Goldman Sachs really needed the new emergency loan window?

Discussion in 'Trading' started by seasideheights, Mar 20, 2008.

  1. Are things really that bad for them?


    "WASHINGTON (AP) -- Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday."


    "Goldman Sachs (GS, Fortune 500), Lehman Brothers (LEH, Fortune 500) and Morgan Stanley (MS, Fortune 500) said Wednesday they had begun to test the new lending mechanism.
    On Wednesday alone, lending reached $28.8 billion, according to the Fed report."
  2. I also initially thought that it was a sign of trouble when H3 figures were published that showed banks had negative reserves for the first time in history( meaning they were technically bankrupt and had to use the fed for liquidity),

    but after asking around the general consensus is that the banks are going to the window simply because rates are too cheap to ignore now. I would love to believe that the banks are desperate for liquidity and are about to collapse at any moment, but unfortunately that isn't going to happen just yet.
  3. Anything they can do to keep the ponzi scheme going they will do.
  4. "they had begun to test the new lending mechanism."

    That is a classic statement. Testing. Testing. one two three.

    If this had been an actual emergency, you would have been instructed where to tune in your area for news and official information.

    Excuse me while I go test my check book. Hey, it works, someone took my check and gave me money. Stay tuned for the next episode of "As the dollar turns".
  5. jsmooth


    I'm not really a bank guy so I got a quick question...Can someone give me the run down (or provide me with a link) regarding what "Tier 3 Assents/Financing" is? What does that mean?

    Everytime Jim Rogers gives an interview, and he talks about the banks, he always makes a reference to "Tier 3 assets/financing" and according to him its a major long term problem?

    I've tried googling it but I cant seem to find anything (maybe i missunderstood, I'm spelling it wrong, or its in reference to something else). Anyone know what that is, and care to give us some info/links?

    Or is this just another name of mark-to-market accounting?

  6. Rahula


    They're all taking advantage of free money.

    The Fed will soon be accepting tootsie rolls as collateral.

    Eliminating mark to market accounting will be the next "bailout".
  7. its paper for which the market is illiquid or hardly traded. so there is no real "mark to market value". in all cases the big guys have more of this shit then they do equity... and in all cases they put a theoretical value on it that is way more generous than what it is really trading at or worth.

    if they put it on the balance sheet it would be armageddon.

    ps my sense of goldman going to the window with leh was to reduce the stigma. the amount they borrowed was inconsequential compared with the assets of these companies...
  8. If you recall when Citibank went to the window months ago JP Morgan, although they didn't need the facility, went as well. For the past decade or more the discount window has had a stigma attached to it it (although for many decades prior to that the stigma was minimal) and rather than have Lehman (the weakest of the major investment banks) go alone the had GS (obviously one with a comparatively rock solid balance sheet) go concurrently.

    The Fed wants to turn back the clock to a time when the window was used more commonly to "smooth things out" and not just in extremise. Yet, as much as they want that, they know right now they don't want Lehman going in with GS as cover. Why upset the markets when it's easy to have them walk in together as if they both just might want the cheap money?

    GS will be expected to continue to fund themselves in the repo and overnight markets once the markets are less jittery. Lehman might be accomadated by the Fed for quite some time ... although I suspect having the backstop of the Fed will allow Lehman to finance in the markets soon.

    Many of the NY Commercial banks were actually funding themselves Thursday in London using LIBOR at rates a few basisd points LOWER than at the window in NY.

    Being able to borrow at the window with all sorts of newly eligble collateral (down as low as BBB and even private label mortgages) has made a real difference. If there are no major blow ups (a few small hedge funds blowing up don't count) to endanger the ststem over the next ten days or so the immediate "Bear Stearns Crisis" will be over. Leaving the other credit, mortgage and housing issues to worked out over many months.
  9. <i>"I would love to believe that the banks are desperate for liquidity and are about to collapse at any moment, but unfortunately that isn't going to happen just yet."</i>

    If that scenario were to happen, the absolute least of your (or anyone's) concerns would be speculative trading financial markets.
  10. S&P decided to place GS on negative outlook.

    does that means brother GS will be going to Uncle Sam at the Discount window for more soup?
    #10     Mar 21, 2008