Little bank birdie told me.....

I noted in a previous post, I’d like to be a fly on the wall in some of the Fed meetings. Well I wasn’t a fly, but I have found a little bank birdie who revealed some very interesting information regarding some of the Fed’s moves.

The birdie was actually a formal bank statement released to stockholders explaining their balance sheet along with insider banking knowledge of the Fannie and Freddie bailout and their bank losses as a result.

I blogged many smaller community banks were left holding the bag on Fannie and Freddie stock. In fact, they were encouraged to buy and allowed to count the asset to meet the Feds capital reserve requirement. The American Bankers Association reported about 27% of all banks held one or the other GSE stocks.

This particular small bank was holding just over $1M in Freddie stock and really miffed at taking the charge off. The Feds could have protected all bank investments with no more than a $15B exposure but they didn’t.

But they did protect Goldman Sach’s investment ties and others by nationalizing AIG to the tune of over $120B dollars. That’s what got the bank miffed big time. Fannie and Freddie stock were considered to be as safe as any investment. The takeover stated clearly to every financial institution and investors worldwide that nothing is safe now. And banks stopped lending to each other.

But that’s not what the little bank birdie was really crowing about. It was the Fed’s backdoor guarantee of the Japanese Bank Mitsubishi investment into Morgan Stanley. Morgan Stanley was reportedly negotiating with the Japanese bank when Lehman Brothers was failing. But that wasn’t all that true. The fact was according to the little bank birdie, they were negotiating with the Feds on preserving their preferred stock position fearing the Feds would make another drastic move as in letting them fail or taking preferred equity.

One analyst I spoke to regarding Warren Buffett’s $5B investment into Goldman Sach’s completely dismissed the notion he had received a back door guarantee from the Fed’s as well. He stated there is no way the Feds would make a private agreement like that because; well because that would be really, really bad.

That it would.

___________________________