A few billion among friends

The Federal Reserve, working to combat the effects of a severe credit crunch, announced Friday it had auctioned another $20 billion in funds to commercial banks at an interest rate of 4.67 percent.

It was the second of four planned auctions. The first auction, on Monday, of $20 billion resulted in loans being awarded at an interest rate of 4.65 percent. Two more auctions will occur in early January.

Many banks had avoided using the Fed's discount window out of concern that investors would see the move as an indication of underlying problems at their financial institutions.

The auction process was developed as a second way to get money into the banking system with the hopes that it would not carry the stigma of the discount window.

The 4.67 percent rate for the second $20 billion in funds and the 4.65 percent rate for the first auction means that banks who are using the auction process to get needed reserves are getting them at a rate slightly below the 4.75 percent rate they could get in direct loans through the discount window.

So financial institutions that invested heavily in sub-prime mortgage derivatives are getting plenty of help from Uncle Sam. Not only do they get a quiet auction that prevents them from showing they're in hurting status due to poor decisions, they ALSO get a cut-rate interest deal!

Where are all those people who complain about corporate welfare? I've yet to see a better example...

Four auctions of $20 billion each. Reminds me of the old saying "a billion here, a billion there, and soon you're talking about real money." Only in this case it's play money because all those billions come from running the printing presses overtime, which means higher prices (inflation) for all the rest of us.

As the Mogambu Guru says, "we're screwed."