If the banks are earning interest on their reserves, they may be less likely to loan those reserves to other banks. Or, at least, charge a higher interest rate for the added risk.

However, it may relieve the credit crunch more quickly!

Made a few pennies today!

Will these so called Fed Interest Payments… be generated (Guaranteed) out of think air… or will they come out of the Tax Payers Wallet… you think… hum! Better dust off those coffee cans with the sealable lids… you think! Why in the hell would anyone in their right mind pay someone interest on $Muck Money… that is now being horded… or just stagnating and waiting on the US Dollar to recover… just wait till Interest Rates hit 8-10%, talk about fighting Inflation… hum… you have to be kidding! Will this breaking of the Law of the Land and the Tax Payers already Burdened (Trillions) of US Debt… ever…. STOP!

Sure sounds like Uncle Ben is trying to play catch up with a run away…. post mortified economy… by using the Middle Class Tax Payer again and again and again… you think!

Since a severe and increasing budget deficit exists, this is just more of the same, printing money which may help the big banks in the short term but can not work. Where is Adam Smith when you need him.

Pay interest on reserves that are not even there but loaned for commodity speculation ? That’s our Fed.
The central bank of Iceland is broke and seeking a bailout from other central banks. It seems they tried bailing out local banks much the same way the Fed has here. The difference is that OPEC didn’t buy their bonds because they are not a customer like the good ol’ USA. Iceland is mostly oil independent so the Emirates aren’t going to supply them with artificially low interest rates from crude oil revenue by buying their treasury bonds and notes. They aren’t junkie clients to oil the way we are.
So don’t look for energy independence for the United States anytime soon - or anytime at all; the true negative equity of leveraged U.S. assets simply won’t permit that to ever happen because we just can’t - won’t bite the bullet sub-prime-wise, stock market-wise, dollar printing-wise,or energy-wise. And since the current generation of miidle class has on balance consumed far more than it has produced and saved, our government and Fed are liquidating them insidiously throuh inflation by going after the only real wealth here that is up for grabs; the wealth that was created and saved by the previous middle class generations which was passed down and which the current generation has demonstrated that it is all too willing to squander.

Miidle Class, the i and the d are not even close to each other (so it can’t be that you have big fingers), must be you’re typing way to fast like me… I like that in a blogger… Yep! You have a delectable delicious source of words and I can only wish everyone out there has a chance to read your blog with the worthiness of its most truthful and direct from your heart content. Thank you, The OZ

“Wake Up Dorothy”… “Wake the hell up”! “It’s almost too late!” You think?

Net income will jump 80 percent to 560 billion yen $5.4 billion in the 12 months ending March 2009, Mizuho, Japan’s second-largest bank by revenue, said yesterday after local trading closed. The company and rivals such as Aozora Bank Ltd. and Shinsei Bank Ltd. are predicting higher profits this year as they’ve marked down or made provisions for most of their investments in the U.S. subprime market.
There is less outright rejection of Japanese banks by investors now than three months ago, when all banks were viewed as high risk, said Brett Hemsley, an analyst at HSBC Holdings Plc in Tokyo. Mizuho will also benefit from the technical effect of a quite significant buyback.
Tokyo-based Mizuho announced a 10-for-1 stock split and said it will spend 800 billion yen to buy back shares in the next two years. The bank’s net income fell by half to 311 billion yen for the year ended March 31 because of 645 billion yen in losses related to the U.S. mortgage meltdown that has triggered more than $342 billion in worldwide write downs and credit losses.
Smaller Sumitomo Mitsui Financial Group Inc., scheduled to report earnings after the market closes today, rose 2.2 percent to 883,000 yen. Mizuho has gained 45 percent in the fiscal year started April 1, the most among the 85 banks tracked on the Tokyo exchange. Japan’s banks may still face a difficult year as a slowing economy and stalling interest rates crimp earnings from loans. Profit from their main lending business may stagnate for the next few years… you think, according to HSBC’s Hemsley, as the prospect for higher interest rates recedes. Does this sound at all familiar… to the US Major Global Banks that are in trouble too… you think! Where is that interest on Bank Savings coming from again… you think?

About time all of us US taxpaying citizens get improved access to much needed capital fairly rapidly decelerating housing value declines.–Franklin

I’d be willing to bet that this technical amendment to permit interest on reserves would make the Fed’ markets desk more efficient, but will little corresponding risk mitigation for funds rate stability.

On Tuesday, March 11, 2008, the most remarkable transfer payment from the Federal Government to Corporate America occured. The United States Federal Reserve, operating through the Federal Open Market Commitee and in response to a deep and severe credit crisis on Wall Street, developed a very unusual plan to exchange United State Treasury Bonds for AAA Mortgage Backed Securities. Because of this blatant market manipulation, wall street responded with a 400 point rally. .
In my best selling book “The Angry Black Man’s Guide to Success,” I state that one of the rules is to being succesful is understanding that “People do not do what they have to do, they do what they want to do.” In the same vien, the Fed did not do what they have to do, but what they wanted to do. Instead of doing what they have to do, maintain free and open markets, let Wall Street firms and hedge firms take the fall for investing in mortgage backed securities, and let the stock market continue a freefall that started on Friday, March 7, 2008 of more than 250 points, the Fed interfered in free markets by exchanging Treasury bonds for securities of very litle value. Congressman Barney Frank(D)MA went ballistic because the same deal is not being offered for municipal bonds.
Lets me break it down. Lets say you have a General Motors automobile which you paid and financed for $30,000.00 for in March 2007, and the vehicle depreciated to $25,000.00 by March 2008 but your loan balance remained $29,500.00. Car salesman generally refer to this as being upside down. Well, GM sees that you are having trouble making the payments and wants to help and therefore they offer to exchange your payment booklet for $30,000.00 in GM stock that you can then pledge or sell and still keep the car. WOW! What a deal. You can trade a liability for an asset. The Fed is acting like a pusher and Wall Street is responding like an addict, sniffing up all the coke in the room.
Wall Street celebrated but those of us who truly believe in capitalism see a very sad day. First, hedge funds and investors will only see this as a way to take quick profits, liquidity will not return to the market, and the Stock Market will continue its steep decline through the second quarter. Its not wall street that will stop this recession, but consumer confidence. I believe the Fed should continue to cut rates but not interfere in open markets. Like a junkie, wall street will pull back until the Fed provides the next hit.
Fast forward to May 2008 and now the Fed wants to pay interest on reserves to help support bank capital that does not exist. I would call this a Mickey Mouse move but that would insult the Disney. The Feds bag of tricks is running out.

George Farrell
The Angry Black Man’s Guide to Success
www.abmgts.blogspot.com

Banks should invest in bulldozers to knock down all the unwanted houses on their books. Home ownership is now a nightmare for the old and young. If the middle-class could get out they would. The fed can’t solve this one.It will have to run it’s course.

Regarding identities 10:47 the answer is Who is not Oz and I would like to congratulate WSJ Economics Blog and the entire cadres of characters for postings that run the gamut from the banal to the highly enigmatic and certainly never dull.
Warning: enter this blog site at your own risk …of addiction and the never ending quest for capturing a Leprechan’s pot o’ gold. No lifeguard on duty here dudes.

By the by re: Nippon and their Banks.
Flowers is no dummy. Heavily invested into Japanese bank recently didn’t he? Made money too?
Oyasuminasi. Matta nay.

Just keep flooding the banks and brokerages with cheap money and watch oil and food commodities go into the stratosphere. My father’s social securtity check can barely fill a shopping cart with groceries now. The fox is definately guarding the hen house.

You spend money like there’s no tomorrow, never saving, always borrowing more and more. Buying large energy sucking houses and suvs with little real education. Letting your leaders get bought by busineses with bribes (campaign contributions and “lobbiests”). Your dollar is weak like your country. Always blaming someone else for your problems like yesterday when Bush asks for more oil to help lower the price. Will you ever take responsibility for any of your actions? You are digging yourselves a hole deeper and deeper as time goes on.

The Federal Reserve System and public- and private-sector analysts have long monitored the growth of the money supply because of the effects that money supply growth is believed to have on real economic activity and on the price level. Over time, the Fed has tried to achieve its macroeconomic goals of price stability, sustainable economic growth, and high employment in part by influencing the size of the money supply. In the past few decades, however, the relationship between growth in the money supply and the performance of the U.S. economy has become much weaker, and emphasis on the money supply as a guide to monetary policy has waned.

fudge the inflation and gdp numbers and then you come to the conclusion that money supply has no impact on inflation. this is so fed-ish. i am looking to buy one of those $50 pcs ot $3000 cars that make the cpi but no store is offering them. anyone here have any?

The fed is trying everything it can to avert a serious recession. I’ve got to figure that things are so rosy as the security dealers and bankers would have me believe.

SOme Japanese banks are making money while others take large losses because of bad subprime investments and their stock rise paradoxically? Maybe because savvy investors know long term loans to Japanese multinational companies will reap huge dividends. Will the yen be as the Rising Sun relative to dollar?

The Rising Sun (National Savings) is going in the opposite direction as to the US Dollar… (National Savings) and has already started quite some time ago. Last summer Japan latterly kicked GE Finance out of their country… ask your self… “WHY” (Inflated Interest Rates) raping the country? This country is not the only country that is liquidating the US Dollars value at an alarming rate today, there are many, many more that are pulling it’s (SHORTS) lower and lower to expose it’s true non-value through (IT) International Trade of (examples) (OIL), (Gold) and basic (Food)
Commodities’ … these are only some of the entities helping in the form of consistent alienation of our US Dollar… today… you think! ”If”… now, and that’s an awful big word these days… The US Dollar does not turn in the near future 6 – 12 months and head back progressively towards 86.50… you are going to see the Largest… “Deflationary Depression”… induced by inflation that this world has ever seen before in the annals of this once great country… vote very, very carefully here this fall and sign a contract with whoever wins and hold their feet to the fire that burns (White Hot) inside of each and everyone of “US”…. We the People…. (Tax Paying Citizens) of the USA… you think…! We’re only going to get one (vote) each… shot at this change so make it count as you, your children and their children’s future will depend on the outcome that demands the removal of this current non-transparent US Government (Greed) now in Office… you think… “GOOD LUCK”!
Ken Moyers… has some insight on the issues of change; I would suggest you go read them before you sign that contract… you think! I’m not saying you have to believe every thing he says… but I am saying there is a lot of “Knowledge… in what he says!
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http://brokengovernment.wordpress.com/
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Be very careful of these Non-US Governments… International Entities moving into your US Government Flat… the US Tax Payers…. “Fix All” this Fall! Their intentions and goals are not what they say they are… go discover their back ground and history to see how the are devouring the up-start countries and harvesting their unjustified monetary rewards through pure deceit and the smoke and mirrors of greed and manipulations… in the Global Market Place…. you think?

All banks have negative cash reserves on their balance sheets. So by paying interest to banks on money, the FED just loaned them, they are hoping to make those balance sheets turn positve of the months.

Beter buy some gold and silver, it is going to get ugly.

What is to stop banks from borrowing from the FED and slowing down more inflation!

The banks have gambled with other peoples money and they lost it. Why should they be bailed out for their stupidity? Bankers take millions of dollars of salary each year just for gambling others money.When they loose, they dont payback their bonus.

To: 2:13pm… the banks could always borrow from Zimbabwe… this would most definitly slow or stop banks from borrowing from any window … you think! (PING)

Bernanke and “most” Fed officials are willing to bend over backwards to steady the economy; at and & all costs to the consumer, this is an election year, yes? Investment Banks are the back bone of Wall Street, WS is all the conservatives have going for them: weak U.S. dollar and high energy prices are ironically a saving grace, Happy Sunday to all.
Read “Will the Real Slim Shady Fed Chairman Plz Stand Up”
blog address below:

What Bernanke is trying to do is use a carrot to induce banks to keep reserves in excess of the Fed’s requirements. The real problem in banking is the pressure on the stock price, thus the pressure on ROA and ROI. Staid safe lending does not afford the banks the opportunity to push the ROA to look impressive to the Wall Street analysts. Thus they enter into foolish and fool hardy lending practices like sub-prime - been there and fought against it. Ask any seasoned bank underwriter if sub-prime is good and he or she will say no. The problem is that these folks are overruled generally by the Wharton type MBA’s who have been trained on the numbers and do not consider the people factor. The search for improved ROA led to sub-prime. It was a glamorous new product starting in the mid to late 80’s and was originally applied to auto lending. Banks have been pushed out of auto lending a mainstay of stable lending, unless it is extreme lending as in sub-prime or higher risk low ROA used car lending, by the captive finance companies and have been seeking new areas of best scenario strong ROA. Bernanke is trying to encourage banks to build a better hedge against catastrophic failure brought about by non-staid lending in search of a better stock price. We would do better to institute stronger oversight on the “new” lending schemes the Wharton type MBA’s with no real lending experience come up with. Perhaps, if the analysts viewed the banks as they view utilities the entire banking system would become more stable.
http://brokengovernment.wordpress.com