Former Fed VP Accuses Bernanke Of Bailing Out Europe Via Currency Swaps
First it was Zero Hedge. Then Ron Paul joined in. Now it is the turn of a former Dallas Fed Vice President, Gerald ODriscoll, to outright accuse the Fed of bailing out Europe courtesy of "incomprehensible" currency swaps, and implicitly accusing Bernanke of lying that he would not bail out Europe even as he has done precisely that. And not only that: by cutting the USD swap spread from OIS+100 to OIS+50, the Fed has made sure it gets paid less than ever for extended Europe the courtesy of bailing it out all over again. Incidentally, O'Driscoll says, "America's central bank, the Federal Reserve, is engaged in a bailout of
European banks. Surprisingly, its operation is largely unnoticed here." One thing we can say proudly - it has been noticed loud and clear here...
From the WSJ:
The Federal Reserve's Covert Bailout of Europe
When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.
America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.
The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.
The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.
This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.
The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)
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It won't technically be a bailout until the ECB defaults on repayment...
Would it be a bailout if the ECB defaulted had it not received the loans?
Yet another ILLEGAL action by Bernank et. al. The only question that matters is WHEN WILL ANYONE BE CALLED OUT AND PROSECUTED? But alas, we all know the unfortunate answer to that.....outrageous really.
"Save The Beast... SAVE THE EURO"
Yes, Im sure thats The Top Priority on EVERY Americans Mind right now...
BTFD!
"It won't technically be a bailout until the ECB defaults on repayment..."
And with the FED agreeing the a 20% haircut, it can't actually be declared a default.
And SILVER is getting raped today!!!!!!!!
WTF!!!!?!?!?!?!!!!!!!!!
I'm asking is this just about people shredding their paper?
No, it is the FED sending U.S. Taxpayer $'s to European banks using sleight of hand and terminology.
Let's say I give you $100 for 130 Euros and that is an even deal or fair exchange rate.
Then, I say I'll give you $200 for 130 Euros ad infinitum.
Well, I'm either lending you money or giving you money outright.
You are "giving me money" or swapping it, but you make $70 everytime we do it.
I tell my Wife I am doing a "currency swap to provide liquidity" and not losing money. "Yeah right" she says.
I'm asking is this just about people shredding their paper?
when you say people who do you imply?
"America's central bank, the Federal Reserve, is engaged in a bailout of
European banks.
when the WSJ spins a story the Federal Reserve implys the people or the US tax payer.
How hard will we have to work untill its easier to fight!
Chill out, the bottom's not far away now
'When will anyone be prosecuted'.
Likely never. this will end up with people hanging from street lamps.
Unfortunately, it is not illegal. Depending on the judicial branch of government to protect the value of our fiat paper will ensure it all becomes toilet paper. People have no idea how much power congress gave to the federal reserve when it was created.
News flash: the fed can create all the money it wants and do with it as it pleases. Seriously. That's not a joke or exaggeration. There are no laws that protect the value of the dollars in your wallet.
Like any other corporation, their obligation is to the shareholders. The will manufacture the optimum amount of money to profit in the markets. That is just shy of what will cause them to be legislated out of existance.
SwingForce has a a good point. It does not sound very risky to Fed.
If I understand this correctly, Fed is doing secured lending: it giving $1 to ECB, receives as collateral €1 and then after 3 months or whatever, the $1 goes back to Fed and €1 back to ECB. What both do with their €1 and $1 is up to them.
ECB is easier: there is a line of banks wanting to borrow the $1 from ECB.
Fed is a bit harder, but I guess Fed could park its €1 to ECB account and earn a swanky 0.25% rate for it! ;-)
I am sure there is some sort of subsidy and possibly even open risk there, so that worry in the post is correct. What I don't understand is this: "The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made". Is this guarantee an option or forward trade fixed between ECB and FED utilising their marginal lending rates (which ones?).'
What happens with the currency movement risk if EUR-USD moves violently (sounds like Fed is covered but the other CB is not)? USD has since the arrangement strenghtened, so there could be a loss for ECB built in the trade? How will ECB cover this loss?
gosh...remember just a few short months ago how the euro and yuan were going to bury the dollar in trade settlements? Where are the communist red Chinese big shots now and their talk-talk? Let them buy the damn euro from the FED...after all they want out of our "lousy dollar" anyway.
Lets hope the FED has the inteligence to not exchange at par...that would cost us 30% plus.
How will ECB cover this loss?
The same way, by borrowing some more.
"How will ECB cover this loss?
The same way, by borrowing some more."
Or by printing to devalue their currency to the point the swap is a wash.
Would this not also equate to printing Eurodollars. Soaking up those extra Euros and thinning out the dollar at the same time? An effort to stabilize the EUR/USD perhaps? Markets aside, the inflationary effect would not be felt in the us right away I think?..
What happens when they raise the debt ceiling though I wonder....
One must wonder where the Euros came from to "swap" to the Feds for dollars. Could they be printing them? Ya figger? Where did the dollars come from to "swap" for the Euros. Wonder what will happen when these "swaps" are settled? Where will those Euros and Dollars end up? Oh... so many questions.
Good questions.
I guess as of today, €1 would be given by ECB to FED in exchange for $1.295. Three months from now, ECB would simply return those $1.295 plus that +50 bps (?) interest to Fed, and Fed would return the €1. If the exchange rate were $1.100 instead, that might not matter to them, but Fed would "win" and ECB would "lose"? Would it matter? I am not sure.
I guess at that 3 month point, they could cancel these amounts? Return it to their shareholders (US Governemnt and National Central Banks of Eurozone, Japanese Government, UK Government, Canadian Government)? Keep them and invest them somewhere?
Not "From", but "Too" would answer your question.
Vielen Dank für das Geld, meine Amerikanischen Freunde!
Bolded German is scary.
Being cussed-out in German is worse.
IMO the ENTIRE Financial System has been Hyjacked and Corrupted.
Nothing can be believed anymore.
All the purported "Money" out there is mostlly 1's and 0's in some select Banks' Hard-drives.
(IE. it's not even physical Paper Money)
So its a Banksters' Giant Computer game, played by the worlds elites.
We are headed into a Giant Financial SHIT STORM!
You are right. It has been hijacked by those who have access to unlimited capital. It is like playing roulette and continuously doubling down on winning bets. This is a losing strategy for mortals. But for banks that have unlimited access to bailouts and fresh money, it is a strategy that can win.
Corruption -- through and through.
Exactly...
And this is how they are controlling GOLD.
Imagine, unlimmited Electronic Dollars to short Paper GOLD.
IMO the Real Value of GOLD right now is probably North of $25K.
The current CORRUPTION will not last forever...
The politicians and bankers believed their own Keynesian crap. When you believe in fairy tales bad shit happens.
This clown Bernanke only answers to his bosses, his REAL bosses: The eight families that OWN the Federal Reserve:
" They are the Goldman Sachs, Rockefellers, Lehmans and Kuhn Loebs of New York; the Rothschilds of Paris and London; the Warburgs of Hamburg; the Lazards of Paris; and the Israel Moses Seifs of Rome. "
Their interests in Europe and elsewhere must be protected at all costs. They pull the stings on all things financial. They are the squid.
http://theintelhub.com/2011/12/07/the-federal-reserve-cartel-part-i-the-eight-families/
Thanks for the names. Zh needs to put the family members on its no fly list!
ZHA can patdown a Rothschilds or two. Even nude scans of Rockefellers... (uuuuugly)
Pretty sure these families avoid commercial airlines...I mean they own some but it's only so you won't travel with them.
Don't talk about those, they would silence you for good.
Seien Sie beruhigt, wir können Bens Geld genauso gut verbrennen wie Ihr Amerikaner!
Arbeit macht frei ... They just need to translate it into greek and italian.
Your welcome. You will pay us back, won't you?
Nichts zu danken.
In your language: beschissen
It's worth repeating though I'm sure most everyone here knows it--the FED did bail out Year Up. Those swaps, when implemented create new dollars (debt) at absurdly low rates. What merits consideration at this point is Gold. Everyone knows it should be continuing to skyrocket. The fact that it is not means that CBS/TPTB are very adept at manipulating gold prices. That means there really is nowhere to hide. I'll keep my gold, but the evidence tells me it won't matter in the least. It will not be allowed to appreciate wildly--or that is, appropriately, and if it does, it will be confiscated like it was last time around. I think ZH, aka the Tylers, should spend a little more time thinking about the proability that gold will never be allowed to act as a true store of value. Personally, I'm doing some hard thinking about oil and arable land.
Who will Bernanke accuse of f'ing this whole thing up after he becomes the former chairman?
I believe you're looking for the person who'll be in charge then. Probably Ron Paul.
HELL YEA
I testified in the House of Representatives a couple of weeks ago saying the same thing.
http://confoundedinterest.wordpress.com/2011/12/28/ecbs-balance-sheet-go...
Good man. Press on soldier the war is only just starting.
Were they unsuprised?
If we don't bail out Europe the terrorists will have already won. Duh.
So it is a win-win for, "terrorists."
If?
If you can, please fix that.
America is the frog in an increasingly warm pot of water, with Bernake at the dial!
Bernanke is in the pot too.
When your ass is being bitten daily by alligators, it is hard to remember your job is to drain the swamp.
yup. that's what i'm saying. but most of us aren't aware of this fact. we're too happy to give up our liberty to the elites and way too eager to oblige like a bunch of fucking morons. so it's funny to me when i see a bunch of americans and our MSM poking fun at countries like north korea, syria, etc, and act like we're superior. hello? we're not free either. and contrary to what we've been told, we're not rich. we're fucking broke and we are indebted to fucking chinese! wake the fuck up and smell the coffee, sheeple!
House slaves might well put on airs and think themselves superior to field slaves.
Ben Bernank (the former Alchemist) will print us to prosperity.
4 years ago I would be outraged...now, just like well who gives a shit....Ben is the King
That's the way incremental losses in liberty works. Thanks for playing along so well.
Yes. In this game rule 3 allows for the unmitigate swap of debt laden currency...your animal crackers for say, the pile of poop johnny just pull out of his diaper.
In this swap you are allowed to spread the now distributed feces by any method unless you land on the red warning square. Then you have to distribute by fan.
Is that the new Life game or the new version of Monopoly?
The new Monoply games marketed this xmas use Credit cards and readers..
seriously... http://tinyurl.com/bvzyhtt
sad.. and scary..
Niether...this one is based on mousetrap. You store the feces in the bathtub but if you dont keep it balanced it tips over onto the fan. Red square is an automatic tip.
89 day swap window right? And just how much has been taken from the window? Pay day is going to be a B.
I am Jack's complete lack of surprise!
pods
The Fascist States of Amerikkka:
The Land of the Fleeced and Home of the Enslaved.
Seriously. What proportion of the 99%-ers ever step foot outside of Amerikkka, let alone their county? And, NO - Canada doesn't count.
North Korea has nothing on the denizens of the FSA when it comes to being isolated from and ignorant of the rest of the world.
I think people are starting to really wake up. They say that you can fool some of the people some of the time, but you can't fool all of the people all of the time.
I have seen ZHers express frustration that they can't get through to their friends and family, but you need to understand how people's brains work. The first time you bring it up, they just ignore it, the second time they hear you, but doubt that it's a real concern. It's not until they hear it from a different source that it jumps to the front of their brains.
You know the game the establishment plays: first they dismiss anyone who doesn't agree with their narrative as a kook, then when the predictions of the "kooks" come to pass, they wave it away, claiming that "no one saw it coming". Well, your friends and family may not take you seriously now, but when your predictions come to pass, their eyes will narrow and the little gears will start to turn, and they'll think to themselves, "Even Cousin Bob knew what would happen, he told us so at the New Year's party".
For those who think it's not important to wake people up because we're going to collapse anyway, just remember that life will still go on afterwards, and how we rebuild the system is very important. Getting people into power who really understand what's happening and why is essential. Always remember that we have never gone so far down a road that we can't turn back.
Getting through to your friends and family is important,
no matter how frustratingly long it takes.
Because they will be the first ones on your door if things
go bad and you won't turn them away at the point of a gun.
you are dreaming.
They, I mean THEY...will mark you as a subversive and you family will spend all they have to find out your whereabouts in THEIR prisons.
IF the new homeless, unemployed, and returning vets haven't 'marched' yet...they won't. No i-phone app, no interest by john-Q-public, who Can't be bothered by investigating this 'stuff'...to complicated.... and besides it interfers with TV shows.
Well, I'm just waiting for nicer weather! Then, it's going to be occupy some rich guy's/public official's private beach! Maybe ruining their vacations will get their attention!
Return2Sanity
Well said. More and more people are becoming aware of the financial criminals and their dangerous conjuring.
I keep wondering what happens when the fall of 2008 returns, with governments unable to provide liquidity. Will the banks step in to save the day ? sarc/
This is precicely where my co-workers are right now. Be patient, everyone. Regular, American Idol watching types are starting to question everything. I began trying to enlighten my co-workers, friends, and family 3 and 4 years ago and was frustrated as well.
Recently, the alarm bells have gone off in several of these same people, and I am Nostradamus all of a sudden. It was worth the wait and it is real difficult to hide my sh*t-eating grin.
It is happening. Whether enough people wake up in time enough for the elections I'm not sure. But it is happening.
Cheers.
Why would Ben do this? Because he knows that if the Euro breaks up, the dollar will have only days left to live as the financial system breaks up across the Globe.
I think anyone who thinks that a Euro breakup will leave the Dollar sailing serenely into the sunset, secure in its status as the unchallenged safe haven currency and unaffected by the turmoil across the water is mistaken.
If the Euro fails, I assume you mean the currency, the Europeans will return to their old currencies.... or dollars. The dollar will last for a little while, maybe a few years, before you will be correct in its tumble.
A poxy little bank like Lehmans nearly took the whole system with it due to fears of unknown counterparty risk.
The paralysis and panic that a continent-wide financial system lockup would cause as the Euro fragmented into national currencies and everyone tried to figure out what the legal situation was with regards to contracts denominated in Euros would be orders of magnitude greater.
Wall St would be a smoking ruin within days, and I can't see the dollar trundling along for much longer with all the money centre banks shuttered.
I don't disagree. That's why i have silver in my posession. I'll soon be adding gold, firearms and bullets.
World War III would be the next logical conclusion.
It's a great parbolic boomerang trade for someone with cash to burn and a fortified stomach, but if the timing is sligtly off it can be a one-way train wreck.
I think the dollar will survive, but only through massive devaluation. I have been wrong up until now however. I have been betting strongly on precious metals and against US bonds. The previous metals part have done alright (excepting the recent pull back) but the bets against US bonds have been costly.
Sucks to be the worlds "reserve currency".......gotta defend the dollar........
http://en.wikipedia.org/wiki/Triffin_dilemma
Bernanke lied? Shocked! So does that mean CB's don't buy gold for the sake of tradition?
Of course they don't buy it for tradition's sake. They just like having it around. Normally, they stack it up right beside the big piles of cotton, wheat, crude, pork bellies and all the other Commodities-that-definitely-aren't-money that they keep in their reserves. Because it definitely isn't money. No way. And it's useless - did I mention that? Can't even eat it.
From a Feb, 2010 essay from Peter Warburton...
"What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.
It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.
Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade."
more from this essay at http://www.gata.org/node/8303
I believe Warburton was right. Playing the devil's advocate, though, how do central banks incite investment banks to bet against precious metals?
My answer would be that the central banks are the real power behind regulatory capture and the judicial impotence that allows the investment banks' un-checked pillage of the financial system (and record bonuses). The unlevel playing field will remain so, as long as the investment banks do their master's bidding. Besides, the investment banks aren't investing their own money anyway. They just use their "excess federal reserves" that sit on the Fed's balance sheet to make their over-leveraged derivitives bets on the unregulated ICE market. They just get a smaller return of "free money" from the interest earned on their remaining reserves at the Fed. But there will be more Treasury auctions, and the Primary Dealers will take down a higher percent of each subsequent auction which means more excess reserves at the Fed and more "free money" on the interest paid on those reserves. More worthless fiat to beat down the PMs and the rest of the commodities market (no inflation!!). Wash, rinse, repeat....
"The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan." Plus it helps weaken the $ vs the euro... (Without "expanding the Fed balance sheet" due to the latter point?)
One Bankster goes down, he takes the rest with him. Hundreds of great years of profit mostlly down the drain. They won't allow it. They can't go back two thousand years to the salt trade!
I saw the CNBS piece, the Bernank needs to explain exactly how he's not bailing europe as he promised. Hmmm? Ben? Ben???
denial this afternoon
Watched that live with my jaw gaping open.
Yea, that was some amazing shit and CNBC actually allowed him to speak...which was more amazing.
WHISTLE BLOWER TIME!!
Too bad he has kiddie porn on his computer now....that's going to be a real 'character' issue for him.
I don't think the charge card used at The Scrub Club is his.
Like, um.. didn't he do that in 2008, too?