What the Heck?

[ronpaulforprez2008]

This can't be what they propose, is it? Do I have this right? Please let me know if this is an accurate outline of what will happen if the bailout goes through?

1) Gov't borrow's $700B from Fed
2) In exchange, Gov't gives the Fed U.S. Treasury Bond (IOU notes) and pays the Fed $35B/yr interest
3) Gov't then uses $700B to buy worthless ("illiquid") assets from Fed System Banks at book value (significantly higher than their current market value)
4) Through Fractional Reserve rules banks use this $700B in cash to loan $7T to the public et al, charging the public approximately $350B/yr in interest for these loans.



So, will the Banks win by:
(i) selling worthless assets at prices significantly higher than their market value
(ii) earning $35B/yr in interest payments from the Tresury
(iii) earning $350B/yr in interest from public loans


Please correct as appropriate, as I'd really like to turn this into a graphical chart for distribution. But I want to make sure I got this right first.

Thanks in advance.

[Pete]

Don't forget that the Fed gets to sell the T-bills for another $700B in cash that can be used for loans.

Other than that, you nailed it. :)

[ronpaulforprez2008]

Don't forget that the Fed gets to sell the T-bills for another $700B in cash that can be used for loans.

So, if the Fed sells the $700B in Treasury Notes (or T-bills?) to a 3rd party, that 3rd party would then receive the $35B/yr in interest from the Gov't, correct?

But, if the Fed can acquire an additional $700B in cash from the sale of these Treasury Notes, then thru Fractional Reserve Banking they can lend out an additional $7T (over and over the first $7T referred to in paragraph 4. This would then earn the Fed another $350B/yr on interest from this additional $7T in loans. yes?

So, the Fed would be able to convert this transaction into $14T in loans and approximately $700B/yr in interest. If that's correct, wow, what a deal.