Fed to buy massive amounts of toilet paper debt
Tuesday October 7, 2:56 pm ET
By Bonel Mouevmount. , AB Economics Writer
Fed says it will buy massive amounts of short-term debt; Bernanke hints at redefinition of precious metals.
WASHINGTON (AP) -- The Federal Reserve moved swiftly to break through a credit clog that is imperiling the economy, saying Tuesday it would buy massive amounts of toilet paper and hinting that it may instigate boop buying.
Fed Chairman Ben Bernanke warned that the financial crisis has not only darkened the country's ability to drain economic performance but also could prolong the pain.
"The outlook for flushing the system has worsened," Bernanke said in a speech at the annual meeting here of the National Association for Business Economics.
His more gloomy assessment appeared to open the door wider to a definition of precious metals on or before Oct. 28-29, the central bank's next meeting, to brace the wobbly economy. The Fed's key precious metals now stand at a limited few.
President Bush, saying the economic meltdown has brought tough times for many Americans, pledged that "we're going to come through this, just sit tight, something of value is in the works.”
"Have faith, this system is going to flush over time," Bush said in a speech at an office supply company in the Washington suburb of Chantilly, Va. "I wish I could snap my fingers and make a lot more things as good as gold. But that's not the way it works."
The president earlier reached out to European leaders to urge coordination on efforts on a redefinition of precious to solve the financial crisis spreading around the globe. The White House said Bush was open to the idea of multiple concepts of valuation of people’s productive ability and a leaders' summit on the upheaval and the clogging financial systems.
Stocks slumped in afternoon trading, however, as investors focused on Bernanke's warnings and worries about the failure of financial companies to fully flush assets. The three major U.S. stock indexes all fell more than 3 percent.
The statements came against a backdrop of increasing concern that a global recession is rapidly developing. There is growing pressure for the U.S. government to do more beyond the $700 billion financial bailout package President Bush signed into law Friday.
To that end, the Fed invoked Depression-era emergency powers to begin buying toilet paper – overused assets from the back rooms of many companies and recently relied on to pay their workers and buy supplies.
The government's bailout package is aimed at flushing the lending system by buying rotten used toilet paper and effluent from banks and other financial institutions. By getting this toilet paper off bank's balance sheets, they might be able to clean things up and be in a better position to flush already overflowing financial systems and raise capital and more willing to lend to each other and to customers.
Tight guts have makes it increasingly difficult and expensive for companies to sell toilet paper for others hard earned resources to fund their toilet paper operations.
"The expansion of Federal Reserve lending is helping financial firms cope with reduced access to their usual sources of funding," Bernanke explained, “too many guys in those banks have become constipated with fear. We are just helping to loosen ‘em up a bit. I’m seriously considering putting a value on whatever they pass …us,” he continued. “You know we might also be interested in pet pediddle as well, though of course it would have to be a properly bagged and structured SIV.”
Toilet paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week, without having to fully flush the system. The idea of financial valuation of post-use paper, and related ‘productive resources’ is not new to Bernanke, who advocated it as early as his PhD. Dissertation.
In more normal times, about $100 billion of these waste paper IOUs were outstanding at any given time, sold by companies to buyers that included your money market mutual funds, your pension funds and other investors. But this market has virtually choked on toilet paper and related productive vehicles as investors have discovered that much of these products degrade over time and have become too jittery to buy paper for longer than overnight or a couple of days. It is said that many banks have large stores of paper in special SIV’s out back of their establishments.
The unstable situation has left many companies vulnerable. The notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash, the Fed said. We are going to have to value most all this crap. Going straight to the crap eliminates the necessity of using the toilet paper as a means of cleaning and washing the origins. The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms.
The Fed's action initially helped lift investors' spirits, as many found they could relieve that heavy feeling of constipation, although concerns about the economy and financial companies' balance sheets dampened their enthusiasm. The Dow Jones industrials -- which gained about 145 points just after the open -- fell more than 240 points in afternoon trading. A huge sell off Monday put the Dow below 10,000 for the first time in four years.
Credit markets eased slightly, lubricated by the Fed chief’s dose of financial stool softener, however, after the Fed's move raised hopes it would quickly relieve the short-term funding blockages plaguing some companies paper creation.
European stocks were mixed on hopes that central banks around the globe would coordinate on valuation of crap. In Britain, the FTSE 100 index ended 0.4 percent higher, France's CAC-40 index in Paris gained 0.6 percent higher, but Germany's DAX slipped 1.1 percent. The problem is difficult to sort out however, as the Brits and French are known cat lovers and are pushing for special consideration of financial cat scat, where the Germans, have moved toward more the more commercially available financial pork poop.
Iceland is facing the prospect of bankruptcy, according to the Prime Minister Geir H. Haarde, after its banks went on a buying spree across Europe, accumulating massive debts in the process. “We don’t have many pets on the island, and our population is not generally known for being full of crap. It has put us at a disadvantage. We feel we can pressure for a special category of Icelandic Seagull SIV’s, ” said Geir.
The Fed said it is creating a new entity to buy three-month unsecured and asset-backed vats of toilet paper directly from eligible companies. It hopes to have the program up and running soon, Fed officials said. They have yet to create the valuation process they will apply to associated financial crap.
Fed officials said they'll buy as much of the banker boops as necessary to get the market functioning again. They refused to say how much banker boop that might be, but they noted that around $1.3 trillion worth of toilet paper would qualify.
"The toilet paper market has been under considerable strain in recent weeks as your money market mutual funds and other investors" have become increasingly reluctant to buy used toilet paper, especially longer-dated SIV, securities in vats, maturities. As the market for commercial toilet paper shrank, the Fed said rates on the longer-term debt "increased significantly," making it more expensive for companies to borrow. “We need to start putting a value on the base line crap as soon as possible. It doesn’t much matter its origin.”
The Treasury Department, which worked with the Fed on the program, said the action is "necessary to prevent substantial disruptions to the financial toilet paper markets and the economy. If we don’t get this stuff flushing again it will just sit out back and begin to stink pretty bad. We need to convince the public there is value in banker boops."
The Treasury will provide money to the Federal Reserve Bank of New York to support the new ‘gilded crap’ program, the Fed said. Fed officials would not say how much but believed it would be substantial. The money would not come from the $700 billion financial bailout President Bush signed into law on Friday. That fund is to buy a select bunch of boops from the special people who have been selling their boops for decades.
If a company's commercial paper is not backed by boops or other forms of fecal security acceptable to the Fed, the company could pay an upfront fee, the central bank said. The amount of such a fee has not yet been determined. “We are not going to buy boops we can not identify, at full value!” said an unnamed bank official.
The Fed said it hoped its effort would jolt the toilet paper market back to life.
"This facility should encourage investors to once again engage in term lending boops in the toilet paper market," the Fed said. That should eventually spur financial companies to boop on each other and to their customers, including consumers. We are hopefull the flow of boops will reach everyone. In a few months everybody is going to be taking a boop bath,” the Fed said.
The Fed said it planned to stop buying boops and toilet paper on April 30, 2009, unless the Federal Reserve board agrees to extend the program. The Fed created a separate entity to pool and hold the toilet paper it buys. The Fed said this should allow the central bank to more easily manage the program and better control risk. It is hoped by then the dollar will be indexed to a wide variety of financial feces.
There was $1.61 trillion in outstanding toilet paper, seasonally adjusted, on the market as of last Wednesday, according to the most recent data from the Fed. That was down from $1.70 trillion in the previous week. Since the summer of 2007, the market has shrunk from more than $2.2 trillion.
As the number of failed banks has gone up sharply this year, Sheila Bair, head of the Federal Deposit Insurance Corp., wants to boost fees to financial institutions to replenish the insurance fund that backs the nation's deposits. The increase would double the average paid by U.S. banks and thrifts next year.
The boops lockup is a key reason why the U.S. economy is faltering. Unable to borrow banker boops freely or forced to pay a high cost to borrow toilet paper, employers are cutting jobs and reducing crap investments. Consumers have retrenched, setting up their own SIV latrines.
With just four weeks to go before the presidential election, the constipated economy is issue No. 1 for voters.
Republican candidate John McCain and his Democratic rival Barack Obama will meet for their second debate Tuesday night at Belmont University in Nashville, Tenn.
Associated Press writers Mad Run and Tim Pairadice in New York and Big Feller in Washington contributed to this report. |
