Uhhh, Where Does This Money Come From?

November 25, 2008 by Pelikan
Filed under: Fannie Mae, Freddie Mac, U.S. Economy, U.S. Financial Crisis 

I just finished reading this story.  It outlines actions taken today by the U.S. Federal Reserve and was headlined, “Fed throws fresh lifeline to stressed households.”

In a nutshell, here’s what the Fed did today:

  1. Announced it will buy $100 billion in debt now owned by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
  2. Said it will buy up to $500 billion in mortgage securites from Fannie, Freddie and Ginnie Mae.
  3. Began a $200 billion program to support consumer finance including things like auto and education loans.

This sounds like another $700 billion bailout, only it’s $800 billion.  I also didn’t read that anyone voted on this or that there is any oversight.  I obviously need to have a better understanding of just how much the Fed can do, but this is sort of scary.  Isn’t the Fed the public’s bank - the bank for banks?  Aren’t respectable banks supposed to have standards?

We’ve got many problems in this country and one of them is that we’ve become a debtor society.  We’re addicted to credit.  Many people spend beyond their means and now the Fed is going to own a big chunk of this debt.  What are the potential unintended consequences of this much money on the line?

Better yet, when do the financial wizards who dreamed up collateralized debt obligations and mortgage backed securities - which led to the credit default swaps - start to pay?

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Comments

3 Comments on Uhhh, Where Does This Money Come From?

  1. Andy on Tue, 25th Nov 2008 7:18 pm

    2. I don’t see how they could do this without Congressional authorisation - but perhaps the first bill allowed some Committee to authorise more financing, hence the absence of the need for a new bill? I did read that bill though, and I don’t remember anything in it like that (I would have noticed, as one of the arguments I used against it was that more bailouts would be called for). Nothing surprises me anymore. They could literally do anything and get away with it.

    I find it astonishing that this has received relatively little attention in the media so far - editors probably see this second bailout as basically less sensational than the first, as people are generally unable to comprehend the sums involved anyway (me included), and all the same arguments apply - they hate sticking to the same “story” for very long.. you know, people grow tired of hearing about war crimes and corporate fraud and coups etc.

    The next thing to happen will be full nationalisation of the banking industry. I have a theory as to what will follow that, but if I were to mention it then you’d laugh at me, and rightfully so. I’ll put it mildly and say that I fear for the stability of the world as a whole.

  2. Philbin on Tue, 25th Nov 2008 10:20 pm

    3. I think they can just print it.

  3. john on Wed, 26th Nov 2008 11:22 pm

    4. World needs a helping hand

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