed-speak and tell truth here? The Fed turned on the printing presses, as it has the power to do, and took that paper money it creats out of thin air so it can once again bail out big investors because Jim Cramer threatened to hold his breath until his faced turn blue as his buddies were facing life in the poorhouse.

It would be understandable that when Ron Paul talks about monetary policy people turn away because they don't understand it and even I find it a distraction because economics does not interest me. But then you have events like this and then you realize what Paul is saying is true. Continually printing money to bail out bad investing to lessen the shocks of bubbles bursting does two things: 1). Weakens the dollar and our trade imbalance; 2). Allows bad behavior to continue because big investors realize the Fed will bail them out no matter how many bad loans they make because "they're too big to fail" or in other words "they're too rich to fail."

What the Fed is doing is subsidizing reckless behavior and as Ron Paul, when you subsidize something, you get more of it. Enjoy!

Here's a prediction for you truthpolitik. The mortgage market will return to where it was within 1 to 2 years. Ascribing the terms liberal and conservative to this area of commerce is mindblowingly ignorant.

The more I read threads like this one, the more I believe that all the talk about the virtures of the "free market" is just so much swamp gas.

No matter which fancy phrasing is used, it's still clear that the little guy gets creamed, the big guy gets his behind covered (however virtuous the reasons for doing so)and the big guy gets to keep his bonus even though his bets turned to crap.

That's some "market discipline".

TruthPolitik,

Wise thoughts - No ARM for your dacha, I presume.

I actually think the Federal Reserve is basically doing the right thing. There ARE a lot of pension funds out there that could get hammered. I don't think the solution is to let a depression occur after a panic and meltdown and sit back just so we can be satisfied that the rich got "punished".

What is really needed is improved *REGULATION* by the federal government. There shouldn't be credit cards with 35% interest rates-NEVER. People shouldn't have been allowed to finance houses with no money down. There NEVER should have been loans that are "interest only". NO teaser rates.

Of course without all of the "creative financing" of the last several years there probably wouldn't have been much economic "growth". We would have looked like Japan in the '80's. Flat. So, the bottom line is that there hasn't been any *real* recovery in the economy since 2000-2001. That's because the "real" investments were made in Asia NOT here. The last five years have been nothing but a "paper-over" of that fact.

Bloody hell.

First, the merits of a free-market are well-demonstrated. One need only look at the glories of non-free-markets (that is the poverty they generate).

In this instance, despite the hysterical shrieking, it is not clear any "little guys" are going to get creamed - if they do, it will be due to American regulations on consumer rights that pre-existed this event, and have nothing at all to do with what the Fed does now or doesn't do now.

Indeed one might expect that the Fed being liberal with liquidity may help prevent some of the nastier characters from feeling pressed into pushing for foreclosure in the sub-prime space, rather than renegotiating; a boon to the "little guy". Further, many little guys may be exposed via their pensions to this due to pensions seeking to earn higher returns by buying what was thought to be well-constructed paper.

That is, the Fed's actions are rather clearly trying to avoid a major blow-back that could hurt little guys, while letting the fatter players experience some pain.

Kneejerking illiterate Left frothing at the mouth aside of course.

At least one not hysteric, if still silly, comment:

What is really needed is improved *REGULATION* by the federal government. There shouldn't be credit cards with 35% interest rates-NEVER. People shouldn't have been allowed to finance houses with no money down. There NEVER should have been loans that are "interest only". NO teaser rates.

Interest rate regulation has rarely proven to be a good idea, at least outside of a certain range. Credit card rates, well that's debatable, but better would be to provide appropriate outs for the borrower such that the company bears the pain if it makes bad risk decisions.

The US revision of its debtor law as far as I understand it (I confess not particularly in detail) struck me as a bad idea.... But there you go, credit consumer protection while letting the market work is the answer; not making credit slaves via too tight bankruptcy laws.

The same for mortgages, rather obviously there was not enough protection in the system (in some areas, if I understand the US regulations for brokering mortgages vary from state to state, as well as in re bankruptcy for home owners).

No money down should be available, with appropriate protections. It opens up ownership to a whole new group of "little guys."

Plain language disclosure mandates are useful (to avoid the disease of lawyers).

Of course without all of the "creative financing" of the last several years there probably wouldn't have been much economic "growth". We would have looked like Japan in the '80's. Flat. So, the bottom line is that there hasn't been any *real* recovery in the economy since 2000-2001. That's because the "real" investments were made in Asia NOT here. The last five years have been nothing but a "paper-over" of that fact

Oh bollocks, the US has been growing in quite a real fashion. The old rust and iron industries have been banged up, but they deserved to be. And some things moved overseas, where yes, growth has occured. And wonders be, higher end American products are being bought (and non-American). The US dollar has been badly overvalued, well, it should adjust.

I don't understand the noise. Countless millions of people got happy over the last few years on the effect of cheap money.Lot's of them ,far more than most would admit, played loose with the financial system ,but even this brought benefits to those that did not. In other words the good news was widely spread regardless.

All of the above got packed up and shipped off through the financial system globally which also helped the general public by playing fast and loose.
Now the general public is bleating because the central banks are trying to put a braking mechanism on the rush for the door so that basically only extremely over leaveraged people/funds on the margin get hurt(wiped out) and the general public gets a rather small cut.
You just don't know when you are lucky. I'd recommend you shut up before you all get a real share of the pain.

I think that usurious rates of interest for credit cards that are easily obtained is not good for our economy-just my opinion.

As far as economic growth (GDP) is concerned, when you factor out mortgage equity withdrawals it doesn't look quite so pretty:
http://calculatedrisk.blogspot.com/2006/09/gdp-growth-with-and-without-mortgage.html

The 2nd graph here with the teeth missing down at the end is what I'm pointing out. Even with MEW included this recovery is the most anemic since the '70s.

Dean Baker, over at Talking Points Memo, takes a view quite different from Lounsbury's. He says that the Fed should move (as it did on Friday) only when trying to quell an irrational panic. When the Fed intervenes in the market to correct a rational panic, which is what we have now, then the intervention has the effect of saving the necks of those who have taken high risks that never should have taken. This becomes a self-perpetuating situation where banks, hedge funds, etc. are rewarded for bad business practices and have an 'expectation' of being saved in the future. If I've misparaphrased Dean Baker, my apologies to him.

"Countless millions of people got happy over the last few years on the effect of cheap money."

Yes, and I thank you for it. My 15-yr mortgage at 4.875% is great. I now earn more in my money market account than I am paying you in interest.

Mate,

Panic is irrational. Rational panic is an irrational whanker statement.

"The Fed operates under a high degree of transparancy." -- Matt

Great, Matt, so please tell me where I can get public information on who received the loans and at what rates each borrower received them, as well as the nature and quality of the collateral.

Also please tell me when was the last time the monetary policy operations of the Fed were audited and made public.

Oh, and most interesting of all, to get at this so-called "transparency" - please provide a stock ledge for each of the Reserve banks, showing who has an ownership interest and voting rights by each class of shares.

Also, can you point me to a law that prevents the members of the Fed member banks from trading on inside information regarding interest rate shifts?

You can go to the NY FEd site. Only authorized counter-parties (of long standing all) are allowed to take part in OMOs mate.

As for audits, see the NY Fed A.R.

Now, if you're a financial illiterate as you likely are, you'll understand fuck all of the documentation, but well, there it is.

Oops: the stats on the primary dealers are here: http://www.newyorkfed.org/markets/statrel.html

As for Fed member banks - all US federally licensed banks are Fed members, what "insider" information do you think they have? And where are they "trading" this?

The OMOs occur on, drum roll, the open fucking market. Everyone can see. That's part of the fucking point.

Here's a primer mate, written in language idiots can understand: http://research.stlouisfed.org/aggreg/meeks.pdf

As for other infos on OMOs: right out in the open: http://www.newyorkfed.org/aboutthefed/fedpoint/fed32.html

And the annual reports, ten years worth, here http://www.newyorkfed.org/aboutthefed/annualreports.html

Bloody fucking transparent.

Not that this will stop illiterate Lefty fools from weaving incoherent and ill-informed conspiracy theories (or come to think of those bizarre Right Paranoids in the US of A with their weirdo paranoid conspiracy theories. Oddly similar actually).

Any more illiterate whankery?

"Panic is irrational. Rational panic is an irrational whanker statement."

I think you should give this a bit more thought.
Panic is a common human experience. If one panics (running and screaming) when being chased by a snarling rottweiler, the panic could be termed 'rational,' don't you think? However, if one displays the same response upon the appearance of a little mouse on the doorstep, then the panic is irrational. The market often displays irrational panic (big sell-offs) based on rumor. The rational kind of market panic is based on real information and real losses.

Hey Lounsbury,

Where does it tell me on the NY Fed site the specific counterparties, amounts, rates and collateral? You can prove me wrong with a link, if it's so "transparent". Particularly interesting, for example, is that last Friday the Fed made a substantial loan at 0% interest, which is unprecedented (esp. when combined with the large std. deviation on that date) as long as records are maintained at their website (since July 2000, see http://www.newyorkfed.org/markets/omo/dmm/historical/fedfunds/ff.cfm).

Who owns the stock of the Federal reserve banks? Where do I get this list? Please provide a "transparent" link!

As to insider information - this would be information about interest rate movements. I.e., the Fed largely controls short-term rates and in the derivatives and other markets it is simple to make fortunes based on prior knowledge of how those rates will change. What law governs trading on this information, or orchestrating rate changes which would benefit the stockholder banks, or their controlling persons, personally?

In terms of audits, the annual report only has audits of financial statements and internal controls - see http://www.newyorkfed.org/aboutthefed/annual/annual06/annual.pdf. It says nothing about monetary policy operations - if it does, please tell me on which page I should look.

I know what OMOs are, my question is, where is the publicly available audit of these operations, say by the GAO? The NY Fed itself disclaims any such audits at http://www.newyorkfed.org/aboutthefed/fedpoint/fed35.html . You might retort, the Congress asked not to audit this - but that does not make it more transparent.

Aside from that, you are rude, intemperate boor. Please do try to learn some manners.

Hey Matt from the Fed! What's M3 at these days? Are we not being told anymore because we can't handle the good news? No. We're not being told because inflation is out-of-control and and if the people around the world who buy Treasuries knew how much we have diluted their holdings, there would be a mass selloff of our national debt, crashing the dollar.

Or... Just tell us what M3 is, and I'll go get my tinfoil hat and shut up.

Bob M, you are absolutely correct of course - thats why US is still the world's super power.

But there is a first time for everything, and you have to admit, this is shaping up to being almost the perfect storm.
- Iraq has made the world hate the US and acts as a huge drain on finances.
-The Fed is inflating the USD at unprecedented rates.
-Distrust of the US financial system is increasing (much of the current CDO crisis is based on outright fraud - Moody's and S&P both rated BBB- debt as AAA, which is why its all not across the globe).
-US consumer debt is tapped out, everyone is leveraged to the hilt on their houses and ccs. There is literally nothing else to tap into.
-USD is approaching its lowest level ever, if it every crashes through the psychological lower limit, nobody knows what will happen.

Honestly, I believe that unless the US changes course drastically, it will lose its super power status. The reason why this has not happened sooner is no alternative "safe" currency. But there are limits, and if the US crosses them, God help us survive the upheaval that will occur.

You are also right that J6P would not care about M3 etc - but given the importance of this issue (a decision on abortion/gun control etc. either way matters NOTHING in the grand scheme of things), nobody seems to care.

Disclaimer - I am not partisan or are anti US, I am interested in the same way that a bystander is interested in seeing a car wreck.

"Aside from that, you are rude, intemperate boor. Please do try to learn some manners."

No SH*T! Nice retort Sage.

The 'conspiracy' theories this boor dismisses as drivel stem patterns of corruption with us since the beginning of human history. The current ruling elite (from the Bushies to the UN) have proven time and again that the fix is in and original charges of wrongdoing end up only being the tip of the iceberg, and that some conspiracies do have merit.

Let's face it: anyone who's taken the time to dig this deep into the FED's actions and the media storm and be posting on this blog has skin in the game, no? So let's have a little fun with this:

Lounsbury, what's your angle? My GUESS is you're not even from the UK, but instead are playing to the unfounded American deference limey intelligence. You're actually a shill trying to put suspicion of a crooked FED to rest. HAHAHA

Me? I'm short some of the reckless lenders etc., and doing "research". I'd like to know which financial institution(s) are in trouble here and causing the mini-panic. Also, as a taxpayer I'm wondering if I'll be the ultimate "lender of last resort" because of the FED's poor management of "moral hazard" blah blah...

Thanks for the links all!

Why is everyone expected to work for the Fed? Isn't it true if one pays you cokeacola for a wage that you work for cokeacola? Similarly if you work for Federal Reserve Notes you work for the Fed. I won't work for the Fed anymore because Federal Reserve Notes(FRN's) because they are not worth anything more than renting assests from the government or buying Chinas plastic at Walmart. Work for yourself and let the Fed crash with everyone who bears its mark.

Is it true that Fed intervention, with injections of liquidity, allows big investors to believe the Fed will take care of them out no matter how many bad loans they make.

Please define "injections of liquidity." Does it mean that the Fed is buying mortgage-backed securities? If so, doesn't that mean the intervention has the effect of saving the asses of those who have taken high risks? If your answer is that they can only purchase highly rated mortgage backed securities, doesn't that cause a problem in itself? The problem being that no one can determine the value of mortgage-based securities because the process has been so secretive, mortgages are commingled, and they can't be properly priced which which is the cause of this whole panic driven market?

Where does this bail-out money come from?

Where I can get public information on who received the loans and at what rates each borrower received them, as well as the nature and quality of the collateral? Do they purchase stocks? If so can I find out the same information?

When was the last time the monetary policy operations of the Fed were audited and made public.

What is the real reason the M3 is no longer reported?