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Posts Tagged ‘fed

Bernanke Frantically Tries to Save his Job

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Bloomberg has a good article today about how our favorite Fed Chief, Mr. Bernanke, is trying to allay calls for a Fed audit by offering more “transparency”. Let’s see what he has in mind:

The Fed will support legislation to let government auditors probe six temporary programs created to combat the financial crisis such as the Primary Dealer Credit Facility, Bernanke said yesterday in House testimony. While he would support the delayed release of names of firms getting aid from those programs, he said banks borrowing through the longstanding discount window must be allowed to remain anonymous.

Bernanke’s move toward greater openness may not dissuade lawmakers who want the Fed to disclose more information about the Fed’s lending and policy decisions. Lawmakers are responding to public anger over the Fed’s role in the $182.3 billion bailout of American International Group Inc.

“He is definitely trying to defuse the Ron Paul issue,” said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., which oversees $37.4 billion in assets. “The best he can do at the moment is to play more offense than defense.”

Does he really expect us to buy this bullshit? If that’s what he calls “transparency”, I’ve got some water from the Ganges to sell him. The whole point of this Fed audit is to see what they did with the money we don’t know about. Specifically, we’d like to know about money that was lent under the table to the European union to prevent it from collapsing. And George Washington, over at ZeroHedge, tips us off to $12 Billion in Federal Reserve dollars (cash money, yo) that mysteriously went to Iraq during 2003-2004. Whom did they send it to? Why? These are the questions an audit is supposed to answer.

Releasing hand-picked data from 6 controversial Fed programs tells us nothing. The flimsy excuse Bernanke gives us for why he shouldn’t be audited is that it would have a “bad effect on markets”, and give the impression that Fed policy is subject to “political pressure”. Hey, idiot! I think that “impression” has already been effectively created. You remember reducing the benchmark lending rate to zero, and then keeping it that way for two years? Yeah, that was pretty much political. And what were the bailouts, then? Oh, yeah, political. Man, this is such a convenient excuse – any time someone suggests oversight, all you have to do is say the word “political” and poof! Oversight vanishes.

The Fed needs a full, meaningful audit if we’re going to get any semblance of economic balance back. These days of unlimited money must end.

Written by pavanvan

February 26, 2010 at 3:13 pm

Are US Taxpayers Bailing Out Greece?

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(c/o The Daily Digest)

Ron Paul makes sense (on this, at least):

Is it possible that our Federal Reserve has had some hand in bailing out Greece?  The fact is, we don’t know, and current laws exempt agreements between the Fed and foreign central banks from disclosure or audit.

Greece is only the latest in a series of countries that have faced this type of crisis in recent memory.  Not too long ago the same types of fears were mounting about Dubai, and before that, Iceland.  Several other countries (Spain, Portugal, Ireland, Latvia) are approaching crisis levels with public debt as well.  Many have strong ties to Goldman Sachs and the case could easily be made that default could have serious implications for big US banking cartels.  Considering the ties between the Fed and these big banks, it is not outlandish to wonder if the US taxpayer is secretly bailing out the entire world, country by country, even as our real unemployment tops 20 percent.  Unless laws are changed to allow a complete and meaningful audit of the Federal Reserve, including its agreements with foreign central banks, we might never know if this is occurring or not.

The point is, we don’t know. In fact, we know very little about what the Federal Reserve does with the trillions and trillions of dollars in cash that it’s empowered to print and distribute as it sees fit. I remember a couple months ago people were seriously discussing whether or not to audit the Fed. This never happened, and after a couple weeks people just stopped paying attention and turned their gaze to the next shiny object on the horizon.

Without a meaningful audit of the Federal Reserve, we will never know where our money goes. The Fed, as we all know, as been bestowed massive new powers as a result of this crisis (which they helped cause), and this makes an audit all the more important. I guess I would suggest you phone your congressperson about this, but we all know how much good that’ll do.

Written by pavanvan

February 21, 2010 at 11:40 am

Unemployment Still Trending Upward

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Dean Baker makes a catch that nearly every mainstream outlet declines to report: jobless claims are up more than 31,000 from last week. In other news, the Federal Reserve, whose stated job it is to keep unemployment “low” (usually defined as 4.0%) is failing miserably at its job. What’s worse, it seems to consider employment a secondary concern, particularly if this Times article is any indication.

I hasten to remind my readers that by law, the Fed is required to do all it can to keep unemployment as near to 4% or below. Its unseemly focus on “bank stability” and “inflation” are illegal. Maybe someone should inform Mr. Bernanke.

Written by pavanvan

February 21, 2010 at 10:09 am

Financial Quote of the Day

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Alan Greenspan:

“I really didn’t get it until very late in 2005 and 2006.”

Reuters (13 September 2007), “Greenspan says didn’t see subprime storm brewing

Thanks, Alan. Now back to your regularly scheduled programming.

Written by pavanvan

January 25, 2010 at 8:52 pm

Geithner: Whose side is he on?

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Bloomberg has a fantastic front-page report on Treasury Secretary Geithner’s latest abuses. I mentioned previously that Geithner was instrumental in AIG receiving 100 cents on the dollar in their bailout. Essentially, the Federal Reserve agreed to print the full value of AIG’s misbegotten “derivatives” and hand it to them, no questions asked. AIG initially indicated it was willing to “get a haircut” (that is, receive 95 or even 90 cents for every dollar they lost gambling), but quickly backpedaled when it became clear the Fed was going to bail them out 100%.

Now Bloomberg reports that in addition to giving AIG an essentially blank cheque, Geithner instructed AIG to deceive the public on who their “counter-parties” were, on who would benefit from the AIG bailout. Much as the Banking Trusts of the 1920s, our mega-conglomerates today are heavily invested in one another – a bailout to one goes to pay back its creditors elsewhere in the banking system. This proved invaluable in convincing the public to bail AIG out. As Machiavelli wrote, if one must rule by robbery, it is best to conduct a big crime all at once, rather than small ones continuously. By giving a massive ($200 billion +) bailout to AIG, the government could thereby distribute their gift to other banks (the “counter-parties”) without the attention of the public, whose ire would be focused solely on AIG.

Later it turned out that Goldman Sachs, the firm which regularly gets to choose the Treasury Secretary (Geither was their first choice, and his predecessor, Hank Paulson, worked at Goldman for 35 years), was one of the AIG counterparties.

One of the most salient passages in Hugh Son’s excellent article, way up high in the 3rd paragraph:

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

So it seems obvious that Geithner did not want the public to know the extent of Goldman Sach’s involvement with this bogus “derivative” scheme, likely so as not to tarnish Goldman’s image of having never received a bailout.

But whatever the reason, this latest report adds to the already exhaustive list of opacity, malfeasance, and outright cronyism that has plagued this crisis.  We cannot approach any semblance of fair economic policy (let alone fantasies of a “free market”), if one corporation regularly gets to appoint Treasury officials and make policy.

Written by pavanvan

January 9, 2010 at 2:21 pm

I.O.U

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The Times ran a fantastic article last week which I think deserves a careful look, as it presents in uncharacteristically sharp terms the economic situation before us.

They begin with some fun facts:

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

$700 Billion, as many must recall, was the magical “really big number” Bush and Paulson sold us last September, promising that we likely shouldn’t spend it all, and will probably “see a return on our investment”. I remember the awe with which we once held the TARP program: “$700 Billion, have they lost their minds?” None of us (certainly not I) could have fathomed such a large sum being spent at one time. It is a testament, then, to our infinite ability to adapt that $700 Billion no longer seems so very great, and we can swallow easily the prospect of such an annual payment.

The Times is somewhat disingenuous in claiming $500 billion a year to be “greater than the combined federal budgets for… Iraq and Afghanistan”. As The Times are surely aware, President Obama recently signed a $680 Billion war bill in October, with (according to The Times), “$550 billion for the Pentagon’s base budget in fiscal 2010 and $130 billion more for the wars in Iraq and Afghanistan.”  But I digress.

Much of this new debt, as The Times is kind enough to report, has to do with the massive dumping of cash onto the open market via the Federal Reserve. Euphemistically, the article states:

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

“Teaser rates” of course, means lending at 0% interest, essentially lending for free. This is the policy our Fed has chosen over the past year. It, combined with the trillions of untraceable dollars injected into our five major banks, have expanded the Treasury beyond anything previously imaginable. As the article claims:

On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.

What this all means, what the Times doesn’t see fit to mention, is that the US government is bankrupt. That’s it. Our liabilities overshadow our assets, our debts are greater than our ability to pay them; we are underwater, over our heads, sunk.

And we aren’t the only ones:

The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.

It looks like the US and Europe will be coming to terms with some hard realizations next decade.

Written by pavanvan

December 1, 2009 at 8:08 pm

Failed Bank Fridays!

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I missed the last three failed bank Fridays, so here are all seventeen that failed in the past three weeks in a row. As always, from the FDIC:

Pacific Coast National Bank San Clemente CA 57914 November 13, 2009 November 18, 2009
Orion Bank Naples FL 22427 November 13, 2009 November 17, 2009
Century Bank, F.S.B. Sarasota FL 32267 November 13, 2009 November 18, 2009
United Commercial Bank San Francisco CA 32469 November 6, 2009 November 9, 2009
Gateway Bank of St. Louis St. Louis MO 19450 November 6, 2009 November 9, 2009
Prosperan Bank Oakdale MN 35074 November 6, 2009 November 9, 2009
Home Federal Savings Bank Detroit MI 30329 November 6, 2009 November 9, 2009
United Security Bank Sparta GA 22286 November 6, 2009 November 9, 2009
North Houston Bank Houston TX 18776 October 30, 2009 November 3, 2009
Madisonville State Bank Madisonville TX 33782 October 30, 2009 November 3, 2009
Citizens National Bank Teague TX 25222 October 30, 2009 November 3, 2009
Park National Bank Chicago IL 11677 October 30, 2009 November 3, 2009
Pacific National Bank San Francisco CA 30006 October 30, 2009 November 3, 2009
California National Bank Los Angeles CA 34659 October 30, 2009 November 3, 2009
San Diego National Bank San Diego CA 23594 October 30, 2009 November 3, 2009
Community Bank of Lemont Lemont IL 35291 October 30, 2009 November 3, 2009
Bank USA, N.A. Phoenix AZ 32218 October 30, 2009

Written by pavanvan

November 21, 2009 at 4:16 am

This Week in Failed Banks

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Three this week, including one from my home state. Who says the recession is over?

Via the FDIC:


Bank Name

City

State

CERT #

Closing Date

Updated Date

Southern Colorado National Bank Pueblo CO 57263 October 2, 2009 October 2, 2009
Jennings State Bank Spring Grove MN 11416 October 2, 2009 October 2, 2009
Warren Bank Warren MI 34824 October 2, 2009 October 2, 2009

Written by pavanvan

October 4, 2009 at 1:51 am

This Week in Failed Banks

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From the FDIC:


Bank Name

City

State

CERT #

Closing Date

Updated Date

Irwin Union Bank, F.S.B. Louisville KY 57068 September 18, 2009 September 18, 2009
Irwin Union Bank and Trust Company Columbus IN 10100 September 18, 2009 September 18, 2009

Written by pavanvan

September 18, 2009 at 9:31 pm

Some sense from The New Republic

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The New Republic has often drawn my ire for its steadfast support of the status quo, its corporatism, its hostility to the consumer, and, at times, its open agitation for war. I therefore take all the more pleasure in directing you to this informative piece on the Federal Reserve and its bungling of our current crisis. One would hardly expect such clear analysis from a publication whose role is to manufacture consent for the Fed’s policies, and one hopes such criticism portends a more vigorous phase in the magazine’s long and illustrious career.

After a short outline of the Fed’s birth and original purpose, TNR focuses on the organization’s role in the various booms and busts of the past 30 years. Startlingly, TNR asserts the Fed’s centrality to the boom-bust cycle, overturning the conventional wisdom that our central bank is merely an observer, able to lend a push in one direction or a pull in another, but largely helpless to shape the overall landscape. In their words:

The decisions he made during the recent crisis weren’t necessarily the wrong decisions; indeed, they were, in many respects, the decisions he had to make. But these decisions, however necessary in the moment, are almost guaranteed to hurt our economy in the long run–which, in turn, means that more necessary but harmful measures will be needed in the future. It is a debilitating, vicious cycle. And at the center of this cycle is the Fed.

Strong words; and a few even stronger:

Enabled by the Fed, our system’s tolerance for risk is out of control. This is an increasingly dangerous system. It is only a matter of time until it collapses again.

The New Republic attributes this risk to the age-old complaint: bankers and CEOs are simply not punished for poor performance – on the contrary, they are rewarded with dollar amounts we mere mortals can hardly fathom. For evidence they cite Citigroup’s $100 million CEO pay packages to Robert Rubin and Chuck Prince – some of the main architects of our current boondoggle.

When discussing solutions, unfortunately, TNR once again displays its establishment colors. The recommendations it puts forth are mostly watered down, and appear limp when compared to the magnitude of the problems they address.

“Reasonable personal liability” for failing CEOs sounds nice, but will inevitably translate to a small slap on the wrist. Contrary to popular belief, there is not a large difference between a $200 million annual paycheck and a $100 million paycheck. What seems like “reasonable liability” to most CEOs still leaves them unconscionably rich. We must truly divorce ourselves from the idea that as a financial leader you can bankrupt thousands of people and still walk away rich as a Midas. If this means the CEO goes bankrupt with his shareholders – well, so be it. Nobody said banking was a safe business.

Likewise with their reccomendations regarding conflicts of interest. The New Republic advises a “cooling off” period for public servants who enter a regulatory position after making their fortune in the private sector (for example Hank Paulson, who retained his Goldman Sachs holdings while serving as Treasury Secretary).

This is not enough. If our crisis has taught us anything (something which remains to be seen), it is that financial ties run deep, and are often not erased by time. It is ludicrous to appoint to a regulatory position anyone who has ever had anything to do with the financial industry. Such conflicts of interest are inherent – “cooling off period” or no.

A weak finish to an otherwise outstanding article.

Written by pavanvan

September 10, 2009 at 6:55 pm

This Week’s Bank Failures

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From the FDIC:

Banks are still failing at a rate of 4-10 per week, even if the mainstream press tries to pretend it’s not happening.

Bank Name

City

State

CERT #

Closing Date

First State Bank Flagstaff AZ 34875 September 4, 2009
Platinum Community Bank Rolling Meadows IL 35030 September 4, 2009
Vantus Bank Sioux City IA 27732 September 4, 2009
InBank Oak Forest IL 20203 September 4, 2009
First Bank of Kansas City Kansas City MO 25231 September 4, 2009

Written by pavanvan

September 9, 2009 at 2:07 am

About the Banks…

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A dark patch in our media’s otherwise cheery coverage of the economy. After three weeks of exultation over Bernake’s re-appointment (even from administration critic Paul Krugman!), endless blather over so-called “green shoots”, and an outright declaration from the Dallas Fed Chief that “The Recession is Over”, our Federal Deposit Insurance Corporation announced it is down to its last $10 Billion. 20% of their funds were reportedly wiped out this quarter alone, bringing them back to early ’90s levels.

The wave of small and mid-level bank failures has not yet abated, though it receives far less coverage than it once did. Here is the FDIC list of failed banks in its stewardship. You will notice a majority failed this year.

If this trend does not reverse quickly, the FDIC will the likely require a government cash infusion. Our wheel of bailouts has come full circle.

In particular, this development throws new light on President Obama’s re-appointment of Ben Bernanke for Fed Chief. The administration would have us believe Bernanke acted “boldly” to “rescue the economy from another Great Depression”, but actual signs of recovery are hard to see. Unemployment still skyrockets (though not with such horrifying swiftness as it did earlier this year), and the banking crisis has clearly not been solved.

Bernanke was also in a leadership position all throughout the run-up to the crisis. He did nothing to stop it, and even tried to convince us not to worry. He repeatedly claimed the subprime issue would not threaten housing in general –  and certainly not the economy as a whole. How quaint such comments seem after all this devastation!

Bernanke may have a very dubious record of public governance, but he has an excellent record of corporate “partnership”. The net effect of his actions since the crisis has been to secure the fortunes of a very few at the expense of our public coffers. It is then not surprising that the corporate world viewed his nomination with great jubilation. Google the words “Bernanke” and “Reassure” together to get a picture of how true this is.

And if there is one thing we can say of President Obama, it is that he has the financial sector’s interests in mind.

Written by pavanvan

August 27, 2009 at 11:19 pm