NEW YORK (Reuters) - Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year old credit crisis took a persistent toll, while the commercial paper market continued to contract, signaling tough conditions for short term borrowers.
Banks' primary credit borrowings averaged $17.45 billion per day in the latest week, the second straight week this had hit a record and up from $16.38 billion the previous week, Fed data showed on Thursday.
"It shows there's a shortage of liquidity in the system," said Christopher Low, chief economist at FTN Financial in New York.
Secondary credit the Fed extended, which is usually taken out by banks in need of emergency cash, rose to $89 million in the latest week, from $34 million the week before. Although these numbers are still very small compared with primary credit, "What that tells you is that there's an increasing number of banks that the Fed is classifying as 'unsound' or inadequately capitalized," Low said.
Emphasis added by me.
Well, duuuuuh, Watson.
The killshot:
Cash strapped financial institutions can convert the Treasuries temporarily into short term cash loans in the repurchase market in order to shore up balance sheets depleted by the credit crisis.
Emphasis added by me.
See? It's all degraded into an outright game of musical chairs. "Look! I'm not bankrupt (yet!)!" As long as they can continue to paper over the holes in the dike, they don't give a damn about the condition of the dikes themselves.
The dikes are rotting. Let them break and fall and sweep away this machine!
Just remember: Losses have been socialized while profit remains privatized.
Such a scam!
Where's your money today?
Educate yourself!
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