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Fed may not want its cash loans back any more than governments want their gold loans back

Section: Daily Dispatches

2a ET Saturday, March 29, 2008

Dear Friend of GATA and Gold:

The Federal Reserve's ever-increasing "short-term" lending to major commercial and investment banks, described in the news report appended here, is starting to recall the boast of Barrick Gold a few years ago that its huge gold loans were "evergreen," written for 15-year terms but always allowed to be extended for another year every year.

Barrick's suggestion was that its gold loans never had to be repaid -- that they were gold loans from central banks and that the central banks did not want their gold back, that the central banks wanted instead for the gold price to be suppressed. By contrast, demanding repayment of the gold loans would cause a short squeeze in the gold market and send the price soaring. That's what central bank gold sales seem to be: not delivery of new gold into the market but cash settlement of old gold loans that can't be repaid without causing that short squeeze.

For who else would want to "lend" gold on the virtually indefinite terms available to Barrick? Who else would even be able to lend gold this way? Who else would want to do so? And what purpose could such loans have other than to suppress the price?

Does the Fed want its burgeoning loans to the commercial and investment banks repaid? Probably not any time soon, for all these "short-term" billions can be deployed to rig a lot of markets -- not just the mortgage derivatives markets that are the center of attention but very possibly the commodities markets as well. Thus these loans would become just like the funds in the Fed's pool of repurchase agreements with the Fed's primary dealers in New York, a pool of funds that now stands near $300 billion. These funds too are nominally "temporary" loans, but the pool never goes back to zero or even close. To the contrary, it is usually growing and has nearly doubled over the last six months -- and its only purpose is market rigging.

News organizations and Congress have not yet realized the purposes to which infinite money may be put and so haven't begun questioning all the money being flung around. But it's not about free-market capitalism; it's what's called lemon socialism, wherein private interests take any profits and the public assumes any losses.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Fed Offers $100 Billion More to Banks

By Martin Crutsinger
Associated Press
via Yahoo News
Friday, March 28, 2008

WASHINGTON -- The Federal Reserve announced Friday it will auction an additional $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns Cos., the nation's fifth largest investment bank.

The Fed has been holding auctions every two weeks since December to provide short-term loans to commercial banks. It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.

In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis. The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed. Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co., hoping to prevent a bankruptcy that could have rocked Wall Street.

Private economists said the auctions were having a positive impact but that troubles still exist in many sectors of the credit markets because of multibillion-dollar losses many financial institutions have suffered as the result of soaring defaults on mortgage loans.

"The Fed has worked some positive magic," said Mark Zandi, chief economist at Moody's "At least the panic has subsided as the risk of another major failure has receded given that financial institutions now have access to a lot of cash through the various lending facilities the Fed has established."

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.

Fed Chairman Ben Bernanke will face questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

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