DeeJayH

been trying to find the link, but unsuccessful as of yet. pretty sure it is on my work computer tho

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ashurbanipal

Technically correct, but not the whole story. The terms of the loans are written out, but there's little doubt that Bernanke will allow alterations--or perhaps other loans to cover these--if the banks continue to falter. To do otherwise would be economic sepuku.

The Fed doesn't auction these kinds of loans (i.e. through silent bidding) often as far as I'm aware.

You might find this link a little interesting:

Mish's Global Economic Trend Analysis: Bank Reserves Go Negative

dixon76710

Dude, the terms are set. The price paid sets the interest rate in stone. 4.65% on the first auction, 4.67% for the second, 3.95% for the third and 3.123% for the last one. The falling interest rate is a sign that the auctions are working. The 28 day term is also set in stone, it cannot be changed. Fed auctions is one of the primary tools the fed uses to increase the money supply. The ONLY thing unique is they are not releasing the information on who is buying.

RightinNYC

http://research.stlouisfed.org/publi...mPennCross.pdf

Page 7.

Between 95 and 2000, the % of subprime mortgages of the total market ranged between 10.2 and 14.5%.

Between 2001 and 2003, the % of subprime mortgages of the total market ranged between 7.9% and 8.8%.

Further, if you look at some of the graphs in that report, you can see that the increase in the most risky loans happened under Clinton. Under Bush, B, C, and D lending decreased, while A- lending increased significantly. Under Clinton, B, C, and D lending exploded.

Boomshakalaka.

No, housing prices dropped because they were overinflated by subprime lending.

1) see above

2)The New York Times > Log In
So these are the people we're going to bail out?

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ashurbanipal

There appear to be three unique (or, I suppose, more properly--unusual) features of the Fed's recent actions:

1) Auctions are silent. This ought to raise some red flags just by itself--why would they keep it silent?

2) There was that emergency rate cut--not unheard of, but fairly rare and a sign that something is out of whack

3) The borrowed reserves have gone negative--way negative. I suppose this isn't so much an unusual feature of the Fed's actions as it is an unusual--and indeed unique--feature of this situation. This is the worst this measure has been since 1960 or before. Something has gone seriously wrong.

Again, I think they'll be able to whitewash this one. But the house of cards will be coming down before too long.

As to the terms being set--are you saying that the Fed is incapable of changing them? I don't recall where, but it seems to me that Bernanke has mentioned he'd be willing to change the terms if necessary to keep a large bank afloat. I wouldn't criticize such a move--the fallout from, say, Bank of America failing would be absolutely huge and quite unpleasant.

dixon76710

YES.........

ashurbanipal

It seems to me that the loans are, at their most basic, just an agreement between the Fed and a member bank. Assuming that the bank asks for different terms, and the Fed is agreeable, exactly what stops the terms from being re-written?

dixon76710

Because its a 28 day loan. If they wanted different terms they would do new loans February 28th.

ashurbanipal

An option I think I acknowledged above.

Nevertheless, this still seems strange to me. If you were to loan me money for 28 days, and then I came back and said I needed 40 days to repay it, and then you said "OK, that'll be fine", surely I wouldn't still be compelled by the force of God or something to repay you on day 28? Maybe I don't fully understand what you're saying.

However, I would agree that the more likely course will be that new loans will be issued (should it be necessary) to cover the old ones.

dixon76710

The terms are NOT murky as they are precise and it DOES NOT seem Bernanke has indicated he'd have no problem extending any payback deadlines because he would have no need to.