Not funny: According to Dealbreaker, the Fed is pressuring the Treasury not to devalue the FNM/FRE preferreds. Or, in layman’s terms, to hand your tax dollars to a private company so that it can pay dividends.
That’s what we call “American Capitalism”.
See also Trade of The Day: Buy Freddie Paper With Fed Leverage. Yes, the math works. This is what happens when the Fed makes medium-term loans at low interest; the banks can simply arbitrage them into profits.
I understand the Fed adding liquidity to the system by making loans. I do not understand them doing it at such insanely low rates of interest. (Bagehot wrote that in times of crisis, central banks should lend freely against good collateral at a penalty rate. The Fed is definitely lending freely. “Good collateral” can be debated. But whatever happened to the penalty rate?) I can only think of two rational explanations. Either the Fed is completely corrupt and in the pocket of the banks, or they are worried that the entire banking system is insolvent. Or both.
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