The Doors ~ Strange Days
TODAY:Fed to Buy Massive Short Term Debt
The Federal Reserve on Tuesday announced it would buy up massive amounts of short term debt in another attempt to free up a credit logjam that is endangering the economy. Invoking Depression-era powers, the Fed said it would buy "commercial paper," a short-term financing mechanism that many companies rely on to finance day-to-day operations. It is a $99.4 billion daily market that has all but dried up. The credit market generally relies on investors, not banks.
The Fed said it was invoking power under "unusual and exigent circumstances."
MARCH 14, 2008: MINUTES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[snip]
Given the unusual and exigent circumstances, the Board authorized the Federal Reserve Bank of New York (New York Reserve Bank) to extend credit to JPMorgan Chase Bank, National Association (JPMC Bank), Columbus, Ohio, on a nonrecourse basis to provide financing to Bear Stearns, and, if the Reserve Bank in consultation with
Chairman Bernanke determined it was appropriate, to other primary securities dealers, when the Reserve Bank finds that adequate credit accommodations are not available to the borrower from other banking institutions. The credit should be secured to the satisfaction of the New York Reserve Bank and should not exceed a period of 28 days
[snip]
As required by the Federal Reserve Act when fewer than five Board members were available to approve an extension of credit to any individual, partnership, or corporation under section 13(3) of the Federal Reserve Act, all available Board members then in office unanimously determined, in connection with the authorization of
the extension of credit, that (1) unusual and exigent circumstances existed; (2) Bear Stearns, and possibly other primary securities dealers, were unable to secure adequate credit accommodations elsewhere; (3) this action was necessary to prevent, correct, or mitigate serious harm to the economy or financial stability; (4) the other Board member
in office could not participate in the Board's action by any reasonable means at the time Board action was required (Governor Mishkin was unavailable because he was in transit from Helsinki, Finland, from 6:20 a.m. EDT to 5 p.m. EDT); (5) this action was required before the other Board member could return and/or participate by any available
means; and (6) any credit extended will be payable on demand
[snip]
MARCH 17, 2008:We live in “unusual and exigent circumstances.”
by Blogger "eric"
In reply to drip’s question, I commented on the specific legality of the Fed’s actions over the past few days. I thought it worth consolidating into a post. Keep in mind IANAL, but:A 1932 provision of the Federal Reserve Act allows the Fed to lend to non-banks if at least five of its seven governors approve. That provision was last regularly used during the Great Depression. It is meant to underscore that the central bank should lend to nonbanks only in extreme circumstances.
The law in question is at 47 Stat. 715, which includes the following:
In unusual and exigent circumstances, the Federal Reserve Board, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount for member banks under other provisions of this Act when such notes, drafts, and bills of exchange are indorsed and otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions.
(See also.)
Now you might think a president would, if we were invoking a law that required “unusual and exigent circumstances,” go on the teevee and/or radio and tell the American people what was going on and what we were doing about it and why.
MARCH 17, 2008:
The case of the missing Federal Reserve Board members
The Board of Governors is supposed to have seven members. It currently has only five. The Senate has been sitting on two nominations, of Elizabeth Duke and Larry Klane.
On Thursday February 7, 2008 President Bush complained about the failure of the Senate to proceed with the confirmation of three nominees - the two still waiting for Godot and Randall Kroszner, who has since been confirmed (Kroszner first took office on March 1, 2006, to fill an unexpired term ending January 31, 2008.). The nominations of Duke and Klane were sent to the Senate on 16 May 2007. It is a scandal that the Senate has not been able or willing to find the time to hold confirmation hearings for these two new Board members. The main guilty parties are the US Senate Committee on Banking, Housing, and Urban Affairs and its Democratic Chairman, Christopher Dodd.
It is quite irresponsible to let these two positions remain vacant for this long. We are not talking about a couple of dog catchers in Willimantic, Connecticut, but about two out of seven members of the Board of Governors and two out of twelve voting members of the FOMC, the policy making body of the most important central bank in the world. Is Dodd playing silly politics? Does he hope to drag the nomination process out for another year, so a Democratic President can make different nominations? Duke has a banking background and Klane is a senior executive at Capital One Financial Corp. Both nominees therefore have experience and knowledge that would actually be useful in the current crisis. Even Dodd must have noticed by now that there is a financial crisis on.[snip]
Far as I can tell as of today there are still only five, Larry Klane did not make it
JULY 30 2008: Fed Announces Extension Of Emergency Lending Amid “Unusual And Exigent” Conditions
Emergency lending facilities will be extended beyond the New Year, the Federal Reserve announced Wednesday. The move was part of a concerted effort by the Fed, the European Central Bank, and the Swiss National Bank, to lend stability to as of yet shaky markets.
Federal Reserve chairman Ben Bernanke suggested that the emergency loan facilities could be extended in early July. At an FDIC conference on July 8, Bernanke announced that he was considering extending the duration of emergency loan facilities past their scheduled termination at the end of the year.
“We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets,” Bernanke said at the conference.
The news that both the Term Securities Lending and Primary Dealer Credit Facilities have been extended through January 30, 2009 are an indication that these “unusual and exigent” circumstances still exist in some financial markets.
“In light of continued fragile circumstances in financial markets, the Board has extended the PDCF through January 30, 2009, and the Board and the Federal Open Market Committee have extended the TSLF through that same date,” the announcement read. “These facilities would be withdrawn should the Board determine that conditions in financial markets are no longer unusual and exigent.”
[snip]
SEPTEMBER 16, 2008:Fed Invokes ‘Unusual and Exigent’ Clause — Again
In lending up to $85 billion at a hefty interest rate –- LIBOR plus 8.5 percentage points –- to insurer AIG, the Federal Reserve once again relied on its rarely used legal authority under Section 13(3) of the Federal Reserve Act to lend to “any individual, partnership or corporation” in “unusual and exigent circumstance” provided the borrower “is unable to secure adequate credit accommodations from other banking institutions.”Until its loan to then-ailing investment bank Bear Stearns in March, the Fed hadn’t used that lending authority since the Great Depression, lending exclusively to commercial banks and other deposit-taking institutions. The relied on a different section of the Federal Reserve Act to offer loans – which weren’t actually made – to government-sponsored mortgage giants Fannie Mae and Freddie Mac.
Where did that extraordinary clause come from? The Minneapolis Fed’s “Region” magazine offers a thumbnail history (”The History of a Powerful Paragraph”) at and points to a longer version of the story that it published in 2002:
“This isn’t simply a story about extraordinary measures taken long ago that have no meaning for today. Rather, it’s a story about the long-standing debate about the nature and purpose of Federal Reserve banks,” it says.In a Tuesday night statement, the Fed said, “The (Federal Reserve) Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.” –David Wessel
in the American law of criminal procedure, allows law enforcement to enter a structure without a warrant, or if they have a "knock and announce" warrant, without knocking and waiting for refusal under certain circumstances. It must be a situation where people are in imminent danger, evidence faces imminent destruction, or a suspect will escape.
Generally, an emergency, a pressing necessity, or a set of circumstances requiring immediate attention or swift action. In the criminal procedure context, exigent circumstances means:
- An emergency situation requiring swift action to prevent imminent danger to life or serious damage to property, or to forestall the imminent escape of a suspect, or destruction of evidence. There is no ready litmus test for determining whether such circumstances exist, and in each case the extraordinary situation must be measured by the facts known by officials.
People v. Ramey, 545 P.2d 1333,1341 (Cal. 1976).
3. Discounts for Individuals, Partnerships, and Corporations
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.
[12 USC 343. As added by act of July 21, 1932 (47 Stat. 715); and amended by acts of Aug. 23, 1935 (49 Stat. 714) and Dec. 19, 1991 (105 Stat. 2386.]
RUSH ~ Circumstances
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