# Joseph Stiglitz makes a preposterous claim - can anyone defend him? **URL:** \ **Category:** Great Debates\ **Created:** [June 28, 2014, 3:58pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867 "2014-06-28T15:58:30Z")\ **Posts on this page:** 14\ **Page:** 2
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [June 30, 2014, 5:01am UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/21 "2014-06-30T05:01:00Z")
As of today, if I’m reading the various numbers right, the Fed discount rate is 0.75%, and 30-year T-bills are at 3.37%. Presumably this arbitrage is still happening, then, right? Has there been any point in the history of the Fed when this set of transactions could not have been run at a profit for the banks; i.e., when the discount rate was equal to or greater than a long bond? If not, why is this only controversial now? ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [June 30, 2014, 6:21am UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/22 "2014-06-30T06:21:03Z")
> [@Tom\_Tildrum](#): > > Has there been any point in the history of the Fed when this set of transactions could not have been run at a profit for the banks; i.e., when the discount rate was equal to or greater than a long bond? If not, why is this only controversial now? Is it controversial now? AFAICT, it is merely being pointed out. And Hellestal detailed upthread that Stiglitz didn’t mention the discount window and was probably referring to an array of emergency programs carried out under Bush/Obama/Bernanke. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [June 30, 2014, 3:30pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/23 "2014-06-30T15:30:35Z")
> [@Tom\_Tildrum](#): > > As of today, if I’m reading the various numbers right, the Fed discount rate is 0.75%, and 30-year T-bills are at 3.37%. Presumably this arbitrage is still happening, then, right? I’ve been trying to keep the answers in this thread simple so far, but this next is going to have to be one step more complicated. First, I want to emphasize again that the discount window is not especially relevant. Stiglitz did not mention the discount window. He mentioned general borrowing from the Fed. The OP falsely assumed that borrowing from the Fed automatically meant using the discount window, presumably because of a lack of familiarity with these other options. But as I already cited in Post 4, the Fed during the crisis had a large number of lending facilities to rely on in order to prop up the markets. If we want a specific example, we can do that. [This is the interactive Fed lending graph](http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/#/overview/?sort=nomPeakValue&group=none&view=peak&position=0&comparelist=&search=) from Bloomberg I already cited. You can click on any bank to get a breakdown of the different Fed facilities the banks used. We can look at [JPMorgan](http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/#/JPMorgan_Chase_&_Co/?total=true&mcp=true&mc=true&taf=false&cpff=false&pdcf=false&tslf=false&stomo=false&amlf=false&dw=false/) for one example and see that they were in hock to the Fed for 525 days with an average outstanding balance of 12 billion. There are little buttons you can see, lists of acronyms, where you can break down the most important lending facilities. The most important here were the TAF and the AMLF. DW (discount window) hardly shows up at all. Borrowing for cheap. Now I say “for cheap”, but what does that really mean? You’re asking why banks wouldn’t do the same sorts of trades today that they did in 2008-09, and the answer is that the markets are much different today. I’ve already used the example of someone from the government coming to you and lending you a million dollars at near 0%, and then the next today someone else from the government coming to borrow money from you at 2%. What I didn’t do (because I was trying to keep things easy to follow) was to calculate the marginal benefit of this government largesse. The total spread is 2% on a million dollars, or 20k. But that doesn’t quite tell the whole story because banks might have some alternate sources of funding. What matters is the cheapest alternative source of funding with basically identical conditions. If public borrowing is 1% under the same terms, then my marginal benefit from uncle sugar’s visit is the additional 10k. So now we can answer that question. Why aren’t banks borrowing from the discount window at 0.75% in order to lend at 3.77%? Well, why would they do that when they can borrow on the repo markets (another form of collateralized borrowing) for around 0.13%? We are past crunch time in the financial markets, and private lending is competitive again. So I have no doubt that there are at least some people out there doing exactly what you suggest: borrowing short on the overnight repo market (and then rolling over the borrowing indefinitely) in order to invest long in 10- or 30-year bonds. (If you’re wondering why _more_ investors aren’t doing this, it’s because of the risk. If interest rates rise, then the overnight rate will head up while simultaneously the price of these long bonds will plummet. You get screwed at both ends if you time it wrong. Eventually investors reach a point where the risk no longer seems worthwhile given the interest rate spread between the assets.) > [@Tom\_Tildrum](#): > > Has there been any point in the history of the Fed when this set of transactions could not have been run at a profit for the banks; i.e., when the discount rate was equal to or greater than a long bond? We should see now that this isn’t quite the correct calculation. We’re not just looking at the spread between the discount window (or whatever) versus the long bond. These are different kinds of loans. It’s also a question of risk, and we have to look at other similar short term forms of collateralized borrowing like the repo market. When comparing different short-term borrowing options, it’s not enough to compare the rate in isolation. We have to compare the conditions in borrowing. [I’ve already linked this](http://blogs.wsj.com/economics/2007/08/17/explaining-the-discount-window/), but now it’s worth revisiting in more detail: > [@WSJ](#): > > Banks were reluctant to access the window because it was associated with a stigma usually reserved for distressed banks. A few years ago the Fed overhauled the discount window to try and alleviate that stigma; the rate was then set one percentage point above the funds rate and subject to far fewer conditions. The Fed loosened the conditions for borrowing during the financial crisis. Of course they did. > [@Tom\_Tildrum](#): > > If not, why is this only controversial now? It’s not. It’s not only controversial now. This complaint has been circling from the very beginning when people learned what the Fed was doing. The only thing that’s special about this thread is that the OP has only now, for the first time, read about this issue. In contrast, anyone who was following the business news should already be completely familiar with these complaints. Here’s a nice article from 2011: [“Wall Street Aristocracy Got $1.2 Trillion In Secret Loans”](http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html). (More generally, Walter Bagehot was complaining about overly easy lending from central banks in the 19th century. This is a recurring problem.) To emphasize that it’s the marginal difference in rates that’s important, I’ll quote this selection. > [@](#): > > Below-Market Rates > > While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time. > > The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show. This says “28 day loans”, but I want to emphasize again that loans can be and were rolled over. This means we have to be careful when we’re talking about the term of the loan. Just because a loan is overnight doesn’t mean it will be paid back tomorrow. It might be rolled over. Just because a loan is four weeks doesn’t mean it will be repaid after a month. It might be rolled over. I’ve said this several times before in this thread, but [here’s an example](http://www.bloomberg.com/news/2011-12-23/fed-s-once-secret-data-compiled-by-bloomberg-released-to-public.html) of why this is important: > [@](#): > > $16 trillion – The “total transaction amounts” for Fed lending included in a July 21, 2011, study by the Government Accountability Office, a non-partisan investigative agency that reports to Congress. The Fed’s Dec. 6 memo said it was inaccurate to describe that amount as the total of its lending and guarantees, as some websites did. > > The method the GAO used to produce that total differed from Bloomberg’s approach. Bloomberg built spreadsheets to show each borrower’s daily amounts outstanding, and then found the day on which those amounts peaked. The GAO tallied all cumulative loans to arrive at $16 trillion. Its report noted that the total didn’t reflect how loans’ terms varied under different Fed programs. > > If a bank borrowed $1 billion overnight for 100 nights, Bloomberg’s analysis would show that the bank had a $1 billion balance at the Fed for 100 days; the GAO method that produced the $16 trillion total would sum up those transactions to $100 billion, even though the bank never owed more than 1 percent of that total. So let’s take a breather… Whew! Okay. In all of my previous examples, I was trying to keep calculations simple to get the basic point across. I was using examples of borrowing at 0% and lending at 2% because that’s the easiest example to follow. The reality is that we have to look at a more complicated calculation. Naturally, [people have tried to guesstimate](http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html) the benefit to banks of all this Fed lending. > [@](#): > > The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show. > The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion. > > “The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia. > > While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out. As they say, this is not a perfect calculation. If I had to go through the numbers myself, I might’ve used a slightly different technique than they used here. But if I were in Stiglitz’s place? If I were writing a popular piece to describe what happened? I would do exactly what he did. It’s fully accurate in the essentials: banks were borrowing low from one part of the government, and then lending back to the government at higher rates. That’s not _all_ they were doing, of course. But any bank that had satisfied its day-to-day liquidity problems would be looking for a place to earn a nice spread, and lending back to the government was the safest option at the time. This description avoids most of the technicalities, but it gets the big idea literally correct. Stiglitz’s description is just… innocuous. It’s unobjectionable. What he described literally happened. Short and non-technical and to the point, and I’d write the same thing in his position. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [June 30, 2014, 3:49pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/24 "2014-06-30T15:49:49Z")
_Why_ recapitalize banks “on the sly”? Why not just give them cash and save the paper-pushing costs? We were already bailing them out so it’s not like this secrecy avoided a public backlash or anything. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [June 30, 2014, 3:52pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/25 "2014-06-30T15:52:34Z")
> [@](#): > > The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion. Assuming Citi did what you say they did and the above quote agrees with your methodology Citi earned back only $.18 billion of the over $13 billion interest they paid on their TARP loan. We know the loan programs have ended now or in case of the discount window nearly non-existent. So Stiglitz is saying banks like Citi (the largest borrower of the nine TBTF) recouped the government’s “investment” via some Fed program. Using the quote you provided this is clearly not true. > [@](#): > > Citigroup > New York, N.Y. | See all recipients in New York > $45B Disbursed > $45B Returned > $13.4B Revenue to Gov’t > $13.4B Profit > **[Bailout Tracker](https://projects.propublica.org/bailout/entities/96-citigroup)** > > ProPublica is still tracking where every dollar of taxpayer money from the 2008 bailout of the financial system has gone. See for yourself. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [June 30, 2014, 3:58pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/26 "2014-06-30T15:58:01Z")
> [@Really\_Not\_All\_That\_Bright](#): > > _Why_ recapitalize banks “on the sly”? Why not just give them cash and save the paper-pushing costs? We were already bailing them out so it’s not like this secrecy avoided a public backlash or anything. Because it is not happening “on the sly”. It happened like this: > [@](#): > > Warren Buffett to the rescue: His Berkshire Hathaway Inc. agreed today to invest $5 billion in Goldman Sachs Group via a purchase of preferred stock. > > Berkshire also will get warrants to buy up to $5 billion of Goldman common shares. > > The deal, announced after markets closed, amounts to a huge vote of confidence by Buffett in the investment banking titan, at a time when investors remain spooked about the future of Wall Street. > > **Buffett will earn a hefty 10% dividend yield on his preferred shares. The warrants, which are immediately exercisable, have a strike price of $115 a share.** > **[Buffett boosts Goldman Sachs with $5-billion investment](https://www.latimes.com/archives/blogs/money-company/story/2008-09-23/buffett-boosts-goldman-sachs-with-5-billion-investment)** > > This article was originally on a blog post platform and may be missing photos, graphics or links. Buffett cleaned Goldman’s clock. Why on earth would banks borrow at 6% and higher (which they did) when they could get “free money” from the Fed? ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [June 30, 2014, 4:01pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/27 "2014-06-30T16:01:09Z")
… I’m not really understanding how that is relevant (I am not a financial savant.) ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [June 30, 2014, 4:12pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/28 "2014-06-30T16:12:28Z")
> [@Really\_Not\_All\_That\_Bright](#): > > … I’m not really understanding how that is relevant (I am not a financial savant.) I repeat – Why on earth would banks borrow at 6% and higher (which they did) when they could get “free money” from the Fed? The answer is that Stiglitz is wrong. There is no free money from the Fed unless you want to repay it the next day (or in 90 days back in 2008-09). ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [June 30, 2014, 4:15pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/29 "2014-06-30T16:15:45Z")
> [@Really\_Not\_All\_That\_Bright](#): > > _Why_ recapitalize banks “on the sly”? Why not just give them cash and save the paper-pushing costs? We were already bailing them out so it’s not like this secrecy avoided a public backlash or anything. The TARP banks were public knowledge. The Fed loans were different in the beginning. The bank names were entirely hidden until the courts decided to open things up. So each individual bank not involved in something public like TARP could claim that they had not taken any “bailout” cash, when in fact they were borrowing secretly from the Fed at below market rates. This was a huge part of the scandal when the Fed released its info. Banks that had claimed to be perfectly safe were still getting funding. Two options here: 1) They were lying about how safe they were. 2) They were taking advantage of the gift. Of course, different banks were in different situations, but even more interesting is that those options are not mutually exclusive. A bank that needed emergency funding to stay alive during a brief crisis could easily see how lax standards were, and so continue its borrowing for an extra profit after it was out of danger. I would do the same thing in their position. It’s just good business. (Poor public policy outside of a crisis, but good banking.) Obviously some of the lending was used for emergency measures, but how much? That’s a harder question to answer. One other perceived problem about Fed lending was the size. The Fed lending was around 1.2 trillion dollars. There were no statutory limits, so it could have gone even higher. Compare again to TARP, approved by Congress, which was originally 700 billion. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [June 30, 2014, 4:25pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/30 "2014-06-30T16:25:39Z")
> [@](#): > > The most important here were the TAF and the AMLF Those programs ended long ago and were also short term. “The Term Auction Facility (TAF) is a temporary program managed by the United States Federal Reserve designed to “address elevated pressures in short-term funding markets.”[1] Under the program the Fed auctions **collateralized loans with terms of 28 and 84 days** to depository institutions that are “in generally sound financial condition” and “are expected to remain so over the terms of TAF loans.” Eligible collateral is the same as that accepted for discount window loans and includes a wide range of financial assets.” > **[Term auction facility](https://en.wikipedia.org/wiki/Term_Auction_Facility)** > > The Term Auction Facility (TAF) was a temporary program managed by the United States Federal Reserve designed to "address elevated pressures in short-term funding markets." Under the program the Fed auctions collateralized loans with terms of 28 and 84 days to depository institutions that are "in generally sound financial condition" and "are expected to remain so over the terms of TAF loans." Eligible collateral is the same as that accepted for discount window loans and includes a wide range Ea... Yes, like the discount window extension of 90 days, theoretically banks could have played your 3-card monte game with TAF loans and shuffled those short loans into Treasury long bonds to capture a single coupon. ---
**Author:** ![Mr.Nylock](https://avatars.discourse-cdn.com/v4/letter/m/77aa72/32.png) [@Mr.Nylock](https://boards.straightdope.com/u/Mr.Nylock)\ **Post date:** [June 30, 2014, 5:30pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/31 "2014-06-30T17:30:18Z")
> [@Linden\_Arden](#): > > I repeat – Why on earth would banks borrow at 6% and higher (which they did) when they could get “free money” from the Fed? It would seem to me that these events would not necessarily be mutually exclusive due to funding limits. I am making this point out of context, but it seems your logic is flawed here. Only if the funds from the fed were limitless would this be a logically cohesive assertion as far as I can tell. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [June 30, 2014, 7:09pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/32 "2014-06-30T19:09:24Z")
> [@Linden\_Arden](#): > > Those programs ended long ago and were also short term. > > “The Term Auction Facility (TAF) is a temporary program managed by the United States Federal Reserve designed to “address elevated pressures in short-term funding markets.”[1] Under the program the Fed auctions **collateralized loans with terms of 28 and 84 days** to depository institutions that are “in generally sound financial condition” and “are expected to remain so over the terms of TAF loans.” Eligible collateral is the same as that accepted for discount window loans and includes a wide range of financial assets.” > > [Term auction facility - Wikipedia](http://en.wikipedia.org/wiki/Term_Auction_Facility) > Yes, like the discount window extension of 90 days, theoretically banks could have played your 3-card monte game with TAF loans and shuffled those short loans into Treasury long bonds to capture a single coupon. JPMorgan had TAF loans outstanding for six months. They had AMLF loans outstanding for most of nine months, with a brief interruption. This information is in the interactive graph I already cited. You can click on different banks to get their loan information. Citi had TAF loans for about nine months. Bank of America had TAF loans for about nine months. Wachovia had TAF loans for almost a year, with one interruption (not that it helped them). I mentioned previously in this thread how banks might continue to enjoy borrowing privileges after the first loan term expired. Post 2: > [@](#): > > The Federal Reserve loans can be, and were, rolled over many times. > > A one-day loan for 0% interest, whose funds are sunk into another investment, won’t earn a 2% over a single night. But if the loan is rolled over 365 times, it quite possibly will. Post 4: > [@](#): > > And as I said before, even relatively short-term loans from the Fed can be, and very often were, rolled over many times. Post 23: > [@](#): > > This says “28 day loans”, but I want to emphasize again that loans can be and were rolled over. This means we have to be careful when we’re talking about the term of the loan. Just because a loan is overnight doesn’t mean it will be paid back tomorrow. It might be rolled over. Just because a loan is four weeks doesn’t mean it will be repaid after a month. It might be rolled over. I’ve said this several times before in this thread, but [here’s an example](http://www.bloomberg.com/news/2011-12-23/fed-s-once-secret-data-compiled-by-bloomberg-released-to-public.html) of why this is important: > > > [@](#): > > > > $16 trillion – The “total transaction amounts” for Fed lending included in a July 21, 2011, study by the Government Accountability Office, a non-partisan investigative agency that reports to Congress. The Fed’s Dec. 6 memo said it was inaccurate to describe that amount as the total of its lending and guarantees, as some websites did. > > > > The method the GAO used to produce that total differed from Bloomberg’s approach. Bloomberg built spreadsheets to show each borrower’s daily amounts outstanding, and then found the day on which those amounts peaked. The GAO tallied all cumulative loans to arrive at $16 trillion. Its report noted that the total didn’t reflect how loans’ terms varied under different Fed programs. > > > > If a bank borrowed $1 billion overnight for 100 nights, Bloomberg’s analysis would show that the bank had a $1 billion balance at the Fed for 100 days; the GAO method that produced the $16 trillion total would sum up those transactions to $100 billion, even though the bank never owed more than 1 percent of that total. The data that confirms this is right there in the graphs. Banks were borrowing under TAF far longer than three months. This is similar to the repo markets on which Lehman was relying for its short-term financing. Repo loans are technically overnight loans, but banks might need funding more than 24 hours. As long as both parties agree to renew the loan, then the short-term funding can extend indefinitely. The risk with this kind of short-term arrangement is that the lender can renegotiate terms, or demand full repayment, or demand that the borrower provide more collateral to continue the arrangement, on any day they wish. This is exactly what happened to Lehman in 2008. After the shock, the government’s sort of unofficial motto was “No more Lehmans”. The Fed was not going to cut off its funding so suddenly as Lehman’s creditors did. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [June 30, 2014, 8:22pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/33 "2014-06-30T20:22:38Z")
> [@Hellestal](#): > > JPMorgan had TAF loans outstanding for six months. They had AMLF loans outstanding for most of nine months, with a brief interruption. This information is in the interactive graph I already cited. You can click on different banks to get their loan information. Citi had TAF loans for about nine months. Bank of America had TAF loans for about nine months. Wachovia had TAF loans for almost a year, with one interruption (not that it helped them). This is mostly agreeable with my understanding of TAF. However, there are two problems. 1- There is no evidence TAF loans were used to buy Treasuries. 2- The interest rate was typically too high to buy Treasuries. See: > [@](#): > > A typical TAF auction occurred on March 10, 2008. At 10 a.m. ET, the Federal Reserve announced bidding. The announcement included information on when eligible banks could submit bids (11 a.m. to 1 p.m.), the amount of funds being auctioned ($50 billion), the minimum and maximum size of bids ($5 million and $5 billion—the latter representing 10 percent of the total amount), **the minimum interest rate at which bids could be submitted (2.39 percent),** the term of the loan (twenty-eight days), and other details. At 11 a.m., banks began submitting bids by telephone to their Reserve Bank.3 > > On March 11 at 10 a.m., the Federal Reserve announced the results of the auction.d The interest rate on the loans allocated was determined to be 2.8 percent (41 basis points above the minimum bid rate), eighty-two banks had submitted bids, and the total amount of propositions was $92.6 billion, or 1.85 times the amount available at auction. Finally, the winning banks had funds credited to their accounts on March 13 and they repaid the loans on April 10.4 [http://publicintelligence.net/term-auction-facility/](http://publicintelligence.net/term-auction-facility/) The use of TAF does not help Stiglitz’s claim in the least bit. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [June 30, 2014, 10:46pm UTC](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867/34 "2014-06-30T22:46:34Z")
> [@Linden\_Arden](#): > > 2- The interest rate was typically too high to buy Treasuries. > See: > > > [@](#): > > > > A typical TAF auction occurred on March 10, 2008. At 10 a.m. ET, the Federal Reserve announced bidding. The announcement included information on when eligible banks could submit bids (11 a.m. to 1 p.m.), the amount of funds being auctioned ($50 billion), the minimum and maximum size of bids ($5 million and $5 billion—the latter representing 10 percent of the total amount), **the minimum interest rate at which bids could be submitted (2.39 percent)**, the term of the loan (twenty-eight days), and other details. At 11 a.m., banks began submitting bids by telephone to their Reserve Bank.3 > > > > On March 11 at 10 a.m., the Federal Reserve announced the results of the auction.d The interest rate on the loans allocated was determined to be 2.8 percent (41 basis points above the minimum bid rate), eighty-two banks had submitted bids, and the total amount of propositions was $92.6 billion, or 1.85 times the amount available at auction. Finally, the winning banks had funds credited to their accounts on March 13 and they repaid the loans on April 10.4 > > [http://publicintelligence.net/term-auction-facility/](http://publicintelligence.net/term-auction-facility/) > > The use of TAF does not help Stiglitz’s claim in the least bit. You just copy&pasted the result of a single auction from March 2008 (before Lehman) that they were using as an example of the auction process. The page has a lot of additional information about subsequent auctions. If we were to scroll down, we would see a small table that shows interest rates from the TAF near the end of 2007 and the beginning of 2008. The table clearly shows that interest rates for these loans were dropping as the housing collapse became more severe. Specifically, the minimum bid was linked to the OIS ([overnight indexed swap](http://en.wikipedia.org/wiki/Overnight_indexed_swap)). As the OIS declined, so did the minimum possible bid for the auctions. Obviously, the interest rate was not a constant. It was going down during the early stages of the crisis, exactly as we should expect. But that’s not the entirety of the information from this page. There is more. If we continue to scroll down, we will see the results from the subsequent year, the 2009 auctions, which is to say the interest rates for TAF loans when Obama was first in office. As far as I can tell, your cite gives the interest rate for every single TAF auction held in the entire year. The interest rate for every single auction listed in your cite for 2009 is 0.25%. Like Stiglitz, I would call this rate close to zero. I was actually prepared to link the Excel file from the Fed itself to demonstrate that the vast majority of TAF loans had been issued at a mere quarter point, but I have to admit, my contribution was not quite as good as this page. The Excel file is much harder to navigate and to read. The page you offered is a much clearer demonstration. [Previous page](https://boards.straightdope.com/t/joseph-stiglitz-makes-a-preposterous-claim-can-anyone-defend-him/691867.md?page=1)