New Study Shows Money Has Tightened Despite Fed’s Efforts

Conditions in the credit markets have not recovered from the crisis and are beginning to tighten again. Because the Obama administration and officials at the Federal Reserve and Treasury have been lying to the public about a recovery in the economy, the Fed has begun a campaign to withdraw liquidity and the extraordinary support from the system. If Bernanke continues down this path, it will lead to a catastrophe.

The study also disproves the claim by Paulson, Bernanke, Bush, Geithner, Summers, Obama et al, that pumping hundreds of billions of dollars into the Wall Street banks was necessary to assure the free flow of credit to businesses and consumers. This trickle down theory was always a lie, as was postulated on this blog at the time. The real goal of the TARP and the Federal Reserve's extraordinary measures was enrich Wall Street executives and to assure that they had the funding to ride out the credit contraction which will take years to unwind.

The underlying problem is that because the clowns in charge have no desire to prosecute the criminals and cleanse the system, no reforms have been undertaken. Instead, their efforts have been misdirected at restarting the fraudulent system.

Buckle up. While it is not possible to forecast exactly when things will turn ugly again, the back half of the storm is approaching. By attempting to paper over the problems and by protecting their friends and donors, our "leaders" have set us up for a socio-political crisis that may take down our way of life. The debt will bring us down financially and the lies of the politicians will destroy the social fabric of society.

Link

Excerpt:

The Federal Reserve has pushed short-term interest rates to near zero, flooded the financial system with loans and committed to purchase more than $1.7 trillion of mortgage and Treasury securities to restart a financial system devastated by the debt crisis. After all that, however, financial conditions tightened a bit at the end of 2009, according to a new study produced by a collection of Wall Street and academic researchers.

The reason is that even with exceptionally low interest rates, capital markets aren’t humming and bank lending is weak. One example: Issuance of asset backed securities — which are securities backed by auto loans or credit card debt — was a scant $28.7 billion in the fourth quarter, down from $51.1 billion in the third quarter and $50.1 billion in the second. Levels of commercial paper — the short-term credit many companies used to fund themselves before the financial crisis — were also soft, with outstanding paper at $1.1 trillion at the end of January, compared to $1.3 trillion in September.

One of the most important drivers of the economists’ financial conditions index was the asset-backed securities markets, where commercial real estate loans, car loans and many other kinds of bank loans were financed during the credit boom. Loans in this market are packaged into securities and sold to investors around the world. In 2006, issuance of asset backed securities — not include residential mortgage backed securities — topped $700 billion, according to the Securities Industry and Financial Markets Association. It was $168 billion last year.

The Federal Reserve has expended huge amounts of energy trying to restart this market, with the creation of a program called the Term Asset-backed Securities Loan Facility, or TALF, which provides cheap, nonrecourse funding to investors who buy these securities. Issuance of the securities perked up after the program was launched last March, but the market remains highly impaired. One problem: Many investors have become less trustful of credit ratings attached to the securities after the bust. Many individuals and firms also remain reluctant to take on more debt.

A similar pattern is showing up in the “repo” loan market, where many securities brokerages and banks funded themselves before the financial crisis hit. In this market, a financial firm uses its securities holdings as collateral for short-term loans, which help it to fund its activities. Panics in this market in 2008 helped to drive firms like Bear Stearns and Lehman Brothers to the brink. The market picked up a bit last year, but at $1.338 trillion in the third quarter, was still less than three-fifths its size in 2007. That also held down the economists’ index. Broader measures of money growth are also soft. M2, a measure of deposits in the banking system and money market funds, contracted at a 0.9% annual rate in the three months through January, according to Fed data.