According to Matt Taibbi, in a recent conversation with Thom Hartmann, "the big banks are showing up at the Fed with essentially worthless piles of mortgage-backed securities and using that as collateral to borrow trillions of dollars, at very low interest rates, which they then use to gamble, with confidence, in the stock and derivatives markets. What gives them this confidence you might ask. The answer is the high-powered and super-fast computers they use, that can jump in ahead of other traders, taking advantage of millions of relatively small price movements in the span of minutes. Essentially they are, by constantly skimming all this cream, a million times a minute, off the top of the market, extracting a kind of tax on all other traders as well as on the American people as a whole.
Mark Moore speculates further about this in the following discussion about The Fed and The Bankster's Next Move:
The banksters have begun the next phase of "The Greatest Bank Robbery," whereby they siphon off the wealth of the country while leaving us nothing but debt in exchange. Some have wondered how they were going to initiate this phase. Now that the game plan has been set up, one can only marvel at their cunning. One can also marvel at the sheer magnitude of their rapacious malevolence. But first, let's frame that rapaciousness with a bit of history.
Their awful bets in 2008 prompted banksters to accelerate what their predecessors had been doing bit by bit for generations. Basically, this was the same crooked racket that President Andrew Jackson caught some of those predecessors at almost 200 years ago: "Gentlemen, I have had men watching you for a long time," Jackson told them. "I am convinced that you have speculated in the breadstuffs of the country. When you won, you split the profits among yourselves, and when you lost you charged it to the bank."
Yes we're now in a different century, but the same basic scam continues. The big politically connected banks still speculate with money they create out of thin air. If their picks turn out to be winners, they keep the money, as always. But as their bets get bigger, their risks get bigger too. And in 2008 it all blew up on them at once. When a little guy like you and me makes stupid and reckless investment decisions, we go bankrupt. The big guys are in some ways way ahead of us: they still have the system set up so that when they make mistakes, you and I pay for it, not them.
Here's how it worked the last time around: They took their bad investments (also known as "toxic assets' to something called the Fed discount window and exchanged them for dollars -" actually Treasury certificates (bonds) denominated in dollars. The Fed, run by and for the big banks, will not reveal to Congress how much was paid to any given bank for any given toxic asset. The excuse for the discount window's operation is that for the sake of our economy, it's necessary to provide temporary liquidity to any big bank that has a cash flow problem.
But the big banks did not have a cash flow problem -" what they had was an insolvency problem, that was falsely labeled a "cash flow problem." It wasn't that they had valuable assets that they could not sell fast enough; the assets they had were junk not worth half of what they paid for it. They were underwater in that they owed way more to depositors than they really had in net worth. But, no matter, for the Fed saved their asses by buying a good many of those toxic assets from the banks at secret prices -" and at higher price than the free market was willing to provide. In other words, it was a huge gift from the Fed to the banksters. Sometimes, the Fed loaned to them on the basis of these toxic assets being used by the banksters as collateral. Then the banksters told the Fed to just keep the collateral and that they would keep the money that had been loaned to them.
So now the Federal Reserve is stuck with a gigantic pool of toxic assets for which they grossly overpaid the banks, and the big banks are essentially "stuck' with . . gigantic piles of cash. They went from insolvent to having so much cash that they did not know what to do with it all.