http://www.wallstreetcity.com/commentary/commentary_full_story.asp?CommentaryID=872

Contrary to what most would like to believe, the Federal Reserves abrupt decision to cut interest rates on Oct.15 was not so much due to concerns over a slowing economy or credit crunch. The action, which came 16 days after the first 0.25% rate cut, was outside the normal context of a Federal Open Market Committee meeting, which does not convene again until Nov. 17. It was a response to an immediate meltdown threat of the banking system.

According to informed sources, the Fed had been injecting liquidity into major banks even before the Oct. 15 ease. Federal Reserve repo tenders, which are repurchases of Treasury securities held by banks in return for short-term cash, a common way to add liquidity to the banking system, rose by 35% during the two weeks prior to the surprise rate-cut.

The Oct. 15 ease, on top of the recent surge in liquidity available to banks, reportedly came after urgent requests from the president of the Federal Reserve Bank of San Francisco, who told Federal Reserve chairman Alan Greenspan of extraordinary demands by one member bank in its region.

Reliable sources indicate that this demand for repo funds had been provoked by a credit squeeze in the interbank market against Bank of America ( BAC:NYSE ) . Bankers believe that the bank's troubles are far more serious than what is being told to the public. Bank of America made a $357 million loss write-off due to its participation in the troubled hedge fund D.E. Shaw, and bought $20 billion in outstanding securities and derivatives contracts from that hedge fund in order to prevent its demise. The grave danger on Oct. 15 was of a breakdown in the interbank payments system, which could have easily led to a global systemic collapse.

While investors around the world rejoice the Feds action by outrageously bidding up stock prices, the more alarming message is that the emerging markets crisis has now fully reached the G7 financial systems.

-- K Golden (kgolden@solar.stanford.edu), November 02, 1998

Answers

Wow! Am I ever glad that I don't work for Bank of America anymore. I can just imagine the STRESS level there now...was bad enough when I was there and that was during relatively good times. Throughout the 15 years I worked there, the major ongoing competiton with Wells Fargo was bad enough!!! Thanks for the info. :) Blondie

-- Blondie Marie (Blondie@future.net), November 02, 1998.

(2/15/76) When things really start going sour, here's what the banks do:

1. They shore up public confidence by showing high earnings. Thanks to the miracle of modern accounting, losses can be shown on the balance sheet by the reduction of loan loss reserves, and not debits against earnings. So we are seeing some glorious earnings reports from some very sick banks.

2. They launch a massive PR campaign. Tell the world how sound the banking system is! Runs must be avoided at all costs. Money running around from one bank to another looking for safety is like water sloshing around in a boat. If there's enough of it, shifting weight can capsize the boat. If there's enough of it, the shifting weight can capsize the boat, and they know this.

3. They demand secrecy! Disclosure could be fatal, triggering withdrawals. The power of the banks to avoid disclosure is incredible.

4. They tell everyone how the government protects deposits.

Quoted from Howard Ruff "From A to Z," Pages 29-30, 1980. Is this still true 19 years later?

-- Bardou (Bardou@baloney.com), November 02, 1998.

FYI One of Ruffs old buddies and business partners is none other than Gary North

A Shicklegruber

-- (Ruff Times@a.org), November 02, 1998.

Your right about that (Gary North), in "From A to Z," there's several articles in there written by Gary North. Nineteen years ago they were telling people to buy gold, stock food, water, and buy land and stick a mobile on it. They also say to watch for the signs to take your money out of the banks, and if you live in the city, get out. After reading this book, you would think they were talking about Y2K.

-- Bardou (Bardou@baloney.com), November 02, 1998.

Remember the image from the opening chapter of Atlas Shrugged of the mighty oak tree falling. Rotting from the inside out. Could this describe our modern muti-national banks? Strange things are happening at the fed these days. The shell game is picking up speed.

-- Bill (bill@microsoft.com), November 03, 1998.

Have no fear folks ! Bank of America is no more anyway. Now known as Nations Bank . As for losing 350 million plus... no sweat ... just give the guy who made those decisions , Coulter, a golden parachute to the tune of 5 million per year for life to ease on out the door and the bank just makes less profit for the quarter ... course they probably get it back by raising atm fees and lowering their interest paid on individual depositor accounts ... ain't life tough in the board room ?

-- Alan Cline (atcline@earthlink.net), November 04, 1998.