Posts Tagged ‘federal reserve’
Sen. Bernard Sanders (I-Vt.) is pushing an amendment to the financial overhaul bill before the Senate that would broaden the Government Accountability Office’s power to audit the Fed and compel the central bank to disclose details about the firms that received emergency federal aid during the financial crisis.
Of course, the Obama White House is looking to kill the amendment. Surprise!
Finally some good news. Even if this doesn’t really change the reality of the situation (The too-big-to-fail banks are still even bigger; they still have an implicit guarantee for unlimited future bailouts; OTC Derivatives are legal, Glass-Stegall is still repealed, insider trading is still legal in commodities, etc.) – this is a much-needed move toward finding out what the Federal Reserve did with its trillions of bailout dollars.
The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.
The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.
On a probably related note, Fed Chief Bernanke has come full circle from declaring that the bailouts were “necessary to stave off a depression” to now calling the situation “unconscionable“. Better late then never, I guess, but it should be clear by this point that if Bernanke truly believed what he said, he would insist on breaking up the big banks, banning the trade of OTC derivatives, and setting up some kind of independent regulatory commission to keep an eye on the banks.
Chris Dodd’s “financial reform bill” attempts to do these things, but only in the way that a corporate wage slave asks his employers for a raise – meekly. This should have been a foregone conclusion seeing that his major campaign contributors are all banks that received bailouts, but I suppose I was foolish enough to hope he’d sponsor a bill with some teeth. His bill incorporates none of the elements which many major economists say are minimum standards for serious reform, and worst of all, leaves oversight up to the Federal Reserve, not an independent commission.
Now, if there is one thing this crisis can be said to have taught us, it is that the Federal Reserve is not a credible or trustworthy judge of the ethics of modern banking practices. The whole time our major banks were engaging in predatory lending practices, fraudulent accounting, reckless gambling and insider trading, the Fed had nothing to say about it. They even encouraged such behavior by keeping interest rates low and making repeated pronouncements that “there is no housing bubble“, “the sub-prime mess is contained“, and that deregulating the derivatives market is somehow a good idea. The Federal Reserve is the last body I want to see regulating the banks, and they have shown themselves to be utterly incapable of doing so. It would be like asking President Bush to oversee an academic committee.
It will be interesting to see what comes out of this new ruling. As I write, I’m sure dozens of news organizations are busy setting their Freedom of Information Act requests to work. Will we see a heretofore unacknowledged bank revealed to have accepted a bailout? I’m sure many would like to see the minutes of the meeting where Lehman Brothers’ fate was decided. How much money did Bank of America run off with, and what were the real terms of its purchase of Merrill Lynch? All that and more, hopefully soon to come!
Joseph Stiglitz is an economist’s economist. Over the past decade he has emerged as the strongest and most consistent critic of securitization, globalization, and corporate fraud. His seminal 2003 Globalization and Its Discontents is a must-read if you want to get a handle on what’s going on now, and I have the feeling if more people in the White House had read it, we wouldn’t be in the embarrassing position with relation to the banks that we now find ourselves (that is, of peasants to their liege.)
So when this guy talks about the Federal Reserve, I think one should probably listen:
“If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure,” Stiglitz said during a conference on financial reform in New York.
“So, these are the guys who appointed the guy who bailed them out,” Stiglitz said. “Is that a conflict of interest?” he asked rhetorically.
“They would say, ‘no conflict of interest, we were just doing our job,'” he answered. “But you have to look at the conflicts of interest.”
Dean Baker gets an excellent catch in what, upon first glance, I thought to be rather solid Washington Post article. Quality from the Post is such a rare beast that I think you’ll forgive me for the mistake. It’s like a guy who gets excited over a bigfoot sighting, but it just turns out to be some hairy guy.
As you probably know, President Obama has hundreds of positions left unfilled within his administration. This is partly due to his not getting around to them, but in large part also due to “Republican” obstructionism, wherein certain senators have placed holds on several key appointments, tossing them into the bureaucratic abyss.
The Post article purports to be about three major posts that Obama has yet to fill in the Federal Reserve and the candidates who may fill them. Now, I’m all for calling attention to Obama’s unfilled administrative positions. They’re a major bottleneck in the bureaucracy and are causing his administration to move sluggishly on matters that urgently need attention – ironically, Federal Reserve issues. It looks as though he’s finally going to bite the bullet and make these appointments during Congress’ recess, which he should have done all along.
So far, so good – it’s all newsworthy. But was it really necessary for The Post to inject yet another ode to Fed Chief Ben Bernanke in its already too-long article? We know how they feel about Bernanke – they’re all for him. If anyone doubts it, I invite you to visit their editorial page. On any given day I guarantee you’ll find some apology for Mr. Bernanke’s malfeasance from one of their establishment cheerleaders.
The phrase in question describes Mr. Bernanke as having “led efforts to make the Fed’s bank oversight more effective and focused on broad risks to the economy that arise out of banks’ decisions.”
Not only is that so vague as to be rendered meaningless, but it is also patently untrue. “More effective”? “Broad risks”? “Bank’s decisions”? How effective? What risks? Which decisions? These are mistakes one goes over in Reporting 101.
They’re sloppy mistakes, too – and they betray a complete vacuum where the writer’s knowledge of history should be. Aside for Lawrence Summers (current National Economic Adviser, who authored the bill that got us into this mess), Timothy Geithner (current Treasury Secretary, who was #3 at the Fed while the banks turned into casinos), and, of course, Alan Greenspan, Mr. Bernanke is the single biggest reason why 1/4 of the workforce is desperately seeking work.
He actively campaigned against oversight, was completely blind to the risks facing our economy (“The subprime mess is largely contained“), and, in fact, actively encouraged those risks by keeping interest rates at almost zero for three straight years after the dot-com bust. This is a matter of public record. A five minute Google search and articles from The Post itself were enough to reveal this.
What’s worrying is that The Post seems to be unaware of this – or if they are aware, put a willfully misleading clause in their “news” article. I can understand it when journalists lie in the Op-Ed pages; that is, after all, what they’re for. But to put a factually ignorant opinion in a serious news article betrays, I think, some very perverse ethics.
A startling statistic buried within an outstanding New Republic article:
As a result of the crisis and various government rescue efforts, the largest six banks in our economy now have total assets in excess of 63 percent of GDP (based on the latest available data). This is a significant increase from even 2006, when the same banks’ assets were around 55 percent of GDP, and a complete transformation compared with the situation in the United States just 15 years ago, when the six largest banks had combined assets of only around 17 percent of GDP. If the status quo persists, we are set up for another round of the boom-bailout-bust cycle that the head of financial stability at the Bank of England now terms a “doom loop.”
Good god. I knew that these banks were big, but I had no idea they were this big. The New Republic devotes the rest of its article to explaining why Obama’s bank regulations are (surprise!) a sham. But then, we should have already known that. When Treasury Secretary Geithner appeared on Newshour a few days ago, he baldly stated that these new regulatory rules “will not include breaking up the banks“. Forgive me, but what is the point of “regulation” if our banks are allowed to keep their “too big to fail” status and continue to engage in the same practices that brought down our economy in 2008? The so-called Volcker rules do nothing to stymie the relationship between Wall Street and Washington, they do nothing to prevent banks from over-leveraging (as they had during the run-up to the crisis), they allow the banks to retain their gargantuan size… so what were the Volcker rules supposed to do again? Oh yeah, it bans “proprietary trading”, somthing which only accounts for 5 percent of total bank revenue.
Meanwhile, President Obama is proposing yet another giveaway to the banks, this time in the form of $30 billion in loans at below-market interest rates. If I sell you something about below-market value, then I’m giving you a gift. That’s what these “loans” are. The Washington Post attempts to bury the issue in the middle of the piece, and refers to the subsidy as going to “community banks”, without noting that most of these “community banks” have long since been bought up by our banking behemoths.
I don’t really know what else to say here. The banks own Congress; they own the House; they own Obama (check out his campaign donors) – there doesn’t seem to be any way out of this. I think some mobs with torches and pitchforks would not go amiss at this point.
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.
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.