As traditional media has inexorably declined in quality and importance over recent years, largely due to dramatically reduced revenues and budgets, “outlier” services have been especially hard-hit. Among these are business sections. Despite a few notable exceptions (such as the Barry Ritholtz Sunday columns at The Washington Post), newspaper business sections offer little of value concerning investing, markets and financial planning even to casual readers, much less professionals. That’s why yesterday’s edition of The Los Angeles Times was so refreshing. Don Lee wrote an excellent piece on the past five years — the time since the recovery from the 2008-2009 financial crisis began. Especially terrific are the series of charts summarizing what has been happening, shown below. Well done.
Source: The Los Angeles Times
5 years after the Great Recession: Where are we now?
Last week was that the Federal Reserve (along with other central banks) provided liquidity swap lines to European banks, allowing them to borrow U.S. dollars at the paltry rate of 0.5 percent interest. Oh that you and I had that opportunity. The Fed received promises of euros as collateral. Let’s hope that the euro still exists when these lines come due.
The reason European banks seek dollars in the first place is that nobody wants to borrow euros now because of the risk to the currency. Accordingly, for all practical purposes, American taxpayers have made those loans, which allow European banks to make loans in dollars rather than in euros. If the loans succeed, the European banks reap the benefits. If they don’t, we’re on the hook. Perhaps that is why the Fed’s announcementis written in language only a bureaucrat could love.
The Fed didn’t say how many U.S. dollars have been offered to European governments, but the last time transactions of this sort occurred, Fed swaps to Europe peaked at about $580 billion. In the meantime, as Bloomberg has reported, the Fed has also been providing banks all over the world – including major U.S. banks – with $13 billion in secret loans.
A Fed apologist might say that a global financial crisis needs to be averted and that, if the economy rebounds and the euro stabilizes, there will be economic growth and no losses to taxpayers. Yet in this best-case scenario, the European banks that helped create this mess get access to huge amounts of dollars for a mere half-percent courtesy of us and get to keep any resulting gains for themselves, while the typical American pays 4-20 percent interest to borrow, if we can get financing at all. In the worst-case scenario, their losses accrue to us.
These actions by the Fed are said to pose little risk to the U.S. taxpayer because the foreign central banks with which the Fed is transacting business are deemed trustworthy. Big borrowings. Privatized gains. Socialized losses. Haven’t we heard that before somewhere?