patrick.net

This is basically what they're already doing, via the backdoor of the spread on what banks can borrow at vs what the Treasury is paying on bonds that banks are buying with the Fed's money.

Troy says

This is basically what they’re already doing, via the backdoor of the spread on what banks can borrow at vs what the Treasury is paying on bonds that banks are buying with the Fed’s money.

This is a very popular myth, but false. Banks cannot borrow from the Fed for less than treasury rates.

Maybe they should give every homeowner a million dollars? And renters should be given something too. And butterflies should fly out my butt?

If they were gonna bail out every home to the tune of $100k or anything, they'd have done it already.

I don't like the idea of government subsidizing loans.

I don't have proof. However, isn't that banks can borrow from Fed at 0% and then park these reserve at Fed and still consider it their actually reserve(thought it is borrowed). Hence, the bank can free up their own real money to buy up Treasury with higher return?

kimtitu says

I don’t have proof. However, isn’t that banks can borrowed from Fed at 0% and then park these reserve at Fed and still consider it their actually reserve(thought it is borrowed). Hence, the bank can free up their own real money to buy up Treasury with higher return?

No. Many sites have been talking about the "0%" loans the Fed made during the financial crisis. There was one program (TSLF) where loans were at almost 0%. But they were for loans of treasury bills, not "money" reserves. Unlike money, you can't just turn around and lend a treasury bill out for a profit. If that were true everybody that has treasury bills would be doing that.

If you're going to borrow from the Fed you borrow at a discount window, and you always pay a bit more than the risk free rate.

Discount window primary credit 2 10 0.75 0.75 0.75 0.75

Rates were similar to the discount rate for the alphabet soup of emergency windows, though the haircuts were bigger, so you might only get a $90 loan with a $100 bond as collateral. Compare the rates above to a 4-week or 1 year treasury:

Treasury bills (secondary market) 3 4
4-week 0.14 0.08 0.08 0.09
3-month 0.15 0.14 0.15 0.14
6-month 0.19 0.19 0.18 0.18
1-year 0.25 0.26 0.28 0.28

http://www.federalreserve.gov/releases/h15/update/

This a myth that needs to be squashed. I've even seen congress people like Bernie Sanders and Ron Paul say this, and Patrick has posted articles on the front page of his site in reference to it, but it's flat out false.

MarkInSF says

Troy says

This is basically what they’re already doing, via the backdoor of the spread on what banks can borrow at vs what the Treasury is paying on bonds that banks are buying with the Fed’s money.

This is a very popular myth, but false. Banks cannot borrow from the Fed for less than treasury rates.

So you're saying this news article is a lie?

http://www.huffingtonpost.com/2010/12/01/wall-street-borrowed-from_n_790709.html?source=patrick.net#entry_12345

gameisrigged says

MarkInSF says

Troy says

This is basically what they’re already doing, via the backdoor of the spread on what banks can borrow at vs what the Treasury is paying on bonds that banks are buying with the Fed’s money.

This is a very popular myth, but false. Banks cannot borrow from the Fed for less than treasury rates.

So you’re saying this news article is a lie?
http://www.huffingtonpost.com/2010/12/01/wall-street-borrowed-from_n_790709.html?source=patrick.net#entry_12345

I think "lie" is too strong a word because it implies intent to deceive, but yes, this is one of the articles I was referring to.

And what exactly makes YOU a more credible source, Mark?

MarkInSF says

gameisrigged says

MarkInSF says

Troy says

This is basically what they’re already doing, via the backdoor of the spread on what banks can borrow at vs what the Treasury is paying on bonds that banks are buying with the Fed’s money.

This is a very popular myth, but false. Banks cannot borrow from the Fed for less than treasury rates.

So you’re saying this news article is a lie?

http://www.huffingtonpost.com/2010/12/01/wall-street-borrowed-from_n_790709.html?source=patrick.net#entry_12345

I think “lie” is too strong a word because it implies intent to deceive, but yes, this is one of the articles I was referring to.

More credible than some guest poster on Huffington post?

You don't have to believe me. Go look for yourself:

http://www.federalreserve.gov/newsevents/reform_transaction.htm

The Fed program in question was the TSLF, which Shahien Nasiripour accuses of lending "money for nothing", which in fact lent treasury securities for a small fee, and took collateral.

http://www.federalreserve.gov/newsevents/files/tslf.xls

Take the first transaction, which is typical: March 27 2008 JP Morgan borrowed $3.4B worth of treasuries. They pledged $3.6B worth of mortgage backed securities as collateral. The Fed got a small (~$350K) fee. There was no interest charged. The fed continued receiving revenue from the treasury bill that was loaned, and JPM continued receiving interest on their MBS which was held as collateral.

There was no interest charged because it's a SECURITY being lent, not money. If you have money, you can lend it and charge interest. If you have a treasury bill, how exactly are you going to make money lending it?

But go look at any of the other lending programs. The ones that lent money, not treasuries. Like the Commercial Paper Funding Facility:

http://www.federalreserve.gov/newsevents/files/tslf.xls

Look at the interest rates charged. 1.5% initially, down to 0.25% for the more recent loan. At EVERY POINT IN TIME, the interest rate charged for this 90 day loan was ABOVE the rate for a three month treasury bill.

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2008

Most people don't take the time to understand our financial system. Even people that post on prominent websites. And even Congress people. I do.

YOU are a poster. He is a business reporter. It's an article, not a random comment.

So again, when he writes that treasuries "effectively act like cash on Wall Street", are you saying that's a lie?

gameisrigged says

So again, when he writes that treasuries “effectively act like cash on Wall Street”, are you saying that’s a lie?

If you hold cash you can lend it for a profit. If you hold a treasury you can't. It's really that simple.

To say that banks or anybody else can profit risk free from borrowing treasuries at no interest is a lie. Funny thing is, he didn't say that. He just implied it with phrases like " Federal Reserve sure was sweet." and " the lucky nine"

In the areas I'm searching in, the owner is not paying the $750k mortgage on a property worth $530k or so. If the balance was reduced to $530k, I'm willing to bet they STILL will not pay. Maybe if you reduce it down to the point where you give them 20% or so equity; then they might pay - if they cannot sell it to cash out the equity that is.

elliemae says

Maybe they should give every homeowner a million dollars?

Excellent idea, except for the whole market collapse thing and rioting, but otherwise a good idea.

If every homeowner instantly had 1 million dollars, 90% of them would go on a shopping spree, in no time at all the stores shelves would be bare of flat screen TV, perfume and coach handbags. Since too many people have way too much money on there hands, they all go on vacation, since no one is working to restock the shelves, and no deliveries are coming in, wouldn't take long before the hungry people be rioting in the street. Not from a lack on money, but from a lack of goods to buy. (including food) This type of situation makes hyperinflation look like a good thing in comparison.

Even if every one's of these people's outstanding loan balance was 1 million dollars and they were given 1 million dollars and just had to sign the check over to the mortgage holder, few would do so. This would happen because of the same exact reasons people go to the convince store to buy cigarettes and lottery tickets instead of baby food and milk. Overall people are stupid, I can never figure out how civilization advanced this far, given the average person's IQ.

MarkInSF says

gameisrigged says

So again, when he writes that treasuries “effectively act like cash on Wall Street”, are you saying that’s a lie?

If you hold cash you can lend it for a profit. If you hold a treasury you can’t. It’s really that simple.
To say that banks or anybody else can profit risk free from borrowing treasuries at no interest is a lie. Funny thing is, he didn’t say that. He just implied it with phrases like ” Federal Reserve sure was sweet.” and ” the lucky nine”

So it's not true that it would free up other capital, and THAT capital could be invested for a profit?

gameisrigged says

So it’s not true that it would free up other capital, and THAT capital could be invested for a profit?

You're going to have to explain what you mean. What capital is "freed up"? I'm not following.

All a company that borrowed treasuries can do with them is post them as collateral for a loan, for which they DO have to pay interest. That's the only reason these companies borrowed the treasuries. The market was panicked and wouldn't take their MBS securities as collateral.

I'm not going to pretend I understand all this convoluted stuff, but isn't the discount window for banks that can't get a loan from anyone else? If so, and you are saying the purpose of borrowing the treasuries is so they CAN get loans, then why did you post the discount window rates?

gameisrigged says

If so, and you are saying the purpose of borrowing the treasuries is so they CAN get loans, then why did you post the discount window rates?

Just to point out that when the Fed is lending MONEY (reserves), it is always above treasury rates.