Fed’s Emergency Fixes Won’t Save the Dollar
Jul 31st, 2008 | By Dave Gonigam | Category: Politics & EconomicsThe Fed is still trying to patch together the financial system with paper clips and rubber bands, says Dave Gonigam.
Bernanke & Co are extending the program of emergency loans to Wall Street until the start of next year. Meanwhile, American homeowners continue to walk away from their properties (and mortgages), leaving the banks to take on the equity losses.
With this sort of thing happening, it’s no wonder everyone is turning their back on the dollar…
This should come as no surprise: The Federal Reserve is extending two of its panic-button emergency loan programs for investment banks through (at least) next January.
The Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries, both begun in March, “would be withdrawn should the board determine that conditions in financial markets are no longer unusual and exigent,” the Fed said in a statement.
“Unusual and exigent.” Love that.
Oh, but it gets better.
The central bank also will start selling 84-day loans to commercial banks under the Term Auction Facility beginning next month, in addition to the sales of 28-day loans that have occurred since the program began in December. The biweekly sales will alternate between auctions of $75 billion in 28-day loans, and $25 billion in 84-day loans.
Meanwhile, Professor Nouriel Roubini says the volume of jingle-mail (upside-down homeowners sending their keys back to the lender) is cascading through the financial system at an astonishing rate:
“This is becoming a tsunami of voluntary defaults,” Professor Roubini says.
“The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion.
“You could have most of the US banking system wiped out, so this is a total disaster.”
No wonder Jim Rogers (and nearly all the other speakers at last week’s Agora Financial Investment Symposium) urges us to get out of the dollar. Like yesterday.
Source: Paper Clips and Rubber Bands
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