New York Fed faces ‘Inherent Conflict’ in possibly forcing banks to buyback mortgages

October 22, 2010 by · Leave a Comment
Filed under: Industry News 

This saga is getting much more interesting and the stakes are rising by the day.  We talked about this last year when the Federal Reserve was buying all these “toxic” assets from the banks in an effort to re-capitalize them.  Much of the paper was fraudulent by my standards, stated income loans are ripe for abuse and we created trillions of dollars of this stuff and it was sold off as “AAA” to investors around the world.

Now we are finally coming to grips and not only are more major losses expected but there were many possible mis-representations in the prospectuses given to investors of the bonds that were funded with payments of home mortgages.  The Federal Reserve is a holder of this type of paper.  The problem comes that when material facts were not what they were claimed as, you can force the originators (like the banks) to re-purchase back the bad bonds in exchange for cash.   Now that these facts are coming to light we will truly see who our central bank (The Fed) is looking out for.  This they use financial system stability as the reason not to force these losses on the banks even when fraud has been committed then they are working for the banks.   If they do force the losses even if it means some large banks need to fail to clear this bad paper out of the system then we can be more hopefully they are looking out for the American people.

All along I have said it is all about what precedent we set for future generations will determine how people will act.  This was not some mistake that no one saw coming or didn’t purposely find ways to profit.  Billions were made and some not legally so we a society that is suppose to stand for the rule of law even if its painful, we need to do the correct and just action in this situation.  That will truly restore confidence in our capital markets and bring on a real recovery.  After that we need to deal with trade, entitlements, taxes and debt.  All in a decades work!

Bloomberg – The Federal Reserve Bank of New York’s effort to recover taxpayer money used in bailouts during the crisis may be at odds with its mission to ensure the stability of the financial system.

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New York Fed Warehousing Junk Loans On Their Books

March 24, 2010 by · Leave a Comment
Filed under: Industry News 

Representative Grayson is correct that the New York Fed overstepped their bounds by law when they took on a bunch of junk grade loans on their books.  We have a Federal Reserve System which was created to create independence from our politicians so we would not be tempted to print money without bounds and debauch our way of life through inflation.  In the same sense, our Fed is not suppose help out bad banks and purchase their toxic loans and give them good U.S. dollars for them.

The Fed should be the lender of last resort and that is only in the case if there is a panic and you as a bank have good collateral and you need help to weather the storm.  This did not happen during the financial crisis of 2008.  They purchased knowingly bad loans to increase profits (aka: greed) and they should pay the price for those actions.  Don’t let the bad money / banks chase out the good.

We need to reward prudence and foresight and punish greed and ignorance.  These are bankers we are talking about, they should be our more astute professionals in the financial world and they should know the risks and bare the pain for their choices no matter what.  PERIOD.

Huffington Post – As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.

The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a “warehouse” for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.

Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.

“The Fed legally is forbidden from taking such assets. There’s a legal requirement that the Fed’s assets be investment grade,” Rep. Alan Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the Grayson-Paul Audit the Fed measure that passed the House, said the Lehman scandal shows precisely why such an audit is needed.

Source: Huffington Post

New York Fed to expand list of banks for reverse repurchases

March 8, 2010 by · Leave a Comment
Filed under: Credit News 

This is a good sign to see this liquidity drained from the system but the big question is what will happen to the banks taking back the “toxic assets” that were purchased during the crisis.  First off, some real accounting will need to be made on the actual values of those securities.

The real estate market is no where near the peak so most of those will require write-downs to reflect the fair-market value (FMV).  We will need to follow this closely to see how this arrangement is handled and see what the banks are putting on their balance-sheets.

Reuters, New York – The U.S. Federal Reserve is taking an additional measure to lay the groundwork to drain excess bank reserves, as it seeks to remove some of the $1 trillion in cash it injected during the global credit crisis.

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NY Federal Reserve makes Morgan Stanley coordinator for AIG IPO

July 20, 2009 by · Leave a Comment
Filed under: Industry News 

July 20 (Reuters) – The Federal Reserve Bank of New York has guaranteed Morgan Stanley a global coordinator’s role in any initial public offering (IPO) of American International Group  units, documents made public on the New York Fed website show.

According to the documents, Morgan Stanley will earn percentage fees from the NY Fed if AIG sells any of its businesses, in addition to an initial $4 million payment as an advisory fee and $2.5 million per quarter.

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Troubled bank? Fed charges bank 7% on overnight loan

July 12, 2009 by · Leave a Comment
Filed under: Industry News 

Wall Street Journal Blogs posted a piece about a single bank being charged a inordinate amount of interest on a overnight bank loan when the If you are being charged 7% on a overnight loan from another bank then you know that you are in trouble.  According to the article, the last time this happened was when Lehman Brothers failed.  A 7% rate on a overnight loan says there is a “real” chance that you will not be replay that loan the next day.  The NY Federal Reserve knows which undisclosed bank it was.   It will be interesting to watch how this plays out and if it is actually a large banking institution or if it is a smaller regional or local bank?

News (Wall St. Journal Blogs):

There’s been some chatter in the market this week about whether a bank may be in trouble. The source of the concern is an anomaly in the federal-funds rate, that’s the rate banks charge each other to borrow money overnight.

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