Fed Desperate! Expanding Emergency Borrowing Program for Flat Broke Banks – Wall Street Underground

By Nick Guarino | July 30, 2008

Dear Comrade,

In a desperate move right out of the Communist era playbook, our dead broke financial institutions are being given empty guarantees of money they don’t have by government. Before the bailouts the Bush administration in next year budget that begins October 1st need to borrow $500 billion. Promises of a Federal bailout our contingent on the fact that our government can continue to borrow massive amounts of money from a world rapidly getting sick and tired of red ink from America.

Federal promises of guarantees to dead broke institutions that are in the tens of trillions of dollars (they don’t have and may not be able to get) is a desperate attempt to keep the suckers invested in them with the false security that even thought they have pissed away their capital and are taking billions in losses (in the case of Fannie May and Freddie Mac may will be in the trillions) everything is OK.

Then there is the mortgage bail out that requires the bans to take a loss. My friends, there is no way in hell this can work. If they cant pay for the house flat out they cant pay for it no matter what you do. Get yourself ready the biggest bank collapse in U.S. history – and the nationalization of America’s major banks.

America’s biggest institutions are lying their asses off. Just two weeks ago Merrill Lynch said it had no more losses and did not need anymore capital. Then 2 days ago it reported it sold derivatives it had valued on its books for the past year at 98 cents on the dollar for 22 cents. To add insult to injury today we find out they indeed did sell them at that price BUT the purchaser only put up 4 cents on the dollar and Merrill financed the rest. That is with non recourse financing meaning if they prove to be worth less they what the purchaser paid for them he does not owe any more money on them. Bottom line all anyone was wiling to pay in real money for these derivatives was 4 cents on the dollar.

Remember these are the same derivatives the biggest banks in the world still value on their books using funny money accounting at 98 cents on the dollar. If they were forced to honestly account for them a lot of banks would be broke by morning.

Realizing the desperate straight the US banks are in the Federal Reserve today renewed its due to expire in September “temporary” Taft special emergency loan facility to January 30. It also extended its swap facility where banks can trade worthless paper they cant get rid of temporarily for US government securities so they can give the illusion of solvency.

They also extended the term of these loans from 28 days to 84, like that will do any good at all.

And why all this? Here is what the Fed Reserve of the United State of America Admitted:

The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.” The Fed said that the emergency borrowing program for investment houses and the program that lets investment firms temporarily borrow Treasury securities would be withdrawn should the Fed determine that conditions in financial markets are “no longer unusual and exigent.”

The housing market continues its death plunge with the ground. And it is taking the US financial system with it as the consumer is proven broke. The loses are spreading from the housing market to the automobile companies to credit cards lenders to the retailers. Shit even the coffee shop companies and restaurants are starting to go down for the count. Its a depression for sure, even if everyone is in denial.


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