“The time has come that we consider what sort of limitations we should be placing on the Fed"

Here's a Bloomberg article I like, so I'm going to scan a fair bit of it even though it moves around quite a bit ( Kind of like TARP ):

"The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis."

I'm not sure what to say about this. In a way, I understand it. At some point, you just bet the whole ball of wax, and feel the wind in your hair, and the trade winds behind you. Do any of those work for you?

Pledging half of what we produced last year seems to validate the enormity of the undertaking. We're not fooling around here. We like our messes to be enormous. Given the situation, I have to admit to agreeing with this Bagehot on steroids approach. It somehow makes him more modern, more relevant to me.

"When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in."

There's a need, but not the means or will to fulfill it. But we acknowledge the need.

“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”

It's good to know that you're on the case Congressman " A day late and a dollar short".

"Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort. "

Peculiarly, because no one else would.

"The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14. "

Don't worry about this.

"William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as “too big to fail,” he said. "

How reassuring. I love the use of "perceived", implying an illusion of some sort. Apparently, Mr.Poole, if that is his real name, doesn't believe that they are. Otherwise, there was no need to qualify the expression "rescuing companies too big to fail".

"The government committed $29 billion to help engineer the takeover in March of Bear Stearns Cos. by New York-based JPMorgan Chase & Co. and $122.8 billion in addition to TARP allocations to bail out New York-based American International Group Inc., once the world’s largest insurer.

Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.

“No question there is some credit risk there,” Poole said."

Poole again. First he's very forceful, using "No question". Then he's back to qualifying himself again with "some risk", meaning, what? There's a hell of a lot, but I don't want to say so, and freak everybody out? There's a little, but not enough to worry about? What does Mr. Poole do for a living exactly, that his speech is so terribly careful.

"Congressman Darrell Issa, a California Republican on the Oversight and Government Reform Committee, said risk is lurking in the programs that Poole thinks are safe.'

Can risk "lurk"? The only meaning that I could find that didn't imply agency, and work, is the following:to exist unperceived or unsuspected. But if you know it's there, it's not lurking. It's of unknown quantity, but you know it's there.

“The thing that people don’t understand is it’s not how likely that the exposure becomes a reality, but what if it does?” Issa said. “There’s no transparency to it so who’s to say they’re right?”

Okay. It's not how likely, but what if it does? If I knew what is was, why couldn't I know what happen if it does, or at least have an idea. After all, I even have an idea about Heaven. There's no transparency. Meaning you can't see it. So who's to say they're right? Them, obviously. What's the problem, unless you don't trust them? If that's the case, just come out and say so.

"The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world’s companies and brought down three of the biggest Wall Street firms. "

I'm sorry, but every time I hear generations I begin singing "L'dor vador".

"Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy. "

At least they're using organic terms, and not engineering terms.

"The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages."

It's a little more that than the $24,000, because I refuse to take responsibility for this. When you start thinking about what it could buy, your brain has an aneurysm. If I were Bloomberg, I'd be worried about lawsuits.

“It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.”

That's why they're supposedly smart.

“This is the worst capital markets crisis in modern history,” Harris said. “So you have the biggest intervention in modern history.”

This is why, if you're for smaller government, you have to have a real world plan to avert these crises. Otherwise, you might as well believe in Zeus.

"Bloomberg has requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral."

Thanks.

"Collateral is an asset pledged to a lender in the event a loan payment isn’t made."

I like this definition.

“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,” Bernanke said Nov. 18 to the House Financial Services Committee. “We think that’s counterproductive.”

Huh.

"The Fed should account for the collateral it takes in exchange for loans to banks, said Paul Kasriel, chief economist at Chicago-based Northern Trust Corp. and a former research economist at the Federal Reserve Bank of Chicago.

“There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,” Kasriel said."

Does "counterproductive" here mean "it would piss people off "?

"In the three years before the crisis, such average weekly borrowing by banks was $48 million, according to the central bank. Last week it was $91.5 billion. "

I can't even compute that increase.

“Money markets seized up after Lehman failed,” said Neal Soss, chief economist at Credit Suisse Group in New York and a former aide to Fed chief Paul Volcker. “Lehman failing made a lot of subsequent actions necessary.”

I find this obvious, but some remain unconvinced. Go figure.

"Most of the federal guarantees reduce interest rates on loans to banks and securities firms, which would create a subsidy of at least $6.6 billion annually for the financial industry, according to data compiled by Bloomberg comparing rates charged by the Fed against market interest currently paid by banks.

Not included in the calculation of pledged funds is an FDIC proposal to prevent foreclosures by guaranteeing modifications on $444 billion in mortgages at an expected cost of $24.4 billion to be paid from the TARP, according to FDIC spokesman David Barr. The Treasury Department hasn’t approved the program.

Bernanke and Paulson, former chief executive officer of Goldman Sachs, have also promised as much as $200 billion to shore up nationalized mortgage finance companies Fannie Mae and Freddie Mac, a pledge that hasn’t been allocated to any agency. The FDIC arranged for $139 billion in loan guarantees for General Electric Co.’s finance unit."

They've guaranteed a hell of a lot more than that.

"Paulson told the House Financial Services Committee Nov. 18 that the $250 billion already allocated to banks through the TARP is an investment, not an expenditure.

“I think it would be extraordinarily unusual if the government did not get that money back and more,” Paulson said."

"Extraordinarily unusual" means " so unusual that you can't blame me if it happens".

"In his Nov. 18 testimony, Bernanke told the House Financial Services Committee that the central bank wouldn’t lose money.

“We take collateral, we haircut it, it is a short-term loan, it is very safe, we have never lost a penny in these various lending programs,” he said."

Oddly, he and Paulson are bald like me.

"A haircut refers to the practice of lending less money than the collateral’s current market value."

A nice definition.

"Requiring the Fed to disclose loan recipients might set off panic, said David Tobin, principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC.'

Earth to David Tobin, "We're in one".

“If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.”

You don't mark it. That was easy.

“Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices."

Another good definition.

"Some of the bailout assistance could come from tax breaks in the future. The Treasury Department changed the tax code on Sept. 30 to allow banks to expand the deductions on the losses banks they were buying, according to Robert Willens, a former Lehman Brothers tax and accounting analyst who teaches at Columbia University Business School in New York.

Wells Fargo & Co., which is buying Charlotte, North Carolina-based Wachovia Corp., will be able to deduct $22 billion, Willens said. Adding in other banks, the code change will cost $29 billion, he said.

“The rule is now popularly known among tax lawyers as the ‘Wells Fargo Notice,’” Willens said.

The regulation was changed to make it easier for healthy banks to buy troubled ones, said Treasury Department spokesman Andrew DeSouza."

This was the Paulson move that many just discovered. It was intended to facilitate mergers.

"House Financial Services Committee Chairman Barney Frank said he was angry that banks used the money for acquisitions.

“The only purpose for this money is to lend,” said Frank, a Massachusetts Democrat. “It’s not for dividends, it’s not for purchases of new banks, it’s not for bonuses. There better be a showing of increased lending roughly in the amount of the capital infusions” or Congress may not approve the second half of the TARP money."

Strictly speaking, Rep. Frank is correct, although the tax breaks were obviously intended to facilitate private mergers to keep the government from having to recapitalize them. Remember, originally, TARP was not going to give money to the banks, but to buy toxic assets. These tax subsidies were meant to deal with the problem of recapitalization of banks through mergers, such as the failed Citi/Wachovia deal, and the successful Wells/Wachovia deal.