Hedge Fund Manager Dan Loeb: “The Whole System Is Rigged”
Dan Loeb makes a good point that I hope more people are already feeling or starting to realize. He is correct that we are heading into a period of more government control and regulation because of the past excesses. We had rules on the books to deal with these problems but we did not choose to enforce them. If we did we would find that crimes were committed and people that are getting a slap on the risk should be going to jail and pay major fines.
We should hope that he is correct that we come back to basis of free market capitalism to allocate capital and decide winners and losers. Lets quit interfering and picking winners and not letting the market do what it does best, even if a major corporation or two has to go bust in the process.
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Fed Should Keep Emergency Lending Secret – Banks Vow Supreme Court Appeal
This was an interesting article about the lawsuit Bloomberg LP filed against the Federal Reserve about the $2 trillion on secret loans they gave and to this day have not given any details. As I have written here before, I believe this information should be public record and if the loans caused a run on some banks, it would be for good reason because they were insolvent at the time and should of been shut down and their assets sold off the the banks that were not in the same position.
Just as Walter Bagehot wrote in his seminal work “Lombard Street, workings of the London Money Market”, bad money will always chase away good money. And bad banking practices will always chase away good banking practices because the bad banks will provide the cheapest credit / money on the most favorable terms so there is not incentive for a borrower to go the more prudent bank that has higher standard.
This is why it is so important to make sure bad banks always go out of business and the prudent banks rise to the top to set the standard for all banking.
NOTE *IMPORTANT PLEASE READ*: Here is the most interesting part of the article and if you were not paying attention or you did not read into what they were saying and more important “not saying“.
Quote: ”The central bank contends that 231 pages of daily reports summarizing lending activity, which were prepared by the Federal Reserve Bank of New York for the Fed Board of Governors in Washington, aren’t covered by the FOIA (Freedom of Information Act). The statute obliges federal agencies to make government documents available to the press and the public.”
Here is plan English the Federal Reserve is asserting they ARE NOT a Government Agency but actually a Private Banking Cartel (definition of cartel) that has a mandate from the U.S. government since 1913 to issue the U.S. Dollar as the sole Lender Tender.
BIG QUESTION?: Do we want to have a private institution have the ability with no oversight be able to have the monopoly to issue our dollar and to be able to help out their banking buddies with any amount of assistance they deemed necessary? Please think about this for a bit before you answer.
If you have any question or want me to back up these claims, I am happy to provide many official references. Please comment below, I am approving any comment, positive and negative. Please back-up any claims so we can have a real discussion. Slander will not be tolerated.
Bloomberg - The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.
Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.
The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.
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Fed’s Lacker said weak spots in the U.S. economy can not prevent exit of support programs
This is very true, the Fed needs to make sure it is forward-looking in their policy decisions so they do not allow inflation to get out of control. I still believe they will not react quick enough and we are going to see a bout of inflation that will lead into deflation before we have a “real” recovery.
You can not borrow your way out of a credit crisis period. We have an excessive amount of debt that needs to default to expunge from our financial system so we have a balance of income and serviceable debt. Until that happens no real confidence is in the markets and we are basing our investment decisions on trends and speculation.
Reuters, Richmond - A senior Federal Reserve official said on Tuesday that the U.S. central bank must remain vigilant about keeping inflation in check and not let patchy economic weakness deter it from beginning to withdraw extraordinary levels of support.
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Nobel Laureate Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman
Mr. Stiglitz makes a very good point that we have not done anything of significance in the form of bank regulation to prevent this from happening again. He is also right that the banks have started pushing back. It is quite obvious when you look at the facts to date that at bare minimum, some crimes have taken place and the people who are complacent need to held to account. Through these investigations, we will learn how these frauds took place and that will give us information needed to make prudent laws.
To be clear, when I say fraud I am talking about the number of financial instruments that were sold when they were of dubious qualities. This fraud will only last so long until the common person gets fed up and start spreading information around and starts calling their representatives to hold them to account on why we have given the banking system $23 trillion dollars of taxpayer money and not even committee to investigate what really happened.
Bloomberg, Paris - Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.
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Federal Reserve Says Disclosing Emergency Bailout Loans Will Hurt Banks – Response
Well here is the first shot back after the New York District judge ruled against the Fed in the FOIA lawsuit brought against them from Bloomberg LP. I am just going to take a little time to address some of the quotes in this article to show how the English language can be distorted to get emotional responses that are incorrect based on the facts.
Quotes:
The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.
Response: It would be of more harm to the economy if we have banks and financial institutions that the public believes are in good financial health but in fact are insolvent. Bad banks drive aways good banks through their bad and reckless policies.
Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records. “We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”
Response: This is rich, so your saying we actually gave out $2 trillion in emergency loans but it was such an emergency that we didn’t keep records that would be easily accessible? See how this game is played, even if The Fed is ruled against, they will play games about where the information is located. This just ruins the Central Bank’s credibility.
“Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow,” Norman Nelson, vice president and general counsel for the group, said in the document.
Response: Time to cut the “crap” here, they used the word “rumors“. This is a the quintessential case and point to what I am trying to convey. In this case, if you released this to the public, it would be showing “facts” not “rumors” and people would react to the reality that the facts presented. What this leads me to think when I read it without critically thinking about it is that even these facts would somehow create negative rumors that somehow would not be true. Here the catch though, if your a bank and you need a huge loan from the government via the Fed, GUESS WHAT, you are in trouble and I would pull my deposits from you because you were not prudent enough to keep my money safe. As long as we let this happen, bad banks will prosper and good banks will be acquired. I love good banks because they actually provide benefit to our society as a whole.
Link to the Original Bloomberg Article
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Harvard’s Feldstein Sees Risk of ‘Double-Dip’ Recession in U.S.
The signs are pointing towards another shaky fall for the U.S. economy. These earnings numbers will not hold up, write that down. We are so far away from normal price to earnings ratios in the stock-market that it is just a matter of time. Historically the normal P/E is between 8-12, right now its more like 18 which is quite high for the amount of debt, global recession and multi-decade high unemployment numbers coming from the U.S.
News (Bloomberg):
The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
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Op-ed: The real lesson of CIT
Ms. Crane does gives CIT a good shellacking on her piece on the Reuters Blogs. I do agree that they should of been addressing this in 2007 when it was clear things were becoming much worse. There share has gone to almost zero, I assume that it will be pulled tomorrow and a filing for bankruptcy coming at any moment. What I want to know is what is going to happen to all the businesses that relied on this type of finance to assist them with their operations? Who is going to step up to fill the gap? Is CIT just another bad institution that will not be missed and other prudent lenders will make those loans or, will we see even more demand for credit than is available? Will this help trigger the next wave down that will push more layoffs and increase U.S. home foreclosures.
Opinion (Agnes T. Crane - Reuters Blogs):
Sometimes a failed lender is just a failed lender.
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