The Latest Rumor: Fed To Fund IMF, Bypassing Congressional Refusal Of European Bailout

Tyler Durden's picture

While we have long been mocking any rumors representing formal attempts to get the IMF's funding to higher level, due to the need for a congressional approval over and beyond what is currently permitted which means any such plan is DOA, one loophole always has been the private bank known as the Federal Reserve, which may, as permitted by its charter since its charter allows it to do pretty much anything even buy Greek and EFSF, not to mention Italian, bonds, lend to the IMF at will. And just as last week demonstrated, when push comes to shove the Fed will always bail out Europe, so tonight German paper Die Welt (which has about the same success rate as Thomas Stolper at predicting the future) had put two and two together and come up with the latest rumor, namely that Ben Bernanke is about to directly bail out Europe using the IMF as an intermediary. Via Reuters, "The Federal Reserve, along with the 17 euro zone national central banks, may help provide the International Monetary Fund with funds that could be used to aid debt-ridden states, a German newspaper said. Die Welt cited sources close to the negotiations as saying the euro zone central banks could pay at least 100 billion euros ($134.2 billion) into a special fund that could be used for programs for nations struggling to control their debts. "Also other central banks, for example the U.S. Federal Reserve, are apparently prepared to finance a part of the costs," the paper said in an advance copy of an article to appear on Monday." That there is not an iota of truth in this article is a given, yet the market will latch on to this latest rumor like a rabid pitbull... until it realizes that by having to resort to such grotesquely made up stories it means that the ECB, which is the only real short-term rescue mechanism for Europe, is nowhere near close agreeing to do what the bulk of Europe's bankers (but not Goldman) demand it do - print.


Treasury Secretary Timothy Geithner may discuss the idea in the coming weeks when he visits Europe, the paper said.


Officials had said on Saturday that talks on the size of loans from euro zone central banks were starting at a technical level after finance ministers from the currency union gave the go-ahead to explore the idea.


The idea is for the IMF to be able to match the new firepower of the euro zone bailout fund, which is being leveraged.


One senior euro zone official has said that no amount had been discussed at the political level.


The euro zone wants to boost the IMF's resources so the fund could provide a credible backstop if Spain and Italy were to need an emergency loan program.


Geithner is to hold talks with several European leaders in the coming week and is set to urge them to take decisive action at an EU summit aimed at preventing the euro zone debt crisis spiraling out of control.

Of course, in the 0.01% chance this latest baseless speculation is true, it once again confirms that the traditional mechanism of governance, once which involves popular representation and the associated bells and whistles is completely dead, and has been replaced with one in which a private bank with 10 central planners effectively rules the world, with the simple goal of never seeing even one bank's "assets" be impaired, something which Germany also alluded to earlier when it announced it would let banks not suffer Greek debt haircuts if only they were to agree to the "Neu Anschluss" just that little bit faster.

Germany is prepared to soften language in the euro zone's permanent bailout mechanism compelling bondholders to accept losses in exchange for much stricter budget rules, four sources have told Reuters.


The shift would not completely remove the possibility of private bondholders having to accept losses in the future, but it would align the statutes of the European Stability Mechanism more closely with IMF rules, creating a more-level playing field for private buyers of euro zone sovereign debt.


The hope is that will reassure private bondholders that they are not being singled out for losses by European policymakers, bolstering their confidence in buying euro zone bonds - and potentially helping Italy and other under-pressure borrowers.

Yet there is one difference: whereas Germany is appealing to Europe's people to voluntarily hand over their freedom and sovereignty to Merkel, the Fed is acting on the assumption that it already has these in hand. Luckily, none of this matters as there is football night... then Dancing with the Stars night... then Jersey Shore night... then rinse and repeat.

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1000pips's picture

Great For Eur/USD. $1.40 in a week !

strannick's picture

Congress can be so damned inconvienient.

jekyll island's picture

Why would the fed need to go through the IMF when it can use swap lines or bury it off balance sheet?  Is the IMF used because of it's high visibility and to send a clear message to the markets?  

trav7777's picture

probably got some cousins they need to funnel more money to.

As for Congress being inconvenient, they are really too busy getting themselves rich to give a shit about actual legislating

sqz's picture

@jekyll island

Central bank swap lines, particularly the ECB's, requires posting collateral to use.

Since the problem IS the collateral, the swaps are not as useful as you think to solve either the funding crisis or sovereign crisis. At most they are just a substitute for USD funding for those who EZ banks who have seen a funding squeeze on their USD assets.

Loaning funds via the IMF would theoretically (or fantastically?) target the sovereigns, the source of the crisis, directly. Unfortunately, this is not a realistic solution due to the total size of the EZ sovereign debt market - at least EUR 1,600 bn is required per year for EZ debt rollover alone. Also, the IMF was never designed to backstop large countries, i.e. hand out huge loans to countries that make up a large part of the IMF itself. It is largely meant as a vehicle to lend to small or medium countries in times of trouble so that they are forced to accept Anglo-American structural requirements at the same time, such as "free trade" or "liberalisation" or other aspects that make it easier for Westerners to take over their markets and assets. This is why the IMF is called an optical backstop. It is never meant to be actually drawn down significantly, merely look like it could be.

Even if the IMF could somehow miraculously be used for EZ bailout, it cannot be used forever without even more damage being caused. The structural imbalances that exist in the Eurozone would still be there and because the IMF committment would almost certainly have to have a large input from the EZ creditor nations, like Germany, it means the debtor nations have a massive incentive to not follow any austerity or other painful conditions, but instead hold the creditor nations, who are captive with them in the sub-optimal currency area, to ransom with the threat of more damage and default. Nothing would be fixed. In fact, it creates almost ideal conditions for much worse problems.

IMF involvement for large EZ bailouts would be like having Eurobonds without a fiscal union, except now you also directly contaminate/suck-in other non-EZ sovereigns. Even printing, which solves nothing and also adds its own difficulties, would be better since it at least keeps the structural and fiscal problems contained within the EZ for longer.

topcallingtroll's picture

A classic nash equilibrium.

Germany is trying to avoid falling in the trap.

jeff montanye's picture

hussman is particularly cogent on this topic this week:  read especially from "we represent the lollipop guild".

TruthInSunshine's picture

Wake the f*ck up, people.

Zero Hedge is full of diverse but also aware regulars. While we don't agree on all issues all the time, we do tend to see things more accurately than most with the red pill filter assisting us.

The ONLY thing that will harken any sort of significant change in the United States or throw a monkey wrench into the cogs of the machinery marching us on a slow but relentless grind into the assimilated one world borg is if things get painful enough for a majority of the sheeple quickly enough, so they actually take the time to pull their heads out from their asses and do even a modicum of basic, independent research on the whys and whos as to what's turned their little American Dream upside down.

Otherwise, it's all a slow simmer leading to a nice, calm death. No quick boil.

I'll believe real and positive change is afoot when there are tens or hundreds of thousands of protesters marching angrily upon the New York Branch of the Federal Reserve, demanding an end to any private central bank, whatever name it goes by, and a return of the coinage of money to the Congress, as the Constitution mandates.

- Whether Congress screws things up and people over as badly as the private fractional reserve central banksters and those who employ them is another question altogether, but let's get one step done at a time.

The 2nd massive arrangement of swap lines between The Federal Reserve and European Banksters in three short years, barely causing a ripple of reporting or question asking by the Main Lame Ass Stream Media Proxy Puppets or almost all pawns of the Kleptocratic Crony Capitalists in CONgress is merely more incontrovertible proof that there's little hope of any real catalyst for change until another 30 or 50 million people in the U.S. are dumpster diving and eating Alpo.

Gohn Galt's picture

I won't believe until citizens are able to govern themselves without intervention.

Democracy is two wolves fighting over who is going to eat the lamb.  Liberty is when the lamb has a shotgun and can kill both the wolves.

Popo's picture

Exactly.  Although, to put a finer point on it:   Liberty is when a handful of lambs have sniper rifles. 

Shotguns are far too messy, and don't generally create the pervading sense of fear necessary for real change.   Not to mention, they put the lambs in danger.

(Not advocating of course -- just clarifying.)


Marx_it_2_market.'s picture

sqz, I don't understand why the IMF couldn't kick the can down the road for a year or two by giving or loaning that 1.6 Trillion to Europe. That's far less than was given to the financial institutions in 2008-2009.

Your comment that the IMF has mostly been a tool to dominate small and medium countries is quite true, but what would stop TPTB from using the IMF anyway ?

As you say, the IMF includes the Eurozone nations, but I don't see how that's a show-stopper.  Instead, it seems like the IMF will be used to overcome German objections by internationalizing the whole thing, thanks to Ben's helicopter and the manufactured gullibility of the American people.

Can anyone explain, please, where my anaylsis is wrong?  Otherwise, I'm going to think TPTB have the trick that will kick the can down the road for a few years, until the whole Ponzi scheme falls apart. 

jeff montanye's picture

the imf has always insisted on being paid back; indeed its loans become senior to all other loans.  

the assets have gone bad.  what the original investors, including bank bond and stock holders want, is for someone to pay them and take the loss.  the imf may have a different idea.  as they say, if you don't know who the sucker is ....

Marx_it_2_market.'s picture

Right.  The IMF always gets repaid.  So what's to stop that private bank with the turbo printing presses and a Federal name, from funding the Eurozone ?

Potemkin Nation's picture

These deliberations have nothing to do with solving the problem.  As Martenson says, this is a predicament, not a problem.  It's all about who is going to pay.  In that light, saving the bankers by foisting a much more severe problem on the little people is a rational course of action, assuming you're a banker... without a conscience.

El Gordo's picture

I could only wish Congress were too busy to legislate.  Let them steal what they want if they will just stop legislating.

CharlieSDT's picture

Mark Twain observed in 1866, . “No man’s life, liberty, or property is safe while the legislature is in session.” He’s still right. The more our government does, the more they steal from us all.

fourchan's picture

the paracite of government looms large.

Tom Green Swedish's picture

The sad thing is how the parasites sell us out.  Almost all of us pay taxes yet they only listen to a small majority, who pay more.  Its like they are trying to keep their best customer, not be democratic.


I bet if George Washington was president about 98 percent of them would be in prison right now.

CPL's picture

As seen in last episode, the IMF was tight against the rope with no hope.  The Fed acting in the interests of itself require that they reinflate the bubble in Europe.


Stay tuned when the fiat currency believes it is more important than the people it serves...

DeadFred's picture

But we can't stay tuned to Dancing With the Stars because the season is over. What will we do?

Maiden Lane's picture

The fact that you know that is cause for concern

SillySalesmanQuestion's picture

Watch Castle tomorrow night for the answer to that question and much more...right ater The Price Is Right! Stay tuned...

Sudden Debt's picture

The bubble can't be reinflated. And now we're starting to see really bad signs in real estate poping up all over western europe as prices seem to be down 10% overall this year which is causing more people to put their houses for sale.

dracos_ghost's picture

The Eurozone will not allow the US to be perceived as the saviour of their EuroSoviet experiment. Loan it to the IMF "Eu intellectuals" and let them control the message and distribution.

Probably add to that if they do the loan facility under an IMF aegis, by treaty, the US taxpayer has to foot the bill if it goes tits up. Why expose their balance sheet any more than they already have.

The FED has obligated the US Taxpayer outside Congressional due process.

I'm not sure whether the Fed is to blame or f%^&ing Congress. The Fed is what the Fed is. Congress is "Stupid is as stupid does".

Careless Whisper's picture

in the 0.01% chance this latest baseless speculation is true

correction: in the 100% likelihood that the obvious is true

YBNguy's picture

Didnt they make this move during the last bailout, where billions were given to failing foreign countries and it took forever for them to disclose thru FOIA?

rbg81's picture

Sure, lets bail out the Italian and Greek pensioners.  Why not?  We're already in more debt than we could possibly pay off anyway due to our unfunded obligations and "guarantees".  At this point, it might as well be handing out Monopoly $$.  Let's face it: Bernanke's real mandate is to keep the Machine from blowing up into a million pieces until the 2012 election.  A key part of that is keeping interest rates low and the DOW above 12K by any means necessary.  But after 2012, (to quote Private Hudson from "Aliens") its Game Over man.  Game Over.

i-dog's picture

Why do you assume there will be an election in 2012?

Does it look like they're serious about having one? LOL

death_to_fed_tyranny's picture


living on the edge's picture

They are dying but won't go out without a fight, hence QE 3, 4, 5, etc.


Yeah, these banksters would rather fuck the whole world than make it right. 

FeralSerf's picture

They're just doing God's work.  God needs money, lots of it --  all of it if possible.

Now if we only knew who "God" is, we could get to the root of the problem.

JR's picture

Good, we need to have this thing break. Bernanke is an outlaw and he needs to be caught and punished.

Boilermaker's picture

I guess Bernake was right.  He really does literally answer to anyone.  The FED is unilaterally authorized to do whatever the fuck they want to.

CrashisOptimistic's picture

No, let's not go overboard.

The Fed has explicitly said it is not empowered to lend money to California, Illinois or any other state that issues bonds and asks the Fed to purchase.

It's very hard to see how the Fed would buy IMF bonds if it is not empowered to buy California bonds.

jekyll island's picture

Intermediaries, my friend.  Fed would "lend" the money to some WS banker's wife and she would buy all the IMF bonds.  And a purse. 

Caviar Emptor's picture

Then lose it all in a crap game with a bank holding company that the Fed would have to bail out 

Freddie's picture

Maybe that Dem c*nt Corzine and his c**t wife.  The DNC and muslim's friend - Corzine.

Flakmeister's picture

Freddie.... it's a cunt. The word is used in sentences like this:

Someone should slip a cunt over Freddie's head and fuck some sense into him.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

When the time comes the Fed will bail out the states as well.  I know this is hard to grasp, but the Fed "may" be lying:)

Teamtc321's picture

Well sure, those pension's and retirement account's are looking pretty tasty. 

kill switch's picture

Tuco,,One bastard goes in, and another one comes out,,,Look,,look the fed is taking the filthy money...

Mactheknife's picture

>It's very hard to see how the Fed would buy IMF bonds if it is not empowered to buy California bonds.

OK, it's like this...the people who own the Fed (a private bank) have the same vested interest in the major banks of the EU. This is NOT about bailing out countries or states, it's about bailing out the dumbass banks none of whom have much of a vested interest in CA. All western governments are now owned and operated by the world banking cartel and they don't give a rat's ass about CA or IL or you & me. Also, it's in the charter that we gave them in 1913 that says they can go take over the world as long as they leave individual states alone and under the US government. It is an outrage that this power was handed over to them and it must be taken back.

Ima anal sphincter's picture

and it must be taken back

So very true.

FeralSerf's picture

When they decide they're able to get clear title to California, they may change their minds and empower their "Fed" to buy those California bonds.

We may be watching the End Game in real time.

Milestones's picture

Mac-here's something I've posted a few times

by Milestones 
on Sun, 11/21/2010 - 14:22


Mr. T., I addressed this issue a couple of times "The Trials and Tribulations of the Federal Reserve Act of 1913" on 6-15-10 and a couple of times later. In fine, let me answer you in brief.

My argument lies in Article 1, Section 8 (5)-Powers of Congress. The Congress SHALL have power: to coin money, REGULATE THE VALUE THEREOF,--". That power was apparently DELEGATED to the Federal Reserve Bank. That DELEGATION of authority to the Federal Reserve is my question. Did Congress have the authority to delegate that authority to "regulate the value thereof"?

Panama Refining Co. v Ryan 293 U.S. 388 1935

"The Constitution provides 'that all legislative powers herein GRANTED SHALL be vested in the Congress of the United States, which shall consist Senate and House of Representatives.'--The Congress MANIFESTLY IS NOT PERMITTED to abdicate or to TRANSFER TO OTHERS the essential legislative functions with which it is vested.---Cannot be allowed  to obscure the limitations of the authority to delegate, if our constitutional system is to be maintained."

Field v Clark 143 U.S. 649 1892

--"The legislative power must REMAIN in the organ where it is lodged by that instrument."

Sovereignty is granted to "We the People" in the first 3 words of the Preamble. As such, under the Constitution, we the people delegate our Sovereign authority to persons to REPRESENT us in day to day dealings. But it is the reserve of the Soverigns to delegate authority not our reperesentatives. John Locke came to the same conclusion.

I would contend that the Federal Reserve Act of 1913 is illegal under the Constitution. Further, if we consider Marbury v Madison of 1803, a decision has stood for over 200 years, the case can be stated in far starker terms:

Marbury v Madison 17 Wall 205 Cranch 2 1803

"Thus the particular phraseology of the Constitution of the United States confirms and strengthens the principal, supposedly to be essential to all written constitutions, that a law repugnant to the constitution is VOID; and the courts AS WELL AS ALL OTHER DEPARTMENTS ARE BOUND BY THAT INSTRUMENT."

Not only did Congress not have the authority to submit such a document as the Federal Reserve Act of 1913; likewise President Wilson had no authority to sign it. See the last sentence of the above.

Yes, I know, the Constitution has been turned into a roll of toilet paper to the 1%ers but that is still the document I still march to as do most others . If that not be the case then we would be far better served now to be comparing an AR-15 to an AK-47.

If those unhappy with the way things are want a change, we must state our concerns and grievances in a fashion that those who are totally uninformed can have a place, a handle so that a nightmare of a 2nd revolution can be avoided. 

There was a ton of groundwork done before Jefferson wrote his magnificent document of 1776. Milestones

Your name:Milestones

lunar's picture

.....the people who own the Fed (a private bank) have the same vested interest in the major banks of the EU. This is NOT about bailing out countries or states, it's about bailing out the dumbass banks....

how true!