Inflation from the Source. Fed to put $500 billion into banks and buy more toxic financial waste

Bernanke is going to start buying mortgage-backed securities, perhaps including some in default, from banks holding them. The Fed announced the creation of a $200 billion facility to do this today, along with a $100 billion swap facility with the European Central Bank, British central bank and Swiss National Bank. Last week the Fed announced it was doubling the size of its existing facility to $200 billion. Net $500 billion is going into the banks. The stock market was up more than 400 points as a result.

Here are some views on what Bernanke did. Good job we’ve got computers because this is how the Germans ended up using wheel barrows for pocket books. Inflation isn’t only prices it is also destruction of a currency’s purchasing power.

Kathy Lien on the news
Panic Mode

Big Picture

Seeking Alpha
A Couple of Other Views

I don’t think the net effect of this announcement put stocks back much higher than they were a week ago. But isn’t it incredible how quickly $500 billion can be allocated for these issues and New Orleans and the rest of the gulf coast still be left struggling, along with everything else on your personal, local and regional to do list. The war is running at $12 billion or so a month. That's more than four years more of this crazy war they're pouring down the sinkhole.

Oh, and they don't seem to be worried about the quality of what they are committing to buy. The Federal Reserve seems to be pre-empting the matter of delinquent mortgages according to this Bloomberg report. Just like in Japan, if this is true it will mean they are not only going to bail these suckers out, but make them whole.
Fed is buying Defaulted Paper

I didn’t see much discussion of this being anything other than a move that will last a few days. Then it will be on to the next one. I don’t know if they are going to start doing this in denominations of trillions of dollars, or when, but we’ve already come from tens of billions to half a trillion and counting. It may not look like a stock market collapse folks, but it sure is a collapse ongoing.

Not surprisingly Spitzer’s troubles kind of distracted a bit from the $500 billion bottom line. Somehow it seems easier to grapple with $5,000 deals than $500 billion ones. But at Spitzer’s rates that would mean a 100 million of us would have just got the Empire State package, and at $50 a pop 10 billion of us, or all 300 hundred million Americans just the deal like 40 times. Wow, and do you think many of them noticed?

Oh, by the way, are you ready for $200 dollar a barrel oil yet? What’s that going to be? $8 bucks a gallon in California? Here’s a view of how that could be in the works, and what it will do to the dollar
$200 per barrel oil $3 dollars to the Euro Coming Where that leaves the country internationally isn’t so clear. Are the troops going to be stuck over there like domestic airline passengers can be with no way of getting home?

No votes yet


before they can get better. Living on credit extensions ... ya gotta crash sometime whether you are Joe Average or the Fed Government.

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If it's true that our species is alone in the universe, then I'd have to say that the universe aimed rather low and settled for very little. ~ George Carlin

I like Kugman's analogy that the Fed needs to keep slapping the markets in the face. I don't think it'll do any good. The slaps and the pain needed to be delivered about 4 years ago.

I suspect a couple of folks are familiar with the approach of looking at charts for clues to trends in the economy or stock prices or ... whatever.

But I've long been convinced that the Fed bases at least some of its decision-making upon the mistake that the markets are the same thing as the economy.

And, so, interventions by central banks are based upon what their collective head thinks the equities markets want.

The S&P500 is one I'd bet the Fed keeps a close eye upon as an index of the 500 largest capitalization stocks across American exchanges. For my own interest, I plotted a marker on a chart of the last eight years just to assess what the Fed might be seeing.

The thumbnail below links to a larger picture of what they saw and I think that the intervention today was the result of that eye not liking the point of breakdown that the index just traversed.

"I think the Fed finally gets it," said Tom DiGaloma, head of Treasury trading at Jefferies & Co. Inc.

U.S. stock investors cheer Federal Reserve move:
Dow industrials rally over 400 points, biggest percentage gain in five years
NEW YORK (MarketWatch)

-- U.S. stocks on Tuesday blasted higher in a Federal Reserve-fueled frenzy that had the S&P 500 and Nasdaq Composite climbing the most in more than five years, and the Dow scoring its fourth-biggest point jump ever.

After recent triple-digit declines, the Dow Jones Industrial Average surged 416.66 points, or 3.6%, to 12,156.81, its largest percentage climb since March 2003.
The rally, which gained steam throughout the day, took off at the opening bell, with investors fired up after the Federal Reserve said it would loan as much as $200 billion in securities in a bid to boost liquidity in the financial system...

"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country." - Thomas Jefferson

That'd make a good commentary in and of itself so folks like me can find it again later. :)

Tim Paradis/AP: Stocks Rally on Fed Move, Oil Price Dip

This phrase stands out: An unexpectedly large increase in crude oil supplies last week also helped calm investors.

Nothing "unexpected" about it. I'd say it's a good time to sell oil futures - before they crash and burn.

he doesn't want this recession tied to him...probably the whole GOP!