The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Eco

[OhioChick]

Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went

06/12/2011 00:25 -0400

Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!

More (with graphs): http://www.zerohedge.com/article/exclusive-feds-600-billion-stealth-bailout-foreign-banks-continues-expense-domestic-economy-

[ChromeFoundry]

1. Appalling. n/t

[bemildred]

2. It's almost like these guys are in cahoots against us.

:popcorn:

[msongs]

3. let them fail. purge the system, and ceos from banks that fail can pay the bills personally nt

[girl gone mad]

4. It's even worse than they make it sound.

Through the actions of the Fed, we are enabling the very entities who are actively destroying the productive sectors of our economy.

[RKP5637]

5. The majority of the citizens in this country are treated like disgruntled

employees in some type of global corporation TPTB of the US are trying to chair. It's pretty clear we are near the bottom of the pecking order and our concerns are treated as grievances. We are not members of the USA club for growth and greed.

[Moostache]

7. Time for organized resistance to step up...

General strikes - not as labor but as consumers.

IF people would simply STOP BUYING THEIR FUCKING MADE IN CHINA I-PODS and I-PHONES and all the other crap that is dumped on these shores, then the powers that be might start to take notice.

Its time to bring the system down on its head and I wish Anonymous luck and moral comfort/support in their efforts. I just hope that they have all the names, addresses and personal information of these sons-of-bitches to really make it hurt when the shit hits the fan.

[emilyg]

6. Disgusting.

[bhikkhu]

8. I hate this kind of article

It makes a bold statement in the heading, which then descends into an impenetrable thicket of economics-ese. I can't make out whether what it claims is even likely by any of the facts presented, or if its a misinterpretation of cherry-picking of unrelated things (which is far too easy to do).

Well, I'll give it another shot tomorrow.

[JDPriestly]

9. Meanwhile, the citizens of some of these same European countries

enjoy a higher per capita income than we do in the U.S. contrary to the belief of many Americans, especially conservatives.

In 2008, our per capita income was 45,230

In Switzerland (a country with banks we are bailing out) per capita was 65,200

In Germany, it was slightly less than our own -- 44,363

In the Netherlands -- 52,699

The Japanese are poorer than we are, but people living in Scandinavian countries are doing much better than are we.

Why are we bailing out countries with higher or close to the same per capita incomes that we have?

http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm

Does anyone understand the reasoning behind this?

[Citizen Worker]

10. Now we know why Social Security and Medicare have to be reformed.

[Enthusiast]

11. Yet there are no guilty parties and

no investigations. We don't need no stinkin' investigations, indictments or trials because we already know that class of people can't possibly be guilty.

Just like Bush and torture. We executed Nazis for the very same shit. Now we "Look forward". That's dereliction of duty, OBAMA!

[bhikkhu]

12. This is likely bogus conspiracy theory

Look at this for the 2011 EU increase in bank's required reserves: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7998504/Banks-told-to-double-their-cash-reserves.html

Reserves are cash reserves, defined as a fraction against total lending. The reasons to increase them are obvious, given the problems there last year and currently. The main way to increase the fraction is to rein in lending, secondary ways are to limit spending and increase income through fees and so forth. One way you cannot increase your reserve is through borrowing.

So the theory that the Fed lent 600 billion + to EU banks is quite likely a ridiculous misinterpretation of facts. Even less likely is that we gifted it to them - more likely is that they followed the same path to increasing cash reserves that US corporations did - they cut expenses and limited operations (lending, in the case of banks).