How Bad Can It Get?

They have our wallets. What more can they want?

Financial Crisis Testimony That Would Be Worth Watching...

Is it impossible to get to the bottom of the bank bailouts?

Perhaps a change in questioning tactics might prove fruitful.

Even if it didn't it might at least be more entertaining...

Treasury to Resume the Monetization of the Fed's Programs to Support the Wall Street Banks

"It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder." Frederic Bastiat

This Treasury Supplemental Financing Program is designed to provide public funds for the Fed's efforts to purchase and then liquidate toxic assets and derivatives from the financial sector, effectively absorbing their losses and monetizing them.

The Treasury creates new notes and sells them on the open market. The money obtained in these sales is deposited at an account at the Federal Reserve. The Federal Reserve uses this money to purchase toxic assets from the banks at its own discretion and pricing, subject to little oversight and market discipline.

Senator Chris Dodd said "the Fed could become an 'effective Resolution Trust Corporation,' purchasing and ultimately disposing of depreciated assets.

It looks very much like a stealth bailout. It is even more of a scandal because of the Fed's resistance to any disclosures on the principles and specifics by which they are allocating taxpayer money.

Where this gets even more interesting is that the Fed in turn is buying Treasury debt after issuance through its primary dealers, debt that was issued by the Treasury to provide funds to the Fed.

Even more than a stealth bailout, this is starting to smell like 'a money machine.' Money machines are what Bernanke euphemistically called 'a printing press.' What is odious about this particular printing press is that the output is being given directly to a few big banks by a private organization which they own.

I believe that it is still illegal, by the letter of the statutes, for the Fed to directly purchase Treasury paper. But in this case, the Fed is buying Treasury paper with money supplied by the Treasury. Since the paper is passing through the marketplace, and the Primary Dealers are taking their commissions, it may be in conformance with the letter of the law. But it looks like it violates the spirit of the law.

And given that in many cases the Primary Dealers are the principal beneficiaries of the subsidy programs, selling their toxic debt to the Fed at non-market prices, this starts to appear like a right proper daisy chain of self-dealing and fraud.

As you can see from the background information below, this is a 'temporary' program from 2008 that the Treasury keeps promising to 'wind down.'

This is not a resolution trust by any measure. One only has to compare what happened with the Savings and Loan Resolution Trust, with the orderly liquidation of assets, losses assumed by the individual banks and their management, and investigations and prosecutions for fraud.

And the bankers involved in the Savings and Loan bubble and collapse were not still in business and giving themselves record bonuses within twelve months of their collapse, and engaging in the same frauds and speculation that led to the crisis.

Wall Street bonuses jumped 17 percent last year
SteveEder and Jonathan Stempel
Tue Feb 23, 2010 2:39pm EST

NEW YORK (Reuters) - Bonuses on Wall Street rose 17 percent last year to $20.3 billion even as the industry faced a public backlash over pay practices.

The rise in payouts, reported by New York State's comptroller, came at a time when Wall Street was recovering from the financial crisis of 2008, which forced a taxpayer rescue of the industry that, in turn, stoked widespread anger across
the United States.

Comptroller Thomas DiNapoli said on Tuesday profit for all of Wall Street could top $55 billion for 2009, nearly triple the previous record year. Last year, the U.S. economy began to stabilize and lenders raced to repay federal bailout money they had come to view as a stigma."

Further, the Savings and Loan bankers were not flooding the Congress with lobbying money to hinder reform of the banking system, and to shift the focus of Congressional discussion to the reduction of legitimate programs like Social Security to finance the public subsidies being given to the very banks responsible for the financial crisis in the first place.

As a possibly related aside, today's US Treasury 2 year auction was unusual. Indirect Bidders had 100% of their bids filled as noted by ZeroHedge.

MarketWatch
Treasury to expand Supplementary Financing program
By Greg Robb
Feb. 23, 2010, 12:01 p.m. EST

WASHINGTON (MarketWatch) -- The Treasury Department announced Tuesday that it is expanding its Supplementary Financing Program to help the Federal Reserve manage its enormous balance sheet. In a statement, Treasury said it will boost the SFA to $200 billion from its current level of $5 billion. The fund had been up to $200 billion but was scaled back when Congress delayed passage of an increase in the debt limit.

Now that an expansion of the debt limit has been signed into law, the department is able to resume the program. Starting on Wednesday, Treasury will conduct the first of eight weekly $25 billion 56-day SFP bills to restore the program. The department said it will then roll the bills over. "We are committed to work with the Fed to ensure they have the flexibility to manage their balance sheet," a Treasury official said.

September 17, 2008
HP-1144
Treasury Announces Supplementary Financing Program

Washington- The Federal Reserve has announced a series of lending and liquidity initiatives during the past several quarters intended to address heightened liquidity pressures in the financial market, including enhancing its liquidity facilities this week. To manage the balance sheet impact of these efforts, the Federal Reserve has taken a number of actions, including redeeming and selling securities from the System Open Market Account portfolio.

The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve. The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program, which will provide cash for use in the Federal Reserve initiatives.

Calculated Risk
Treasury to Unwind Supplementary Financing Program
11/17/2008

One of the credit indicators I was tracking was the activity in the Treasury's Supplementary Financing Program (SFP). This was the Treasury program to raise cash for the Fed's liquidity initiatives.

Once the Fed started paying interest on reserves, the supplemental financing program wasn't needed any more to sterilize the expansion of the Fed's balance sheet. The Treasury announced today that the program will be unwound...

As it should be obvious, these guys cannot give up the needle on their own.

SP 500 Futures - Daily Chart

According to reports, the bank prop trading desks are having troublem making their quotas for this month.

Bernanke will be speaking later this week, and that may move the markets.

The average person buys when they should sell, and sells when they should buy. Often they buy or sell when they should do nothing. The Wall Street insiders and their demimonde frequently help them to do this. That is how things are, and now moreseo than before because of the shrinking pools of exploitable non-banking czpital and the lack of financial reforms.