We have told you about the Fed giving out loans to Countrywide for worthless collateral. Now the situation is so bad that more banks are doing it.
US Banks have borrowed $50 billion from the Fed.
The use of the Fed's Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.
Using garbage collateral!
"The TAF ... allows the banks to borrow money against all sort of dodgy collateral," says Christopher Wood, analyst at CLSA. "The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America's banking system."
Once again, this is not a dooms day blog. This is in Financial Times.
When it comes to protecting the little guy, nobody seems to care. But when it comes to saving the nations banks, the fed will do anything to help them. These are the same banks that have raised interest rates to 30% if you miss one payment.
"Some Fed officials have expressed an interest in keeping and possibly expanding the TAF," says Michael Feroli, economist at JPMorgan.
BTW, we have not donated ennough money. How about a bigger tap to give money away.
Nevertheless, Mr Feroli said banks now appeared to be using the TAF instead of other funding routes, meaning that the overall level of reserves in the system was remaining constant. "The banking system certainly has its problems, however the notion that ... banks have trouble maintaining reserves stems from a superficial reading of the Fed's statistical reports," he said.
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