Fed takes fresh steps to battle credit crisis
WASHINGTON - The Federal Reserve and other countries’ central banks announced new steps Monday that makes billions of dollars available to squeezed banks here and abroad to battle a worsening credit crisis that threatens to unhinge the U.S. economy.
The Fed said the action is intended to “expand significantly” the cash available to financial institutions in an effort to relieve to the worst credit crisis since the Great Depression. In taking the action, the Fed cited “continued strains” in the demand for short-term funding.
Central banks will continue to work closely and are prepared to take “appropriate steps as needed” to ease the crisis and get banks lending again, the Fed said.
Under one new step, the Fed will boost the amount of 84-day cash loans available to U.S. banks. The Fed is increasing the amount to $75 billion, up from the current $25 billion starting on Oct. 6. Banks bid on a slice of the loans at an auction.
That move will triple the supply of 84-day loans to $225 billion, from $75 billion, the Fed said.
Meanwhile, the Fed will continue to make $75 billion worth of shorter, 28-day loans available to banks.
All told, the total amount of cash loans — 84-day and 28-day — available to banks will double to $300 billion from $150 billion, the Fed said.
Moreover, the Fed will make a total of $620 billion available to other central banks, expanding ongoing currency “swap” arrangements with them where dollars are traded for their currencies. That’s up from $290 billion previously in such arrangements.
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank and the central banks of Denmark, Norway, Australia and Sweden are involved in those swap arrangements.
The move comes as the U.S. financial meltdown’s tendrils have ensnared banks in Britain, the Benelux and Germany.
lol-java
Here is a conservative point of view from the genesis of Bush's binge....
The "Trickle Down" Economics Straw Man
Among the suggestions being made for getting the American economy moving up again is a reduction in the capital gains tax. But any such suggestion makes people on the left go ballistic. It is "trickle down" economics, they cry.
Liberals claim that those who favor tax cuts and a free market want to help the rich first, hoping that the benefits they receive will eventually trickle down to the masses of ordinary people. But there has never been any school of economists who believed in a trickle down theory. No such theory can be found in even the most voluminous and learned books on the history of economics. It is a straw man.
This straw man is not confined to the United States. A critic of India's change from a government-dominated economy to more free market activity in the 1990s accused those behind this change of having "blind faith in the 'trickle-down' theory of distributing the benefits of economic growth among different socio-economic groups in the country." But free-market economics is not about "distributing" anything to anybody. It is about letting people earn whatever they can from voluntary transactions with other people.
Those who imagine that profits first benefit business owners -- and that benefits only belatedly trickle down to workers -- have the sequence completely backward. When an investment is made, whether to build a railroad or to open a new restaurant, the first money is spent hiring people to do the work. Without that, nothing happens.
Money goes out first to pay expenses first and then comes back as profits later -- if at all. The high rate of failure of new businesses makes painfully clear that there is nothing inevitable about the money coming back.
Even with successful businesses, years can elapse between the initial investment and the return of earnings. From the time when an oil company begins spending money to explore for petroleum to the time when the first gasoline resulting from that exploration comes out of a pump at a filling station, a decade may have passed. In the meantime, all sorts of employees have been paid -- geologists, engineers, refinery workers, truck drivers.
Nor is the oil industry unique. No one who begins publishing a newspaper expects to break even -- much less make a profit -- during the first year or two. But reporters and other members of the newspaper staff expect to be paid every payday, even while the paper shows only red ink on the bottom line.
In short, the sequence of payments is directly the opposite of what is assumed by those who talk about a "trickle-down" theory. As for capital gains, some countries don't tax capital gains at all. They tax a business' earnings, but not capital gains, which are harder to define and sometimes illusory.
The real effect of a reduction in the capital gains tax rate is that it opens the prospect -- only the prospect -- of greater future net profits. But that is enough to provide incentives for making current investments. Reductions in the capital gains tax rate tend to draw money out of tax shelters like municipal bonds and into creating jobs and productive capacity. That's the point!
As with all taxes, a distinction must be made between tax rates and tax revenues. Tax revenues went up while tax rates went down in the 1980s. Similarly in the 1960s and the 1920s. That is because incomes rose more than tax rates fell. But still it will be claimed that we cannot "afford" to cut tax rates because it would create deficits. Spending creates deficits -- and it is big spenders who fight hardest against cutting tax rates.
It is not faith but empirical evidence that is overwhelming on the actual track record of tax cuts and free markets. By the 1980s, this mounting evidence convinced even left-wing governments in various parts of the world to cut back government operations and sell government-owned enterprises to private industry. Faith had nothing to do with it.
In India, in the decade since the 1991 economic reforms which were condemned as "blind faith," the country's economic growth rate has soared. It has been estimated that the real blind faith -- in government planning -- had cost the average Indian hundreds of dollars a year in income during the decades when socialist dogma ruled. In a poor country like India, this was income they could not afford to miss. Even in a prosperous country like the United States, there is no need to forego economic benefits for the sake of a political phrase.
Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college.
The 3 A.M. Call
It’s 3 a.m., a few months into 2009, and the phone in the White House rings. Several big hedge funds are about to fail, says the voice on the line, and there’s likely to be chaos when the market opens. Whom do you trust to take that call?
I’m not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.
So what do we know about the readiness of the two men most likely to end up taking that call? Well, Barack Obama seems well informed and sensible about matters economic and financial. John McCain, on the other hand, scares me.
About Mr. Obama: it’s a shame that he didn’t show more leadership in the debate over the bailout bill, choosing instead to leave the issue in the hands of Congressional Democrats, especially Chris Dodd and Barney Frank. But both Mr. Obama and the Congressional Democrats are surrounded by very knowledgeable, clear-headed advisers, with experienced crisis managers like Paul Volcker and Robert Rubin always close at hand.
Then there’s the frightening Mr. McCain — more frightening now than he was a few weeks ago.
We’ve known for a long time, of course, that Mr. McCain doesn’t know much about economics — he’s said so himself, although he’s also denied having said it. That wouldn’t matter too much if he had good taste in advisers — but he doesn’t.
Remember, his chief mentor on economics is Phil Gramm, the arch-deregulator, who took special care in his Senate days to prevent oversight of financial derivatives — the very instruments that sank Lehman and A.I.G., and brought the credit markets to the edge of collapse. Mr. Gramm hasn’t had an official role in the McCain campaign since he pronounced America a “nation of whiners,” but he’s still considered a likely choice as Treasury secretary.
And last year, when the McCain campaign announced that the candidate had assembled “an impressive collection of economists, professors, and prominent conservative policy leaders” to advise him on economic policy, who was prominently featured? Kevin Hassett, the co-author of “Dow 36,000.” Enough said.
Now, to a large extent the poor quality of Mr. McCain’s advisers reflects the tattered intellectual state of his party. Has there ever been a more pathetic economic proposal than the suggestion of House Republicans that we try to solve the financial crisis by eliminating capital gains taxes? (Troubled financial institutions, by definition, don’t have capital gains to tax.)
But even President Bush has, in the twilight of his administration, turned to relatively sensible people to make economic decisions: I’m not a fan of Mr. Paulson, but he’s a vast improvement over his predecessor. At this point, one has the suspicion that a McCain administration would have us longing for Bush-era competence.
The real revelation of the last few weeks, however, has been just how erratic Mr. McCain’s views on economics are. At any given moment, he seems to have very strong opinions — but a few days later, he goes off in a completely different direction.
Thus on Sept. 15 he declared — for at least the 18th time this year — that “the fundamentals of our economy are strong.” This was the day after Lehman failed and Merrill Lynch was taken over, and the financial crisis entered a new, even more dangerous stage.
But three days later he declared that America’s financial markets have become a “casino,” and said that he’d fire the head of the Securities and Exchange Commission — which, by the way, isn’t in the president’s power.
And then he found a new set of villains — Fannie Mae and Freddie Mac, the government-sponsored lenders. (Despite some real scandals at Fannie and Freddie, they played little role in causing the crisis: most of the really bad lending came from private loan originators.) And he moralistically accused other politicians, including Mr. Obama, of being under Fannie’s and Freddie’s financial influence; it turns out that a firm owned by his own campaign manager was being paid by Freddie until just last month.
Then Mr. Paulson released his plan, and Mr. McCain weighed vehemently into the debate. But he admitted, several days after the Paulson plan was released, that he hadn’t actually read the plan, which was only three pages long.
O.K., I think you get the picture.
The modern economy, it turns out, is a dangerous place — and it’s not the kind of danger you can deal with by talking tough and denouncing evildoers. Does Mr. McCain have the judgment and temperament to deal with that part of the job he seeks?
The Rich are Staging a Coup Right Now
By Michael Moore, MichaelMoore.com
Posted on September 29, 2008
Friends,
Let me cut to the chase. The biggest robbery in the history of this country is taking place as you read this. Though no guns are being used, 300 million hostages are being taken. Make no mistake about it: After stealing a half trillion dollars to line the pockets of their war-profiteering backers for the past five years, after lining the pockets of their fellow oilmen to the tune of over a hundred billion dollars in just the last two years, Bush and his cronies -- who must soon vacate the White House -- are looting the U.S. Treasury of every dollar they can grab. They are swiping as much of the silverware as they can on their way out the door.
No matter what they say, no matter how many scare words they use, they are up to their old tricks of creating fear and confusion in order to make and keep themselves and the upper one percent filthy rich. Just read the first four paragraphs of the lead story in last Monday's New York Times and you can see what the real deal is:
"Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.
"Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.
"At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.
"Nobody wants to be left out of Treasury's proposal to buy up bad assets of financial institutions."
Unbelievable. Wall Street and its backers created this mess and now they are going to clean up like bandits. Even Rudy Giuliani is lobbying for his firm to be hired (and paid) to "consult" in the bailout.
The problem is, nobody truly knows what this "collapse" is all about. Even Treasury Secretary Paulson admitted he doesn't know the exact amount that is needed (he just picked the $700 billion number out of his head!). The head of the congressional budget office said he can't figure it out nor can he explain it to anyone.
And yet, they are screeching about how the end is near! Panic! Recession! The Great Depression! Y2K! Bird flu! Killer bees! We must pass the bailout bill today!! The sky is falling! The sky is falling!
Falling for whom? NOTHING in this "bailout" package will lower the price of the gas you have to put in your car to get to work. NOTHING in this bill will protect you from losing your home. NOTHING in this bill will give you health insurance.
Health insurance? Mike, why are you bringing this up? What's this got to do with the Wall Street collapse?
It has everything to do with it. This so-called "collapse" was triggered by the massive defaulting and foreclosures going on with people's home mortgages. Do you know why so many Americans are losing their homes? To hear the Republicans describe it, it's because too many working class idiots were given mortgages that they really couldn't afford. Here's the truth: The number one cause of people declaring bankruptcy is because of medical bills. Let me state this simply: If we had had universal health coverage, this mortgage "crisis" may never have happened.
This bailout's mission is to protect the obscene amount of wealth that has been accumulated in the last eight years. It's to protect the top shareholders who own and control corporate America. It's to make sure their yachts and mansions and "way of life" go uninterrupted while the rest of America suffers and struggles to pay the bills. Let the rich suffer for once. Let them pay for the bailout. We are spending 400 million dollars a day on the war in Iraq. Let them end the war immediately and save us all another half-trillion dollars!
I have to stop writing this and you have to stop reading it. They are staging a financial coup this morning in our country. They are hoping Congress will act fast before they stop to think, before we have a chance to stop them ourselves. So stop reading this and do something -- NOW! Here's what you can do immediately:
1. Call or e-mail Senator Obama. Tell him he does not need to be sitting there trying to help prop up Bush and Cheney and the mess they've made. Tell him we know he has the smarts to slow this thing down and figure out what's the best route to take. Tell him the rich have to pay for whatever help is offered. Use the leverage we have now to insist on a moratorium on home foreclosures, to insist on a move to universal health coverage, and tell him that we the people need to be in charge of the economic decisions that affect our lives, not the barons of Wall Street.
2. Take to the streets. Participate in one of the hundreds of quickly-called demonstrations that are taking place all over the country (especially those near Wall Street and DC).
3. Call your Representative in Congress and your Senators. (click here to find their phone numbers). Tell them what you told Senator Obama.
When you screw up in life, there is hell to pay. Each and every one of you reading this knows that basic lesson and has paid the consequences of your actions at some point. In this great democracy, we cannot let there be one set of rules for the vast majority of hard-working citizens, and another set of rules for the elite, who, when they screw up, are handed one more gift on a silver platter. No more! Not again!
Yours,
Michael Moore
MMFlint@aol.com
MichaelMoore.com
P.S. Having read further the details of this bailout bill, you need to know you are being lied to. They talk about how they will prevent golden parachutes. It says NOTHING about what these executives and fat cats will make in SALARY. According to Rep. Brad Sherman of California, these top managers will continue to receive million-dollar-a-month paychecks under this new bill. There is no direct ownership given to the American people for the money being handed over. Foreign banks and investors will be allowed to receive billion-dollar handouts. A large chunk of this $700 billion is going to be given directly to Chinese and Middle Eastern banks. There is NO guarantee of ever seeing that money again.
P.P.S. From talking to people I know in DC, they say the reason so many Dems are behind this is because Wall Street this weekend put a gun to their heads and said either turn over the $700 billion or the first thing we'll start blowing up are the pension funds and 401(k)s of your middle class constituents. The Dems are scared they may make good on their threat. But this is not the time to back down or act like the typical Democrat we have witnessed for the last eight years. The Dems handed a stolen election over to Bush. The Dems gave Bush the votes he needed to invade a sovereign country. Once they took over Congress in 2007, they refused to pull the plug on the war. And now they have been cowered into being accomplices in the crime of the century. You have to call them now and say "NO!" If we let them do this, just imagine how hard it will be to get anything good done when President Obama is in the White House. THESE DEMOCRATS ARE ONLY AS STRONG AS THE BACKBONE WE GIVE THEM. CALL CONGRESS NOW.
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