What Gold and Oil are Saying (aig)
The Fed is set to release data about lending from its discount window during the financial crisis some time this week.
If you don't know, the Fed routinely makes short-term, even overnight, loans to banks. These loans are referred to as "overnight lending" or "open market operations." The mechanism is referred to as the Fed's "discount window."
Conspiracy theorists often point to the Fed's overnight lending as a sure sign that the financial markets are manipulated with cash infusions by the Fed.
Really, in a general sense, these open market operations are there to provide short-term liquidity to qualified banks to help them settle daily transactions. This lending is also used to manage monetary policy on a daily basis.
But the Fed has been resistant to revealing details about the discount window lending during the crisis. It took a lawsuit form Bloomberg to force the Fed to open up the books...
*****The Fed has argued that this information may give an unfair view of the health of the nation's banks. Others believe it will show that the Fed lent money to virtually any bank, without much concern for their long-term health.
The Fed currently claims that all lending operations during the crisis have been repaid, with interest. But the bigger concern remains that the Fed has reflexively acted to support banks that would have otherwise failed.
Now, we must remember that the financial crisis was an unprecedented occurrence. And the possibility of a complete banking meltdown was very real. And the Fed's actions are credited with restoring confidence that the banks weren't going to collapse and preventing a run on the banks, which would not have been good.
And so, in a general sense, it's to be overly critical of the Fed's actions during that truly frightening time.
But the problem is, the Fed, and the Treasury, seem to be still affording banks an advantage. Especially the big, "too big to fail" banks.
Banks have been able to borrow money at extremely low interest rates and then lend it (or invest it) for an easy, built in profit. Banks have also enjoyed relaxed accounting standards that have helped them improve their capital base perception.
The Federal Reserve is a bank, filled with bankers. It's no surprise that the Fed has helped its own. But we can't escape the feeling that the Fed went too far in protecting, and bailing out, its own.
No bankers have been prosecuted for fraud, even though we know that Lehman Brothers engaged in fraud to try and stave off bankruptcy. Countrywide's Anthony Mozillo avoided jail time. Even AIG's (NYSE:AIG) Joseph Cassano, who underwrote trillions in investment insurance known as credit-default swaps remains a free man.
In its attempts to rescue a failed banking system, the Fed has surely helped cover up what could be termed criminal, or at least fraudulent, behavior. We can throw Congress and the Administration in there, as well. To this day, no public servant is willing to go after the individuals who were responsible for the financial crisis. And that's because there is nobody who is qualified to throw the first stone.
The release of the Fed's lending operations will certainly raise more questions about how much power the Fed has.
*****Syria's government has made some serious concessions to appease its angry citizens. The Prime Minister has resigned and a new cabinet will be sworn in. We'll see if that's enough to bring stability.
Oil prices have been trading lower for a couple days now. There is reportedly even hope that Libya will resume exports soon. That seems unlikely. But don't ignore the action in the two main fear trades: gold and oil.
Also, keep an eye in the U.S. dollar. Weakness in the euro and the yen are pushing it higher. That's a potential threat to both stock and commodity prices.
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