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I believe this is direct evidence that the $1 trillion plus dollars that the Fed spent in "lending" to private banks is government spending that is not financed by taxes or borrowing. Of course, many of the "loans" were Fed purchases of toxic assets and will never be repaid. Have I got that right?
The Fed "loans" are numbers on a spreadsheet. However, it's losses on those loans and guarantees are real losses in that this injects NFA into nongovernment. In effect, the Fed eats the banks toxic assets and the banks are made whole on them. This is a fiscal operation not approved by Congress.
So Tom are you saying, the Fed swapped dollars for bank loans, loans that would never be paid back and were therefore worthless. The crediting by the Fed of accounts at the banks were called loans from the Fed. The crediting added new dollars, NFA, in place of worthless (no existing dollars) loans.
In QE1 these were not loans. The Fed purchased dodgy private sector assets from the banks and credited their reserves accounts at almost full value, at any rate, much higher than actual market value. Any loss the Fed eats is the bank's gain.
Thanks for helping me understand this Tom. So were the "dodgy private sector assets" mortgage back securities or primarily such and those aren't referred to as or synonymous with loans? And when Bernanke said, "So, to lend to a bank, we simply..." he should have said, to more accurately account for what happened, "So, to buy from a bank, we simply..."
'The Fed "loans" are numbers on a spreadsheet. However, it's losses on those loans and guarantees are real losses in that this injects NFA into nongovernment. In effect, the Fed eats the banks toxic assets and the banks are made whole on them. This is a fiscal operation not approved by Congress.'
I would be interested to learn by what/whose authority the Fed Reserve was/is able to 'eat the banks toxic assets and ..' Could you expand this thought?
Below is a link to an NPR story last August that compliments the 60 minutes piece. It's about the Feds purchase of MBS. Like the Bernanke clip it's revealing of fiscal operations.
"The Fed was able to spend so much money so quickly because it has a unique power: It can create money out of thin air, whenever it decides to do so. So, Dzina [a senior VP at the New York Fed] explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — 'and voila, money is created.' "
Is a proper way to explain this to folks is to point out that the Fed is a creation of Congress by statute? Congress has the ultimate authority over the Fed and granted emergency powers to make these purchases. It's not like the Fed is some entity apart from the federal government with a special power alone to create dollars.
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I believe this is direct evidence that the $1 trillion plus dollars that the Fed spent in "lending" to private banks is government spending that is not financed by taxes or borrowing. Of course, many of the "loans" were Fed purchases of toxic assets and will never be repaid. Have I got that right?
The Fed "loans" are numbers on a spreadsheet. However, it's losses on those loans and guarantees are real losses in that this injects NFA into nongovernment. In effect, the Fed eats the banks toxic assets and the banks are made whole on them. This is a fiscal operation not approved by Congress.
So Tom are you saying, the Fed swapped dollars for bank loans, loans that would never be paid back and were therefore worthless. The crediting by the Fed of accounts at the banks were called loans from the Fed. The crediting added new dollars, NFA, in place of worthless (no existing dollars) loans.
In QE1 these were not loans. The Fed purchased dodgy private sector assets from the banks and credited their reserves accounts at almost full value, at any rate, much higher than actual market value. Any loss the Fed eats is the bank's gain.
Thanks for helping me understand this Tom. So were the "dodgy private sector assets" mortgage back securities or primarily such and those aren't referred to as or synonymous with loans? And when Bernanke said, "So, to lend to a bank, we simply..." he should have said, to more accurately account for what happened, "So, to buy from a bank, we simply..."
I believe most were MBS, many Freddie and Fannie, which have since been nationalized.
I agree with Tyler F -- It's funny that he used the word "lend"...
'The Fed "loans" are numbers on a spreadsheet. However, it's losses on those loans and guarantees are real losses in that this injects NFA into nongovernment. In effect, the Fed eats the banks toxic assets and the banks are made whole on them. This is a fiscal operation not approved by Congress.'
I would be interested to learn by what/whose authority the Fed Reserve was/is able to 'eat the banks toxic assets and ..' Could you expand this thought?
"Emergency powers." Ordinarily the Fed is restricted to government securities.
Below is a link to an NPR story last August that compliments the 60 minutes piece. It's about the Feds purchase of MBS. Like the Bernanke clip it's revealing of fiscal operations.
"The Fed was able to spend so much money so quickly because it has a unique power: It can create money out of thin air, whenever it decides to do so. So, Dzina [a senior VP at the New York Fed] explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — 'and voila, money is created.' "
Is a proper way to explain this to folks is to point out that the Fed is a creation of Congress by statute? Congress has the ultimate authority over the Fed and granted emergency powers to make these purchases. It's not like the Fed is some entity apart from the federal government with a special power alone to create dollars.
http://www.npr.org/blogs/money/2010/08/26/129451895/how-to-spend-1-25-trillion
Right. Congress gave the Fed power over the button either because it didn't trust itself with it or the bankers put one over on them.
Thanks Tyler. I've been listening to nonsense on NPR for the last week, so it's refreshing to hear that they got it right at least once...
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