This is an incredible turn of events. This is the biggest news of the decade.
I was not expecting this sort of activity for another year or two yet.
The Federal Reserve has bought a majority stake in a private company in exchange for cash. Where did the Fed get this cash? It was created out of thin air.
In just in the past five days, the Fed has vastly expanded its Treasuries for Trash(tm) program, begun accepting equities from stricken companies in exchange for cash or higher quality assets, and now has actually bought a gigantic insurance company.
I’ll let this article from the NYT fill in the details.
[quote]In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people with knowledge of the negotiations.
The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.
Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.
But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.
[/quote]
Link to Article (no additional content, I posted the whole thing)
Here’s my very direct and simple thought: The US dollar is toast.
The other central banks are doing what they can to stem the tide, but, mark my words, sooner or later reality will catch up and the dollar will plummet. How can it not?
Think about it…the dollar is indirectly the obligation of the US, but more directly the obligation of the Federal Reserve.
The Federal Reserve now sports a completely ruined balance sheet. So you would be right in asking yourself, "What does a dollar represent, after all?"
If you find yourself stumped, you will be in the company of the rest of the world. Let me put it this way: If I were a Saudi prince, I’d be asking myself, "What exactly is the long-term direction of a currency that is backed by defective loans, unsaleable assets, and positions in failed companies?"
Indeed, that now describes the balance sheet of the Federal Reserve.
I cannot state this strongly enough – the stage is now set for a major dollar collapse, and whether it does or not depends completely on the behavior of non-US financial entities. The dice are cast, and it remains to be seen whether they turn up snake-eyes or not.
by joe2baba