Monday, March 31, 2008

How Banks Will Make Huge Money On Fed Borrowing (C; JPM; BAC)

A couple days ago in response to an Environmental Capital post:

The Climate on the Street: More Banks Smell Money in Carbon
I made the point:

For the banks, a Trillion-dollar carbon market that they can help set the rules for is a Godsend.There is nothing else that can replace the income lost from the exposure of the CMO, CDO, ABCP, structured finance shell game. Even the Fed’s creation of a Fed Funds/Treasury carry trade would take so long to reliquify the balance sheets that the public would have time reflect on what has been going on, and would start hunting bankers and traders for sport.
Comment by Climateer - March 26, 2008 at 11:37 am
(emph. added)

I was typing too fast, I was actually thinking 'discount window' but the principle is the same (if not the interest).

Today 24/7 Wall Street explains what I was babbling about and says:

Banks are going to the Fed and getting money at 2.5% and putting it onto their balance sheets
What do the big money centers do with the money? They make investments in high-yield instruments. Or, put it into their proprietary trading operations. A bank that takes in $10 billion could make a $1 billion return on that over the course of a year, perhaps more, by "playing the spread" on the dirt cheap cash from Bernanke & Company.

The game the banks are playing at the expense of tax-payers due to inexpensive money from the Fed is outstanding for investors who hold stock in the firms. It could be one of the best money-making opportunities that companies like Citigroup (NYSE:C), JP Morgan (NYSE:JPM), and Bank of America...

I apologize to our long-suffering readers for the principle/principal play.
Sometimes I can't help myself.

Here's the post with "Music to hunt bankers by".
(pinstripes are not effective 'protective coloration')