James Carville said that when he died, he wanted to come back as the bond market, that way he could intimidate everybody. If asked today, i suspect he’d ask to come back as a bank. They get all the bennies.
Seriously, Amex becoming a bank? This is patently ludicrous. Amex poses no systemic risk, so they don’t have a case for needing access to the Fed window. They once owned a bank in connection with their wealth management business, but that is a thing of the past.
The process has now become ludicrous. Amex gets to become a bank to help with its credit card business, which in case you have not been paying attention, has been cutting credit lines to existing customers en masse (I have heard of a case with eight figure net worth, infrequent user, impeccable credit score, who nevertheless had his credit line cut by 50%).
And since no credit card bonds were sold last month, the purpose of this exercise is so that Amex can borrow against its credit card receivables at the Fed window at preferred rates. I am not making this up.
Willem Buiter once said that US regs permitted the Fed to lend against any collateral, including a dead dog. We are getting perilously close to that.
America needs to get its consumption down, but apparently the powers that be are going to use any trick possible to try to keep the American shop-a-holic habit going.
From Bloomberg:
American Express Co. won Federal Reserve approval to convert to a commercial bank.The Fed waived the normal 30-day waiting period on the application “in light of the unusual and exigent circumstances affecting the financial markets,” the central bank said ….
Sales of credit card asset-backed bonds have plummeted, hindering the company’s ability to raise cash to fund new loans. The Fed lets banks post consumer debt, such as credit card receivables, as collateral for loans from its discount window, which carry a 1.25 percent interest rate….
The company has posted four straight quarterly profit declines and lost about half its market value this year as it set aside more for soured credit-card debt. American Express makes loans to consumers, exposing it to defaults fueled by more than 700,000 U.S. job losses this year, unlike Visa Inc., which just processes payments and said yesterday that quarterly adjusted profit doubled to $448 million.
American Express used the Federal Reserve’s commercial paper facility for the first time on Oct. 29, joining a growing list of borrowers that have sold tens of billions of dollars of the short-term debt to the central bank as credit became more difficult to obtain.
So Amex, because it has a different business mix than Visa (remember, Amex is in the corporate travel business business but not payments processing) gets to cry to the Fed for help? These were business decisions. You eat your own cooking. That is, unless you are in the US and have the right friends in power.
You can read the Fed press release here.
I suppose the upside is if they fail to restore your credit line, you can now complaint to your Congressman and Barney Frank.
Anonymous 
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Bailouts’ Unintended Consequences
Within the next 12 months the yields on treasuries will begin to rise. This is because the fools (China etc.) who have been willing to accept low interest rates will be tapped (China has a stimulus package of their own to fund etc.) out.
This will cause all interest rates to rise, which will make the housing market worse. If it gets too much worse then the stability of the financial system will once again be the main concern.
Shorting treasuries seems like a rational investment, but yields may decrease before they increase.