Post by: Paddy on March 14, 2008, 01:19:43 PM
Fed Takes Rare Path to Aid Bear Stearns
Friday March 14, 4:54 pm ET
By Martin Crutsinger, AP Economics Writer
Fed Endorses Rescue Effort for Bear Stearns and Pledges to Supply Cash to Financial System
WASHINGTON (AP) -- The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.
The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."
The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. Federal Reserve Chairman Ben Bernanke, delivering a speech later Friday, told a housing group he had had a "busy morning." He did not elaborate on the Fed's action regarding Bear Stearns.
"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.
Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions.
"It was a strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans," Bush said. "Today's actions are fasting moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets."
The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.
Senior Federal Reserve staffers said the arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.
While JP Morgan is serving as a conduit for the loans, the Fed and not JP Morgan will bear the risk if the loans are not repaid, officials said.
This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.
In his speech, Bush said the administration had a plan to deal with the problems in credit and housing markets and said he opposed a number of measures pending in Congress to go further by allocating billions of dollars to purchase abandoned and foreclosed home and changing the bankruptcy code to allow judges to adjust mortgage terms.
However, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the problems at Bearn Stearns, one of the country's largest investment banks, highlighed the need for more aggressive efforts.
"Instead of cheerleading and reacting with tepid measures, the administration should act boldly and decisively to prevent the looming foreclosure crisis from having catastrophic consequences for our economy and our markets," Dodd said in a statement.
Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.
"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.
Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."
The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.
It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.
After the situation at Bear Stearns worsened late Wednesday, there were a series of conference calls throughout the day on Thursday with officials from the Fed, the New York Fed and the SEC to assess the potential impact on the broader economy, according to a Treasury official, who spoke on condition of anonymity because of the sensitive nature of the discussions.
This official said that Paulson had been keeping Bush updated on the proposed rescue effort.
JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.
The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.
"We will continue to work closely together in a way that contributes to orderly and liquid markets," the SEC said.
Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.
Associated Press reporters Marcy Gordon, Jeannine Aversa, Terence Hunt, Stephen Bernard, Madlen Read and Joe Bel Bruno contributed to this report.
Post by: christopher on March 14, 2008, 01:56:08 PM
U.S. Supreme Court, in American Communication Association v. Douds, 339 U.S. 382, 442
When the government fears the people, there is liberty. When the people fear the government, there is tyranny.
Post by: The Rabbi on March 14, 2008, 01:59:31 PM
"It is not the function of our Government to keep the citizen from falling into error; it is the function of the citizen to keep the Government from falling into error".
U.S. Supreme Court, in American Communication Association v. Douds, 339 U.S. 382, 442
When the government fears the people, there is liberty. When the people fear the government, there is tyranny.
U.S. Supreme Court, in American Communication Association v. Douds, 339 U.S. 382, 442
When the government fears the people, there is liberty. When the people fear the government, there is tyranny.
Huh?
It is the function of the Fed to ensure orderly markets. The failure of Bear Stearns would have unleashed a whirlwind.
I'm not saying that ought to be gov't policy (it shouldnt). But in general the gov't needs to keep hands off the whole mess. In this case they might have acted OK. Might.
Post by: christopher on March 14, 2008, 02:17:40 PM
More scare tactics to rob the national treasury. But why not loot the government, because they never run out of money.
Post by: longeyes on March 14, 2008, 02:41:16 PM
Post by: Paddy on March 14, 2008, 02:44:59 PM
That said, it is not a function of government to indemnify people against their own stupidity or against normal business cycles. IOW, I'm opposed to the constant manipulation of the economy by the fed. Let the market determine interest rates, and growth control the money supply.
I'm not familiar enough with all the ramifications of bailing/not bailing out Bear Stearns and how it affects the average citizen, however. It is funny, though that a bunch of 'free market' capitalists are on the receiving end of government assistance.
Post by: roo_ster on March 14, 2008, 04:01:59 PM
Let them reap the whirlwind and be an example to others.
Post by: Headless Thompson Gunner on March 14, 2008, 04:27:17 PM
This is exactly what the Fed is supposed to do. It's one of the reasons we created the Fed. They're supposed to be a lender of last resort, which is exactly what Bear Sterns needed right now. Y'all may not like the fact that "the government" intervened here, but I assure you that you would have liked the alternative a whole lot less.
Note also that Bear Sterns is far from "saved". It'll probably get vultured up by another big financial institution before too long. All those execs and investors who ran Bear Sterns are about to lose their company and their very considerable investments. Trust me, they are suffering the consequences of their bad decisions.
Y'all should do yourselves a favor and take the time to learn about the Fed, about the nation's financial systems, and about the current situation unfolding right now. Stop ranting and learn. Think. I'll bet you dollars to doughnuts that you come away with an entirely different perspective on current events.
Post by: christopher on March 14, 2008, 05:28:06 PM
Bear Stearns is senior underwriter for a refunding of $1 billion of state Department of Water Resources power revenue bonds in a sale closing on March 19, and for a sale of $302 million in state Public Works Board lease revenue bonds closing on March 26.
California expects $1.3 billion after the sales close, said Tom Dresslar, a spokesman for California Treasurer Bill Lockyer.
"Given their financial difficulties, we have been in touch with the head of their underwriting desk telling them we want a written assurance from a senior Bear Stearns official that we're going to get our money on time," Dresslar said.
Other states, including New Jersey and Wisconsin, said they also now will analyze whether to keep Bear Stearns as an underwriter for upcoming bond sales.
Bear Stearns was a prominent underwriter of tobacco bonds, which are backed by payments from cigarette-makers to states.
Wisconsin, for example, had chosen Bear Stearns to underwrite $1.5 billion of tobacco bonds that have yet to be sold and the bank's problems could open the door for a rival.
The Fed will provide financing to Bear through JPMorgan, which said it is working closely with Bear "on securing permanent financing or other alternatives." The Fed approved the arrangement in an emergency meeting Friday morning.
companies: Bear Stearns (BSC.N: Quote, Profile, Research)
-- 2007 Net Income: $233 million
-- Assets: $395.362 billion
-- Employees: 14,153
-- Market Capitalization: $3.50 billion
Post by: Standing Wolf on March 14, 2008, 06:00:13 PM
Post by: Finch on March 14, 2008, 09:48:25 PM
Quote
The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."
Well, an endorsement from Bush is all I needed to see...
Post by: longeyes on March 15, 2008, 01:25:47 PM
And this is just the beginning.
Post by: christopher on March 15, 2008, 02:22:10 PM
The Federal Reserve set off a ferocious stock market rally Tuesday with its plan to lend banks as much as $200 billion over 28 days later this month. The plan sent shares of hard-hit lenders such as Fannie Mae (FNM), Freddie Mac (FRE, Fortune 500) and Washington Mutual (WM, Fortune 500) soaring, because the Fed will allow borrowers to use privately issued mortgage-backed securities as collateral. Investors have fled those securities because they see a rising risk that mortgage bonds will become impaired as housing prices slide and defaults tick higher.
Tuesday's plan, dubbed the Term Securities Lending Facility, wasn't the first Fed move aimed at loosening up the debt markets. Late last year the Fed rolled out a similar plan called the Term Auction Facility that briefly succeeded in bringing down the interest rates banks charge one another for overnight loans.
"Think of Ben Bernanke as action hero," Felix Salmon wrote this week at Portfolio.com. "Every time the credit markets seize up and threaten to bring down the U.S. financial system, he pulls out a new weapon."
Not quite a fan club
Not everyone is a fan of Action Ben, however. David Rosenberg, chief North American economist at Merrill Lynch (MER, Fortune 500), wrote Wednesday that this week's Fed action will do little to counter the impression that Bernanke & Co. is struggling with problems that the Fed ultimately has little control over.
"This latest experiment, as with the others undertaken thus far, does not address underlying credit problems, does not materially improve the solvency of the institutions exposed to assets under stress, does nothing to put a floor under home prices," Rosenberg wrote in a note to clients. "We see no reason based on this for anyone to change their economic or earnings outlook despite the stock market's initial reaction to this latest initiative."
Rosenberg, who has been predicting for some time that the economy will slip into recession this year, expects the Fed to cut its fed funds rate to as low as 1% later in 2008, down from 3% now and 5.25% back in August. Observers expect the rate cuts to continue next week, with a cut as deep as 75 basis points at the Fed's regularly scheduled meeting. But there's little optimism that the cuts will do anything to stimulate demand for houses, which remain pricey by historical measures, or even bring down mortgage rates, which have been rising since the Fed's slashed rate by more than a percentage point over eight days at the end of January.
The fear is that by expanding its emergency lending programs and sharply cutting rates, the Fed will turbocharge already healthy parts of the economy - at the cost of reduced purchasing power by dollar holders. Meanwhile, the big problem - bad loans tied to houses whose value is now declining - continues to fester.
"We're in the helicopter phase now," says Howard Simons, a strategist at Bianco Research in Chicago. He references the nickname Helicopter Ben, which Bernanke got tagged with after a 2002 speech on how central banks can steer away from deflation by dropping money into the economy.
Simons says he appreciates the Fed's need to make sure the economy has sufficient liquidity. But with gasoline prices approaching an all-time inflation-adjusted high and the price of milk having jumped 12% last year, inflation "is a very real concern," Simons says.
Betting on inflation
He points to the action in Treasury Inflation Protected Securities - bonds whose principal amount is adjusted upward when the consumer price index shows inflation and drops when it shows deflation. The yield on five-year TIPS recently turned negative - meaning that investors buying the securities now are accepting a lower interest rater than they would get on comparable Treasury notes, in the expectation of making up the difference in coming years via the inflation adjustment. In essence, they are betting that buying TIPS will shield them from the loss of purchasing power they would suffer over time by holding nominal Treasurys.
David Merkel, chief economist at broker-dealer Finacorp Securities, agrees that inflation is worrisome but adds that the makeup of the current board of governors ensures the Fed will "err on the side of inflation." Along with Bernanke, Fed Vice Chairman Donald Kohn and governor Frederic Mishkin "are students of the Great Depression," Merkel says. "So you're going to see more loosening" of monetary policy when the economy runs into trouble.
Inflation isn't the only worry on the minds of Fed critics. Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says the Term Securities Lending Facility and moves like it amount to a government bailout of corporate executives who made reckless bets - and who should be made to pay the tab with their jobs.
"The Fed's actions are keeping banks from having to write down large losses and quite likely go into bankruptcy," he writes on his blog at the American Prospect. "The result is that the bank executives, whose inept management pushed them into bankruptcy, get to keep their jobs and their salaries, which run into the tens of millions a year." Meanwhile, homeowners facing foreclosure - not to mention ordinary savers who are watching inflation erode the value of their nest eggs - remain quite unbailed-out.
Simons says the whole mess points up the limitations of the Fed. "They're not crisis managers," he says. "There's no playbook for this."
Post by: Fly320s on March 15, 2008, 04:42:54 PM
That said, it is not a function of government to indemnify people against their own stupidity or against normal business cycles. IOW, I'm opposed to the constant manipulation of the economy by the fed. Let the market determine interest rates, and growth control the money supply.
My sentiments exactly.
Post by: Manedwolf on March 15, 2008, 04:45:04 PM
Better to just have the damn recession and get it over with. It's like having a tooth pulled!
Post by: longeyes on March 15, 2008, 05:58:37 PM
And will anyone ask Bernanke why the Fed stopped publishing the M3 money supply numbers? Maybe because they getting, well, too embarrassing?
Post by: Manedwolf on March 15, 2008, 06:05:29 PM
The whole ethanol thing isn't helping, either.
Post by: Gewehr98 on March 15, 2008, 06:38:02 PM
I eat a buttload of field corn every day.
Post by: Manedwolf on March 15, 2008, 06:43:34 PM
Yeah, I know.
I eat a buttload of field corn every day.
I eat a buttload of field corn every day.
No. Federal incentives to grow corn for ethanol = less of other crops = higher prices of other crops. The poor harvest in Asia and Europe is most of what caused the price spike, but the ethanol incentives aren't helping.
That's what the analysts are saying, not me.
Post by: Gewehr98 on March 15, 2008, 07:38:30 PM
http://www.e85fuel.com
My family's selling field corn to local distilleries, on land that the Feds paid them not to plant previously. (Look up PIK for what that's all about...) The acreage is EXTRA corn that's over and above what's planted to maintain cattle feed and other consumer levels.
They're also not having any troubles making their grain sales to buyers of cattle feed, never mind the fact that the distilleries are selling the distiller's dry grain (left over after the fermentation process) as high-quality cattle feed by itself. IOW, cows aren't starving, Mexicans may bitch, but they still use white corn for their tortillas, and I want to watch somebody tuck into an ear of field corn and say with a straight face that they'd prefer that over the sweet corn that's frozen in that bag of Green Giant Niblets at the supermarket.
The spin would also be funny, if it weren't so sad, considering how it's either George W. Bush's fault, or ethanol's fault, that we're in the petroleum quandry that we're in come 2008. And of course, there's much weeping and gnashing of teeth when word gets out that there are subsidies in the alternative energy industry. Well, duh.
Hello? McFly? How the hell else do they think we're going to get out from under Big Oil, which is the de-facto energy economy and coincidentally nicely amortized over the last 100 years or so? Nobody in their right mind is going to go full-steam with an alternative energy plan without somebody investing significantly, be it Bill Gates, Sir Richard Branson, or in ethanol's case - the FedGov. It would be madness to even think about it without some sort of cash injection. Speaking of cash injection, I filled up today for $2.49/gallon of E-85. Regular unleaded gasoline was $3.29 the next pump over. I noted that I still paid 40 cents/gallon in taxes on my E-85. There's a cash injection if ever there was. I haven't run gasoline in over two years and about 20K miles, so somebody with a big H2 Hummer in Hollywood needs to thank me for leaving them their share.
Gasoline will hit or exceed $4.00 a gallon, I wager well before July 4th. People will bitch, as they did when I watched the Arab Oil Embargo happen in 1973. I remember the lines at gas stations, and I vividly remember Detroit scrambling to downsize their land yachts and build fuel-efficient automobiles. Everything old is new again, and NOBODY's learned the lesson. At some point, people's comfort level will be exceeded, and we'll wisen up, but only after the Suburban/Texas Cadillac assembly line shuts down and people lose their jobs as a result.
In the meantime, I'm helping my uncles plant more liquid gold this spring, and I'm glad to at least be thinking outside of the box while others bitch about how unfair gas prices have become, along with the ripple-effect of consumer goods based on a petroleum economy. Efforts will be made to once again legislate drilling the ANWR, and again, it will meet with limited success. Efforts to capitalize on our huge coal reserves will bump headlong into the Sierra Club, as is already happening in Wisconsin with our coal-fired electrical plants. Wind farms sound nice, but once again, they're stymied by realtors concerned about dropping property values from such "eyesores" and folks who don't want birdies to get chowdered in the big blades. So we look at alternatives, whether it's ethanol from corn or eventually sawgrass/biomass, solar, oil shale, algae, Virent's biomass hydrogen extraction via aqueous phase reforming, you name it - they all require research and investment to get out in front of the entrenched system built around the fossilized plant remains we're competing for worldwide. To think that they'd happen for free is ludicrous at best.
Post by: Manedwolf on March 15, 2008, 07:53:44 PM
Sorry, I just don't see ethanol as anything other than a program pushed by the same people who got Columbia destroyed by switching to "green" foam. I don't like the power loss engines experience with E-85, I don't want to buy a new car. That, and there's even suggestion that it might pollute more than gasoline.
I like gasoline. I like oil. And I want the US petroleum industry to have its hobbles removed so we can develop what we have here. They're talking a possible 65 BILLION barrels from the deepwater wells in the Gulf. Go for it! Refine it here! Tell OPEC to get lost!
But keep it as oil. I like oil. Supplement it with nuclear plants, too. Lots of nuclear plants. Oil and coal for plastic and cars, nuclear and coal for electricity.
Also, I don't even think it's "plant remains". What they're finding is too deep and too big. Way too deep. I'm suspecting that the scientists who think it was created by a geological process instead are correct. Titan is covered with hydrocarbons, and there were no plants there. It's not inconceivable that there are deeper reserves of hydrocarbons in the deep crust, more than we can even imagine.
Post by: Gewehr98 on March 15, 2008, 08:11:31 PM
105 octane in my FlexFuel S-10 is actually giving me a boost as the Fuel Composition Sensor adjusts the ignition and fuel injector timing to the E-85. I can tell the minute I have to add 87 octane to the tank when I'm caught between E-85 stations on really long trips.
105 octane in my purpose-build E-85 383 stroker '53 Chevy PU is giving me even more of a boost. Power loss?
I'm working on converting my Shovelhead to the stuff, again, using the right compression for the job at hand. I'm getting an education in tube bending of stainless fuel lines, but other than that, no big deal.
I've been watching Volvo do exciting work with the S60/C30 cars and their E-85 engines, and I'll go on the record and state they're not exactly losing power - quite the opposite.
You don't see high-performance engines running low-octane, at least, not when I was doing my trips down the 1/4 mile in my blown 580 CID Pro Stock dragster, or running 100LL AvGas in the Cessnas I rent...
As a footnote, I don't begrudge folks wanting their petroleum, btw. But I will give a sideways glance when they bitch and moan about prices climbing and availability shrinking - the free ride will be over. We 'Merkins ain't the only ones sucking on that teat, and just watch when China and India get seriously thirsty for more...
Post by: johnster999 on March 15, 2008, 09:18:03 PM
I'm working on converting my Shovelhead to the stuff, again, using the right compression for the job at hand. I'm getting an education in tube bending of stainless fuel lines, but other than that, no big deal.
Interesting. I'd like to read about it when you get it done.
Post by: Paddy on March 15, 2008, 10:08:10 PM
Quote
As a footnote, I don't begrudge folks wanting their petroleum, btw. But I will give a sideways glance when they bitch and moan about prices climbing and availability shrinking - the free ride will be over. We 'Merkins ain't the only ones sucking on that teat, and just watch when China and India get seriously thirsty for more...
It ain't all 'supply and demand'. Most of it is the declining dollar, and the abject failure of the U.S. to develop any kind of energy policy. And, FWIW, it's already $4 here in CA. And if you think that's funny (which you probably do) just wait a short while. It will cost you to fill up those Suburbans.
Post by: Sergeant Bob on March 15, 2008, 10:35:30 PM
A couple other things which use corn and most of which aren't from sweet corn (it doesn't grind up very well):
Products that use Corn
Adhesives (glues, pastes, mucilages, gums, etc.)
Aluminum
Antibiotics (penicillin)
Asbestos insulation
Aspirin
Automobiles (everything on wheels)
xxx- cylinder heads
xxx- ethanol - fuel & windshield washer fluid
xxx- spark plugs
xxx- synthetic rubber finishes
xxx- tires
Baby food
Batteries, dry cell
Beer
Breakfast cereals
Candies
Canned vegetables
Carbonated beverages
Cheese spreads
Chewing gum
Chocolate products
Coatings on wood, paper & metal
Colour carrier in paper & textile, printing
Corn chips
Corn meal
Cosmetics
C.M.A. (calcium magnesium acetate)
Crayon and chalk
Degradable plastics
Dessert powders
Dextrose (intravenous solutions, icing sugar)
Disposable diapers
Dyes
Edible oil
Ethyl and butyl alcohol
Explosives - firecrackers
Finished leather
Flour & grits
Frozen foods
Fructose
Fuel ethanol
Gypsum wallboard
Ink for stamping prices in stores
Insecticides
Instant coffee & tea
Insulation, fibreglass
James, jellies and preserves
Ketchup
Latex paint
Leather tanning
Licorice
Livestock feed
Malted products
Margarine
Mayonnaise
Mustard, prepared
Paper board, (corrugating, laminating, cardboard)
Paper manufacturing
Paper plates & Cups
Peanut butter
Pharmaceuticals - The Life Line of The Hospital
Potato chips
Rugs, carpets
Salad dressings
Shaving cream & lotions
Shoe polish
Soaps and cleaners
Soft drinks
Starch & glucose (over 40 types)
Syrup
Tacos, tortillas
Textiles
Toothpaste
Wallpaper
Wheat bread
Whiskey
Yogurts
Question: Of 10,000 items in a typical grocery store, how many would you guess would contain corn in one form or another?
Answer: At least 2,500 items use corn in some form during the production or processing.
Back to top
How Corn is Used in Some of these Products
Beer
Beer manufacturing is a process of treating malt to convert and extract the barley starch to fermentable sugars using the amyloytic enzymes present in malt followed by yeast fermentation. However, demand for lighter, less filling beer, especially in the U.S., has permitted use of more refined carbohydrate sources of two types:
a) dry adjuncts, primarily dry milled corn grits, broken rice, refined corn starch, and more recently, dextrose.
b) liquid adjuncts, namely corn syrups
Cake Mixes Cake mixes use a pregelatinized corn starch that will form a paste in cold or warm water. In baked goods that use yeast for rising, dextrose is used as a yeast nutrient.
Candies Corn syrup is used in hard candies to provide a body giving them chewiness and a desirable mouthfeel without excessive sweetness. Candies that are coated use a pyrodextrin corn starch for the coating.
Carbonated Beverages - Coke High fructose corn syrup (HFCS) blended with sucrose in a 50/50 blend is sweeter than the same concentration of sucrose. The use of HFCS in carbonated beverages is common throughout Canada and the U.S.
Cookies Corn starch, corn flour or dextrose may be found in cookies.
Corn Flakes The flaking grits are cooked to a rubbery consistency with syrup, malt, salt and flavouring added. After tempering, the cooked grits are flattened between large steel rolls, followed by toasting in travelling ovens to a golden brown colour.
Corn Starch Corn starch is derived from the wet milling process and is an important manufactured product. Some uses depend on the properties in the dry state, but most applications relate to its properties as a cooked, hydrated paste.
Corn Meal Corn meal is a popular dry corn product because of its long shelf life. It is used to produce an assortment of chemically leavened bread and fried products like corn bread and muffins.
Cosmetics Corncobs, when finely ground, are relatively dust free and very absorbent. This absorbency makes corncobs useful carriers for pesticides, fertilizers, vitamins, hand soaps, cosmetics and animal litters.
Granola Dips/Granola Bars Some types of Granola Dips use dextrose as a sweetener.
Gypsum Wallboard Starch-containing corn flour is gelatinized during the manufacturing process; It functions by controlling the rate of water loss during drying of the board. Soluble carbohydrates migrate to the surface and control the rate of crystallization of the gypsum, providing a strong bond between the gypsum and the liner.
Instant Coffee & Tea Maltodextrins are derived from the wet milling process. They are a dextrose equivalent product of complete solubility but little or no sweetness. Maltodextrins are sprayed on instant tea and coffee to keep the granules free flowing. This solution is also used in instant soup mixes or other packages where the contents must be be kept free flowing.
Mars Bar & Twix Bar Many candy bars contain corn syrup.
Paint and Varnish Tetrahydrofurfuryl alcohol is a resin developed from processing corncobs. These resins are useful in the paint and varnish industry as solvents for dyes, resins, and lacquers.
Paper Products Paper products use raw starch in the manufacturing process. The properties of high paste viscosity and strong gels are useful in specially coated papers. Pyrodextrins are also used for paper manufacturing for the adhesive property on remoistenable gums for postage stamps and packaging tape.
Pharmaceuticals
Aspirin - an oxidized starch paste, which dries to a clear, adherent, continuous film, is spread in a thin layer over the aspirin.Intravenous - some IVs consist of dextrose and water solutions.
Antibiotics - preferred carbohydrate sources are corn syrup, dextrose, corn starch, lactose and sucrose. Cornsteep liquor was early found to provide a ready source of soluble nitrogenous nutrients plus unknown growth factors that stimulate antibiotic production.
Over 85 different types of antibiotics are produced using corn.
Snack Foods - Corn Chips & Doritos These snack foods are generally made from whole corn (cornmeal). The high starch content of cornmeal and flour is important in giving a high puff in preparation of extruded (pressed) snack products in which a delicate corn flavour is desired.
Spark Plugs Starch is used in the production of the porcelain part of spark plugs.
Tire, Rubber In the production of tires, corn starch is sprinkled on the molds before pouring the rubber, to prevent the rubber from sticking to the molds.
Toothpaste Sorbitol, which is produced from the corn sugar dextrose, is used in toothpaste as a low-calorie, water-soluble, bulking agent.
Whiskey The major carbohydrate in the production of whiskey is corn.A typical Canadian whiskey is made from a mixture of about 90% corn, 5% rye, and 5% barley malt.
Yogurt Some of the different brands of yogurt use corn syrup as a sweetener.
--------------------------------------------------------------
Even President Bush thinks corn ethanol production is driving up the prices of corn and corn based food products.
NY Times
Bush Urges Action on Corn Price Rises Fueled by Ethanol
Article Tools Sponsored By
By MATTHEW L. WALD
Published: March 5, 2008
WASHINGTON President Bush said Wednesday that the national drive toward ethanol production was also driving up the cost of corn and other foods, a problem he said needed to be addressed.
The boom in alternative fuels, he said, was beginning to affect the price of food. And so we got to do something about it.
Mr. Bush has previously pointed out that the price of corn has been pushed up by competition from ethanol manufacturers and that this had raised costs for companies that raise beef and hogs on corn. But addressing a conference on renewable energy on Wednesday morning, Mr. Bush said that this was also affecting the price that consumers pay for food.
But, he said, the solution was not to back away from ethanol, but to develop ways to make ethanol from agricultural wastes, wood chips or similar materials. The Energy Department has spent nearly $1 billion trying to incubate a cellulosic ethanol industry, he said.
Mr. Bush said it was amazing to think how far our country has come in ethanol production, which reached 6.4 billion gallons last year, he said up from 1.6 billion gallons in 2007. Under the presidents goal of reducing gasoline consumption by 20 percent between 2007 and 2017, ethanol production would rise to about 35 billion gallons a year, far more than could be made from corn kernels.
Corn now sells for over $5 a bushel, up from under $2 in 2006. The price is so high that it has even scared off some potential builders of ethanol factories.
Post by: Gewehr98 on March 16, 2008, 07:14:14 AM
White Corn. I'll make some Field Corn tortillas this week and give them to my undocumented workers.
I should take video.
Post by: roo_ster on March 16, 2008, 08:22:17 AM
Of which eth has less than gasoline.
eth: 76K BTU/gallon
gasoline: 116K BTU/gal
So, eth has 65% the energy content of gasoline or 35% less energy per gallon.
Or, MW could be describing the energy lost when translating corn form the cob to the fuel tank, which requires ~98K BTUs to do so for 1 gal of eth. In contrast, it costs 22K BTU to get a gal of gasoline into an auto's fuel tank.
I am sure there will be an "alternative" fuel for our autos in the future. Ethanol won't be it. Even with fed.gov loading the dice, eth is a bad bet for the majority. It does benefit some small minority.
The old story of concentrated benefits and dispersed costs.
====================
I wonder, did fed.gov subsidize the shift from whale oil and horse & buggy to automobiles, or was that left to sort itself out?
====================
If one really wants to do one's best to save energy used for transportation, keeping ones current auto in tip-top shape is the answer. Purchasing a new, more fuel-efficient auto will likely incur an energy hit far exceeding the benefit gained from the difference in fuel usage. The same logic works for cash.
Post by: longeyes on March 16, 2008, 11:59:41 AM
Quote
t is the function of the Fed to ensure orderly markets. The failure of Bear Stearns would have unleashed a whirlwind.
So I hear.
And it is the function of the orderlies to ensure a nice quiet asylum. As you realize, you can't have orderly markets when you have a spending-addicted Congress, a consuming-addicted public, and no shortage of pushers wearing thousand-dollar suits on Wall St.
Post by: The Rabbi on March 16, 2008, 12:05:32 PM
Quote
t is the function of the Fed to ensure orderly markets. The failure of Bear Stearns would have unleashed a whirlwind.
So I hear.
And it is the function of the orderlies to ensure a nice quiet asylum. As you realize, you can't have orderly markets when you have a spending-addicted Congress, a consuming-addicted public, and no shortage of pushers wearing thousand-dollar suits on Wall St.
It is all a plot by GeorgeWBushDickCheneyHaliburton to deprive honest Americans of their due.
Post by: thebaldguy on March 16, 2008, 02:58:47 PM
Yes, banks are being bailed out with this federal money. They know they are too big to let fail. They have no incentive to stop lending to people with bad credit as they know the feds will not let a bank fail due to the FDIC. I wonder what will happen if banks fail to pay back these low interest loans provided by the fed. I think nothing.
I have yet to see any CEOs of losing financial institutions take a pay hit yet. I know my raise was minimal (my employer is a financial institution with connections to the dying mortgage market) because "the company is going through some tough times".
This pattern will continue. Banks/financial institutions will demand money for the dying credit market with the fed creating money to give to them.
Post by: The Rabbi on March 16, 2008, 03:01:38 PM
So much for gov't bailout.
Post by: Manedwolf on March 16, 2008, 03:04:42 PM
Post by: Headless Thompson Gunner on March 16, 2008, 04:04:36 PM
Bear's chairman, James Cayne, owns 5,600,000 shares. He lost $500,000,, half a billion dollars, of his own personal wealth.
Bear's CEO, Alan Schwartz, owns a bit more than 1,000,000 shares, so he "only" lost ninety million dollars personally.
Some "bailed out", eh? So much for the government serving their corporate overlords.
I can't wait to see what the market does tomorrow morning.
Post by: Paddy on March 16, 2008, 04:15:29 PM
Post by: Manedwolf on March 16, 2008, 04:59:02 PM
Quote
Quote
March 17 (Bloomberg) -- Asian stocks, U.S. index futures and the dollar tumbled, while bond futures rose, after the Federal Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase & Co. agreed to buy Bear Stearns Cos.
All Asian stock benchmarks open for trading fell, led by National Australia Bank Ltd. in Sydney and Mitsubishi UFJ Financial Group Inc. in Tokyo. The dollar sank to a record low against the Swiss franc and a 12-year low against the yen.
``It's dire,'' said Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney. The Fed's actions are ``indicative of the very significant credit issues we've got globally at the moment. And what we've seen with Bear Stearns is just another step in the process.''
All Asian stock benchmarks open for trading fell, led by National Australia Bank Ltd. in Sydney and Mitsubishi UFJ Financial Group Inc. in Tokyo. The dollar sank to a record low against the Swiss franc and a 12-year low against the yen.
``It's dire,'' said Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney. The Fed's actions are ``indicative of the very significant credit issues we've got globally at the moment. And what we've seen with Bear Stearns is just another step in the process.''
http://www.bloomberg.com/apps/news?pid=20601080&sid=ae5jTiBwIyVA&refer=asia
That isn't good.
What this reminds me of, now, is in the movie "Titanic", when they'd hit the iceberg and were unsure of the damage. The lights were still on, people were still standing on the bridge with tea, but far below, things were going bad in a way that would lead to the inevitable sinking.
Yeah, we'll recover. But we ARE going to have a recession, and it's going to hurt, no matter what the fed does.
Post by: longeyes on March 16, 2008, 05:02:51 PM
Post by: K Frame on March 16, 2008, 06:12:24 PM
Post by: Manedwolf on March 17, 2008, 04:49:06 AM
Quote
Dow 11,801.13 -344.61 (-2.84%)
Well. That's not good at all.
Also, Lehman might follow Bear Sterns later this week in going poof.
Quote
The problem is bigger than the Fed, said Meredith A. Whitney, an Oppenheimer financial services analyst. Trillions of dollars of securities were underwritten on the false assumption house prices could never go down on a national basis. That falsehood has put the entire financial system in a tailspin.
As for Bear itself, talk about carnage:
Quote
BSC 3.70, -26.30, -87.7%
PWN3D!
Post by: Paddy on March 17, 2008, 08:45:08 AM
Post by: Manedwolf on March 17, 2008, 08:49:49 AM
I would think even just the buildings and office equipment were worth more than that. Of course, they bought all the bad loans they're responsible for as well.
(I just found more on that, yes, it is!)
Quote
The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per- square-foot that comparable office space in the city is currently fetching.
And...
Quote
Shareholders of Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the New York-based companies said in a statement late yesterday.
Ouch!
Post by: BrokenPaw on March 17, 2008, 09:01:08 AM
If they keep dropping interest rates, pretty soon they'll have to pay people to borrow money.
During the craze on zero-percent car loans, I was actually expecting some manufacturer or other to pull a negative-interest stunt like that. It wouldn't have to be much of a percentage to be able to play the gimmick; even -0.1% would allow them to trumpet "The MegaCarManufacturer Sell-a-thon! Where we pay you to buy!" Any actual loss could be wrapped up in a "processing fee".-BP
Post by: Paddy on March 17, 2008, 09:17:43 AM
heh.
Post by: longeyes on March 17, 2008, 10:49:20 AM
Savers and people on fixed income are getting royally screwed for being economically virtuous.
The idea is to create a nation of indebted government slaves.
Post by: Paddy on March 17, 2008, 11:32:38 AM
*The Economist, March 16, 2008:
"THERE seems to be no floor for the dollar at the moment. On March 13th, it fell below ?100 for the first time and hit a record low of $1.5624 to the euro. The greenback is even back below $2 to the pound, despite sterlings recent weakness. And on a trade-weighted basis, the American currency has hit yet another nadir.
Like a glutton at an all-you-can-eat buffet, there is almost an embarrassment of nourishment for dollar-bears. For those who focus on yield, there is the prospect of imminent rate cuts by the Federal Reserve, with analysts talking about 2%, or even 1%, as the eventual low. Meanwhile the European Central Bank seems determined to hold rates at 4%.
For those who are worried about the credit crunch, there is the failure of the Carlyle Capital bond fund and the short-lived boost given by the latest central-bank liquidity package. As David Bowers of Absolute Strategy Research has pointed out, America will have difficulty funding its current-account deficit until the credit crisis is sorted out.
For those who are worried about the American economy, the latest 0.6% monthly fall in retail sales will confirm their fears. (American data have, on average, looked weaker than Europes in recent weeks.) And for those who believe that real assets (like gold and oil) are more attractive than paper money, the rise in bullion to above $1000 an ounce and crude to $110 a barrel will confirm their prejudices.
What succour is there for the dollar bulls? One argument is that the Fed is being much more decisive than other central banks and thus the eventual recovery in the American economy will be faster and steeper. If that is the case, then American interest rates may start rising again next year, giving the currency yield support.
A second is that the dollars decline is now having an effect on the non-oil element of the trade deficit, and thus is steadily weakening one of the long-term bearish arguments. The final argument is that the dollar is now cheap on fundamental grounds (an argument that will seem convincing to any European tourist) and that, with sentiment almost universally negative, the only way is up.
The problem for the bulls is that when negative sentiment towards a currency sets in, it can be very hard to stop. There is a widespread perception that the American authorities are pretty relaxed about the dollars weakness.
And even if they did care, what could they do about it? They are hardly likely to raise interest rates with the financial sector and the economy in such poor shape."
BTW, Gold is now over $1K
Post by: Paddy on March 17, 2008, 12:11:11 PM
This has been a long time coming. We've transitioned from the world's largest creditor nation (pre-Reagan) to the world's largest debtor nation. We produce damn near nothing anymore, so we've got damn near nothing to export. Many companies fill their domestic hi tech jobs with foreigners because 1) they work cheaper, 2) our education system is so fubar'd, we don't produce enough competent people, anyway (see Bill Gates recent remarks on this subject).
The dollar's value has been kept artificially high, mostly because it has been the world standard for oil transactions. That is changing, however, as the world loses faith in the dollar, and you will soon see oil bought and sold with other currencies (can you say 'Euros'?)
In the meantime, we're spending hundreds of billions on worthless military activities. Nevermind we don't really have those hundreds of billions in the first place, we're borrowing them from China and the rest of the world.
This could very well be the beginning of a long downward spiral. And, it's likely Barack Obama, who is entirely unequipped to deal with the office under normal circumstances, will be the next POTUS.
The best advice is to store food and supplies and plant a vegetable garden. You're gonna need it.
Post by: grislyatoms on March 17, 2008, 12:21:47 PM
Uh-oh. That's freaking scary.
Post by: Manedwolf on March 17, 2008, 12:27:28 PM
Dollar to Yuan:
Dollar to Yen:
This is why you can't just print more money, I think. If OPEC moves to the Euro instead of the petrodollar, well...
I sincerely hope that we do not do an Argentina.
Post by: Paddy on March 17, 2008, 12:45:01 PM
March 17 (Bloomberg) -- Ben S. Bernanke's interest-rate cuts have touched off a vicious circle of doom for the dollar.
The Federal Reserve reduced the rate on direct loans to commercial banks by a quarter-point to 3.25 percent before Asian financial markets opened today. It will likely lower its target rate for overnight loans between banks tomorrow to at least 2 percent from 3 percent, according to futures traded on the Chicago Board of Trade. Lower borrowing costs work against the dollar by making fixed-income securities issued by the government less appealing to global investors.
``The relative return on U.S. assets is not attractive enough and we have moved back into looking for dollar weakness,'' said Robert Robis, a bond fund manager in New York at OppenheimerFunds Inc., which oversees $260 billion. Robis last month was betting the dollar would rally versus the euro.
If that weren't enough to make bears out of bulls, the weakest dollar since at least 1971 based on a Fed trade-weighted index is helping push oil, grains and metals, which are priced in the U.S. currency, to record highs. That in turn is causing economists to lower growth forecasts for the U.S. and preventing central banks concerned that inflation is accelerating from cutting interest rates, further undermining the dollar.
``The whole world feels there's inflation when a good part of that is the weak dollar itself,'' said Stephen Jen, head of global foreign-exchange research at Morgan Stanley in London. ``Watching the dollar plummet like this is very dangerous.''
Picking Up Steam
The dollar tumbled 6 percent in the past month against a basket of six major trading partners, the fastest pace of decline since May 2006. It fell to a record low against the euro of $1.5903 today, before trading at $1.5714, and depreciated to 95.76 against the yen, the weakest since 1995.
Barclays Capital Inc., BNP Paribas SA, Morgan Stanley, Standard Chartered Plc, Bank of America Corp. and Credit Suisse Group cut their forecasts for the dollar in the last two weeks.
European Central Bank president Jean-Claude Trichet and Japanese Prime Minister Yasuo Fukuda said last week in interviews the plunge is ``concerning'' and ``undesirable'' for growth. Goldman Sachs Group Inc. and Morgan Stanley strategists say that coordinated action by policy makers to stem the currency's slide is increasingly likely. In intervention, central banks buy and sell currencies to influence exchange rates.
`Down the Tubes'
``It's hard to stimulate an economy when the currency is going down the tubes,'' said David Malpass, the chief economist at Bear Stearns & Co. The New York-based firm expects the dollar will fall to $1.60 per euro in 12 months.
The U.S. economy may expand 1.4 percent this year, according to the median estimate of 82 economists surveyed by Bloomberg News this month. The median in March was for growth of 1.7 percent. As recently as September the Fed's target rate was 5.25 percent.
Global investors see little reason to own U.S. financial assets with the two-year Treasury yielding 1.28 percent today, or 1.97 percentage points less than similar-maturity German bunds. The gap is the widest since September 1993. Foreign purchases of U.S. financial assets slowed in each of the final three months of 2007, to a net $56.5 billion from $113.9 billion, according to the latest Treasury Department data.
As the currency fell, the UBS Bloomberg Constant Maturity Commodity Index of 26 commodities ranging from energy, metals, agriculture and live stock rose 43 percent in the past 12 months, the biggest increase since the index's inception in 1998. The price of a barrel of crude oil surged 96 percent in a year to an all-time high of $111.80 today.
Commodities Hedge
``A lot of people out there are using oil and other commodities as hedge against a falling dollar,'' said Simon Wardell, manager of energy research at Global Insight Inc. in London. ``We could get to $120 in oil if we continue to see weakness in the U.S. dollar.''
The drop in the currency is responsible for about a third of the 230 percent rise in commodities since 2002, with the rest mainly attributable to demand from developing nations such as China, according to Morgan Stanley. The ICE Dollar Index moved in unison with the price of crude oil more than 97 percent of the time in the last year, according to Bloomberg data.
Relief may be in sight. The International Monetary Fund in Washington said last month that oil prices may be peaking as growth slows. The median forecast of 34 analysts surveyed by Bloomberg is for the dollar to gain about 10 percent against the euro this year and 8 percent versus the yen as the Fed's rate cuts spark the economy in the second half of 2008.
``If the U.S. dollar turns higher or if the crude oil market reverses then we have a spiral working the other way,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. The price of crude oil will at $70 by September, Evans said.
`Major Concern'
The ECB is one of more than 12 central banks that cited faster inflation as the reason for raising or keeping rates unchanged this year.
``The surge in oil prices is a major concern and I don't think it leaves us any room for a loosening of our monetary policy,'' said Axel Weber, member of the ECB's Governing Council, in Frankfurt on March 11.
Inflation in the euro zone rose at a 3.3 percent annualized pace last month, the fastest in 14 years, the European Union's statistics office in Luxembourg said March 14. Consumer prices in the U.S. were unchanged in February, the Labor Department said.
Kenneth Rogoff, the former chief economist at the IMF and now a professor at Harvard University, said the greenback may drop another 12 percent on a trade-weighted basis.
``This recession will be long and deep and when we get out of it, we'll have inflation,'' Rogoff said in an interview. ``Confidence in the dollar is down.''
To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601087&sid=aS87YcPKuDDE&refer=worldwide
Post by: Headless Thompson Gunner on March 17, 2008, 01:56:56 PM
Yawn.
Post by: geronimotwo on March 17, 2008, 02:04:16 PM
Stunned Bear Stearns investors bring legal claims By Martha Graybow
31 minutes ago
NEW YORK (Reuters) - Angry Bear Stearns Co Inc (BSC.N) shareholders have wasted no time in bringing legal claims following the company's stunning stock collapse and $2-a-share fire sale to JPMorgan Chase & Co (JPM.N).
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At least one federal lawsuit in New York seeking class- action status for alleged securities fraud was filed on Monday by an investor contending the company hid its true financial condition from shareholders.
Also filed was a lawsuit from a company worker who held Bear Stearns shares in his retirement portfolio and says the company failed to properly manage risks in the pension plan. That suit also seeks class-action status.
Other investors may bring cases challenging the company's pact to sell itself for a rock-bottom price, legal experts say. But courts are seen as unlikely to kill the buyout deal.
That is because the venerable investment bank, which agreed to the emergency deal under pressure from the U.S. Federal Reserve as the credit crunch widens, appears to have few other options short of filing for bankruptcy, legal experts say.
Shareholders "could move to enjoin the deal, but that's a tough hurdle," said Michael Kelly, a partner at law firm McCarter & English in Wilmington, Delaware, who specializes in defending corporations in litigation. "I'm sure the board is going to say this is the best option in our judgment."
Another lawyer, Ira Press of class-action firm Kirby McInerney, said "there is a possibility that investors will challenge the fairness of the deal, though I would suspect that at this point, Bear Stearns must be in dire straits" and that's why it agreed to the buyout.
The company is being sold for just $236 million. The deal's value is more than 90 percent below the company's Friday closing share price of $30.85. But JPMorgan said the price tag would total about $6 billion to account for litigation and severance costs.
In a lawsuit filed in U.S. District Court in Manhattan on Monday, investor Eastside Holdings Inc accused Bear Stearns as well as several officers and directors of issuing false and misleading statements that led to massive losses for investors.
The investor is represented by well-known plaintiffs' law firm Coughlin Stoia Rudman & Robbins LLP in San Diego.
Another suit, also in Manhattan federal court, was brought by a participant in the company's employee stock ownership plan. The complaint contends the firm breached its duties to fund investors because it continued "to offer Bear Stearns common stock as a plan investment option for participant contributions when it was imprudent to do so."
A Bear Stearns representative was not immediately available for comment.
Bear Stearns shareholders are exploring all legal avenues, say class-action lawyers who specialize in bringing lawsuits against large companies. A Web site, www.bearstearnsinvestors.com, set up by law firm Mark & Associates, was offering free legal consultations for Bear Stearns shareholders.
Plaintiffs' lawyers said they have been busy discussing potential claims with investors.
"I can't divulge privileged conversations, but shareholders don't contact me when they are happy with the way things are going with their investments," said Press, of New York-based Kirby McInerney.
"This is a stock that has gone from $50 to $2 literally overnight and I also know of people who had assumed that the worst had passed when it closed at $30," he said.
Another law firm, Schatz Nobel Izard in Hartford, Connecticut, said it has been contacted by both institutional and individual investors who bought the stock as recently as last week.
Some of these buyers, said partner Jeffrey Nobel, took their positions after Bear CEO Alan Schwartz said in a televised interview on Wednesday that the company did not see any pressure on its liquidity and had about $17 billion in excess cash on its balance sheet.
"You have investors who are upset because they feel as though the company was not truthful in reporting its financial condition," he added.
(Editing by Richard Chang/Andre Grenon)
Post by: LAK on March 18, 2008, 03:16:37 AM
Post by: longeyes on March 18, 2008, 11:53:46 AM
Post by: Paddy on March 20, 2008, 02:34:41 PM
Yep, looks like $2 a share for Bear Sterns. Three days ago they were trading at $60 a share. A month ago it was $90 a share.
Bear's chairman, James Cayne, owns 5,600,000 shares. He lost $500,000,, half a billion dollars, of his own personal wealth.
Bear's CEO, Alan Schwartz, owns a bit more than 1,000,000 shares, so he "only" lost ninety million dollars personally.
Some "bailed out", eh? So much for the government serving their corporate overlords.
I can't wait to see what the market does tomorrow morning.
Bear's chairman, James Cayne, owns 5,600,000 shares. He lost $500,000,, half a billion dollars, of his own personal wealth.
Bear's CEO, Alan Schwartz, owns a bit more than 1,000,000 shares, so he "only" lost ninety million dollars personally.
Some "bailed out", eh? So much for the government serving their corporate overlords.
I can't wait to see what the market does tomorrow morning.
AP
Investment Firms Tap Fed for Billions
Thursday March 20, 5:03 pm ET
By Jeannine Aversa, AP Economics Writer
Investment Houses Borrow Billions From Fed's Emergency Lending Program
WASHINGTON (AP) -- Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.
The lending is part of a major effort by the Fed to help a financial system in danger of freezing.
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Those large firms averaged $13.4 billion in daily borrowing over the past week from the new lending facility. The report does not identify the borrowers.
The Fed, in a bold move Sunday, agreed for the first time to let big investment houses get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, got under way Monday and will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.
Goldman Sachs, Lehman Brothers and Morgan Stanley said Wednesday they had begun to test the new lending mechanism.
On Wednesday alone, lending reached $28.8 billion, according to the Fed report.
The Fed created a way for financially strapped investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.
Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.
The Fed, in another rare move last Friday, agreed to let JP Morgan Chase secure emergency financing from the central bank to rescue the venerable Wall Street firm Bear Stearns from collapse. Two days later, the Fed back a deal for JP Morgan to take over Bear Stearns.
Thursday's report offered insight on how much credit was extended to Bear Stearns via JP Morgan through the transaction the Fed approved last Friday. Average daily borrowing came to $5.5 billion for the week ending Wednesday.
Separately, the Fed said it will make $75 billion of Treasury securities available to big investment firms next week. Investment houses can bid on a slice of the securities at a Fed auction next Thursday; a second is set for April 3.
The Fed will allow investment firms to borrow up to $200 billion in safe Treasury securities by using some of their more risky investments as collateral.
By allowing this, the Fed is hoping to take pressure off financial companies and make them more inclined to lend to people and businesses.
The housing collapse and credit crunch have led to record-high home foreclosures and forced financial companies to rack up multibillion losses in complex mortgage investments that turned sour.
In the past day and weeks, the Fed has taken extraordinary moves aimed at making sure that problems in credit and financial markets do not sink the economy.
http://biz.yahoo.com/ap/080320/fed_credit_crisis.html?.v=6
Post by: Waitone on March 20, 2008, 06:26:22 PM
Followed by--Goldman
If the patterns continues we'll see greater consolidation in financial services. Not really sure that is a good idea. Banks in general may well be too big to fail, but that does not absolve the player of criminal actions. I want to see some personal responsibility assigned to what could easily described as fraudulent actions. Right wing talk radio is bleating about how congress strong armed banks into making marginal loans. They did and now a lot of people from around the world will pay a terrible price.
Post by: Paddy on March 20, 2008, 06:38:41 PM
Quote
Right wing talk radio is bleating about how congress strong armed banks into making marginal loans.
Every time big bidness gets its tit in the wringer or gets caught lying/cheating/stealing it's ALWAYS 'gubmint's' fault. Yet they're always lecturing the rest of us about 'personal responsibility'
Post by: Manedwolf on March 21, 2008, 05:42:06 AM
Next up--Lehman Bros.
Followed by--Goldman
If the patterns continues we'll see greater consolidation in financial services. Not really sure that is a good idea. Banks in general may well be too big to fail, but that does not absolve the player of criminal actions. I want to see some personal responsibility assigned to what could easily described as fraudulent actions. Right wing talk radio is bleating about how congress strong armed banks into making marginal loans. They did and now a lot of people from around the world will pay a terrible price.
Followed by--Goldman
If the patterns continues we'll see greater consolidation in financial services. Not really sure that is a good idea. Banks in general may well be too big to fail, but that does not absolve the player of criminal actions. I want to see some personal responsibility assigned to what could easily described as fraudulent actions. Right wing talk radio is bleating about how congress strong armed banks into making marginal loans. They did and now a lot of people from around the world will pay a terrible price.
Credit Suisse is in trouble, too. And yes, that affects other banks globally.
Seems a bunch of people got greedy and tried to engage in rumor-and-shortsell plays against various banks as well. THAT deserves serious jail time.