Forum Post: Does anyone understand the fed window? bank leverage?
Posted 12 years ago on Nov. 23, 2011, 9:31 a.m. EST by demcapitalist
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I understand the derivatives and how they crashed the economy, I understand how the banks used bad bonds as collateral to create more bad bonds. I understand that bank leverage was at a crazy high 30X I think, I understand how the leverage contributed to the crash. What I don't get is where does the money come from for the leverage? all from the fed? banks lending money they don't have to each other? Any economists out there?
Fractional Reserve Lending
Fractional Reserve Lending is exactly what its name implies: To Lend Money with only a Fraction of the Face Value of that money in your vault. For example, a bank that lends you $100, is only required to physically possess TEN dollars. That’s right, a bank only needs 10% REAL assets to lend you money. Some of you may be marveling that this is actually legal, wouldn’t it be nice if we all only needed 10% real assets to work with money? Well, it is legal, but only for banks.
What follows is the mechanics of Fractional Reserves which deserves your full attention. It is practiced by every bank everywhere, every day, and is allowed by law, (for only banks that is): A person deposits $1000 into his local bank account; this bank can then loan 90% of this amount ($900) to a second individual and only be obligated to maintain 10% physically in the bank. (Thus a “fractional reserve”) Therefore, the initial person still has $1000 in their account, but now the second individual also has $900, from thin air! And the cycle indefinitely continues. From bank to bank the money is transferred and grows, thus from this $1000 the chain of lending would be: 1000, 900, 810, 729, 656, 590, 531, 478, 430, 387, 348, 313, 282, 254, 229, 206, 185, 166, 149, 134, 121, 109, 98, 88, 79, 71, 64, 58, 52, 47, 42, 38, 34, 31, 28, 25, 22, 20, 18, 16, 14, 13, 12, 11, 10, 9, 8, 7, 6, 5, 4, 3.5, 3, 2.7, 2.43, 2.19, 1.98, 1.78, 1.6, 1.49, 1.3, 1.17, 1.05, 0.94 etc. Totaling $8962.08, and these figures have been rounded off for sake of simplicity, the actual value would be $9000.
This is how the banks create money by lending. All citizens are complicit in this scheme by borrowing.
Where does it come from in the first place? POOF! out of thin air. all you say is true but can be reduced to the fraud that it is. Borrowing on a (non-existent)value that is "created" by The Fed (one small private bank of The Rothchild cartel) without knowledge that this fraud is fraud-well it's ignorance perpetuating slavery-and people are not aware that before The Fed was created by The Bank of England, so was Tge District of Cokumbia-same criminal gang of bankers. Start at the beginning of the fraud to understand that fraud derivitives need not be explicitly understood. You and I have been fraudulently induced from before birth.
I'm not an economist., but what I do understand is that the system is incomprehensibly foolish.
You shouldn't have to be an economist to understand value trades... That's the beauty of studying the history of the fraud. Like watching a magician show you how he does a card trick... At the moment you're stuck with "pick a card, ANY CARD!!". Learn it pass it on-education must be the fuel of this movement
Ok so can I assume that without Glass/Steagall banks can lend money to investment banks for trading? I already know that investment banks are trading leveraged derivatives. That's a lot of leverage. No room to be wrong. I actually don't have a problem with the fractional banking system for mortgages small business loans etc -----------real loans to real people for real things (with limitations)but the leverage funds used for leveraged bets is problematic. So much money has been dumped into the economy by the taxpayer in the last few years but none of it seems to make it to main street, it ends up in commodities costing the taxpayer even more money If all those transactions in your last post are mostly a few banks just shuffling money between retail lending and investment wings it's no wonder we don't see any cash down here in the middle class.
The Fed is a Ponzi scheme - the money isn't real.
The fed has opened up a window for banks to use to put up their bad mortgage bonds as collateral for loans to keep the banks capital (mortgage bonds) from being worthless. It is all basically the Fed manufacturing capital! Turning paper into gold?
I understand that as well. take MF Global, they went bankrupt from some bad trades due to the 44X leverage they were using. For example they had a million and someone lent them 43 million to trade with based on that million. Who lent them that 43 million?
Banks, Investors, Berni Madoff ? Most of the money in MBS was private money as far as I know. A lot of those securities are at the Fed right now.
Here's the thing, if banks lent the money to MF Global for speculating that's money they didn't lend to main street. That would be my problem with it legislatively.
Here is a real quick description of what the fed is doing and why it is illegal.
The government has two problems. Massive deficits, and failing banks. So when the passed TARP they did several things. They told the Fed to allow banks to borrow money at the discount window for basically nothing. Then in order to prop up the asset base of the banks, they directed the banks to buy US treasuries with that money. Now the banks are filling up with 'safe' assets instead of bad mortgages.
Why does the US sell treasuries? to raise money to make up for the deficit. It is illegal for the Fed to give the government money directly, as that is called monetizing the debt. So they are using the bankers to do it for them. Then when the bankers want actual capital, the fed buys the treasuries back from the banks.
Nowhere in this process is the bank doing business with the public.
What i liked best about Obama's numerous speeches about forcing banks to lend to the public again, was that it was a complete lie. I have seen the letters from the FDIC to the bankers that tells them NOT to lend money. They force them into this treasury buying scheme to make up the deficit. Its all a scam.
But they are doing business IMO -----------they have been using the cash in the investment wings to make all kinds of crazy bets. It's not showing up on main street that's for sure.
You should start here and understand the history of the FED-then it will be much easier to understand the parts of their racket http://occupywallst.org/forum/interesting-read-about-the-constitution-and-corpor/#comment-404866
I will do that. thanks
Bofl has been pasting this remark all over the place to promote I can't tell what! LOL If you can understand him you can understand the Fed!
I will do some other research as well. I sort of understand the fractional banking system. I still need to know where MF Global got the $ for their 44X leveraged positions and what if anything does it have to do with me and my bank deposits? This stuff drives me crazy till I understand it.
IF You can't understand the fed you can't beat it. You can't untie a gordian knot by starting from the outside layer. This is a maze that literally represents 500 years of financial and corporate skullduggery. Yes-I've posted anywhere that I see it pertains to the problem someone is trying to solve-without a background that allows them to do so. Keep learning And keep teaching!