Bailout Plan B

Well, I told you it would happen. We got the Bailout We Deserve. When the bailout was defeated by the house. Decried as a bailout for Wall Street bankers which is exactly the opposite of how it would actually work. We have already had several banks failed and been taken over by the FDIC. Starting tomorrow we might see companies unable to make payroll. Expect consumer loan & credit rates to spike over the rest of the week.

The Federal Reserve is expanding its current offerings to keep liquidity in the system.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

Bloomberg.com: News.

We’re going to have to come up with something to provide the trillions in liquidity that we’re going to need.

Short term help:

Expand the FDIC for corporate checking/savings account (demand deposit) to an unlimited amount. This will require higher fees to cover the potential defaults. It will give companies a SAFE place to put payroll money prior to make distributions.

Pay interest on Federal deposits. We require banks to hold capital at the Federal Reserve but do not pay any interest on it, creating a disincentive to hold extra capital there. Additionally, paying interest makes it much easier to maintain the target Fed Funds rate.

DO NOT USE Federal Reserve emergency funds to insure Money Market funds. These have been sold as an investment, not a Federally Guaranteed fund, they should be subject to market forces. There are plenty of MM funds that are run well, let the ones that are not have their capital flee.