More on the patriot banks

It seems not only David Callaway failed to buy the bright happy face presented to the investment world by the Fed and 4 major US banks. Michael Shedlock of MGETA, was on the ball and as he quoted in his article so were the boys from Minyanville.com. Click here for the full article. Below are the pertinent points:

Minyanville's Mr. Practical had this to say:

"When a bank borrows from the discount window, that normally means they have no alternative for funds. Borrowing directly from the Fed in this way is more expensive and cuts into margins.

If Citi really needs that liquidity it is very negative. If they do not then what is the reason for doing so?

Perhaps psychologically the Fed is asking them to so that others that do it don't look so bad. Whatever is happening is highly unusual. Do not let market pundits tell you otherwise"

Also:

Minyanville's Todd Harrison had this to say in Bullets Over Broadway: The Street Taps the Discount Window:

While you were sleeping. Citigroup (C) has announced that they've tapped the Fed Discount Window for $500 bananas on behalf of its clients. Again, be wary of a cornered animal (they've got sharp claws) but add it to the list of things that make you go hmmm…

Hey now, so did JP Morgan, BankAmerica, Wachovia … y'all think that they got a phone call from Hank & Ben?

Professor John Succo on today's Buzz: "There is a huge dichotomy in the marketplace. On one hand, the market in general is being bid back up while government officials try to reassure investors as to the soundness of the financial system. Some of the same officials that originally didn't see a problem.

On the other, investors are paying prices in options on bank stocks and other financials that indicate bankruptcy. We can't have both.

This is not a 'wall of worry'. I have never seen option prices this high in big capitalization financial companies. Take what you want from that. Either the stock market in general is going to correct massively, or the buyers of this protection are really making a mistake."

The last word goes to Mish who posed the following interesting questions to Citibank CEO Chuck Prince who you may recall last month said:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing"

Questions for Chuck Prince

• Have you stopped dancing yet?
• Why are you borrowing money for clients at 5.75% when the Fed Fund's rate hit 4.5% today and in theory you could have got it close to that?
• Exactly how is paying 1.25% too much for money benefiting either you or your clients?

In a sense you can't blame Bernanke for trying. The last thing he wants to do is cut the fed funds rate and lose his aura as an 'inflation fighter.' More to the point it makes him and the entire Fed look incompetent as it shows just how far behind the curve they've been. However helicopter Ben is running out of options. The Bernanke put is looking more and more likely by the day.