
Fed Pledges Top $7.4 Trillion to Ease Frozen Credit - robg
http://bloomberg.com/apps/news?pid=20601109&sid=arEE1iClqDrk&refer=home
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tl
According to the article, the Fed wants to make trillions of dollars in loans
but they won't disclose who gets what or what terms / collateral is being
offered. Why haven't we thrown these jokers in federal prison yet?

~~~
tc
Especially since neither the Fed, nor the Treasury actually have $7.76T.

What people keep forgetting is that the problem isn't what we're seeing now.
The problem is NOT that consumers aren't spending 'enough' money, or that
banks aren't making 'enough' loans, or that people aren't buying 'enough'
houses.

The problem was that (induced by a loose monetary policy) consumers were
spending too much relative to their incomes, banks were making loans to
wealth-destroying ventures, and developers were building condos that no one
needed.

The symptoms we are observing now are part of the correction. The government
is attempting to move us back into the situation that caused the problem in
the first place.

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paddy_m
Another problem is consumers, and investment in general has been made on
frivolous things that don't increase are productivity.

I guess the easiest way to explain this is by looking at how people invest
their time. We would be better of if the nation invested time in becoming a
better worker, learned a skill, fixed things than if the the nation spent that
time watching tv, drinking, or destroying things (war).We have spent our money
on houses that are bigger than we need, cars that are bigger and less fuel
efficient than we need rather than plants that we need, investment in
companies building new products, even arguably infrastructure.

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GavinB
The Federal Reserve (NYSE: FED) is becoming highly leveraged. They may be next
in line for a bailout, hopefully Bernanke will know to sell the jet before the
congressional hearing.

~~~
micks56
NYSE:FED is not the Federal Reserve Bank of the United States. It is a bank in
California.

And the US cannot bail out the Federal Reserve. The United States borrows from
the Federal Reserve and pays the Federal Reserve interest on that money. In
other words, the US gets its money from the Fed.

A bailout of the Fed would require the US to borrow money from the Fed, who
doesn't actually have any money because they need a bailout.

~~~
GavinB
My joke was just meant to illustrate that taking on too much debt was exactly
what got us into this mess.

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vaksel
this is such bullshit, why not give the money to actual tax payers?

That 7.4 trillion, divided by 300 million people(babies included), would mean
that every person in the country would get $24,666, so an average family would
get $100K to spend.

Don't tell me, that wouldn't stimulate spending.

Instead they give it to banks, who will just use that money to buy some other
banks, while they are cheap

~~~
robg
I got an answer to my same question below. It's a loan to the banks. It
wouldn't be a loan to ordinary Americans.

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biohacker42
This may indeed be the crisis that we can't spend out way out of.

First they will try to borrow all that money, when that doesn't work they will
start printing money, that still won't work but it will have the added
"benefit" of destroying savings thanks to hyper inflation.

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Prrometheus
This was done to avoid a recession which would have likely reduced GDP by 5%
or so for a year. Not smart, but that's political decision making for you.
Politicians always benefit when they spend more money, so they do.

Edit: There has been no year of >2% GDP decline since the end of WWII. The
Great Depression saw an annual drop in GDP of 13.0% in real dollars.

Just to let you know what we're risking 50% of GDP for (some portion of which
will actually be spent).

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DaniFong
They had better do this right, or this recession is going to become a serious,
serious depression.

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robg
Can one of you more economically-savvy hackers explain to me why $10,000 to
every American, at a cost of $3 trillion, wouldn't bailout the economy as
well? Seems like that would lead to an broad injection of capital into almost
every market sector. Some would choose to save (banks), some spend
(retail/autos/mortgages/loans), and some would invest in stocks, and/or all of
the above. What am I missing? Instead of these top-down strategies, why not go
completely bottom-up?

~~~
dpapathanasiou
10k to each person wouldn't unfreeze the credit markets, though.

Credit is "frozen" now b/c banks won't lend, in some cases not even to each
other, over fears that the borrowing institution is not going to be able to
pay back the loan.

So the $7.4 trillion posted by the government is more about restoring
confidence than anything else.

There are some good papers on the subject by Stephen Figlewski at
<http://pages.stern.nyu.edu/~sfiglews/FinCrisis.htm> particularly the one
titled "Viewing the Financial Crisis from 20,000 Feet Up".

~~~
robg
Sorry, I'm not sure I buy that explanation. It's what the top-down folks are
saying, but plainly, and perhaps naively, I just think of what credit is used
for - to buy what you can't with cash. Giving everyone cash would filter _up_
to businesses; mortgage payments to brokerages, savings to banks, investments
into the stock market and bonds, and purchases to retailers including
automakers. Americans would have to do something with that money and there
wouldn't be the huge management/distribution fees that are now going to get
collected. In effect, you'd be giving the American people a vote about where
the money should go based on their everyday needs. And that huge of a sum
wouldn't be as easy to fritter away as a $300 "stimulus" plan. Heck, at $7.4
trillion you could give every man, woman, and child over $20,000 (for
argument's sake, ignoring infrastructure which would be a mistake).

~~~
dpapathanasiou
" _Americans would have to do something with that money_ "

That was the assumption behind the last stimulus plan, too, but it turns out
only 10% to 20% of it was actually spent
([http://online.wsj.com/public/resources/documents/WSJ-2008Sti...](http://online.wsj.com/public/resources/documents/WSJ-2008StimulusStudy.pdf))

Even if people did spend the $10k you'd like to give them, it wouldn't make a
dent in terms of home or auto sales unless there was financing available, too.

~~~
Retric
"the average family spent around 20 percent of their rebate in the first month
after receipt." Which is not to say the rest was saved for the long term.

"Low wealth households households that reported not having at least two months
in savings in case of an emergency also raised their spending more than the
average household when the rebate arrived."

"Our findings underscore the potency of the economic stimulus payments in
stabilizing consumer spending during recessions."

This would suggest a trickle up vs trickle down economy where a stimulus
package targeted at poor people would have the greatest impact.

PS: Poor people spend more of their money than rich people film at 11.

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create_account
_Poor people spend more of their money than rich people film at 11_

Yeah, duh, but even if you gave poor people $20,000 and they spend it all, how
does it do anything about the housing crisis?

Without lending, that $20,000 won't change the market at all.

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jsmcgd
If I was the Chinese et al I honestly wouldn't write the cheque. At what point
does national debt drown an economy? Does crippling debt not normally
precipitate war with the debtees? I'm a little worried.

~~~
rms
The Chinese would never do something so rash... they know they have to keep
loaning us money, because it's either that or have their debt become
worthless. They would also never go to war with us, outside of a battle over
Taiwan that has become increasingly unlikely. What's the point? No one wins
with war.

And yeah, crippling debt is normally a bad thing, but you have to remember
that we are making up economics we go along. As long as economists keep saying
that crippling debt is ok, everything functions. As soon as the theory
changes, then we're all screwed.

~~~
jsmcgd
I would also like to believe that everyone will behave rationally but
sometimes people don't especially when they get panicky. Here's hoping they
do.

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azharcs
Its about time, Federal Reserve was brought under some regulation. They are
just printing too many dollars and lending.

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jambarama
There is concern about inflation from the level of Fed lending & rate of M1
creation. However the bigger inflationary threat is when banks start lending
again and this huge amount of money starts moving. There is also a threat of
deflation though, offsetting this inflationary pressure, at least to some
degree. For example, falling house & stock prices do wipe out a lot of wealth
(real or otherwise, and perhaps good or bad) - which adds deflationary
pressure.

So it is a balance between inflation & deflation. Clearly the fed sees
deflation as a bigger issue right now - the fed can fight inflation, negative
interest rates that plagued japan for a decade are much harder for a central
bank to fix. They've cut short term lending rates as much as they can,
effectively wiping out interest rates. Personally, I don't know if they're
lending too much or too little, and I'm sure Congress doesn't either, so I'm
not convinced regulation (and the attendant political pressure) would be a net
gain.

~~~
azharcs
I would say transparency is very important, for the government as well as
Federal Reserve. Fed is responsible for the nations money supply, they are
responsible for printing currency as well as deciding at what rates it should
be lent(even to US Government). To me these are the powers with which you can
control the whole country and its people.

Print more currency, make it easy to borrow which results in people borrowing
to buy overpriced things(due to inflation as money supply increases) which
sooner or later results in Bubble. When the bubble bursts, people lose their
jobs and the value of overpriced things comes back to normal and people end up
with Debts. We are in the phase where people are in debt and are losing jobs
every quarter, by giving them more money or to the corporations which fired
them, it does not make sense at all. In Simple words, It was a Bubble, it
Burst. It really does not make sense when someone is infusing more money in
the markets assuming prices of houses will go back like they were during
Bubble or corporations will hire people assuming 40 or 50% growth every
quarter, It's time to wake up now and think rationally. If growth is not
organic, its not growth at all, It's Bubble.

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crabapple
excellent. i am ready for hyperinflation. are you?

