big picture rants..

(I keep going on rants over at, the big picture, since it, and the other posters give me a ton of Food for thought. Then I never post that stuff over here, but I kind of think most the readers of this blog read that. But I regret somtimes that I don't post it over here.)

My understanding is this... and I'm not a fed guy Or economeister.at the regular fed window you can get money for Treasuries.. or other AAA High quality non-Real estate Assets.
At the discount window/and auction, you can trade AAA Derivative/Real Estate assets.
The banks who need liquidity, are trading their T-bills mostly, for cash from the fed, But they need more, especially with all the pending ARM resets.
So, they are doing the auction to get the banks some liquidity, from some of the best Real-Estate assets that they have. Without begging at the window...
I do think(for whatever that is worth) that they should lower the discount, and get them to beg at the discount window directly. If they aren't willing to beg, they shouldn't be given the cash....
maybe look at it this way... The danger of looking desperate, outweighs the benefit of marginal profits from refinancing the ARMs. So the move is to give the banks some cover to get enough liquidity to do some refinancing.
As an auction, it puts Say; Regional financial, or Colonial bank ... On par to score the extra cash, with Citi, Wamu, and all the assholes that created this mess..
Most the regional banks have been begging for money at 5-6% through CD's for months now. More to make loans, than to cover their Reserve ratios.If they can score Fed Money at the discount rate, they will be happy to take it, especially in a longer Term.
Dodging the moral hazard of providing liquidity and free cash for the big banks(Burned by the Depreciating CDOs to dump into equities speculation, which then reduces bond investment/savings.
Else, some of the money is going to European banks through the swaps(I guess this creates a Carry trade where they can Borrow at the Fed, and loan at libor and make money, and the fed can effectively loan at 3 month libor), who feel burned by this Fiasco, and providing them with liquidity. Goes further toward loosening LIBOR, and since we have been paying them off at .80 on the dollar to what they loaned us the money at...Cutting the Fed rate only goes to making that .75 cents on the dollar, which only lessens their willingness to loan us money to Refinance the Mortgages, and decreases the likelihood of them bidding up Equities with their Euro's and further Reduce Bond investment and savings.
That is my econo 101 understanding... Quickly Banged out like a typing monkey... But I'm still trying to understand it... and would be better off making some phone calls about it, or searching the web for an economist that I can understand with my 4th grade economics background.
So yes, not going to bail out Citi, but going to get some money to the Mortgages, and bring down the ARM rate. And not going to give cash to bid up Equities, and bring down the Dollar...
But it will get the money to the right place, instead of to the wrong places.
My overall Thesis over the next years will be that we come to terms with inflation, start Saving instead of spending. And stop using the market as a hedge against inflation.Markets have a tendency to work against the crowded trade, and for 30 years equities and Real estate have been the crowded trade, and My bet is we get a super-cycle reversal.