http://www.huffingtonpost.com/…

For more than a year, the U.S. Federal Reserve System has been increasingly acting as the world’s central bank, injecting hundreds of billions of dollars into foreign government treasuries in an effort to increase liquidity in those countries.

The foreign central banks have used the U.S. currency to bail out financial institutions within their borders. The Fed program links its balance sheet directly to the fates of foreign central banks at a time when they’re on the ropes.

The program has so far gone unreported in the mainstream media and is a major expansion of Federal Reserve involvement in the global economy. It represents a stark break from the prior role of the Fed, moving it into territory more traditionally occupied by the International Monetary Fund (IMF).

The program puts both the Fed and the foreign central banks at increased risk. If the bailed-out banks can’t repay the loans, the foreign central bank is still on the hook to the Fed. It would have to raise the money by selling debt — which most Europeans are finding difficult today — or raise taxes or cut spending, actions that further exacerbate the economic crisis. Or, the foreign central bank could default, leaving the U.S. holding a bag of foreign currency of plummeting value.

http://finance.yahoo.com/…

The incoming Obama administration is considering setting up a government-run bank to acquire bad assets clogging the financial system, a person familiar with the Obama team’s thinking said on Saturday.

The U.S. Federal Reserve, Treasury and Federal Deposit Insurance Corp have been in talks about ways to ease a banking crisis that is once again deepening — and a government-run “aggregator bank” is among the options.

Outgoing Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair both said on Friday a government bank was one of a number of ideas U.S. regulators had been discussing.

The source said advisers to President-elect Barack Obama, who takes office on Tuesday, were also considering the idea of an aggregator bank among a range of options that could be pursued.

David Axelrod, a top adviser to Obama, told Reuters the new administration would have something to say about a fresh approach to the financial crisis in “the next few days.”

Yes… because the first two worked out so well.

The story is a few days old but I’ve not seen much coverage. It seems doubtful to me something like this would occur. Those in power and coming to power seem to prefer fascism to socialism.

http://www.reuters.com/…

The credit crunch is not nearly as severe as the U.S. authorities appear to believe and public data actually suggest world credit markets are functioning remarkably well, a report released on Thursday says.

As a result, governments are pumping masses of public money into the economy across the world because of the difficulties of a few big, vocal banks and industries such as car manufacturing, which would be in difficulty anyway, according to the report published by Celent, a financial services consultancy.

“It’s just stabbing in the dark with trillions of dollars,” Octavio Marenzi, report author and head of Celent, told Reuters in a telephone interview where he questioned the depth of the analysis that preceded numerous fiscal stimulus packages.

The report, much of which is based on U.S. Federal Reserve data, challenges a long list of assumptions one by one, arguing that there is indeed a financial crisis but that, on aggregate, the problems of a few are by no means those of the many when it comes to obtaining credit.

“It is startling that many of (Federal Reserve) Chairman (Ben) Bernanke and (Treasury) Secretary (Henry) Paulson’s remarks are not supported or are flatly contradicted by the data provided by the very organizations they lead,” said the report.

Perhaps the U.S. central bank and treasury department, and authorities in other countries by extension, know something they are not telling anyone and which is far more worrying than the public data shows, the report says.

Or, more plausibly, they were generalizing erroneously from the bad experience of a limited number of big banks and companies that are in any case in difficulty.

“I don’t think they’re fabricating stuff but what I think they are doing is taking the situation of a handful of institutions and generalizing that to the market as a whole, incorrectly,” said Marenzi.

The picture appeared to be broadly similar in much of Europe and Japan, said the report, based on publicly available data on trends in bank lending to industry, households and among banks themselves in the so-called interbank markets.

ALL A MYTH?

Regarding U.S. business access to credit, the report says:

*Overall U.S. bank lending is at its highest level ever and has grown during the current financial crisies.

*U.S. commercial bank lending is at record highs and growing particularly fast since May 2007.

*Corporate bond issuance has declined but increased commercial lending has compensated for this.
Read More…

http://www.ft.com/…

Banks and investment banks whose health is crucial to the global financial system should operate under a unified regulatory framework with “appropriate requirements for capital and liquidity”, according to Timothy Geithner, president of the Federal Reserve Bank of New York.Writing in Monday’s Financial Times, Mr Geithner, a key US policymaker throughout the credit crisis and one of the main architects of the rescue of Bear Stearns, says that the US Federal Reserve should play a “central role” in the new regulatory framework, working closely with supervisors in the US and round the world.

In his speech, Mr Geithner will also say the Fed is examining whether to make “permanent” some of the new liquidity facilities put in place during the credit crisis, and called for central banks to establish a “standing network of currency swaps, collateral policies and account arrangements” to bolster liquidity during a future crisis.

So when they screwup, which is all the time, they directly instead of indirectly effect everyone on the planet. Wonderful…

http://www.dailyreckoning.com.au/…

The U.S. Federal Reserve got even more deeply involved in the credit crisis on Friday by offering more loans to the banks through two of its newly established “facilities.”The Fed has become the mother of all credit exiles, accepting Wall Street’s over-valued, under-performing, dead-beat loans. At least that is what it’s done in a metaphorical sense. What did it do practically?

First the Fed increased by US$25 billion the amount of money it will auction to banks (commercial and investment) through its Term Auction Facility (TAF). Here banker people, borrow more. Please.

Second, the Fed expanded the list of collateral it will accept for asset-swapping through its Term Securities Lending (Facility). Remember, that’s the one that lets banks and prime brokers swap mortgage-backed securities for Treasury bonds for up to 28-days.

The Fed is now expanding that list of asset-backed securities to include collateralized car loans, credit card receivables, and student loans. It’s doing so because the lack of demand for bonds backed by those assets has had a real political impact in an election year. Students can’t get loans for American universities because investors won’t buy bonds issued by the banks who made the loans to the students. No funding, no college.

We don’t know if you are as agitated reading about the Fed loan programs as we are writing about them. It’s pretty agitating. You have to translate what the Fed has done from Central Bank speak to what it really means.

What it really means is that that the Fed has lowered interest rates as far as it can to deal with the bank lending crisis. It still hasn’t encouraged banks to loan to each other, or investors to buy bonds backed by various kinds of consumer liabilities. But it HAS had some effects.

Remember last week we said the interest rate on U.S. Treasury bonds is below the rate of inflation? Well, American real estate speculator Sam Zell says this has lured some investors back into the market for residential mortgage-backed securities. “Is it in large volumes? No. Is it the natural first step in the evolution? Yes.”

The evolution of what? New credit markets? A credit market where the Fed trashes the yield on U.S. government debt in order to make the yield on mortgage-backed debt look less trashy? One asset might look less trashy in a side-by-side comparison. But for investors, isn’t this like choosing which leper you’d like to take home and introduce to your mother?

Our take is this: the Fed has probably stopped cutting rates for awhile because it’s apparent that cutting rates has not solved the problem in the credit markets. That problem is still the same: poor asset quality. But even on that score, not everyone agrees.

This is really, really pathetic. Sounds a bit like what happened to Japan doesn’t it?

http://www.telegraph.co.uk/…

The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.

The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.

A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region’s economy to its knees.

It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.

Scandinavia’s bank rescue proved successful and is now a model for central bankers, unlike Japan’s drawn-out response, where ailing banks were propped up in a half-public limbo for years.

I’m not able to find the clip he used but Gardner Goldsmith on his radio show yesterday but not only did the administration admit it and the Fed is looking into how the Nordic banking nationalization went it admitted to planning to open the floodgates on the money supply as long ago as last spring.

Ron Paul was on the Glenn Beck show tonight (see below) and Beck was in a daze of sorts. If you noticed, this morning some fairly bad news came out about UBS and some other banks. An additional $19b writedown for UBS and their director stepped down. Auto sales dropped. Oil was at new highs. Metals are all down. Etc. And yet the Dow was up almost 400 points. 3.19%. Nasdaq and the S&P 500 even more. And that’s after this news about the Nordic nationalization. Beck says he was never a conspiracy theorist, thought the John Birch Society people were crazy, but as he reads about the Fed, about the 1907 crash, he’s getting very uncomfortable with what finds in the past and the continuation of it in the present. Beck is hardly a real libertarian or gold bug but it’s really great to see someone on in the MSM helping get this info out there.