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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Fed’s Kohn warns less independence & autonomy may cause higher interest rates
As you know in this previous post, I was in agreement on the technical basis, that an perceived erosion in the Federal Reserve’s independence would be back in the short-term. The reasoning was on the basis that foreign investors would become scared that the money printing would accelerate and that would devalue all dollars so to compensate for this, the investors would demand higher yields on new treasury issues.
BUT, I do take issue with the statement farther down in the article that quotes Donald Kohn as saying this about the bill in audit the Federal Reserve via the GAO (General Accounting Office), “Such legislation is “contrary to the public interest” because investors may see it as “undermining monetary independence,” Kohn said. “Such an action would increase inflation fears and market interest rates and, ultimately, damage economic stability and job creation.””
What this tells me is that the books for Fed are so messed up, that a full audit would send the market into a panic. If that is the case then the audit is what is really needed to restore confidence. I don’t buy the argument that somethings are better to not be known for our own good. That is an area that is ripe for abuse because of the opaqueness.
News (Bloomberg):
Federal Reserve Board Vice Chairman Donald Kohn said any “substantial erosion” of the central bank’s independence in setting interest rates may fuel investor fears of inflation and provoke higher long-term borrowing costs.
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Fed’s Bullard says must shield Federal Reserve’s independence
This pains me to say but at the moment, Bullard is correct on this point. With the Fed pursuing their policy of quantitative easing (print money), there is a real concern with foreign investors that hold significant U.S. bond holdings that an erosion of the Fed’s independence could be a sign that a more populist approach to this stage of the economic recession. If the investors think the amount of money printing will increase to pay for more stimulus and bailouts then they will demand much higher yields and will increase the cost of imported goods which in turn will import inflation into the U.S. Long term I do think the independence on the Federal Reserve will be eroded because they are not maintaining the normal policy central bankers use of “price stability”.
News (Reuters):
St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
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