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April 21, 2012 / 74

HA! I was RIGHT! (Re: Bernanke’s “Purchase” of Toxic Assets)

On  June 8th, 2011 I posted this:

http://michaelepicray.com/2011/06/08/we-dont-know-yet-what-happened/

… 6. And if you think that the Banks aren’t lending because they’d rather hoard all the cash they got from the FED when it bought their Toxic Assets – then you don’t understand the nature of that transaction. The banks aren’t lending because although they are “TECHNICALLY” solvent, they’re not actually. Actually they are as bad off now as they were before – if not worse.

Of course – all of the above is simply my opinion of what happened, how it happened and all that, based on the bits and pieces I gathered from the news media – so it could be all hogwash… or not. You get to decide if I am right or wrong – hopefully by doing your own research and proving or disproving the above. …

Then on Oct 3, 2011 I posted:

http://michaelepicray.com/2011/10/03/the-fatal-flaw-in-the-current-collective-analyses-of-the-economy/

… It is my suspicion that although the FED “bought” those TAs, they didn’t give the banks any money for them. Since the FED had the Congress pass a new law allowing them to pay interest on “excess contributions”, I think the FED is paying the banks a minimum amount of interest (thus making the TAs into “interest bearing deposits”, aka “cash equivalents” for stress test purposes), and keeping the purchase price of the TAs, while collecting the mortgage payments (which I expect are at a minimum of 4% and higher) for the MOSTLY AAA rated mortgages. So the FED is making a fortune on the TAs, and the banks who had to leave the Purchase Price on deposit with the Fed STILL have no money to lend. But hey – they can now pass the “stress tests” administered by who??? …

Today I found this:

http://www.economonitor.com/lrwray/2012/04/19/does-chairman-bernanke-know-squat-about-money/

which referred to this:

(Look at his presentation beginning on page 17): http://www.scribd.com/doc/87374621/Bernanke-Lecture-Four.)

“Now, you might ask the question, well, the Fed is going out and buying 2 trillion dollars of securities – how did we pay for that? And the answer is that we paid for those securities by crediting the bank accounts of the people who sold them to us, and those accounts, at the banks, showed up as reserves that the banks would hold with the Fed. So the Fed is a bank for the banks. Banks can hold deposit accounts with the Fed, essentially, and those are called reserve accounts. And so as the purchases of securities occurred, the way we paid for them was basically by increasing the amount of reserves that banks had in their accounts with the Fed.

WHEEEE!!!! I LOVE being right! ;-D

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