So where have all these Billions gone that we've given out in the past few weeks?

[BR_Parkway]

I've been trying to figure out where all the money has already gone, sitting here reading articles like:

A chronology of the US financial crisis
Economic Times, India - Sep 29, 2008
The Federal Reserve pumps 70 billion dollars into the markets. - The Dow Jones Industrial Average plunges 504 points, or 4.42 percent, its biggest one-day .

Banking crisis: Dollar borrowing costs soar
guardian.co.uk, UK - Sep 30, 2008
On Monday the US Federal Reserve increased its reciprocal dollar fund swap arrangements to $620 billion - more than double the previous amount. ...

US Federal Reserve injects £99bn into world markets
Telegraph.co.uk, United Kingdom - Sep 18, 2008
By Jonathan Sibun The US Federal Reserve led an $180bn (£99bn) injection of cash into the world's financial markets yesterday as central banks moved to ...

Anxious central banks pump billions more into markets
AFP - Sep 16, 2008
In the United States, the Federal Reserve injected 50 billion dollars, adding to Monday's 70 billion dollars and taking the total amount injected by central ...

and the list just seems to go on and on over the past few weeks.

Does anyone know how much money the Fed has put in trying to 'ease' this credit crunch? Any idea where the money has gone?

[dbt]

1. Kick And Wreck

More money to cure the problems that more money couldn't fix to begin with. Meanwhile, our elected Repre$entative$ decide that even MORE money ought to do the trick. Hmmmm. Ain't somebody doing the same thing over and over--and expecting a different result?

[lib2DaBone]

2. The money has gone to the people that got us into this mess in first place

[SmileyRose]

3. Bush Inc??

[Cessna Invesco Palin]

4. The money goes to banks that hold accounts with the federal reserve banks. n/t

[HamdenRice]

5. The way these articles phrase this doesn't help, does it? These are loans to banks

As you know the basic problem is that banks have found that many of their mortgage assets are of uncertain value. These assets used to be used by banks to make loans to each other and to settle accounts with each other. That inter-bank lending has dried up because banks don't trust each other.

The idea behind the bailout is that the Treasury would buy these assets from the banks. The banks would now have cash or treasury bills and could resume lending, using treasury bills assets for lending and settlement. The Treasury would hold these assets until they regained their value, sell them back to the banks (at a profit) and the banks would be willing to resume using them for loans and settlement.

Because banks won't lend to each other, and the bailout plan wasn't happening fast enough, the Fed and central banks of Europe and Asia have stepped in. When these articles say that the Fed has "dumped" money into the system, that's not a very helpful description and leads people to think this money is being given away.

What the Fed is actually doing lending money to banks. They are like the lender of last resort. So those billions are loans. The Fed takes collateral for those loans, in the form of the mortgage assets. So basically the Fed has carried out something a lot like the bailout already. These loans are what has averted the crisis to some extent.

The other big "dump" of money into the system is various arrangements between the Fed and foreign central banks to lend to each other. If the bank of Japan needs dollars, the Fed will supply them; if the Fed needs Yen the Bank of Japan will provide them; etc.)

The problem though, and the reason the Fed and Treasury still want the bailout, is that the loans from the Fed and other central banks to the commercial banks are short term. They are for 90 days. That means the crisis starts all over again just around the time Obama gets sworn in.

(Btw, how do you think the Republicans and Fox news will spin it if we have another credit meltdown just as Obama is sworn in? "See the markets are terrified of the black guy/Democrat becoming president!!11!")

Also you might think that the Fed and central banks could just step in again 90 days from now, and if there is no bailout they probably will. But the problem is that the Fed itself is a bank and these loans and the taking of mortgage collateral is making the Fed's own balance sheet look shakey. Also, these short term loans do not improve the commercial banks' balance sheets because they are loans rather than good assets.

So this money isn't being given away, it's being lent, and basically the Fed is actually making money, not losing money on this. But the Fed itself is getting stretched dangerously thin.

[coalition_unwilling]

6. Good post. I think one can argue plausibly that

the reason the so-called "bailout plan" is still being sought by the Fed is that the Fed has lost the power to shape events through standard monetary policy.

Case in point: despite the massive interventions by the Fed recently, the spread between LIBOR (the rate banks charge one another for overnight loans) and the rate at the Fed's Open Market Window (the place where the Fed makes overnight loans tn banks) has widened significantly in recent days.

Had the Fed still power to instill and restore confidence, that spread would have narrowed.

The bailout is thus an attempt to jump start commercial lending. (Apologies for the mixed metaphor.)