Bankers working on a Sunday? If that’s not a sign of the apocalypse, I don’t know what would be. Ben Bernanke and his secretive Federal Reserve met in a marble palace Sunday to discuss the liquidity of America’s banks. Here is what they allow the commoners to know.
The Federal Reserve announced Sunday that it would provide a $30 billion credit line to JPMorgan Chase, for assistance in taking over the operation of Bear Stearns. The loan from the Federal Reserve to JPMorgan Chase will be secured by the Federal Reserve itself; if that does not make sense, I have stated it perfectly. The Fed will control all decision-making in the Bear Stearns portfolio to minimize its own risk.
The Fed also announced an emergency discount rate cut of a quarter percent, to 3.25 percent. It is expected to cut the rate again on Tuesday, March 18. Apparently the Fed still has faith in its own gerrymandered consumer price index, despite evidence to the contrary in food and gas prices, because these rate cuts will inevitably devalue the dollar.
The $200 billion per month TSLF instituted by the Federal Reserve last week will remain in place, but Bernanke announced Sunday that the program will no longer have a cap. Investment banks may now trade their risky mortgage-backed securities for Treasury securities without limitation on the total. The $200 billion monthly of TAF and repurchase agreements will continue, and unknown amount of TSLF deals in excess of $200 billion monthly will also be worked out. As of last week, 40% of the U.S. economy depended on Federal Reserve action. It is not unlikely that over half of this month’s U.S. economic activity will be the direct result of Federal Reserve bailouts, which will inevitably devalue the U.S. Dollar in the coming weeks.