The Fed announced a plan on Monday meant to prop up the financial system: they can take loans from the Fed to plump up their liquidity. Oh, what is the collateral you ask?
The central bank broadened the scope of collateral that borrowers can use to secure the loans to include federal agency debt and certain residential mortgage-backed securities. The Dow Jones industrial average soared more than 200 points on the news, as key credit spreads narrowed.
This means that we, the taxpayers of the US, will be handed the bill if the banks can't repay the loan and it's entirely possible the collateral (which includes 'certain residential mortgage backed securities') may not be worth that much.
Oh, yeah.. and these loans are up to almost 29 billion at the end of Weds. . And the Fed isn't telling us which banks are borrowing. How convenient.
hmmm.... Why do I feel like this is going to suck for us?
Why should all these banks just be bailed out this way? What is their motivation (after a certain period of time, when the economy begins to recover) to avoid returning to their risky behavior? After all, the government will just bail them out and give the taxpayers the bill.
I am NOT pleased.
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