So much for the “short-term” Term Auction Facility

Like households with tax cuts, we internalise government concessions, and immediately integrate into our set of perceived entitlements. So this is really not a surprise:

US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch.

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.

… the move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.

“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.”

I would remind you that this is public money. As well as all the attendant moral hazard problems, this devalues your money – either your stake in the public purse, or your own purse. More money means that money is of less value. More money means increasing inflationary pressure, meaning your income and wealth are of less value.

Do we get compensated for the risk? We do not. Invest in a risky stock and you demand a higher return. Here we get only the word of our government that it’s for the best – a decision made at a table at which no ordinary person is allowed a seat.

I want a bloody tax cut that explicitly represents the depreciation of my income and purchasing power caused by the Federal Non-Reserved Bank.


1 comment so far

  1. Mark T. Market on

    Nassim Taleb spoke out in Davos about banks and the moral hazard of bailouts.

    He and Nouriel Roubini were both interviewed at CNBC recently, but soundbite journalists are incapable of handling their views sadly.

    Zimbabwe citizens know very well what kinds of horrors hyperinflation can bring, but this kind of phenomenon is considered remote from occuring elsewhere.

    Glenn Beck’s hockey stick makes me think again.

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