Friday, August 24, 2007
Shocking move by FED to aid CITI and Bank of America.
In a shocking revelation after market hours the FED on August 20th wrote a letter allowing the bank(i.e. retail banking)divisions of Bank of America and Citigroup to extend to their brokerage divisions capital(i.e. loans) up to 25% of their capital. The previous limit was 10% for all banks with brokerage divisions. This rule has been in place for decades to prevent stock/bond market calamity from filtering back to affect the safety of the retail bank operations. Of course all accounts are FDIC up to 100k but this points to a very large situation the FED and the world's banks know that they are trying to fix behind the scenes. Their was no announcement on monday when this letter was effective. The news comes out after stock market hours on a Friday. The letter can be found here.Their server is jammed currently with people trying to read the letter. Also read the CNNFN story here:This is a developing story and I will have more later tonight.
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2 comments:
THIS IS NOT AFTER MARKET HOURS NEWS!
This is well known by the market and priced into shares prices today. The news came out yesterday but the letter's were made available today. For example of yesterday stories about his, see the following...
http://blogs.wsj.com/economics/2007/08/23/citigroup-gets-fed-help-on-using-discount-window/
PLEASE CORRECT YOU MISTAKE.
My mistake sir. I believe the real news is the delay by the FED in posting the letter. Either way this points to severe dislocations in the credit markets. CITI and Bank of America must have substantial brokerage house and client positions that need liquidity. The market for ALT-A and especially subprime is broken so they may be trying to create a market for hedge funds and internal account to ease the crunch. Thanks for your comments.
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