Disclosure Of The Fed's Primary Dealer Credit Facility Warehousing Of Worthless Collateral Goes Mainstream
Ten days ago we penned "How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility" in which we described in minute detail how the Fed agreed to collateralize borrowings in its Primary Dealer Credit Facility, basically lending facility of last resort, with paper that other rational parties, when engaged at arms-length negotiations, qualified as "bottom of the barrel" and "junk." Today, thanks to Ryan Grim, this topic finally gets a much broader mainstream exposure. As we have long argued, the collateral backing most if not every form of liquidity provisioning, not only by the Federal Reserve of the US, but by Central Banks globally, is likely totally and utterly worthless, which implies that the US taxpayer is on the hook for trillions of dollars should there be another risk flaring episode (which is an inevitability as the entire financial system is based on a house of corrupt cards), and all the collateral is exposed for the worthless garbage it is. In the meantime, the money the banks get by pledging worthless assets to the Fed is used to stage short squeezes in various equities, to gun the Dow to 36,000 in a straight line, and to keep the Treasury curve at its record steepness, thereby hoping to stimulate inflation so that bank balance sheets can be absolved of the 20% by some estimates of bad loans that still exist on bank books, and which make the entire US banking system insolvent in its current state. All this is happening with Ben Bernanke's blessing, which would be considered an act of treason... if only there was some way to confirm these virtual certainties. Which, of course, there isn't, as the Fed will first self-destruct before it opens up its book to the general public.
The key point from Ryan Grim's Huffington Post piece:
Without an audit, the Fed is able to conceal the specifics of what
it holds on its balance sheet. If the Lehman deal is any indication,
the Fed is hiding billions of dollars in toxic loans on its books.
"The Fed legally is forbidden from taking such assets. There's a
legal requirement that the Fed's assets be investment grade," Rep. Alan
Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the
Grayson-Paul Audit the Fed measure that passed the House, said the
Lehman scandal shows precisely why such an audit is needed.
"The net result of this is we know the Fed knowingly bought assets
for more than they were worth -- substantially more than they were
worth -- and actually created a market for garbage that Lehman was more
than happy to push on the Fed because they regarded the public as the
suckers of last resort," said Grayson.