Fed Fright: Bernanke Sets Up Multibillion-dollar Emergency CDO Bailout

The U.S. Government sets the stage to trade $billions in U.S. government bonds for worthless mortgage paper

By Dorothy

Interesting article this morning on Agora Financial's website. When you read today's article it becomes obvious that the Federal Reserve has just nationalized all the banks who are bankrupt because of greedy speculation in the subprime mortages - which means that you and I are going to pay off the banks' debts just like we taxpayers were forced to do when the Savings and Loans went belly-up for making bad housing loans in the '70's & 80's. Here's the skinny:

You have to admit, widespread panic at the Fed is entertaining.

One week after calling Mulligan” on the entire mortgage bubble, Bernanke is suggesting we pass the entire mess onto the next generation. God forbid the baby boomers ever take responsibility for their own actions.

The Federal Reserve announced this morning that it will make an additional $200 billion available to strapped lending institutions. But instead of firing up the printing presses and going about business as usual, the Fed has unveiled a whole new plot, and a handy acronym to go with it: Term Securities Lending Facility (TSLF).

The new initiative, like the old Term Auction Facility (TAF), will provide short-term loans to distressed financial institutions. But instead of enticing banks with cheap interest rates, the Fed is now offering to swap mortgage-backed securities for U.S. Treasuries.

Thus, a bank swelling with Fannie Mae and Freddie Mac paper and other “AAA” mortgage-backed assets can unload it on the Fed for the next 28 days. The Fed wants banks to take that money and lend to the masses, thus stimulating the economy. No word yet how much additional debt it will take for the government to absorb this mess.

The new TSLFs will begin on March 27.

The painful part is that the Federal Reserve is not part of our government, but a private consortium of investors, many of whom are in Europe and other parts of the world.

The bigger - worst - part is that our President and Congress do not have a clue about what has just been done to all of us including them and their heirs. How stupid can we get as a nation?

We are now in the process of trading U.S. government bonds for worthless mortgages in the billions that the banks cannot get an investor to take off their hands... The day of reckoning will eventually arrive for this.