FED POLICY FAVORS MEGA BANKS AND IS ANTICOMPETITIVE ADDING TO TRAIN WRECK

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EDITOR’S COMMENT: With 7,000 community banks and credit unions, an electronic funds transfer infrastructure enabling even the smallest bank to provide wide access ATM, internet and other conveniences, you would think that the best insurance we have against financial collapse is to make certain that the small and medium sized banks make it through this crisis — especially since they didn’t cause the problem.

But just as MasterCard and Visa adopted policies that created preferred treatment to the megabanks and forced the smaller banks to pay for the same infrastructure that was being used against them in the “free market”, the FED has adopted policies that are window dressing meant to show fairness and neutrality when in fact the FED policies are squarely in the corner of mega banks who consistently use their power and influence over the payment networks and the federal reserve to raise barriers to entry just high enough to prevent meaningful competition.

So hundreds of banks were given access to the Fed Window, but unlike their megabank counterparts, they had to come up with REAL COLLATERAL instead of bogus mortgage bonds. This policy made absolutely certain that the small banks would not start lending ahead of the mega banks and start taking back market share. It also made certain that the small banks would not start growing at the expense of the megabank share of the market which is now placed somewhere around 70%.

Thus the very same people and institutions and caused the mess we are in, and who have created a title conflagration that might never be solved as long as we continue to keep ourselves blinded by the myth and spin coming from Wall Street and government, THOSE are the people who are essentially MAKING POLICY contrary to their lip service of preserving, maintaining and promoting a free market. In a free market, the small and medium sized banks would have been given a better chance to step up to the plate and take back market share after the horrible behavior of those who have dominated the marketplace for thirty years. In a free market, the resolution of the mortgage bond issue, derivatives, and synthetic collateralized debt obligation instruments like credit default swaps, would have been achieved without causing any pain to anyone other than the people who created the problem. Instead the pain is still spreading to all the citizens of our country and around the world.

Fed Help Kept Banks Afloat, Until It Didn’t

By BINYAMIN APPELBAUM and JO CRAVEN McGINTY

WASHINGTON — During the frenetic months of the financial crisis, the Federal Reserve stretched the limits of its legal authority by lending money to more than 100 banks that subsequently failed.

The loans through the so-called discount window transformed a little-used program for banks that run low on cash into a source of long-term financing for troubled institutions, some of which borrowed regularly from the Fed for more than a year.

The central bank took little risk in making the loans, protecting itself by demanding large amounts of collateral. But propping up failing banks can increase the eventual cleanup costs for the Federal Deposit Insurance Corporation because it keeps struggling banks afloat, allowing them to get even deeper in debt. It also can clog the arteries of the financial system, tying up money in banks that are no longer making new loans.

County Bank, the largest bank in Merced County, California, took a $4.8 million loan from the discount window in March 2008 after announcing the first annual loss in its 30-year history, news that prompted depositors to withdraw $52 million.

By the fall of 2008, the bank was borrowing regularly from the Fed, taking more than two dozen loans in amounts that peaked above $60 million. It continued borrowing until the day it failed, taking a final loan for $55 million on Friday, Feb. 6, 2009.

Thomas Hawker, the former chief executive, said that the loans helped keep the bank in business, providing needed cash as deposits dwindled. But he said that it was clear in retrospect that County Bank was dead on its feet the whole time, thanks to its once-lucrative focus on financing construction of new homes in the Central Valley of California.

“I think in most cases it is a lifeline that kind of provides a bridge to survival,” said Mr. Hawker, who left the bank in 2008. “In the case here, Merced County was ground zero for everything that could possibly have gone wrong with the economy.”

The discount window is a basic feature of the central bank’s original design, intended to mitigate bank runs and other cash squeezes. But access to it historically has been limited to healthy banks with short-term problems.

Those limits moved from custom to law in 1991, when Congress formally restricted the Fed’s ability to help failing banks. A Congressional investigation found that more than 300 banks that failed between 1985 and 1991 owed money to the Fed at the time of their failure. Critics said the Fed’s lending had increased the cost of those failures.

The central bank was chastened for a generation but in 2007, facing a new banking crisis, the Fed once again started to broaden access to the discount window. It reduced the cost of borrowing and started offering loans for longer terms of up to 30 days.

More than one thousand banks have taken advantage. A review of federal data, including records the Fed released last week, shows that at least 111 of those banks subsequently failed. Eight owed the Fed money on the day they failed, including Washington Mutual, the largest failed bank in American history.

The Fed has said that it complied fully with the law in all of its emergency loans, and that its actions, including lending from the discount window, were intended to limit the impact of the crisis.

Charles Calomiris, a finance professor at Columbia University who has studied discount window lending during previous crises, said the Fed had not released enough information for the public to determine whether some of the recipients were propped up inappropriately and should have been allowed to fail more quickly.

“Do we know whether the Fed did that? No, we don’t,” he said. “But the Fed has become more politicized than at any point in its history, and I do worry very much that a lot of Fed discount window lending may just be part of a political calculation.”

In some cases the Fed’s lending had clear benefits, whether or not the loans meant going beyond the mandate.

The F.D.I.C. almost always seizes banks on Friday evenings, so the new owners have two days before reopening. In some cases the Fed kept banks alive until the next Friday. The Bank of Clark County in Vancouver, Wash., took its first discount window loan on Monday, Jan. 12, 2009. It borrowed $8 million Monday, Tuesday and Wednesday, then $14 million on Thursday and Friday. Then the F.D.I.C. closed its doors.

In other cases, the Fed stopped lending to banks as the extent of their financial problems became clear. Alton Gilbert, a former official at the Federal Reserve Bank of St. Louis who wrote a widely cited study of the Fed’s discount window lending in the 1980s, said that few banks failed with Fed loans on their books during the recent crisis. The central bank often suspended lending several months before they failed.

Still, some experts said additional scrutiny was warranted for a subset of banks that received sustained support even though they faced clear problems.

The most frequent visitors at the window were three subsidiaries of FBOP, a bank holding company based in Oak Park, Ill.

Park National Bank in Chicago borrowed regularly from April 2008 until the day of its failure in October 2009, taking 129 loans in amounts that peaked at $345 million — the longest period of sustained support for any bank that failed during the crisis. Park used some of the money to finance the acquisition of assets from other banks, expanding its own balance sheet and potentially increasing the cost of its eventual failure. Bloomberg News first reported the details of the Fed’s discount window lending to the company.

Two other failed banks owned by FBOP also took more than 100 loans from the discount window, California National Bank of Los Angeles and Pacific National Bank of San Francisco, although both stopped borrowing several months before failing.

Marvin Goodfriend, a professor of economics at Carnegie Mellon University, said that such lending placed the Fed in the inappropriate position of deciding the fate of individual banks, choices that he said should be made by elected officials.

“What I think is the lesson from this is that the Congress needs to clarify the boundaries of independent Fed credit policy,” Professor Goodfriend said. “There should be a mechanism so that the Fed doesn’t have to make these decisions on behalf of taxpayers.”

17 Responses

  1. Enraged,

    Been around a long time –involved a long time. And, PEACE in US (flowers in hair and everything else) — but, you may be right. Only way to really make a difference is so speak out — make yourselves be heard. Group together – or be silenced individually and as a whole.

    Agree — too far gone – power is huge against us. Covering at all levels and agencies. Determined to foreclose — even after a win in court. They will be back. With more false documents — and more bogus claims. .

    To be young again — problem is – young not interested — because they knowingly targeted the elderly, sick, minorities, and even American soldiers. Any spirit left??

  2. The only way to change this stuff is to risk arrest, take to the streets, and raise all kinds of hell. It’s too far gone, the fox is controlling the hen house. The fraud corruption or indifference to suffering goes all the way in and out of the agencies and our Government. I’m not sure what , who or where the alleged Justice Department is in all of this. Just look at what we do and have done to other countries, this isn’t a bash on the USA because we do have peace loving, compassionate folks still – and they need to show us the way out.

  3. http://www.scribd.com/doc/52409935/davies-v-deutsche-bank-national-trust-company-adversary-Judgment-on-the-Pleadings-04-05-2011

    PLAINTIFF’SNOTICEOFMOTIONANDDebtor.)MOTIONSFORJUDGMENTONTHE)PLEADINGSORALTERNATIVELYBRIANW.DAVIES,anindividual;)SUMMARYADJUDICATIONAND)JUDGMENTAGAINSTDEFENDANT,Plaintiff,)DEUTSCHEBANKNATIONALTRUSTvs.)COMPANYASTRUSTEEOFTHE)RESIDENTIALASSETDeutscheBankNationalTrust)SECURITIZATIONTRUST2007A5.CompanyAsTrusteeOfThe)ResidentialAssetSecuritizationTrust)Date:May3,20112007A5;et.al.)Time:1:30)Room:5CSantaAnaFederalCotDefendants.))Hon.ScottC.Clarkson
    ))
    ————————–)
    TOTHEHONORABLECOURT,DEFENDANTANDITSATTORNEYOFRECORDSANDALLINTERESTEDPARTIES:
    PursuanttoFederalRulesofCivilProcedures,(“FRCP”)12(c)and56,madeapplicabletobankruptcycasesbyFederalRuleofBankruptcyProcedure,(“FRBP”)
    -1-
    PLAINTIFF’S NOTICEOFMOTION AND MOTIONS FORJUDGMENTONTHEPLEADINGSORALTERNATIVELYSUMMARYADJUDICATIONANDJUDGMENTAGAINSTDEFENDANT,DBNTCASTRUSTEEOFTHERESIDENTIALASSETSECURITIZATIONTRUST2007-A5.

  4. jay hayes- great post. You stated that the banks have taken over a trillion dollars from the taxpaying public. That is not correct.
    Two weeks ago, when Neil Barofsky resigned as Special Inspector General of TARP, or SIGTARP, he stated that the the bailouts,guarantees,loan backstops,etc., totalled 27.3 trillion dollars. To put this in perspective, the Gross National Product, GNP, is around 14 trillion dollars. So the FRB and TREASURY along with all the other regulatory agencies have provided 2x what the entire US economy produces in 1 year, and things are getting worse by the week. Keep this in perspective.

  5. cubed2k

    I want to know — who is really claiming the right to collect debt. I want everyone to be able to confront their real creditor. It is not just about a monetary system — it is also about concealing who is profiting by people’s hardships and using fraud in the process. . We already have that right — it is just not being upheld. There is no asset after charge-off — at least not to the banks that created the “asset.”

    jay Hayes,

    Make sure you also protest Obama’s reported picks to head Consumer Protection Agency — might as well not have an agency. From Reuters:

    “WASHINGTON (Reuters) – The White House is considering Federal Reserve Governor Sarah Raskin and former Michigan Gov. Jennifer Granholm to head a new agency charged with protecting consumers of financial products, a source aware of the process said Tuesday.

    Raskin, who was recently named by President Barack Obama to a seat on the Fed’s board, is viewed as readily able to win the needed Senate confirmation to the office, which was created by legislation that overhauled U.S. financial regulation.

    Raskin, a former state regulator and former staffer on the Senate Banking Committee, is also seen by the White House as a candidate that would be acceptable to the financial services industry, the source added.”

  6. I was hoping they’d call it the FRAUD FESTIVAL

  7. Sounds of Resistance are Growing Join Americans Fed Up With Big Finance
    Americans Across the Country are Joining the Culture of Resistance – You Are Needed!

    Are you tired of big banks making record profits, paying giant executive salaries and bonuses and then cooking the books so they avoid paying taxes?

    We are. And, we are responding . Join us.

    Spread the word!!!!

    On April 15 in Union Square Park in New York City at 11:00 AM

    we are holding a “Sounds of Resistance Concert” and protest against the big corporate banks that have undermined the U.S. economy and displaced families from their homes.

    Big Finance has taken more than a trillion from the Department of Treasury and Federal Reserve to pay for their casino gambling on Wall Street but they are still forcing people out of their homes, not lending to small businesses and choking the economy.

    The concert will feature political hip-hop/rock powerhouse Junkyard Empire with special guests Broadcast Live and Sketch the Cataclysm. Chris Hedges will speak about the growing culture of resistance . Other performers and speakers are invited.

    The protest will include a picket of the Union Square Bank of America – a major culprit in the great rip off of the American taxpayer.
    This concert and protest are part of the effort to build the urgently needed movement to shift power to the people and away from concentrat ed capital interests.

    Our demands:

    Stop Foreclosur es: The last two years saw record foreclosur es with one out of seven houses in the U.S. behind in their mortgage payments. A total of 3.8 million foreclosur e filings and actual bank repossessi ons topped 2.8 million in 2010, a 2% increase over 2009 and a 23% increase over 2008. This record is likely to be broken in 2011. The housing market is so bad that now there are reports of banks walking away from houses in foreclosur e, leaving problems in communitie s.

  8. and I repeat this statement:

    “THOSE FEW WHO CAN UNDERSTAND THE SYSTEM (CHECKBOOK MONEY AND CREDIT) WILL EITHER BE SO INTERESTED IN ITS PROFITS, OR SO DEPENDENT ON ITS FAVORS, THAT THERE WILL BE LITTLE OPPOSITION FROM THAT CLASS, WHILE ON THE OTHER HAND, THE GREAT BODY OF PEOPLE MENTALLY INCAPABLE OF COMPREHENDING THE TREMENDOUS ADVANTAGE THAT CAPITAL DERIVES FROM THE SYSTEM, WILL BEAR ITS BURDENS WITHOUT COMPLAINT, AND PERHAPS WITHOUT EVEN SUSPECTING THAT THE SYSTEM IS INIMICAL TO THEIR INTERESTS.”

  9. And if we look at the definition of Capital per the below post:

    capital:
    cap·i·tal1    [kap-i-tl] Show IPA
    –noun
    1.
    the city or town that is the official seat of government in a country, state, etc.: Tokyo is the capital of japan.
    2.
    a city regarded as being of special eminence in some field of activity: New York is the dance capital of the world.
    3.
    capital letter.
    4.
    the wealth, whether in money or property, owned or employed in business by an individual, firm, corporation, etc.
    5.
    an accumulated stock of such wealth.
    6.
    any form of wealth employed or capable of being employed in the production of more wealth.
    7.
    Accounting .
    a.
    assets remaining after deduction of liabilities; the net worth of a business.
    b.
    the ownership interest in a business.
    8.
    any source of profit, advantage, power, etc.; asset: His indefatigable drive is his greatest capital.
    9.
    capitalists as a group or class ( distinguished from labor): High taxation has reduced the spending power of capital.

    And if we look at definition number 6:

    any form of wealth employed or capable of being employed in the production of more wealth.

    And we realize that giving loans (money) to people is in fact employing them to create more wealth.

    And if we look at the definition of wealth:

    wealth [wɛlθ]
    n
    1. (Economics) a large amount of money and valuable material possessions
    2. (Economics) the state of being rich
    3. a great profusion a wealth of gifts
    4. (Economics) Economics all goods and services with monetary, exchangeable, or productive value

    We can see the system, federal reserve system, is based on debt, money borrowed.

    So, it is whatever you can get away with. And I advise all those to do the same, within limits of the law without having the intent to defraud. As the rules are so complicated, who cares, they do not, so why should you. If you haven’t paid your debt to some financial institution who creates money, which is actually debt, from nothing, what is the worry. But, if you borrowed from a friend on ACTUAL money lent, that is a different story.

  10. Florida seems to be headed in the right Direction
    Take a look at this:

    http://www.nakedcapitalism.com/2011/04/judges-in-florida-start-inflicting-pain-on-foreclosure-mills-and-trusts.html

    I wish the Judge’s in California would follow suit!

  11. Does this statement sound just like what banks, the media, are saying about homeowners who defaulted on their loans and are trying to get a free house:

    “Humorous Fraud

    “WHEN THE FEDERAL GOVERNMENT, IN JUNE 1969 STOPPED TRYING TO DO ANYTHING ABOUT INFLATION IT TURNED ITS ACTIVITIES TOWARD DEVELOPING SCAPEGOATS IN ORDER TO GET AMERICANS TO BLAME THEIR NEIGHBOR FOR THEIR PROBLEMS. HAD THE SCAPEGOAT STRATEGY NOT BEEN SO EFFECTIVE, IT WOULD BE HUMOROUS.”
    Page 4, February 1975, St. Louis — Federal Reserve Bank Review.”

    Quote above is taken from :

    http://home.earthlink.net/~cadman777/aeonic_money.htm

    This was written by Jenkins some time ago.

  12. Anonymous,

    As all money IS monetized debt, reducing principal is a hard one as that reduces money, it is just the way the federal reserve system is, AND for that matter all Central Banks in the World.

    http://home.earthlink.net/~cadman777/aeonic_money.htm

    Inimical: –adjective
    1. adverse in tendency or effect; unfavorable; harmful: a climate inimical to health.
    2. unfriendly; hostile: a cold, inimical gaze.

    “THOSE FEW WHO CAN UNDERSTAND THE SYSTEM (CHECKBOOK MONEY AND CREDIT) WILL EITHER BE SO INTERESTED IN ITS PROFITS, OR SO DEPENDENT ON ITS FAVORS, THAT THERE WILL BE LITTLE OPPOSITION FROM THAT CLASS, WHILE ON THE OTHER HAND, THE GREAT BODY OF PEOPLE MENTALLY INCAPABLE OF COMPREHENDING THE TREMENDOUS ADVANTAGE THAT CAPITAL DERIVES FROM THE SYSTEM, WILL BEAR ITS BURDENS WITHOUT COMPLAINT, AND PERHAPS WITHOUT EVEN SUSPECTING THAT THE SYSTEM IS INIMICAL TO THEIR INTERESTS.”
    ROTHSCHILD BROTHERS OF LONDON

  13. Dear Mr. Neil Garfield,

    I would like to speak with you regarding getting a ballot initiative started for Florida 2012 ,, basically making the data we all want in discovery a consumer right when presented with a notice of default.. It looks do-able to me , especially in this age of social networking and easily created and downloaded PDF forms.

    The process appears to be rather straightforward ,, we’ve had all kinds of initiatives in Florida , even had one about the size of pigpens a few years ago, a consumer right to purchase a file with certified true copies of essential documents and an accounting disbersement record sounds like a slam dunk , especially as we have something like 20%+ of all mortgages seriously delinquent here..

    http://election.dos.state.fl.us/constitutional-amendments/init-peti-process.shtml#register

    Thanks in Advance..

  14. Ian,

    Good pick-up. Believe much of the reason of bail-out and “available funds” — was for political reasons — and foreign relations.

    Problem is — that in the process — someone had to go to down — and those in control decided homeowner victims had to be the scapegoat.

    If we were to reverse time — and government stood by and protected the homeowner victims – as they should have — what would have happened???

    Officials justify their decision because they claim a financial meltdown would have occurred had they not acted as they did.

    But, how do you justify making the victims further victims??? You cannot. It does not work — and cannot silence the fraud forever. Fraud, that is, initiated by HUGE Congressional mistakes – over time — to begin with.

    It is time now – to make the victims whole. And, to make America competitive once more — and competitive not based upon the fraud of “financial services.”

    Believe Obama — who many had faith in — has terribly failed. Republicans have failed. Democrats have failed. What do we have left? Only those with power and money survive. But, eventually all will fail.

    Government is in a big mess.

    Oh — and did anyone hear that SEC won big award against Wachovia/Wells Fargo — due to fraudulent mark-up in CDOs? WHAT?? Mark-up in CDOs?? Is that all they can come up with??

  15. So if the rule of law does not apply then we are no different than Animals.

    The rule of Nature always prevails. Economy of Scales so the United States is KAPOOT.

  16. It is an international cartel, and the US should not be lending money to foreign banks. The rule of law is down the tubes. Burmese8@yahoo.com

  17. In WSJ article yesterday, as in the article above, the focus of the report was the number of times various banks accessed the discount window. The winner in that category was FPOP, apparently a bank holding company.
    However, the bank which borrowed the most money from the discount window was Dexia SA, which borrowed $2.3 trillion. I had to look them up,as i don’t believe I had heard of them before. They are based in Brussels,Belgium, and seem to have a number of operating subsidiaries. Yet no one said “look at the chart on the right, and you will see that Dexia SA, a foreign bank, borrowed the most money, hundreds of transactions averaging about $15 bn each” Odd. Anyone know what part they played or play in all this?

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