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US Bails Out Foreign Banks

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I never knew how generous the US was until I read Alan Grayson’s account of the GOA report into how much the Fed has lent to banks. In particular non US banks did well and in some cases kept alive by loans from the Fed. This just demonstrates how flimsy the banking system is if the Fed is called on to prop up foreign banks. In the meantime US citizens were kept in the dark about a lot of the loans.

Some of the key points from the report are outlined below by Grayson.

The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.

Sixty percent of the $738 billion “Commercial Paper Funding Facility” went to the subsidiaries of foreign banks. 36% of the $71 billion Term Asset-Backed Securities Loan Facility also went to subsidiaries of foreign banks.

Separate and apart from these “broad-based emergency program” loans were another $10,057,000,000,000 in “currency swaps.” In the “currency swaps,” the Fed handed dollars to foreign central banks, no strings attached, to fund bailouts in other countries. The Fed’s only “collateral” was a corresponding amount of foreign currency, which never left the Fed’s books (even to be deposited to earn interest), plus a promise to repay. But the Fed agreed to give back the foreign currency at the original exchange rate, even if the foreign currency appreciated in value during the period of the swap. These currency swaps and the “broad-based emergency program” loans, together, totaled more than $26 trillion. That’s almost $100,000 for every man, woman, and child in America.

The Fed bailed out the Swiss National Bank.

In October 2008, the Fed gave $60,000,000,000 to the Swiss National Bank with the specific understanding that the money would be used to bail out UBS, a Swiss bank. Not an American bank. A Swiss bank.

Grayson makes reference to the Fed’s change in role.

There is one thing that I’d like to add to this, which isn’t in the GAO’s report. All this is something new, very new. For the first 96 years of the Fed’s existence, the Fed’s primary market activities were to buy or sell U.S. Treasury bonds (to change the money supply), and to lend at the “discount window.” Neither of these activities permitted the Fed to play favorites. But the programs that the GAO audited are fundamentally different. They allowed the Fed to choose winners and losers.

Finally, he makes some very interesting observations below

  • In the case of TARP, at least The People’s representatives got a vote. In the case of the Fed’s bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street.

 

  • In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine.

 

  • For the Fed to pick and choose among aid recipients, and then pick and choose who takes a “haircut” and who doesn’t, is both corporate welfare and socialism.

 

  • The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success.

 

  • During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn’t borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can’t find a full-time job?

Source: Huffington Post,   GOA Report

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Carbon Taxes Destroying UK Companies And Losing Jobs

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Many would argue that global warming(sorry, we can’t call it that anymore because many have noticed the world is cooling) climate change is not man-made but natural changes, but to cut carbon emissions by taxing it is madness. Unless you are Al Gore who is set to become a billionaire from it. If we fully believed that man-made carbon emissions were responsible for the climate then surely we should concentrate on newer technologies which would create jobs rather than taxing which destroys jobs. Already the UK is experiencing many problems from carbon taxes.

Industry will become increasingly uncompetitive due to soaring green energy taxes, according to the Government’s own advisers.

A shocking report has found UK manufacturers’ electricity bills are already significantly higher than those in other leading nations due to climate change levies.

By the end of the decade, our green taxes will be double those in other EU nations and dozens of times higher than those in the US.

Industry groups said the report was ‘extremely worrying’ and could force firms abroad, where regulations are less stringent.

The Department for Business, Innovation and Skills (BIS) report looked at the iron and steel, aluminium, cement and chemicals industries in 11 countries, most of which have renewable energy policies.

These energy-intensive industries directly employ 600,000 in Britain and contribute nearly £50billion a year to the economy.

Firms will be forced to pay an extra £28.30 in green taxes on top of the market price they pay for every megawatt hour of electricity by 2020 due to climate policies, according to the report by an independent firm.

This compares with £15.70 in Denmark, renowned for its renewable energy drive, £15.20 in France, £17.30 in Germany, £10 in China and a fall in the US and Russia.

Already the UK’s ambitious policy has cost jobs.

The Government has committed to cutting carbon emissions by 80 per cent, compared with 1990 levels, by 2050.

Last May India’s Tata Steel announced 1,500 job cuts in the UK, which it put down to the impact of expensive climate policies.

Its chief executive in Europe, Karl-Ulrich Kohler, said there was a ‘great deal of uncertainty’ about how far the UK Government was prepared to go in its green policies.

Source: Daily Mail
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Devalue The Euro To Save It

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A few weeks ago ZeroHedge ran an article outlining the possibilities for the euro after the EU summit. It reached the conclusion that devaluation would be the end point. Joshua Brown reaches a similar conclusion that the only way to save the euro is devalue it, but how do you convince the Germans? The method to do this is the ESM borrowing from the ECB to circumvent the existing rules and limitations of the ECB.

Is it time for Germany to accept the fact that the only way out of economic hell is an export-led recovery, brought about by “dollar parity,” (a one for one exchange rate between dollar and euro) so that peripheral economies can become competitive again?

Is this the part where Germany gets over the fear of 3 to 4% inflation (as opposed to the current 2%) because a bit of inflation is a much better long-term risk than a break-up of the common currency?

Does the ECB need to just suck it up and start printing already? Do they need to blow up (devalue) the euro in order to save it?

Today’s cover story in Barron’s makes a highly compelling case that not only is this the best course of action, it may be the only one left once the austerity mandates and lending facilities have run their course.  The basic idea is that the newly formed and almost funded ESM (Euro Stability Mechanism), which will begin with $500 billion – $100 billion of which is already going to Spain – could borrow from the ECB on an unlimited basis.  This would be the closest thing the Euros have had to what the Fed/Treasury have done here in the states.  It would drive the euro currency value down, allowing Spain and Italy to become more competitive on the global stage for manufacturing, exporting etc, even as spending reforms are adopted.  Germany would bear the brunt of the minor inflation this would induce, but it would benefit from the drastic uptick in economic activity and the cessation of Permanent Crisis Mode that’s frozen so much of the continent (not to mention the threat to the rest of the world that Germany likes to sell to).

Let the currency wars continue. Of course devaluing currencies was exactly what happened during the 1920s and 30s with disasterous consequences globally and it looks as if we are heading down that same path.

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