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Discount Window Borrowings Spike To Highest In 2011

Tyler Durden's picture


There was a time when depositor institutions (which nowadays paradoxically includes such entities as Goldman Sachs and its millions of ATMs crisscrossing the land), not flush with unprecedented amounts of bank reserves (which just hit an all time record high of $1.59 trillion), would go to the Fed's discount window for short-term funding needs: a stigmatized act which telegraphed to the street that the borrowing bank was undergoing some form of liquidity crunch. Not surprisingly, the Fed fought tooth and nail to prevent discount window disclosure from becoming public, especially since it was later discovered that the biggest recipients of Fed Discount Window generosity were foreign banks, and especially Dexia. We bring this up because going through the Fed's weekly balance sheet update (yes, it just hit a new all time record, and yes, we will provide a full breakdown soon) we find that weekly borrowings across the Fed's three discount window facilities, Primary, Secondary and Seasonal Credit, surged to a 2011 high of just over $100 million, and also saw the very first usage of the "reserved for really ugly bank" Secondary Credit Facility in the current year to the tune of $9 million. Yes, in the grand scheme of things this is a modest number, but when one considers that with all the liquidity sloshing around there should be no discount window borrowings at all, the fact that we have had such a dramatic spike is troubling to say the least. As for the culprit, we have one guess. If proven correct, this would mean that the emergency liquidity provisioning system of the ECB is starting to get a little "problematic" to put it mildly.


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Thu, 06/02/2011 - 17:24 | 1334014 redpill
redpill's picture

Gearing up for rapid economic expansion, obviously

Thu, 06/02/2011 - 17:26 | 1334034 max2205
max2205's picture


Thu, 06/02/2011 - 18:31 | 1334172 nope-1004
nope-1004's picture

Wasn't it around the end of June or something when all of these "under the rug" printing schemes come to an end?


No wonder commodities are getting hit.  Just one big ponzi shell game.  Say one thing to the public, do the exact opposite.

The government is not made up of elected individuals, it is a corrupt entity that requires fresh blood to come in and operate it for a while.

New government, new system, new rules, emasculated banks, and some semblance of integrity is the only way this shit will stop.

Putting cowards like shifty squiggly Tim Geithner in jail would also give me confidence in the dollar, which is why I hold PM's.


Thu, 06/02/2011 - 17:24 | 1334015 FOC 1183
FOC 1183's picture

"an stigmatized act which telegraphed to the street that the borrowing bank was undergoing some form of liquidity crunch"

how quaint

Thu, 06/02/2011 - 18:43 | 1334215 knukles
knukles's picture

Look at it this way.....
There're 3 borrowing facilities.

Primary.  That's where Goldman goes for unlimited free money from the public trough as in "Our primary source of funds."

Secondary.  That's where everybody else has to go to for money, reardless of cost or "ancillary" terms.

Seasonal.  Where the EU goes because of this, that, whatthefuckever and Juncker says; " It's all due to the upcoming beautiful August weather in the Agean."

Thu, 06/02/2011 - 17:22 | 1334019 I think I need ...
I think I need to buy a gun's picture

cramer says to buy home depot because people are fixing their houses up but not paying their mortgages....WTF

Thu, 06/02/2011 - 17:27 | 1334038 max2205
max2205's picture

Only in Amerika

Thu, 06/02/2011 - 17:31 | 1334041 tekhneek
tekhneek's picture

That's your own fault for listening to that jerk off. The guy's a talking fucking head. I tried to read one of his books once when I was younger, I closed it mid-way.

Guy makes no sense.

Thu, 06/02/2011 - 17:42 | 1334068 strannick
strannick's picture

Fer a purdy lady, yew shure got a dirty mouf.

Thu, 06/02/2011 - 18:45 | 1334216 rufusbird
rufusbird's picture

Well shit, he was under the gun, what do you expect. When he was told to pump HD he only had a few minutes to come up with some rationalization....

Thu, 06/02/2011 - 18:45 | 1334224 knukles
knukles's picture

The reason Cramer was pumping (tee heeh) Home Depot and Restoration Hardware is that he's polishing his knobs.
Any other questions while I'm here, tonight?

Thu, 06/02/2011 - 20:27 | 1334454 Freewheelin Franklin
Freewheelin Franklin's picture

Slob the knob, bitchez

Thu, 06/02/2011 - 17:22 | 1334020 wombats
wombats's picture


Who cares...

It just sounds like more foreign aid dressed up under a different name...

Thu, 06/02/2011 - 17:23 | 1334023 johngaltfla
johngaltfla's picture

One liquidity crisis coming up.

Thu, 06/02/2011 - 17:23 | 1334027 NotApplicable
NotApplicable's picture

Bullish, right?

Thu, 06/02/2011 - 17:29 | 1334035 Caviar Emptor
Caviar Emptor's picture

I hear that sucking sound of a straw at the bottom of an empty glass. The banks have just burned through the Fed's 2008-10 recapitalization. Even with the benefit of legalized lying (mark to unicorn) and a bulging Fed balance sheet, bailout programs galore, secondary stock offerings supported by QE and the Bernanke put, risk free liquidity from QE, interest arbitrage off the Fed's near zero rates........they're STILL impaired. 

The closets at headquarters are bulging with skeletons and half-rotten corpses of defaulted, defaulting and about to default loans. Yet there was no penalty for bankrupting the country. Just business as usual. Booya!

Thu, 06/02/2011 - 18:29 | 1334175 monkeyshine
monkeyshine's picture

Yes, but what the hell is going on?  I know, that is what we argue about here, it is not so simple as many like to put it. On the one hand you have so much liquidity in the form of QE1/2 and TARP and other programs. Is this a liquidity trap?   That would mean deflation.  Houses are deflating, CRE is delfating, commodities are inflating, CPI will probably have to jump because I know producer costs are climing fast yet Wall Street hasn't yet shown the pinch to margins.  Now with this report we see more borrowing, all time high borrowing in fact... Does that mean the recipients of all that previous aid are hoarding? Or is it mostly a foreign debt issue with all these banks on the hook for so many Euros they need a lot more cash to justify their leverage?  Is this borrowing from the "not too big to fail but we don't want to let them fail anyway because they can't get private equity or credit, especially foreign banks with foreign debt exposure?  Or is it that these banks are on the opposite sides of so many derivatives (what is that, $150 trillion in derivatives total booked value (I shudder to think what mark to market might do to those??) and other deals that the Fed has to keep everyone afloat? Me be so confused. Or maybe me gets it. Me dunno.

Thu, 06/02/2011 - 18:43 | 1334214 Caviar Emptor
Caviar Emptor's picture

Globally, it's just about all of what you listed above. Big picture, since the crisis of 08, the banks were recapitalized and, to the extent politically possible, were cleaned of their "bad assets". That followed the so called "Swedish Plan". In addition, derivatives were sheltered in SIVs and were obscured by repeal of MTM. That was enough to keep the doors open and the lights on at nearly full capacity with very little downsizing for about 2 years. 

But here's the trouble: the plan was devised on the assumption that the economy would pick up in a V-shaped recovery, and that inflation and credit creation would resume and grow. Very bad assumption. Don't forget the hubris: the Fed and global central bankers assumed they knew all the secrets to preventing the Great Depression2. They had 3 decades of wizardry and exuberance coming into the crisis and Ben in his famous helicopter speech made clear that they had a secret weapon in the basement of the Fed that would act like Kryptonite against the forces of the Depression.

Now over 2 years post-rescue the funds are drying up. Business not only didn't pick up, it's tanking further: as you pointed out ResRE and CRE are a catastrophe. This week it was reported that housing has officially exceeded the decline of the 1930s. Rates are negative. Capital is fleeing. Ibanking has been anemic. And money is leaving equities. 

So major banks are now at an impasse and this is the first sign: a new spike in discount window borrowings. This is how things got started in 2008. The trouble has been that the banks ahve not been downsized in any meaningful way: their headcounts, salaries and bonuses are at boom time levels. They've been allowed to escape market forces and are the opposite of lean and mean. They want to soak the Fed and taxpayer for all that they can to keep the party going.

Thu, 06/02/2011 - 19:32 | 1334351 Madcow
Madcow's picture

yes - the 'borrowing' is really just the black hole of derivatives losses coming to get a little juice to prevent "poof" its gone.  fed doesn't want that bar graph up top to go parabolic - 

Thu, 06/02/2011 - 17:32 | 1334036 Shell Game
Shell Game's picture

Imagine the tsunami that will be money supply if satan's iBanks open up their reserves.  The mother of all buying sprees going into HI..

Thu, 06/02/2011 - 17:30 | 1334048 jkruffin
jkruffin's picture

This only confirms my reasons to stay short the Euro, and watch it crash, and then watch US stocks crash with it.  Both are a complete scam tied directly to each other to play the ponzi. We are days away from the ultimate all risk assets.

Thu, 06/02/2011 - 18:24 | 1334169 HpDeskjet
HpDeskjet's picture

True, QE2 almost over and no QE3 for at least a few months (probably not in 2011). QE did NOTHING for the real economy, just made sure people moved from "riskless" bonds/moneymarket funds etc. to risky assets. When it stops, this process reverts

Thu, 06/02/2011 - 19:03 | 1334262 Caviar Emptor
Caviar Emptor's picture

It even failed to move "people" to risk assets. It moved banking assets and retirement funds to risk assets. Few individual investors are left with enough cash and stupidity to be 'long and strong'. They've already been picked clean. The only bid in the market is the Fed's own, indirectly through it's minions that it spoon feeds on a daily basis. But they're broke. 

Thu, 06/02/2011 - 21:21 | 1334546 RockyRacoon
RockyRacoon's picture

OK, lookey here.   QEwhatever is about bonds and rates.   The QEs have been about keeping the Government credit card fully charged up for spending.  QE3 has already started.   Moving money out of stocks and into bonds is the goal.   They can't name that tactic as an actual Quantitative Easing so there will officially not be one.   Even though there is one.

Thu, 06/02/2011 - 17:35 | 1334058 vote_libertaria...
vote_libertarian_party's picture

Probably the Bank of Greasy.


Sure, give them some emergency money.  I'm sure they're good for it.

Thu, 06/02/2011 - 17:51 | 1334090 NotApplicable
NotApplicable's picture

If not, well... then Mr. Soros gets Athens. (though you'll never see his name anywhere!)

Thu, 06/02/2011 - 19:09 | 1334266 knukles
knukles's picture

A new neon sign on the Acropolis, hiding the newly returned Elgin Marbles ;

                                  Goldman Arena
                           Doing God's Work 24/7/365

All the street vendors selling "Sacks on a stick".

New meaning ascribed to Greek sex.

Warren's Oracle of Delphi game.  Toss in a Euro, ask a question, get no answer or change.

Turn the whole fucking country into an indebted serfdom of carny workers.   Even the Arabs and Eastern Europeans'll be going home.  The Turks will ask if they can give back their half of Crete.

All because a bunch of bureaucrats figured it'd be a good idea to establish the ultimate fiat currency, the Euro.  Not backed by any precious metals, in fact not backed by any fucking thing; no national identity, claim, no military might nor taxing authority, managed by non elected officials in a nonexistent excuse for a country


Thu, 06/02/2011 - 19:51 | 1334391 Terminus C
Terminus C's picture

One minor correction, the Turks and Greeks share Cyprus, not Crete

Fri, 06/03/2011 - 00:59 | 1334904 monkeyshine
monkeyshine's picture

LOL exactly. A currency based on no nationality, with no real might, no power to tax, and with so called austerity plans that everyone faked, which everyone knows everyone faked. What the Euro really is, is a plan for Germany to make sure its currency is tied to that of some 70% +/- of its biggest trading partner countries, so that they do not have to constantly devalue their currency to keep exports moving, or intervene directly (ahem) to prop up the currencies of its trading partners.



Thu, 06/02/2011 - 17:34 | 1334059 viator
viator's picture

It also means our tax dollars, excuse me, I meant our full faith and credit - since when you're $14 trillion in the hole you don't have any dollars - is being loaned to an insolvent and quite possibly soon to be non-existent institution.

Thu, 06/02/2011 - 19:47 | 1334379 baby_BLYTHE
baby_BLYTHE's picture

Don't forget over 85% are FOREIGN institutions. "full faith and credit" only for the gobalist with their gold and other hard assets secure

Thu, 06/02/2011 - 17:39 | 1334060 ebworthen
ebworthen's picture


Hey, we're all friends aren't we?

I mean, we wouldn't start killing each other over little things like territory, money, women, and food and water - would we?

What's a few trillion here and a few trillion there on the backs of the taxpayers of the world - after all?

 </sarcasm off>


Thu, 06/02/2011 - 17:39 | 1334062 ReallySparky
ReallySparky's picture

Perhaps they are just like some businesses, maxing out the credit line before it's yanked.

Thu, 06/02/2011 - 17:52 | 1334096 Herman Strandsc...
Herman Strandschnecke's picture

 don't panic, they've yet to work down at the back of the sofa

Thu, 06/02/2011 - 17:40 | 1334073 strannick
strannick's picture

Is this the new face of QE3?

Thu, 06/02/2011 - 18:01 | 1334106 Shell Game
Shell Game's picture


Thu, 06/02/2011 - 21:08 | 1334518 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

No, this is a stop gap solution, just as stealing public pensions is.  If the Treasurie does not pay pensions back then people will be told about what happened by not receiving their checks.  This will create panic, and will start a revolt against the Bernanke/Geithner policy.  If stealing public pension funds became perminant, the system would end itself because there would be no demand, as millions would not have a source of income. 

Loans from the Discount Window must be paid back first thing every morning.  They are not perminant loans.  There is no margin to be made on these loans.  They merely hold banks over until the morning, until the bank can create new assets/reserves.

To hypothesis, if these banks traded with Asia/Europe, and were able to move US debt over there and pay back these loans, then maybe this could be considered quantitative easing, but would Asia and Europe partake in this part of the fiat ponzi?  Most likely not, as they would not want to be left holding US debt.  Most likely, the Majors needed cash and one bank or more is about to go belly up.

Thu, 06/02/2011 - 17:45 | 1334081 Tic tock
Tic tock's picture

...and what exactly is the point of the Discount Window, if it's not made public?

Thu, 06/02/2011 - 17:49 | 1334092 NotApplicable
NotApplicable's picture

Surely you don't expect POMO to do all of the heavy lifting by itself, do you?

I mean, something has to keep this magic carpet afloat.

Thu, 06/02/2011 - 18:29 | 1334176 Rainman
Rainman's picture

...exactamundo. Baton pass to the intercontinental banksters at the cheap money window. Bernank's BTFD brigade gets a different set of commanders....all part of the plan....the banksters will steal a hefty bonus vig for their trouble. Or they might just steal it all. It sucks for sure.

Thu, 06/02/2011 - 19:56 | 1334386 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

This is a hot potato(e) pass between the Majors.  The Discount Window is supposed to be the loan of last resort.  These means that they have maxed out leveraged loans to each other and they will no longer accept each others' assets as collateral.  A bank, or multiple banks, are on the verge of collapse.  Is it Weells Fargo and their underwater real estate?  Bank America with the same?  Is it JPMs silver short positions that is weighing them down?  Is it JPM's derivative book?  Dimon was out parading the recovery today; was he bluffing because he wants to install hope to save his bank until Bernanke unleashing further quantitative easing?  Is it Goldman Sach's and their weird books that take both sides of every trade?  A bank is about to fail.  The question now is, which one?

Thu, 06/02/2011 - 22:42 | 1334694 FreeNewEnergy
FreeNewEnergy's picture

Mr. Lennon Hendrix has hit the nail on the head. I believe. The only question he did npt pose was if a major bank is going down, how much counterparty risk is taken down with it, and the answer to that question is almost too terrible to consider (or cause for celebration, if you have been preparing properly), because it could just be systemically huge, the BIG ONE.

Makes sense, why are the pols dragging their feet on the debt ceiling. Something's afoot, and if MR. LH is correct, it's going to get really nasty, really quickly.

Thu, 06/02/2011 - 17:53 | 1334094 CH1
CH1's picture

To keep the masses assured that bankers are pristine deities.

Thu, 06/02/2011 - 18:13 | 1334104 ebworthen
ebworthen's picture

To ensure solvency of the banks who may be insolvent but you can't know if they are insolvent because that would mean you couldn't trust that your deposits (tax dollars) are safe and being used in an ethical and moral way under the rule of law to engage in highly speculative debt instrument trades leveraged 40 to 1 on the short and long side.

Therefore, they must not disclose which insolvent banks (U.S. and foreign) are getting interest free money on the backs of you, the taxpayer, so that you don't lose trust in the system.

So, deposit your paycheck and make sure and set aside any surplus into your nearest binary data storehouse of Wizard of Oz and ignore the flying monkeys and the message in the sky that says:


Thu, 06/02/2011 - 19:09 | 1334286 Montgomery Burns
Montgomery Burns's picture

........make sure and set aside any surplus into your nearest binary data storehouse of Wizard of Oz.

Surplus? Obviously you aren't married.

Thu, 06/02/2011 - 18:19 | 1334156 Shell Game
Shell Game's picture

The public has access to chemical crack, you wouldn't want the temptation of the discount window..

Thu, 06/02/2011 - 17:50 | 1334087 jkruffin
jkruffin's picture

Ireland  External Debt to GDP Ratio -  1117% as of now,  is Ireland really LNKD shares being sold as a stock?  LNKD has almost the same P/E and Ireland's debt.   Hmmm....  Keep the shams and scams coming.....


It won't end until people start getting guns and demanding real change or else....until then these crooks will keep trying to change the rules in the middle of the game to keep the ponzi afloat.  Talking about it and hoping your leaders are going to do what is right, is not going to end these fiascos.

Thu, 06/02/2011 - 18:04 | 1334099 Franken_Stein
Franken_Stein's picture


Off topic, but:


Currently here in Germany we have an outbreak of EHEC (Entero-Haemorrhagic Escherichia Coli), a mutated form of Escherichia Coli.

Over 1200 people are infected, 17 have died so far.


It causes gastro-intestinal bleeding and diarrhea as well as kidney failure and neurological intoxication.


It's a new and unknown strain of an otherwise harmless bacteria.

Travellers to Germany from the U.S. are advised to follow proper hygiene procedures as to wash hands frequently, wash, peel or cook vegetables and fruits, immediately seek a doctor when symptoms like vomiting or blood in the stool emerge.


Thu, 06/02/2011 - 18:08 | 1334126 scatterbrains
scatterbrains's picture

maybe this bacteria got a little cesium-137 boost?

Thu, 06/02/2011 - 18:07 | 1334137 cougar_w
cougar_w's picture

And people still insist that the Earth is not actively trying to kill us to the last.

We have a potent enemy, me thinks.

Thu, 06/02/2011 - 18:34 | 1334188 DaveyJones
DaveyJones's picture

do you blame it?

Thu, 06/02/2011 - 18:15 | 1334152 wandstrasse
wandstrasse's picture

are advised to follow proper hygiene procedures as to wash hands frequently, wash, peel or cook vegetables and fruits, immediately seek a doctor when symptoms like vomiting or blood in the stool emerge


at the moment nobody knows where it comes from, maybe from fruit/vegetables, maybe not. You are safe when you wash your hands regularly, when you wait in a space capsule or panic room until it is over, when you do not eat, when you do not touch anything... everything with boolean AND connection, of course. I do not care about EHEC, because I do not know what to care about. Uh-oh there is a strange feel in my intestines, gotta go to aaargh...

Thu, 06/02/2011 - 18:32 | 1334184 pappacass
pappacass's picture

A little while ago I asked a biological scientist friend of mine 'what are the chances of a e-coli strain mutating naturally like this?'

And he replied

To mutate under ambient conditions, not very likely, site directed mutagensis and induction of random mutagenisis is fairly standard, even the Curry Munching brigade could get that to work. The End, at least as we know it (and not the Jim Morrison tune! ) is nigh. When the revolution comes I'm fighting with the midgets'

Although the language is a little colourful I think you can get his point

Thu, 06/02/2011 - 21:46 | 1334599 knowless
knowless's picture

i wouldn't rule out a biological attack, wouldn't be the first time ecoli was used.

just burn it away, keep away from raw foods for a while.

Thu, 06/02/2011 - 18:34 | 1334194 awakened
awakened's picture

from the ProMED link off Kedrowsky@bloomberg and Infectious Greed


"[After the initial rush to Spanish-derived cucumbers, it is now
reported that the isolates found were not O104. ProMED-mail awaits
further information regarding the contamination vehicle, whether
cucumbers or another salad ingredient, or another food-stuff that is
either eaten uncooked, inadequately cooked, contaminated after cooking
by poor kitchen hygiene, or even deliberately contaminated. The quite
unusual nature of the isolate, including the serotype and the absence
of the eae gene, its unusual apparent virulence and its remarkable
antibiotic resistance could bring one to speculate upon the last. -

Wish I was making this up.
Thu, 06/02/2011 - 18:35 | 1334198 awakened
awakened's picture

As in I wish this was a fabricated story. I dont want to be misunderstood here.

Thu, 06/02/2011 - 18:41 | 1334212 Herman Strandsc...
Herman Strandschnecke's picture

It kind of puts Fukushima and the Japan issues into context don't it?

Thu, 06/02/2011 - 19:35 | 1334345 cxl9
cxl9's picture

It causes gastro-intestinal bleeding and diarrhea as well as kidney failure and neurological intoxication.

Well, one out of four ain't bad.


Thu, 06/02/2011 - 19:34 | 1334354 Monedas
Monedas's picture

Barney Frank has blood in his stool all the time ! Monedas 2011

Thu, 06/02/2011 - 21:53 | 1334605 Hulk
Hulk's picture

You're shitting us !?

Thu, 06/02/2011 - 18:05 | 1334128 cougar_w
cougar_w's picture

Well. Long-time readers may recall that the same thing happened the last time Fortran did a little "day trading", too.

$300B lifted from the Fed for 8 minutes of fun, and she was going to pay the fees with sex. The girl has no shame. None.

Thu, 06/02/2011 - 18:12 | 1334140 FranSix
FranSix's picture

Most people might not realize that RBC, Royal Bank Of Canada is actually RBC Dexia. There are very likely strong implications to Primeminister Harper's visit to Greece via a vis the possible banking sector fallout should Greece default. The Canadian taxpayer should be very wary of the use of public funds to bail out Greece.

Thu, 06/02/2011 - 18:11 | 1334145 ebworthen
ebworthen's picture

Just don't tell Leo.

Thu, 06/02/2011 - 18:41 | 1334205 Herman Strandsc...
Herman Strandschnecke's picture

Are you sure about that? I thought they had a joint venture going but operate core business separately.

Thu, 06/02/2011 - 19:07 | 1334276 FranSix
FranSix's picture

I think Dexia merged with RBC, at least for the commercial banking after the collapse of ABCP.  The facts are very hard to come by.

Thu, 06/02/2011 - 18:13 | 1334149 slewie the pi-rat
slewie the pi-rat's picture

hmmmm..., mebbe that's our fabulous blythe's line of credit for the 1400 contracts of gold over the last few daze.  chips, please!  $100 mil over here!

Thu, 06/02/2011 - 18:16 | 1334157 HUGE_Gamma
HUGE_Gamma's picture

credit line to buy all employees new Iphone 4(s)

Thu, 06/02/2011 - 18:24 | 1334162 slaughterer
slaughterer's picture

Nice beginning to June, eh?  The market is finally getting honest with itself.  But what about employment tomorrow Tyler?  Bloodbath or "better than expected" rally?

Thu, 06/02/2011 - 21:08 | 1334532 lizzy36
lizzy36's picture

Over 150k better than expected rally (despite average expectations of 186k on Wednesday morning @7:30am). Less than 100k-150k:push.  Under 100k:sell. Any number with a "-" in front of it:dump and run.

Thu, 06/02/2011 - 18:24 | 1334170 Atomizer
Atomizer's picture

When does the new GOMO schedule get published?

Thu, 06/02/2011 - 18:26 | 1334177 Star-Gazer
Star-Gazer's picture

Gosh! Who'd a thunk.  Can I get my new iPhone now?

Thu, 06/02/2011 - 18:31 | 1334189 willien1derland
willien1derland's picture

I would point out that the Irish banks have been experiencing the greatest credit deterioration in the Credit Default Swaps market over the past several weeks - Bank of Ireland, ERC Ireland Finance Limited, Irish Life & Permanent, & ISS Holding A/S leading the pack - I obviously lack imagination because I am staggered that this outrageous actions continue - absolutely shameless -

Thu, 06/02/2011 - 18:37 | 1334193 Texas Ginslinger
Texas Ginslinger's picture

Is it possible that witch Blythe needs the extra discount cash keep the evil silver manipulation going..??

Thu, 06/02/2011 - 18:53 | 1334243 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Loans from the discount window must be repaid every morning first thing, so JPM could use the cash to trade in Asia and Europe.

Thu, 06/02/2011 - 18:55 | 1334207 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The first thing done by the receiving institutions is to loan the money out, at 10x leverage, so when you see $100 million, think $1 billion.  The discount window is an emergency lending facility, and the loans must be paid back the next morning.  If the money is not paid back the collateral that was put up is seized.  Lehman and Bear went bankrupt for this reason, and almost this reason alone.  Once their collateral was seized, they could not issue shares to the House proxy banks like JPM, which is why JPM pulled out.  Bear could not underwrite new shares to swap with JPM.  Of course, JPM never had plans to help them, because they knew all to well the Fed had already gained control of the aforementioned bank's assets.

The assets were numurous.  Foreign countries such as Chavez' Venezuela had assets in Lehman and Bear.  Lehman and Bear decided to use the Discount Window, failed to pay the loans back, and Hugo lost his dinero.  Woops!

Thu, 06/02/2011 - 19:48 | 1334384 The Merchant of...
The Merchant of Venice's picture

Sure, but what is the collateral?  Greek notes?

The Greeks sunk their fortunes into the desert between Las Vegas and Los Angeles at a time when global casino operations were investing 95% of their capital in Macau.

They're really bad at this game.  The "investment banks" just sit there and prey on their mistakes since they've got the NY Fed backing them the whole time and section 13 gives them unlimited power to loan US dollars to anyone they want.

Thu, 06/02/2011 - 20:15 | 1334432 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The collateral can be anything, but now the banking system has reached a point that they will not accept most things.  Gold, yes.  Greek debt, probably not.  Another indicator is gold's volatility; it flash crashed today, which implies that a massive amount was put up for lease, and instantly taken off of the market.  When they are funding the system with the leverage on gold and only gold, that means they have little reserves left to loan.  Then they go to the Discount Window, and this is where the game ends.

The Discount Window is the last resort.  The next thing that happens is that banks fail to pay back the Window, and they fail.  Is it ironic that this is happening as the Treasurie uses public pensions to fund the US debt as to not breach the debt ceiling.  Is it ironic that it happens right as quantitative easing is ending.  Bernanke has no choice now but to continue quantitative easing, unless he wants all of these worthless assets for free.  That might be the case, but then his policy would fail with the Major banks. 

Thu, 06/02/2011 - 22:07 | 1334631 RockyRacoon
RockyRacoon's picture

Rules can be changed for exigent circumstances, like inability to repay or deliver the collateral.   That would be a systemic risk doncha know.   Fix that by extending the time to repay.   No problemo.   Just one more of the tools available to the Fed.   This sucker ain't going down until the last banker has squeezed the last middle class turnip of its last drop of blood.

Thu, 06/02/2011 - 22:20 | 1334640 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

That is not how the game is played.  If you do not pay by tomorrow morning, the Fed will take your collateral.  The Fed could use some collateral too, by the way.  And the other banks, they will watch you fail and pick your assets up for pennies on the dollar.  We are about to witness Bear/Lehman 2.0, or quantitative easing continues.  Pick your poison.

In fact, maybe this is certain banks strong arming the Fed to continue QE or else, and at the same time those Majors could sacrifice other Majors in the name of Keynesian policy.  Or QE is continued.

Sat, 06/04/2011 - 01:01 | 1338772 RockyRacoon
RockyRacoon's picture

Shall we go back and recite the rule changes (or bendings) that have occurred already?

Fri, 06/03/2011 - 00:45 | 1334891 Urban Redneck
Urban Redneck's picture

Nobodyputs up gold for collateral.  They put up paper, Euroclear/Clearstream/DTC- eligible paper.  Unless TSHTF in the credit markets, then the FED accepts any-and-all at mark-to-myth in an effort to re-cap or flood liquidity.  If one has a banking license and quality paper then one should never or rarely need liquidity via the window.  The problem is when the paper turns shitty and it can no longer be leveraged 10-1 then liquidity problems become capitalization problems. 

Fri, 06/03/2011 - 01:53 | 1334937 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Every bank leases their gold holdings.  Why would they just let it sit as a reserve when they can use it as an asset?  Comex leases gold.  LBMA leasees gold.  Neither sell it.  No one takes delivery.  They take the paper profit.  These are loans. 

The NYFed has 4k tonnes of gold loaned to Germany.  Britain has gold loaned to China (via Hong Kong).  The IMF loans gold using the SDR.  Banks make loans.  Making loans is their business.Gold is the prop trade.  Gold is the loan of first recourse.  Gold is the chief asset.  Gold starts the ponzi.

Do these banks actually have the gold in vault?  Considering that Ft. Knox has not been audited since the '50s and who knows if the IMF has ever been audited, considering ths BIS' Board of Directors are the very same Governers that sit on as the Chairs of the central banks, who knows.

Fri, 06/03/2011 - 04:54 | 1335018 Urban Redneck
Urban Redneck's picture

But very few banks own gold or even handle it on behalf of clients.  The handful of bullion banks are separate subsidiary operations within some of the larger commercial banks.  They borrow from the central banks and to re-loan gold.  No bullion bank would take gold to the FED discount window- other than the logistic impossibilities to overcome using physical commodities for overnight borrowing, the spread would always be negative.  It is the gold ponzi of the bullion banks which permits low interest rates, which facilitate the paper ponzi of the global banking system.   

Kill the gold ponzi, the fiat ponzi probably collapses, attack the fiat ponzi, the gold ponzi probably survives unscathed.

Thu, 06/02/2011 - 18:42 | 1334209 firefighter302
firefighter302's picture

No worries mates..

Nancy Pilosi just stated that, after top level meetings with the President, "the democrats are now serious about budget cuts."




Thu, 06/02/2011 - 18:48 | 1334230 chump666
chump666's picture

Absolutely.  Total liquidity crunch coming.  There must be huge counter party risk i.e banks (globally) are holding a lot of toxic sovereign debt, not to mention the unrealized losses of central banks.

All this even after huge montary expansion, which means the black-holes are even bigger.

Thu, 06/02/2011 - 19:12 | 1334294 slewie the pi-rat
slewie the pi-rat's picture

lol----next window, pullleeease!

Thu, 06/02/2011 - 19:18 | 1334299 PulauHantu29
PulauHantu29's picture

I'll gladly pay you Tuesday for a Hamburger today...

Thu, 06/02/2011 - 20:16 | 1334378 Monedas
Monedas's picture

Sorry ! Internet problems !

Thu, 06/02/2011 - 19:55 | 1334398 Monedas
Monedas's picture

Great idea, Wimpy ! Hamburger futures ? Create a market for McDonald gift certificates ! I did load up on 150 See's candy 1 lb gift certificates before my credit cards had that accident with the scissors ! Monedas 2011 I am living proof that chocolate is good for you ! (You have to convince them you are a fledgling, struggling charity ! No sales tax on food ! My buy in cost averaging price about $10....current retail price about $18.25 ! Why can't we play the markets as well as we shop for bargains ?)

Thu, 06/02/2011 - 20:07 | 1334399 Monedas
Monedas's picture

What little money there is left is cornered in the stock market ! PMs are way too risky and they are un-patriotic, offensive to the powers that be and show a reckless almost racist indifference to the plight of our beleaguered Commander in Chief ! Monedas 2011 Shame on all of you !

Thu, 06/02/2011 - 19:19 | 1334312 AldoHux_IV
AldoHux_IV's picture

Systemic failure.

Thu, 06/02/2011 - 19:23 | 1334323 lolmao500
lolmao500's picture

100 million? That's freaking nothing. Can we see the numbers of the discount window for September/October 2008? Thanks.

Thu, 06/02/2011 - 19:42 | 1334363 CPL
CPL's picture

it wasn't put in place until after mark to market was removed as a requirement for any assets a bank had in it's "ownership".


Neat trick huh?


Other wise the government bailed out the banks to the tune of 1.2 trillion in one sitting as I recall.

Thu, 06/02/2011 - 19:49 | 1334387 The Merchant of...
The Merchant of Venice's picture

1.2 trillion?  Hah.  More.  Way more.

Thu, 06/02/2011 - 19:35 | 1334350 Piranhanoia
Piranhanoia's picture

I like the part about having $1.6T on hand!  That's exicting stuff there. They now have the pretend 0's required to be solvent.  When I say solvent I mean like, accelerator, or combustible or lighter fluid.

It is a lot of fun figuring out what the statement means when you know it is in large part a lie. We get to play russian roulette with MAD. How many of the 38 numbers are now losers?

Thu, 06/02/2011 - 19:55 | 1334394 The Merchant of...
The Merchant of Venice's picture

This game will continue until China decouples from the US dollar.  3Q2012.

Thu, 06/02/2011 - 20:14 | 1334430 jm
jm's picture

Compare that to 1Y basis swaps which haven't moved much at all.

The Fed is the lender of first, middle and last resort.

Thu, 06/02/2011 - 20:26 | 1334451 Withdrawn Sanction
Withdrawn Sanction's picture


From which release are you taking your data? H.3 and H.4 both agree w/ea other and show only $14B in borrowings from the Fed. These reports were released today, 6/2/2011, and are for the week ended yesterday (6/1/11). They show $25M in primary, $3M in secondary, and $26M in seasonal. The rest ($14,014M) is in the Term ABS facility, which itself is gradually running off. Not saying there isn't a liquidity crunch; it's just not in the released data on the Fed's site.

Thu, 06/02/2011 - 21:04 | 1334511 Atomizer
Atomizer's picture

You forgot to compare against the Shalom Debasens Chart


Fri, 06/03/2011 - 06:31 | 1335061 Withdrawn Sanction
Withdrawn Sanction's picture

While Discount Window borrowings and the Monetary Base are related, they are not the same thing.  The Fed tracks and publishes the aggregate of borrowings by member banks (and others) at its DW in a few places (H.3 and H.4 are 2 such places).

The most recent data presented by the Fed do not square w/the chart presented above.  It could be that TD is pulling his data from a different source.  If so, Im curious what that source might be as could give better insight into data the Fed does not provide through its traditional releases.  (It would also imply that the Fed is ....shocker....deliberately misrepresenting the level of DW borrowings.)

 Inquiring minds want to know...

Thu, 06/02/2011 - 20:35 | 1334457 Freewheelin Franklin
Freewheelin Franklin's picture

It's very simple, really.

The banks are STILL infuckingsolvent!

Thu, 06/02/2011 - 21:06 | 1334522 Rynak
Rynak's picture

Debt doesn't matter as long as you don't have to pay it yourself. And even if the banks go out of business, the individuals who profited from them, especially in the form of influence and hard goods, still own that stuff.

Let's hypothetically assume you get your wish fullfilled - all those banks go out of business. The consequence? The wealth transfer has been halted. Even this seemingly big and "unthinkable" achievement actually would achieve nothing more preventing stuff from getting worse. It would not reverse what happened already, at all.

Thu, 06/02/2011 - 21:11 | 1334530 FlyPaper
FlyPaper's picture


Using "mark-to-myth" accounting.  If they had to go back to mark-to-market, most of them would be FDIC wards.

I don't get why the US taxpayers don't rise up and reject the notion of being nationally on the hook for banker risk.  

Thu, 06/02/2011 - 21:48 | 1334600 Cthonic
Cthonic's picture

So glad that Dodd-Frank will make the Fed disclose who the borrower(s) is/are, in a timely two years.

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