[firestarter]

Huge after hours story:

$this->bbcode_second_pass_quote('', 'F')ed bends rules to help two big banks
If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.


FORTUNE Magazine
By Peter Eavis, Fortune writer
August 24 2007: 4:31 PM EDT

NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.

The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letter.


This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets. The opposing, less negative view is that the Fed has taken this step merely to increase the speed with which the funds recently borrowed at the Fed's discount window can flow through to the bond markets, where the mortgage mess has caused a drying up of liquidity.....

[firestarter]

More from the article:




$this->bbcode_second_pass_quote('', '.')..So, how serious is this rule-bending? Very. One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate. This move by the Fed eats away at the principle.

Sure, the temporary nature of the move makes it look slightly less serious, but the Fed didn't give a date in the letter for when this exemption will end. In addition, the sheer size of the potential lending capacity at Citigroup and Bank of America - $25 billion each - is a cause for unease....

[Roccland]

HOLY HELL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[burtonridr]

Couldnt that lead to price fixing and basically an overall monopoly of the large banks?

[setag]

That means the banks and the fed can do whatever. The problem comes in later if something goes awry ( like one bank failure ), I guess the taxpayers can pick up the tab. The rich will keep what they have though. In away, I see this as a move by the feds to protect the rich.

[DoubleD]

Those rules are there for a reason. Now these banks may use regular depository funds (that is YOUR money if you bank with them) to fund their brokerage branch activities that are failing miserably at the moment.


I love how the government and the Federal Reserve choose late Friday to always release reports that are disturbing or "problematic" for them.

If people actually read and understand this bit of news (which may not happen given it's stealth timing - and most people's complete lack of understanding of the financial systems in this Country) - it could result in a bank run for these two. If I had an account there... I would move my money pronto. Good money being thrown after bad ... and it is their customers money they just got permission to use.

[firestarter]

I got these comments on the Fed's move over at Market Ticker:

$this->bbcode_second_pass_quote('', 'T')hat is.... if we do not step off the cliff into financial ARMAGEDDON first.

Yes, I mean it. This is why:

"The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letter."

This is un-fucking believeable.

Ok, let me be more blunt. This goes DIRECTLY to the safety and soundness of our FUCKING BANKING SYSTEM. The raw FUCKING STUPIDITY of this act is BEYOND WORDS. This is THREE TIMES the normal limit allowed for these institutions!

IF these brokerage affiliates are unable to meet liquidity demands, they need to be identified and either merged into other liquid organizations or fucking shut down!

Do you folks understand what happens if THIRTY PERCENT of one of these banks' regulatory capital goes to one of these "affiliated brokerages" AND THEN THEY IMPLODE?

The bank that was involved becomes insolvent under Tier Capital rules and is seized. IMMEDIATELY.

Financial ARMAGEDDON ensues as this is VERY likely to start a cascade failure in the banking system, as all the derivatives that this institution holds become QUESTIONABLE AT BEST.

Oh yeah, I know, these letters claim that all assets must be marked to market, and margain maintained.

Yeah, ok.

Exactly how fast did AHM implode a couple of weeks ago? Their "margin" was maintained TOO!

HOW FAST DO YOU GO FROM "OK" TO "OH FUCK!" WHEN YOU DO SOMETHING LIKE THIS?

There are apparently TWO of these out there right now. You can find all the 2007 Federal Reserve letters here, including the two in question.

Ok, now let's consider this on top of it:

A few days ago - right about when these letters issued - SOMEONE put on nearly $2 BILLION worth of representation in DEEP IN THE MONEY CALLS on SPY (the S&P 500 ETF.) A trade that has no "value" (that is, at best it returns what was invested) unless the S&P 500 loses THIRTY PERCENT OF ITS VALUE BY THE THIRD FRIDAY IN SEPTEMBER.

There is also a VERY abnormal open interest showing on SPX 700 CALLs.

These are both for SEPTEMBER - and ONLY for September.

What's going on here guys?

I am not normally given to "tin foil hat" types of speculation, but I will tell you this - THAT IS NOT A NORMAL TRADING PATTERN. I've been at this long enough to know that. I do not know WHY these abnormal patterns are showing up, but I will observe that "someone" did something similar with Countryslide - buying a CRAZY number of out-of-the-money PUTs - a month or so ago.

They were literally two weeks early on the company's stock taking a total shit-dive.


Market Ticker

[Denny]

Wow. What a system. If you have the brainpower of Junior Samples and get into a mortgage over your head, you will get foreclosed.

If you are an executive at Citibank or Bank of America, and are dopey enough to lend to Junior Samples, if you think this guy who can't pay off his credit card each month can handle a mortgage which goes up 30% each year, the Federal Reserve will make sure the bank survives. Maybe you'll even get your million dollar bonus again this year. Hey, its America, no banker left behind.

Looks like a good last shot at stocking up with gold and silver at still bargain basement prices because this paper stuff really has no foundation to it.

[Cloud9]

Federal Criminal Code Title 18 Subsection 1014 In a nut shell: Who ever makes a false statement to a bank insured by the FDIC knowing that statement to be false is guilty of a felony punishable by prison and a million dollar fine. Bank loan officers who submitted documents misrepresenting borrower’s ability to repay loans knowing them to be false would be co conspirators in such a scheme. Somebody has not been enforcing the law.

[NEOPO]

Watching as TSHTF is more fun then I thought it would be

[Troyboy1208]

In other news...new home sales were up in July

[setag]

This report will be changed. It includes contracts and not closings.
How many people signed a contract, but weren't able to close the deal with a loan or how many concellations were there?

To really get a true picture of what is going on, wait until about Thanksgiving!

[TheDude]

$this->bbcode_second_pass_quote('', 'T')here is also a VERY abnormal open interest showing on SPX 700 CALLs.

These are both for SEPTEMBER - and ONLY for September.

What's going on here guys?

[MD]

$this->bbcode_second_pass_quote('NEOPO', 'W')atching as TSHTF is more fun then I thought it would be

[gnm]

$this->bbcode_second_pass_quote('ElijahJones', '')$this->bbcode_second_pass_quote('Denny', 'W')ow. What a system. If you have the brainpower of Junior Samples and get into a mortgage over your head, you will get foreclosed.

If you are an executive at Citibank or Bank of America, and are dopey enough to lend to Junior Samples, if you think this guy who can't pay off his credit card each month can handle a mortgage which goes up 30% each year, the Federal Reserve will make sure the bank survives. Maybe you'll even get your million dollar bonus again this year. Hey, its America, no banker left behind.

Looks like a good last shot at stocking up with gold and silver at still bargain basement prices because this paper stuff really has no foundation to it.