The Fed Does It Again: $80 Billion Secretive “Bank Subsidy” Program Uncovered, Providing Bank Loans At 0.01% Interest, Tyler Durden, Zero Hedge Blog

he Fed does it again. Following consistent allegations that the Federal Reserve operates in an opaque world, whose each and every action has only had a purpose of serving its Wall Street masters, led to repeated lawsuits which went so far as to get the Chairsatan to promise he would be more transparent, Bloomberg’s Bob Ivry breaks news that between March and December 2008 the Fed operated a previously undisclosed lending program, whose terms were nothing short of a subsidy to banks. Says Ivry: “The $80 billion initiative, called single-tranche open- market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc. Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 percent that December, when the Fed’s main lending facility charged 0.5 percent.” 0.01% interest is also known by one other name: “outright subsidy.” It doesn’t get any freer than that: 0.01% interest on one month cash. Just how close to a complete implosion was the financial system if 0.5% interest seemed too high? Not surprisingly, this program was widely used: “Credit Suisse Group AG, Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc each borrowed at least $30 billion in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public…Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, tapped the program most in December 2008, when data on the New York Fed website show the loans were least expensive. The lowest winning bid at an ST OMO auction declined to 0.01 percent on Dec. 30, 2008, New York Fed data show. At the time, the rate charged at the discount window was 0.5 percent. “ Yes, that Goldman Sachs. The same one that perjured itself when it said before the FCIC that it only used de minimis emergency borrowings. Just how many more top secret taxpayer subsidies will emerge were being used by the Fed to keep the kleptocratic status quo in charge?
From Buisnessweek:
“This was a pure subsidy,” said Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc. “The Fed hasn’t been forthcoming with disclosures overall. Why should this be any different?”
Congress overlooked ST OMO when lawmakers required the central bank to publish its emergency lending data last year under the Dodd-Frank law.
“I wasn’t aware of this program until now,” said U.S. Representative Barney Frank, the Massachusetts Democrat who chaired the House Financial Services Committee in 2008 and co- authored the legislation overhauling financial regulation. The law does require the Fed to release details of any open-market operations undertaken after July 2010, after a two-year lag.
Records of the 2008 lending, released in March under court orders, show how the central bank adapted an existing tool for adjusting the U.S. money supply into an emergency source of cash. Zurich-based Credit Suisse borrowed as much as $45 billion, according to bar graphs that appear on 27 of 29,000 pages the central bank provided to media organizations that sued the Fed Board of Governors for public disclosure.
New York-based Goldman Sachs’s borrowing peaked at about $30 billion, the records show, as did the program’s loans to RBS, based in Edinburgh. Deutsche Bank AG, Barclays Plc and UBS AG each borrowed at least $15 billion, according to the graphs, which reflect deals made by 12 of the 20 eligible banks during the last four months of 2008.
And even now, we don’t know how much these individual subsidies were:
The records don’t provide exact loan amounts for each bank. Smith, the New York Fed spokesman, would not disclose those details. Amounts cited in this article are estimates based on the graphs.

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The usual excuse is used: the purpose of the program was to prevent the Ice-6ing of shadow markets
One effect of the program was to spur trading in mortgage- backed securities, said Lou Crandall, chief U.S. economist at Jersey City, New Jersey-based Wrightson ICAP LLC, a research company specializing in Fed operations. The 20 banks — previously designated as primary dealers to trade government securities directly with the New York Fed — posted mortgage securities guaranteed by government-sponsored enterprises such as Fannie Mae or Freddie Mac in exchange for the Fed’s cash.
ST OMO aimed to thaw a frozen short-term funding market and not necessarily to aid individual banks, Crandall said. Still, primary dealers earned spreads by using the program to help customers, such as hedge funds, finance their mortgage securities, he said.
One name stands out: Goldman Sachs.
The New York Fed conducted 44 ST OMO auctions, from March through December 2008, according to its website. Banks bid the interest rate they were willing to pay for the loans, which had terms of 28 days. That was an expansion of longstanding open- market operations, which offered cash for up to two weeks.
Outstanding ST OMO loans from April 2008 to January 2009 stayed at $80 billion. The average loan amount during that time was $19.4 billion, more than three times the average for the 7 1/2 years prior, according to New York Fed data. By comparison, borrowing from the Fed’s discount window, its main lending program for banks since 1914, peaked at $113.7 billion in October 2008, Fed data show.
Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, tapped the program most in December 2008, when data on the New York Fed website show the loans were least expensive. The lowest winning bid at an ST OMO auction declined to 0.01 percent on Dec. 30, 2008, New York Fed data show. At the time, the rate charged at the discount window was 0.5 percent.
More on Goldman:
As its ST OMO loans peaked in December 2008, Goldman Sachs’s borrowing from other Fed facilities topped out at $43.5 billion, the 15th highest peak of all banks assisted by the Fed, according to data compiled by Bloomberg. That month, the bank’s Fixed Income, Currencies and Commodities trading unit lost $320 million, according to a May 6, 2009, regulatory filing.
The source of the data: a FOIA lawsuit, just because the plebs knowing where billions of their money goes is not really in the best interests of the lords.
The bar charts were included in the Fed’s court-ordered March 31 disclosure under the Freedom of Information Act. The release was mandated after the U.S. Supreme Court rejected an industry group’s attempt to block it
So there it is again: a secret bailout program used to “rape” the peasantry by the entitled kleptocrats, which nobody thought would be exposed, and would allow those in control to lie blatantly to Congress. But have no fear: the wheels of justice are turning: instead of having those who rape millions under house arrest, we get the spectacle of those who allegedly rape one. The former, after all, are just a statistic.
And how long before the peasantry just snaps from the barage of endless lies?

Vacation homes slowly make a comeback, by J. Craig Anderson ,

The market for multimillion-dollar vacation homes has experienced a slow but steady recovery since the housing market crashed, with a slight increase in sales of luxury getaways for the ultrarich each year.

But builders and sellers of vacation properties aimed at the upper middle class said they are struggling to find a marketing pitch that will resonate with prospective buyers who still have the means but seem to have lost the will.

Jim Chaffin, a Colorado recreational real-estate developer, was among a group of panelists who spoke earlier this month about the challenges that vacation-home sellers face at a time when the only thing wealthy Americans feel inclined to flaunt is their frugality.

Chaffin, chairman of Aspen-based Chaffin Light LLC, said the challenge is on developers to construct a more relevant, persuasive pitch that keys into would-be buyers’ desire to feel smart, responsible and practical.

“It is no longer because you can or because you deserve it,” said Chaffin, speaking on the May 19 panel at the Urban Land Institute‘s 2011 Spring Council Forum in downtown Phoenix.

Chaffin and others said luxury vacation-home developers are likely to shift their focus from straight sales to lower-cost alternatives such as timeshares, fractional ownerships and private residence-club memberships – all of which allow consumers to vacation in style for considerably less than the cost of buying a luxury vacation home.

In addition, they said, future vacation-home developers will need to build in places that are easily accessible from major metropolitan areas, set in breathtakingly beautiful locales and offer a compelling experience in addition to a pretty view.

Drew Brown, chairman of Scottsdale-based developer DMB Associates Inc., who moderated the Urban Land Institute panel discussion, said that timeshare and fractional-ownership projects have struggled along with traditional sales in the current recession.

Brown said that is likely due to public perception that timeshares, fractional shares and club memberships are difficult to resell if the owners want or need out of the deal.

Panelist Chuck Cobb, chief executive of Cobb Partners, a Florida-based investor in resort properties, said resort-community developers and operators still have a long way to go toward recovery, with a huge inventory of vacation homes yet to be sold.

He said the most successful among them likely will offer a range of options for buyers, renters and traditional resort guests.

Vicki Kaplan is a Scottsdale-based real-estate agent who represents buyers and sellers of fractional-ownership shares in vacation villas at the Rocks Luxury Residence Club, a resort community in north Scottsdale managed by Troon Golf.

Kaplan, of Arizona Best Real Estate, said that the resale market for fractionals has been slow lately and that it can take up to a year to find a qualified buyer.

Fractional ownership differs from timeshare in several ways. Unlike timeshare buyers, fractional owners actually purchase a portion of the vacation-home or condo.

Private residence clubs are another variation on the timeshare concept. With residence clubs, participants buy a membership that entitles them to a certain amount of guaranteed vacation time at the resort.

Buyers of timeshares, fractional shares and residence-club memberships all must sell their stake in the resort community on the open market to be released from monthly homeowners’ association or maintenance-fee obligations, which can be considerable. At the Rocks, the standard fraction is one-seventh, which entitles the owners to a guaranteed six weeks of occupancy each year.

They can stay even longer and can use any of the resort’s seven fractionally owned villas as long as no one else is using them.

In addition, the resort community participates in a “reciprocity program,” administered by Timbers Resorts, a fractional-ownership and private residence-club resort operator based in Carbondale, Colo.

The program allows owners to stay at any of the company’s nine participating resort communities, which include locations in Colorado, California, Mexico and Italy.

Kaplan said fractional shares in the Rocks have sold recently for under $200,000 – considerably less than the developer’s original sale price of $325,000 to $335,000.

The monthly HOA dues, which cover maintenance plus services comparable to a high-end resort and spa, is about $900 a month, 12 months a year.

Kaplan said the recession has made it much easier for owners to take advantage of the reciprocity program because sister Timbers communities aren’t as likely to be fully occupied at any given time.

Still, Kaplan was quick to point out that fractional ownership is not for everyone. When talking to potential buyers, she spends a good portion of the time explaining the downside of buying a fractional vacation-home share.

Kaplan said she would much rather have prospects walk away than buy and later realize they made the wrong decision for their particular lifestyle.

For instance, she said, fractional owners can’t book six solid weeks at their villa in the winter, so if the buyer is looking for a winter home, a fractional is not a good fit.

About two years ago, banks stopped offering mortgage loans on fractional purchases, Kaplan said, so today’s buyer must be willing and able to pay cash.

“It’s not an easy product to sell,” she said. “It’s a niche market.”

Reach the reporter at or 602-444-8681