Talk about money out of thin air...

G

gastropod

Talk about money out of thin air...here Mr. Bankster...just overdraft your account at the Fed...you can get "overdraft" protection for free if you have collateral (for overnight)...and at a "whopping" 0.50% interest if it is unsecured (for overnight)!!! If, Mr. Bankster, you are really hard up and need the money for two weeks...the Fed will charge you a whopping 1.5% annual rate.

http://www.federalreserve.gov/newsevents/press/other/20100930a.htm

-gastropod
 
Hello gents,
It just looks like our friendly neighborhood Fed. has told the banks that they can be in the red for the night...no need to have the books clear for the night...just put up a little "collateral" and they can have money for the night. If you recall, this is similar to what Lehman was pulling towards the end...they would "sell stuff" for a few days...just to have "cash" on the books for the end of the quarter. I don't see why a bank, when it has to "show it meets reserves on Wednesdays" couldn't just "take to a little borrowing of some cash - free of charge" to show the bank "meets reserves"...meanwhile, the banks books would look atrocious and would NOT have met reserves without the borrowing. Oh - and no need to go to the discount window for this cash...just tell the Fed you have collateral :D

OK, I will show my ignorance here...but, this is how I understand this deal...the banks need to show that they meet reserves on Wednesdays...Bank "A" does not meet reserves...it puts up some of the crappy CDS or MBS that it has as "collateral" - gets money for the night (free of charge) and presto...instand Tier 1 capital...Bank "A" meets reserves for the week...next day...returns the money...gets its collateral back...the public is none the wiser. Money was created out of thin air to "save the too big to fail." Please correct me if you know me to be wrong here - I don't claim to be a finance/economics genius :D

-gastropod
 
Nah, it's not like that... It's not about the ability to "overdraft on reserves". That's not allowed for any bank that's part of the FRS (hence the discount window).

The changes to the PSR policy apply to various interbank transactions that are cleared through the Fed's payment systems.
 
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