Bernanke nudges the Do Nothing Congress
Posted: November 2, 2011 Filed under: Economy, U.S. Economy | Tags: Federal Reserve Bank, FOMC. Ben Bernanke 10 Comments »
It’s been interesting watching Bernanke get more shrill with each post FOMC meeting news conference. First, he points out that the right wing meme about the unemployment being structural is wrong headed. He talks about why it’s important to respond to cyclical unemployment. This is something congress has being ignoring while doing important things like passing bills to ensure that trust in imaginary friends is printed on money.
“We believe that a good bit of the unemployment were are seeing is what economists would call cyclical unemployment, that is unemployment arising because of inadequate demand in the economy. If that is the case, then monetary policy by lowering interest rates, making financial conditions more accommodative, should stimulate demand, stimulate spending and over a period of time that should help bring cyclical unemployment down. It’s also possible that some of the increase in unemployment reflects so-called structural factors, mismatches between worker skills and job opportunities, loss of skills, geographical location, etc. If that’s the case then monetary policy is much less effective because only other kinds of labor market policies can make progress against that type of unemployment. But again I do think that a considerable part of the unemployment that we are seeing is cyclical. Final comment, cyclical unemployment left untreated, so to speak, for a long time can become structural unemployment as people lose skills, they lose attachment to the labor force.”
He also asked for a little help from congress. Bernanke basically tired to ask for stimulus without using the word since the Congress has branded it anathema.
“With respect to the current economy we are currently continuing our accommodative monetary policy. We are trying to do our best to support economic growth and job creation. It would be helpful if we could get assistance from some other parts of the government to work with us to help create more jobs. But certainly we are doing our part to create more jobs, more opportunities in America.”
Sorry, Ben, the “other parts of government” are just to busy to help the economy work. They prefer to posture and preen. Bernanke has amped up the volume as pointed out at Political Animal. Kevin Drum thinks that the next presser will be when Bernanke says “Will you guys stop griping about the damn budget, get off your butts, and build a few effin bridges instead? Jesus.”
US Financial Regulation and Arbitrage
Posted: January 5, 2011 Filed under: Bailout Blues, commercial banking, Corporate Crime, Equity Markets, financial institutions, Global Financial Crisis, investment banking, Team Obama, U.S. Economy | Tags: Federal Reserve Bank, financial regulation, Obama Financial Reform, OCC, Regulatory Arbitrage, SEC 17 Comments »There is no doubt that we have had a major world wide financial collapse drastically affecting many innocent people in terms of livelihood and life long savings. It is fair to say that if the regulators had done their job, the country would have not had the hard landing that was experienced in 2008. The 2010 Financial Reform Bill kicked the can down to the Regulators for implementation and the bankers still have influence. This article takes a look at who the regulators were and how they did or did not do their job. The Obama people in the regulator domain are identified along with examples of Bush regulator failures. Hopefully this will give insight into what is being done to preclude another crisis
The financial industry has a gaggle of regulators, each with its politically protected turf.
From Wikopedia: Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system.
Regulation is an unnecessarily a complex subject. It is important to understand that in some cases financial entities can choose their regulator. Some regulators were much more lenient and in many cases banks switched to them, hence the term Regulatory Arbitrage. The following are the major Federal regulators: FED, SEC, OCC, OTS, FDIC, CFTC
and FINRA described below. Except for the FED, most of these organizations have direct or indirect ties to the Treasury organization.
FED – Federal Reserve System
From Wikopedia: Its duties today, according to official Federal Reserve documentation, are to conduct the nation’s monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions.Current chairman is Ben Bernanke, the former chairman was Alan Greenspan. Much more on Mr Greenspan later.
SEC – Securities and Exchange Commission
From Wikopedia: It holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation’s stock and options exchanges, and other electronic securities markets in the United States. Mary Schapiro is the current Chair. Predesessors were; Christopher Cox – 2005-2009, William H. Donaldson – 2003-2005, Harvey Pitt – 2001-03
OCC – Office of Comptroller of the Currency
From Wikopedia: US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States. Current Acting Chairman is John Walsh. Previous Chairman were John C. Dugan – (2005 – 2010) John D. Hawke, Jr. – (1998–2004)
OTS – Office of Thrift Supervision ( recently folded into OCC)
From Wikopedia: United States federal agency under the Department of the Treasury. It was created in 1989 as a renamed version of another federal agency (that was faulted for its role in the Savings and loan crisis). Like other US federal bank regulators, it is paid by the banks it regulates. The OTS was initially seen as an aggressive regulator, but was later lax. Declining revenues and staff led the OTS to market itself to companies as a lax regulator in order to get revenue.
FDIC – Federal Deposit Insurance Corporation
From Wikopedia: United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. The FDIC insures deposits at 7,895 institutions. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks).
Sheila Bair is the current chairman of the FDIC and is viewed as a serious regulator with the right incentives for all concerned.
CFTC – Commodity Futures Trading Commission
From Wikopedia: The stated mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.
CFTC is considered to be the primary regulator for Credit Default Swaps in the Dodd Frank regulation scheme.
FINRA – Financial Industry Regulatory Authority
From Wikopedia: In the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD). Though sometimes mistaken for a government agency, it is a non-governmental organization that performs financial regulation of member brokerage firms and exchange markets.
Previously run by Mary Shapiro, FINRA has been critisized as being a ineffective regulator. Most notable was their (and SEC) allowing Bernie Madow to continue for 10 years to operate despite being warned by a whistle blower. When testifying before congress, the whistle blower (Harry Markopolos) said SEC was incompetent, FINRA was corrupt.
It must be said that Financial Regulation in the United States is done by committee of political bureauocrats. It is important to be aware of the fact that many of them are funded by fee’s assessed to the agencies they regulate. So opportunity for Regulatory Capture and Regulatory Arbitrage is prevalent in these agencies. The clear example is Office of Thrift Supervision bowing to their clients. The opposite example is that of Sheila Bair who tries to do the right thing for her clients despite critisizm.
Only Bad lawyers and the Certifiably Insane wind up in Congress
Posted: December 15, 2010 Filed under: We are so F'd | Tags: Federal Reserve Bank, Financial Crisis of 2007, Obama-McConnell tax breaks extention, Politicians are Crazy, Ron Paul and other Flat earthers, Spencer Bachus, START 61 Comments »
I went to Memorandum today to see what was up with the votes on the DADT repeal, the Tax Giveaways to Billionaires Act, and the START treaty. It’s one of the first places I go in the day because it usually groups the day’s relevant economic and political topics and it covers blog reactions from all sides of the political spectrum. I just wanted to know when the votes would be. What I saw was a bunch of headlines that lead to the thought you see above. I don’t even know where to start with this conglomeration of links, but they all seem connected to my hypothesis above.
It’s not that all of us outside the Beltway don’t recognize that there’s very few real people with functional brains in Congress. The proof for that is right there in the middle of the Memorandum page too.
From Gallup Polls:
Congress’ Job Approval Rating Worst in Gallup History :
Thirteen percent approve of the way Congress is handling its job
That headline is coupled with this one from WAPO: Washington Post-ABC poll: Public is not yet sold on GOP
From The Hill: DeMint will force readings of START Treaty and omnibus bill
For some reason, the 2000 pages of the Tax Bonuses for Billionaires plan isn’t germane to discussions of deficits and national security but the START treaty and the ominibus spending bill are fodder for ideological temper tantrums.
From TPM: Kyl: Reid Disrespecting Christians By Suggesting Post-Christmas Senate Votes
(Psst Kyl: the Reason for the Season is Mithros’ the Bull God’s birthday. Read your Roman History. The reason for Sunday services is The Sun God. Read your Roman History. You were had a long time ago by Constantine and the Nicene Council. Read the historical records of the Council set up by Constantine to establish a Roman religion and get off your friggin, butt and do your job!)
Oh, speaking of mythology, try THIS one on for size from the NYTimes: G.O.P. Panelists Dissent on Cause of Crisis. I’m going to spend some time on this because it’s just the best example of what is wrong with POLITICIANS. Congress was completely duplicitous in the crisis and yet, all the want to do is blame Federal Regulators.
Democrats have emphasized factors like fraudulent practices by mortgage lenders and reckless risk-taking by Wall Street banks and other financial institutions, while Republicans have focused on poor oversight of Fannie Mae and Freddie Mac, the entities that supported the secondary market for mortgages, and decades of government efforts to encourage homeownership.
“While the housing bubble, the financial crisis, and the recession are surely interrelated events, we do not believe that the housing bubble was a sufficient condition for the financial crisis,” the document states. “The unprecedented number of subprime and other weak mortgages in this bubble set it and its effect apart from others in the past.”
Unbelievable. Yes, that happened. Yes, it was a problem. But what drove the demand for subprime and weak mortgages was the demand for those wacky unregulated credit derivatives. It was all part of the same pattern of negligence and wishful thinking. You can’t unlink the systemic problems and the symptoms. Fannie and Freddie got into those things and drowned, but it wasn’t exactly their idea to begin with. Congress should’ve stopped them from going there. But the driving factor was still the demand for credit derivatives. Every institution was churning those things out in this country and in others. The delusion is worse than I thought.
From Yves at Naked Capitalism:
This whole line of thinking is garbage, the financial policy equivalent of arguing that the sun revolves around the earth. Yes, the US and other countries provide overly generous subsidies to housing, and curtailing them over time would not be a bad idea. But that’s been our policy for decades. Calling that a major, let alone primary, cause of the crisis, is simply a highly coded “blame the poor” strategy, In reality, both the runup to the crisis and its aftermath were on of the greatest wealth transfers from the citizenry at large to a comparatively small group of rentiers in the history of man. (If you want to read the long form debunking of this thesis, go straight to Barry Ritholtz, a Republican who has shredded this brand of class warfare, or as he calls it, “one giant clusterfuck of imbecility,” repeatedly on his blog.)
The intent is pretty transparent: to discredit an effort at fact finding into the roots of the crisis, what was hoped to be a Pecora Commission, by making it appear partisan and launching an alternative narrative to muddy the waters. And the reason is clear. Even though FCIC is certain not to have the same effect that the Pecora Commission did, of discrediting major financial services industry figures and exposing various forms of chicanery, it appears that even lesser forms of criticism of the banksters must be sandbagged (the bizarre part of this drama is that at least some Democrats and very selectively, Republicans in office are willing to call out the predatory, extractive behavior of the large banks. But no one has the guts to buck an industry that is a major paymaster in a very serious way).
Experts agree that while Fannie and Freddie and the federal government’s push to encourage homeownership played a significant role in causing the crisis, actions by Wall Street magnified the fallout and caused a crisis that led to the Great Recession. Economists from the Federal Reserve, as well as bank regulators first appointed by Republicans, agree that the Community Reinvestment Act played virtually no role in causing the financial crisis.
But the Republicans’ report will largely focus on the role played by the federal government. It will note that a crisis was averted after the government bailed out Bear Stearns and facilitated its absorption by JPMorgan Chase, according to people familiar with the matter. The crisis roared back after the government allowed Lehman Brothers to fail, scaring nervous investors. A bigger and more protracted downturn was avoided when policy makers essentially bailed out the entire financial system.
Exactly. It’s never EVER been the Community Reinvestment Act and to even insert it into the report is odious and false. I never got how the CRA got connected to the Fannie/Freddie mess from the outset other than through political memes. I remember getting blog wacked by some from the left because I said Fannie and Freddie were part of the problem. I never ONCE mentioned the CRA; only that Frannie and Freddie did what all the financial instituions did except on a much larger scale. They packaged and sold poorly underwritten mortgages that were eventually going to make some one homeless sooner or later. Fannie and Freddie’s roll was complicit and huge only because of their size and importance in the mortgage market. They’d have never dreamed of doing what they did if it wasn’t for the fact they could package and sell the things–just like Countrywide and a bunch of other now defunct private entities–to stupid investors who were mislead by high ratings and the belief that due diligence was done on mortgage underwriting. The deal is that Congress could’ve stopped all of that–especially Fannie and Freddie–but they did nothing. They could’ve prevented the underwriting of many of those predator loans.
Couple that with this travesty via the Birmingham News and AL.com.
Bachus, in an interview Wednesday night, said he brings a “main street” perspective to the committee, as opposed to Wall Street.
“In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks,” he said.
…
In his quiet campaign for the chairmanship, Bachus promoted an agenda to end taxpayer subsidies for mortgage giants Fannie Mae and Freddie Mac, repeal those parts of the Wall Street reforms that he thinks still leave the door open for taxpayer bailouts of financial institutions or their creditors, and increase oversight of President Barack Obama’s administration.
Then, we have Congressman Out-of-touch-with-reality Ron Paul who will be in charge of the subcommittee in Congress that deals with the FED. This is another example of putting some one in charge of oversight that want’s to just plain abolish the reality. He’ll be so stuck in ideologue land that oversight will just go by the way side. It’s like putting a Flat Earther in charge of NASA.
In a move that may seem to some like putting the fox in charge of the hen house, Rep. Ron Paul (R-Texas) has been named to head the House subcommittee that oversees the Federal Reserve.
Paul, 75, is a longtime critic of the central bank and, as Bloomberg pointed out, has even written a book called “End the Fed.” He will lead the domestic monetary policy subcommittee of the House Financial Services panel.
In announcing Paul’s appointment Thursday, chairman-elect Spencer Bachus (R-Ala.) said the Texan would add to the team that “crafted the first comprehensive financial reform bill to put an end to the bailouts, wind down the taxpayer funding of Fannie Mae and Freddie Mac, and enforce a strong audit of the Federal Reserve.”
Paul told Bloomberg last week he plans to call for hearings on U.S. monetary policy and will continue to press for a full accounting of the Fed’s functions. In the past, Paul has introduced legislation to abolish the central bank.
There are a lot of people realizing that Congress is not acting in the interest of the American people. The American Interest journal has a series of articles–including an important one on Income Inequality by Tyler Cowen–on
inequality and democracy. The front page of the Magazine–featured and linked to on the right–asks the most relevant question I can think of today. “Are Plutocrats Drowning our Republic?” A subsidiary question could well be “Why is every one in Congress intent on helping them do it?”
Congress did not get the message from this election. Here’s a clue from another link at that AI site. They just seem intent and recreating the same scenarios and the same problems over and over and over again.
Many Americans are still furious that their government helped the rich and politically connected few while leaving the rest hung out to dry. The government bailed out Wall Street financiers who live in the top tenth of the top hundredth of the income distribution. Meanwhile, almost one quarter of families with mortgages remains stuck with negative equity in their homes.
Let’s return to that bit on the Republicans on the crisis panel. I’ll borrow some analysis from Paul Krugman in his blog thread: ‘Invincible Ignorance’.
So Republican members of the Financial Crisis Inquiry Commission are going to issue their own report, placing primary blame on the government — because it’s always the government’s fault.
And according to reporting at the Huffington Post,
all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.
Yep. It was all Fannie and Freddie, which somehow managed to cause housing bubbles in Ireland, Iceland, Latvia, and Spain as well as the United States; and the repo market had nothing to do with it.
And bear in mind that this wasn’t one Republican; it was all of them.
We consistently get people in congress that appear to live in a reality of their own making. They ignore science. They ignore history. They ignore economics. They ignore nearly everything to push partisan power, curry favor with the donor and the bonus class, and spin tails to deluded followers that have no basis in fact, evidence, or theory. They even run campaigns based on denying scientific theories that are well prove–like evolution–and promoting failed hypothesis–like all of Reaganomics–even when the majority of people who would know try to give them the facts.
What is it about our political process that seems to put policy in the hands of complete whack jobs and unemployable lawyers? My one dash at the Nebraska Unicameral convinced me that only pathological narcissists and liars and ideologues capable of denying reality can get through the process. Those folks are surrounded and supported by equally pathological narcissists, liars, and ideologues and they’re all bought up by a plutocracy that pays to play.
We are so F’d. I am so frightened for and disheartened about the future of this country. How is it that Congress can get such low approval numbers but go right back to ruining the country in the same manner post-elections? Both parties have their on unique style that achieves the same end. What can we do to stop this? It has to be the gerrymandered districts and the money. But, how can we change the laws when the foxes are in charge of all the hen houses?
UPDATE: Senate approves tax cut deal; House Dems weigh amending estate tax
The Senate on Wednesday approved a sweeping tax package negotiated by the White House and congressional Republicans, and House leaders – who were looking to amend the measure in a way that would satisfy liberals without unraveling the deal altogether – said a House vote could follow as soon as Thursday.
The Senate passed the package by a vote of 81 to 19.
Before senators began debating the $858 billion package in late morning, President Obama urged lawmakers in both houses to pass it “as swiftly as possible.” He called the plan “an essential ingredient in spurring economic growth over the short run.”
Speaking before a meeting with business leaders, Obama said: “I am absolutely convinced that this tax cut plan, while not perfect, will help grow our economy and create jobs in the private sector.” He acknowledged that lawmakers of both parties object to different aspects of the plan but said, “That’s the nature of compromise.” He added that “we can’t afford to let it fall victim to either delay or defeat.”
In other news: Obama announces his Faith Based VooDoo economics initiative based on advice from the ghost of Ronald Reagan … We are still so F’d.
that is all.
Feel the Bern!
Posted: August 25, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, U.S. Economy | Tags: Ben Bernanke, Federal Reserve Bank, Larry Summers Comments OffWhile I stuck the announcement into the morning links, you had to know that I’d front page this announcement some time today. So you also probably knew that I breathed a quiet sigh of relief last night when I found out we were not getting La La Summers for Fed Chief. President
Obama has decided to re-appoint Fed Chairman Ben Bernanke to another term.
I awakened this morning to the bleating of the bloggies on this move. Of course, I have this tendency to look at folks’ credentials before I decide to take their opinions seriously. It also helps to know their political agendas and frames. Chairman Bernanke has probably had the most challenging time at that job since Paul Volcker took over the Fed helm back in the days of rampant inflation and Carter malaise. So many blogs have come to criticize Bernanke, but I’m just glad we’re not here to bury him. He may not be perfect, but he’s a damn sight better than just about everything else out there. Ben Bernanke is an economist’s economist.
Wall Street and academic economists in recent weeks showed enthusiasm for giving Mr. Bernanke a second term, and some administration insiders felt similarly even though Mr. Bernanke was appointed by — and served in the White House of — President George W. Bush. Appointing a Democrat such as Janet Yellen, president of the Federal Reserve Bank of San Francisco, or Alan Blinder, former Fed vice chairman — both former advisers to President Bill Clinton — would have been popular with many Democrats. But a move by Mr. Obama to install his own person at the Fed might have have rattled markets and unsettled the foreign investors.
Phil Izza at the WSJ has a pretty good line up of comments from both political and financial folks on the Bernanke appointment. Some of the performance the financial markets today(so far, all up) could be linked to the decision as the Fed Chair heads up the Federal Open Market Committee and sets its agenda. It is a rare FOMC that will go against the recommendations of their chair when setting monetary policy(primarily levels of interest rates, exchange rates, and bond offerings) although there is usually a healthy amount of debate and exchange or so I’ve heard since the meetings are top secret.
- I think it’s good news for the Federal Reserve. It’s good news for the country. It’s a great choice. Chairman Bernanke has done a terrific job in bringing openness to the Fed. He has been bold and creative in dealing with the financial crisis… It was not clear to most people that the crisis was going to be as broad-based, and that the excesses in the financial markets and in lending were as broadly based as they turned out to be. Even at the start, he was willing to consider all options to deal with what appeared to be more a liquidity than a solvency crisis. As it began to become more clear that it was a crisis of solvency and leverage and a classic credit crunch, he didn’t flinch in bringing enormous creativity to bear in mitigating the problem –Richard Berner, Morgan Stanley
- Having a new chairman come in at this late date would put the Fed engineered solution to both the recovery and the exit strategy at risk. The Federal Reserve made a hasty exit from easy money stimulus in the 1930s and we know how that worked out… Mistakes have been made at many regulatory institutions during this crisis, but all the Fed’s mistakes would have been made by any man according to the prudent man rule. Bernanke is a true prudent man who calls them as he sees them, and knows the ins and outs of policymaking… If he can pull off this recovery that still needs nurturing, he could well go down as one of the greatest Fed Chairmen in history. –Christopher Rupkey, an economist with Bank of Tokyo-Mitsubishi











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