Tag: discount window

Friday morning coffee (and links)

If you’ve already planned your weekend, keep reading. Otherwise, you have more important things to do.

  • Why the rumors about the Mormon Church buying Facebook made sense – it’s about genealogy business. Personally, I think the Mormon Church is run by very smart folks, and very smart folks don’t buy businesses that don’t justify their valuations via profits.
  • In defense of short selling. It only needs defending because the powers that be want to ensure folks the “buy and hold” strategy they were “sold” doesn’t come back to bite.
  • A state record channel catfish was caught on a Barbie Rod! I wonder when Mattel will start dumping last year’s model on eBay.
  • The CFTC found that a select few speculators were dominating the oil trading market, but they also noted that those few didn’t really manipulate prices. I’ll bet that if oil was trading a $200 a barrel right now, some of their “findings” might have been a little different.
  • Banks are still lining up at the pig trough discount window, and their wealthy clients are feeling the pain as private-equity capital calls come in. Didn’t those clients know the banks lent out all that money they were supposed to be safeguarding?
  • That in turn brings up the question…

  • How safe is your brokerage account (yes, brokerages use securities as collateral on loans too)? Guess that depends on your brokerage…

brokerage-capital

Source: Weiss Research, Inc.

Adieu.

Fannie, Freddie, and the Fed: Robbing Paul to Pay Peter

From the Economist (emphasis mine):

After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.

The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.

That would certainly solve the problem of fewer open-market buyers for the GSEs’ paper.