FED bailing out the High Rollers with tax payer money?

Comments by Norton: The Fed may be breaking the decades old rule of being the lending of last resort; that is, only to federally chartered financial institutions. Bill Gross of PIMCO describe these non-financial sector as the "shadow financial system." these businesses look and act like financial institutions but are not backed or regulated by the FED. Much of the risk of financial crisis news has been revealing forcoming collapse of businesses in this market; such as, Bear Stearns and Carlyle Capital. They deal in highly leveraged asset back investment vehicles like SIVs, conduits, money market funds, monolines, investment banks, hedge funds. this is now affecting even AAA bond markets like the municipal bonds that are essential for our towns, cities and states to finance improvements that we are voters approve. The municipal bonds are secure;however, the market and bond insurers backing them may not be now so the auction-rate muni securities market is begging for buyers which is driving up the rates for our municipal projects.

Last week the FED agreed to facilitate getting an adequate supply of secure US treasury bonds to the financial market by offering to swap them for leveraged asset backed securities that the banks have for which they cannot establish a market value or find buyers for. This is reputed to be a temporary loan for 28 days. Then what? Who can mark-to-market these questionable vehicles and who will ultimately buy them? Once this is done, who carries the write down on their balance sheet? The FED or the financial institution?

Also, last week the FED came to the rescue of brokerage firm Bear Stearn indirectly through offering liquidity loans with JPMorgan as their conduit(the only way to make it legal). According to Nouriel Roubini Mar. 14, 2008, "...The FED is acting as if Bear Sterns is illiquid but solvent. That is delusional and the official sector support of an otherwise insolvent institution will end up - like many other recent Fed actions - being paid for by the US tax-payer...."

Read also:
12 Steps to a Financial Disaster by Nouriel Roubini Feb 12, 2008