Kurt Nimmo
Infowars
November 28, 2009

Ben Bernanke, Federal Reserve mob boss, is running scared. He is deathly afraid an audit of his criminal organization.

“These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States,” Bernanke wrote in the CIA’s favorite newspaper, The Washington Post.

Bernanke penned his tribute to central banking and globalism prior to his scheduled testimony before a Senate panel on his renomination to serve a second four-year term as Fed mob boss.

Bankster tool Barney Frank, chairman of the House Financial Services Committee, tried to derail an effort to audit the Fed but failed. A proposal to audit the Fed’s monetary policy deliberations won a committee vote recently over Frank’s objections.

In his Mockingbird media editorial, Bernanke “conceded the Fed had missed some of the riskiest behavior in the lead up to the crisis. But he said the Fed had helped avoid an even more damaging economic meltdown and has stepped up its policing of the financial system.”

In fact, the Fed was specifically designed to create financial crises. It was all plotted in 1910 when minions of J.P. Morgan, John D. Rockefeller, the Rothschilds and Warburgs met on Jekyll Island off the coast of Georgia. In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Said Congressman Charles Lindbergh on the midnight passage of the Federal Reserve Act: “From now on, depressions will be scientifically created.”

In order to scientifically create an economic depression, the Fed prompted irresponsible speculation by expanding the money supply sixty-two percent between 1923 and 1929. The so-called Great Depression followed. This depression “was not accidental. It was a carefully contrived occurrence,” declared Congressman Louis McFadden, Chairman of the House Banking Committee. “The international bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all.”

In March of 1929, Paul Warburg issued a tip that the scientifically created crash was coming. Before it did, John D. Rockefeller, Bernard Baruch, Joseph P. Kennedy, and other banksters got out of the market.

A few years later, the banksters and their minions met in Bretton Woods, New Hampshire, and plotted the creation of the International Monetary Fund and the World Bank. The purpose of these two criminal organizations was to set-up a global Federal Reserve system and wage economic warfare on billions of people. The weapon they used was debt and the loss of sovereignty that follows.

In 1971, then president Nixon fit one of the last pieces into the puzzle — he signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. It was a great day for the banksters and the global elite. The gold standard ensured predictability and regularity in the economy and the banksters wanted to put an end to that. For the bankers, order and control is realized out of chaos and misery.

Fast-forward to the present day. Bernanke’s Fed has meticulously sabotaged the economy in order to create a crisis in classic Hegelian fashion. The corporate media tells us the crisis is the result of ineptitude and mismanagement at the Federal Reserve. Au contraire. Like the Great Depression, the even Greater Depression now on the horizon was scientifically created.

The Fed is the primary instrument the bankers are now using to destroy the middle class, hand over all public assets and resources to them, implement a crushing austerity, usher in a new era of global corporatist feudalism and build a sprawling planet-wide slave plantation based on China’s totalitarian model.

It is the ultimate dream of the banking cartel. It will be used as the foundation to build world government. Destroying the dollar as the world’s reserve currency is only the beginning.

Bernanke knows Ron Paul and the audit the Fed movement are extremely dangerous. That’s why he is pushing this facile “oops” theory. In order to fix things, the Fed will use its “knowledge of complex financial institutions” in order to supervise them, he writes in his Mockingbird editorial. Allowing audits of Federal Reserve monetary policy would increase the perceived influence of Congress on interest rate decisions, he says.

No, it would lay bare the criminality of the Federal Reserve. Maybe Bernanke is worried he will be obliged to wear an orange jumpsuit in the wake of an audit.

As for Congress, Bernanke needs to read Article 1, Section 8 of the U.S. Constitution. Congress shall have exclusive power to “coin Money, regulate the Value thereof,” not a criminal cartel of monopoly men who dream of a prison planet.

URL to article: http://www.infowars.com/audit-the-fed-bernanke-and-the-bankers-are-running-scared/

Ben Bernanke, is firing back at members of Congress that want to sponsor a bill to put congressional oversight of the agency that is this countries central bank. The Fed also sets policy and rates for the this country, and its banking system……It has been independent, and in the background, until financial problem come up……In my opinion, congress has  turned to its operation as a scapegoat for the mistakes made by the past White House……The bill put forth to the members of the House has 313 sponsors…which I think has that strong backing because, the members of the House know there is NO CHANCE that the Senate would vote to accept a similar bill…….

Fed Chairman Ben Bernanke warns Congress in a new op-ed.

NEW YORK (CNNMoney.com) – Federal Reserve Chairman Ben Bernanke, just days ahead of his confirmation hearing, is warning Congress that actions limiting the central bank’s independence could prove detrimental to the causes of financial reform and economic recovery.

In an op-ed piece to be published in Sunday’s Washington Post, Bernanke criticizes two moves aimed at limiting the Fed — a proposal in the Senate to strip the central bank of its bank regulatory powers and a House Financial Services Committee vote to audit monetary policy deliberations and actions.

“These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States,” Bernanke wrote.

Bernanke says the congressional moves are a byproduct of the public frustration over the financial crisis and the government’s response, especially the bailout of large banks.

Full story

WASHINGTON – US FEDERAL Reserve Chairman Ben Bernanke said on Friday congressional proposals to audit the Fed and strip it of regulatory powers as part of post-crisis reforms could damage prospects for economic and financial health in the future.

‘These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States,’ Mr Bernanke wrote in a column posted on the Washington Post’s website.

The rare newspaper column by a Fed chairman comes shortly before Mr Bernanke testifies before a Senate panel on his renomination to serve a second four-year term at the helm of the central bank and answers a series of steps on Capitol Hill that could diminish the central bank’s role.

Lawmakers are angry with the Fed over its emergency bailouts of major financial firms and its failure to prevent the contagion of mortgage delinquencies that crashed the financial system. A proposal to audit the Fed’s monetary policy deliberations won a committee vote recently over the objections of House Financial Services Committee Chairman Barney Frank. Frank’s Senate counterpart, Banking Committee Chairman Christopher Dodd, is himself the author of a proposal to consign the Fed solely to making decisions about setting benchmark interest rates.

Mr Bernanke, in his column, conceded the Fed had missed some of the riskiest behavior in the lead up to the crisis. But he said the Fed had helped avoid an even more damaging economic meltdown and has stepped up its policing of the financial system.

‘The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation,’ he said. — THOMSON REUTERS

Source: Straits Times, 2009

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* This post is an updated English excerpt of Henrik Schmiegelow”s article “Seikai Keizai Kiki no Dasshutsu no Kagi wa Ajia to Oushu” , Chuokoron (Tokyo), Vol 124 N° 8, p. 152-161 (July 15, 2009)

There is global agreement on both the origin and the effects of today’s world economic crisis, the worst since the Great Depression of the 1930’s. There is, however, global disagreement about the proper solutions. The divergence between unanimity in problem analysis and dissension on policy response is alarming. It suggests inability or unwillingness to learn the lessons of economic history. While the monetary lesson of the Great Depression is well rehearsed (Fisher, 1933; Friedman and Schwartz, 1963; Bernanke, 2002), reluctance to learn the fiscal lesson of that case may be forgivable, since only a war, the Second World War, brought the US a full recovery through fiscal expansion. But policies disregarding an example as recent and telling as Japan’s lost decade in the 1990’s are precarious policies indeed.

I. American origins

The crisis originated in the US. As traced by Felix Salmon in Wired, an application of a standard mathematical formula, the Gaussian copula function, to mortgage default correlations was published in 2000 by a “quant” at JP Morgan Chas. It was severely flawed by an implicit assumption of a continued rise of real estate prices far beyond historical trends (available in Robert Shiller 2005). The assumption was derived from a flimsy record of less than a decade of available price statistics of credit default swaps (CDS), conveniently the period of the last real estate boom.  But it was transformed into a mathematical constant reducing, as if by alchemy, the probability of mortgage defaults. American banks used this magic formula enthusiastically to justify extravagant mortgage lending to low-income (“sub-prime”) homebuyers in the US. Sub-prime mortgages were “packaged” in small slices beyond recognition with prime mortgages in “asset-backed” securities (ABS). ABS were, in turn, repackaged in structured credit instruments called “collateralized debt obligations” (CDO), CDO further reused as building blocks in a higher structured credit architecture called “CDO squared”, and CDO squared in CDO cubed. These securities were rated AAA by the three American rating agencies, insured at low cost by CDS and sold globally to banks blindly trusting “financial innovation” from Wall Street. The result was a financial bubble in the US with pervasive global effects. CDS reached a volume of 60,000 bn US $. Whereas the Japanese bubble was induced from abroad, i.e. intense US pressure on Japan to simultaneously appreciate its currency and expand domestic demand according to the Plaza Agreement of 1985 (see H. and M Schmiegelow”Obei Ijoni Obeitekina Nihon Keizai”(More Western than the West: the Japanese Economy), Chuokoron Vol. 108, No.1 (January 1993), pp. 72-83, p.77), the US bubble was “home-made”.

The crisis erupted in 2007, when the first American sub-prime lenders defaulted, as sub-prime borrowers could not afford the rise from the initial “teasing” rate of 2 percent to the eventual contractual rate of 8 percent of the mortgage. A wave of foreclosures brought real estate prices down. ABS and related CDS became “toxic assets”.  The global financial bubble burst a year later, when the US Treasury and the Fed allowed Lehman Brothers to default, apparently as a warning to the banking sector against reckless risk taking. The action was reminiscent of President Hoover’s stand in triggering the Great Depression and Governor Mieno’s stern monetary move in bursting the Japanese bubble.

II.  Global effects

While the effects of the bursting of the Japanese bubble, though severe and prolonged for Japan, remained contained within the Japanese economy, the US sub-prime crisis caused a crisis of confidence in the global banking sector and hence a global economic meltdown. Uncertainty about the exposure of individual banks to toxic assets put credit markets in a state of freeze. European banks had massively participated in the frenzy of securitization of US mortgages. With the notable exception of Deutsche Bank, which like Goldman and Sachs had doubts about the assumed rise of real estate prices and hedged its bets while selling ABS to other institutional investors, scores of European banks including Germany’s leading real estate lender Hypo Real Estate and several public “Landesbanken” “followed the herd” in blind trust of “financial innovation”. When they noticed that the trust was unwarranted, they realized their exposure was out of proportion with their capital. Unable to put a value on toxic assets and, just like their Japanese colleagues in the 1990’s, not daring to proceed to write-downs for fear of being nationalized, they stopped lending and no longer assumed their function of financing the national economy. Hence even loans unrelated to toxic assets became non-performing and the hidden need of further write-downs grew as in a vicious circle. In a first attempt at quantifying necessary global write-downs in April, the IMF estimated 4.1 trillion $, with 2.7 trillion $ of bad loans and securities originating in the US and 1.12 trillion $ in Europe. Japan, whose banks, sobered by their own bubble experience, had hardly touched ABS, faced “only” 149 billion $.

Early hopes that the still thriving industrial sectors of exporting countries like China, Germany and Japan might remain unaffected by the collapse of the US financial sector quickly evaporated. On the contrary, they became the countries worst affected with declines in exports in the first months of 2009 in the ranges of 21,1% (Germany), 25,7 % (China) and 46 % (Japan). On July 8, 2009, the IMF predicted a deeper recession in Europe and Japan than in the US, with declines of GDP in 2009 of 2,6% in the US, 6,2% in Germany and 6,0% in Japan. For Keynesians, the reason was obvious: the hitherto most important sources of global demand, i.e. the Anglo-Saxon countries combining low savings and high consumption propensities with structural fiscal and external trade deficits, have suddenly disappeared from the international trade equation.

While the October 2009 Global Financial Stability Report of the IMF acknowledges a reduction of global losses by 600 billion to $3.4.trillion – largely due to rising securities values in mid 2009 -, it warns of further credit deterioration, as over half of potential write-down needs through end-2010, estimated at $1.5 trillion, has yet to be recognized. It emphasizes that banks need to crystallize losses through realistic assessment of asset values and that capital levels may need to rise further to rebuild lending capacity to finance recovery. The IMF urges banks to use the chance of extremely low interest rates, wide spreads and, hence high profitability, still prevailing in late 2009 for this purpose. It warns that such favorable conditions may not last, as public credit demand resulting from the massive programs of fiscal stimulus in all major economies might soon exert upward pressure on interest rates.

These figures underscore the urgency of adopting the right strategies to solve the crisis faster than in Japan’s lost decade, but with the strategic pragmatism that helped Japan to recover within 12 months in 2002/2003 ( Michèle Schmiegelow, “Senryakuteki puragumatisumu ni tachi kaere: Nihon keizai e no shohosen” (Recover Strategic Pragmatism: the Prescription for the Japanese Economy) Tokyo: Japan Center for Economic Research Bulletin, 1/10/2002, N°895, pp.4-10) . Unfortunately, so far, dogmatic dissension and, hence, cognitive confusion prevail. Sometimes, the disagreement appears to be between nations, such as between France and Germany or France and the UK, or groups of nations, such as the transatlantic divisions or those between the “Anglo-sphere” and the “rest of the world”, or the G7 and the G20. In fact, the most acrimonious debates are domestic ones, between monetarist and Keynesian economists everywhere, US Republicans and Democrats, Wall Street and “Main Street”, defenders of the Common Law or of Civil Law, advocates of laissez-faire and proponents of social protection.

In early 2009, the US had the initial advantage of a new administration with huge popular support, while Germany’s coalition government was compelled to focus on elections in September 2009. To the global media, Japan, France and the UK appeared much more eager for action than Germany.  But as attested by the IMF’s study The Size of Fiscal expansion: An Analysis of the Largest Countries, in February 2009  with one of the most generous social security systems of the world functioning as an “automatic stabilizer”, Germany was devoting 3.4 percent of GDP to fiscal stimulus, the third largest proportion of major economies after the US (4.8 percent) and China (4.4 percent), but before Japan (2.2 percent), the UK (1.5 percent) and France (1.3 percent).  In May 2009, Japan surged to the top with a supplementary budget adding 3 percent, bringing the sum of all fiscal stimulus programs combined to 5.2 percent.  And yet, just as in Japan’s lost decade, the debate about whether Keynesian stimuli provided so far were sufficient or not, goes back and forth. “Exit strategies” are intensely discussed, while most participants in these discussions, foremost among them Ben Bernanke, are convinced that it is far too early to apply them.

However, even though more fiscal stimulus may be needed to preempt a “double-dip” or even “triple dip” recession with intermittent short-lived recoveries, it will not address the roots of the sub-prime crisis. The crisis has rightly come to be called a “balance sheet recession” because of its origins in the balance sheets of the financial and household sectors, just like Japan’s debt deflation after the bursting of the Japanese bubble in 1991.  The term “balance sheet recession” was first coined for the Japanese recession of the 1990’s by the Head of Nomura Research Institute,  Richard Koo, (see his Balance Sheet Recession: Japan’s Struggle with Uncharted Economics and its Global Implications (2003)). Michael Spence, the former Dean of Stanford Business School whose work on information asymmetries was awarded the 2001 Nobel Price, has emphasized the tremendous depth and destructive power of the balance-sheet destruction characterizing the sub-prime crisis. “In the future”, he writes, “central banks and regulators will not be able to afford a narrow focus on (goods and services) inflation, growth, and employment (the real economy) while letting the balance-sheet side fend for itself. Somewhere in the system, accountability for stability and sustainability in terms of asset valuation, leverage, and balance sheets will need to be assigned and taken seriously”. Japan’s lost decade should serve as a warning of what happens as long as balance sheets are not taken seriously.

President Obama has not only great charisma, but also a vision of structural change in the US economy. As explained in his speech at Georgetown University on April 14,2009  that vision no longer relies on “voracious consumption”, “excessive debt”, and “reckless speculation”, but on savings, education, health care and investments in scientific, technological and ecological innovation. His combination of strategic vision and American philosophical pragmatism is unmistakably reminiscent of the strategic pragmatism that enabled Japan to emerge post-war as the second largest economy of the world .

Unfortunately, US Treasury Secretary Geithner’s efforts to stabilize the American banking system by public-private partnerships are perceived even in the political spectrum favorably inclined to the administration,such as Paul Krugman, as relying to a worrying extent on the very same financial sector whose collective cognitive failures are at the origin of the crisis. Neil Barofsky, the Special Inspector General of the Troubled Asset Relief Program (TARP) has warned that not enough has been done to guard against fraud in a program offering public money to private investors who buy toxic assets. Geithner’s programs cling to the assumption that financial markets know best how to find a price for toxic assets. They require banks holding such assets to sell them, which for fear of having to write down the realized losses after such sales, they are reluctant to do, the more so as Barofsky calls for supervised screening of each security. As neither prospective sellers nor prospective buyers have a clear idea about the value of the toxic assets, the process will be protracted. The “market” cannot clear, as its “sell side” (banks and brokers) and its “buy side” (pension funds, hedge funds, insurers) are fighting each other about who will “control” the regulators. Law suits between mortgage lenders and borrowers as well as sellers, buyers and insurers of mortgage-backed securities have just begun in the US and may take many years at huge legal cost. The world economy seems “hostage” of the outcome of these American lobbying campaigns and legal battles.

While some green shoots began sprouting in the real economy in May/June 2009 as depleted inventories were replenished, and commodities hoarded for a future recovery, banks in the US and Europe continue to fail in their essential economic function of financial intermediation. Instead of being liquidity providers, they have become liquidity users. The German legislation, adopted in May 2009, to allow each German bank to isolate toxic assets in a separate “bad bank” is a strategy of buying time until market dysfunction ends in the US.

The “stress tests” conducted by US regulators at the 19 top US banks were designed to offer a perspective of survival of those banks rather than to encourage the building of sound new banks ready to channel credit to a struggling economy. The projection of combined losses of  599 bn US $ over 2009 and 2010 announced on May 7,2009 did not lift the cognitive fog covering ABS. For “just in time” for the stress tests, on April 2,2009, the Financial Accounting Standards Board (FASB) had responded to pressure from the US Congress to change the accounting rules for banks. Rather than applying the “mark-to-market” rule that force them to report the losses on ABS, they were allowed to use “internal models” in view of “conditions indicating that markets were dysfunctional”. While American banks pressured Japan to impose mark-to-market accounting on Japanese banks burdened by nonperforming loans in 2002, they asked key members of the US Congress to pressure the FABS to exempt them from this very same rule in April 2009 (Wall Street Journal “US Congress helped banks defang key accounting rule”, June 4,2009).

This presages a replay of Japan’s decade of fruitless attempts at different fiscal and monetary crisis solutions without prior cleaning-up of the financial sector. Only in 2002, when the Koizumi government finally imposed complete rigorous write-downs of bad loans, Japan’s banks recovered the ability of financial intermediation in the economy. They began responding functionally to the Bank of Japan’s path-breaking policy of quantitative easing under Governor Fukui. In the third quarter of 2003, the success of these policies was demonstrated:  the Japanese economy bounced backed with an annualized growth rate of 6 percent. Of course, the upswing of the global economy at the time, and more particularly Chinese demand for Japanese exports did help. The Japanese case is a historical example to be remembered today.

III.  Japanese Lessons ?

The case suggests that two cognitive efforts must be undertaken, before new policies can be designed to put the global economy on the path to recovery:

- Finding a method of re-pricing the toxic assets for rapid write-downs

- Identifying new sources of global growth

1. Re-pricing toxic assets

At first sight, the Japanese case seems to indicate an effective solution to solve the balance sheet crisis. Only in October 2002, when Prime Minister Koizumi appointed the determined reformer Heizo Takenaka as Head of Japan’s Financial Services Agency, were the balance sheet problems of the financial sector seriously addressed. Takenaka enforced a fair value re-pricing of bank assets and rigorous write-downs of non-performing loans combined with recapitalization and restructuring of the banking sector. As mentioned above, only then did Japan’s banks recover the ability of financial intermediation in the economy.

During the preceding decade, Japanese banks had been protected, just as US banks today, against revealing the extent of their capital shortfall. Similarly, they became liquidity users rather than liquidity providers. And similarly they failed to recover the confidence essential for the functioning of financial markets.  When Takenaka finally imposed fair value re-pricing of bank assets and corresponding write-downs of bad loans in 2002, he did so in response to intense prodding by the US government and American banks. The immediate success of that strategic policy reversal perfectly vindicated the validity of the American arguments at that time.

And yet, as evidenced by the successful efforts of the American Bankers Association to secure exemptions from fair value accounting as long as “dysfunctional market conditions”, US banks are not ready to adopt the strategy recommended to the Japanese colleagues at the time. Arguably, the differences between the Japanese bubble of the late 1980’s and the sub-prime bubble of the mid 2000’s may explain some of the reluctance of US banks to heed their own advice of that time. Although both Japan’s debt deflation and the US sub-prime crisis are balance sheet crises, the differences are significant on at least two levels, the degree of securitization of the non-performing assets on the balance sheets and the doctrines on a government role in recapitalization and restructuring of the banking sector.

Although securitization of debt had made advances in Japan just as elsewhere, nothing comparable to the hypertrophied financial engineering of the US sub-prime bubble described above was present in the Japanese bubble of the 1980’s. Although massive and debilitating, Japan’s decade long debt deflation was still essentially a classic crisis of banks burdened by non-performing loans, more comparable in the nature of its balance sheet problems to the Swedish banking crisis of the early 1990’s than to the “toxic assets” crisis of financial engineering in the sub-prime case. Arguably, what distinguishes the sub-prime crisis is that it is also a cognitive crisis. It was a failure of “many bright people”, as certified to the Queen of England by the British Academy. Hence bankers may feel justified to plead that it is difficult to re-price the toxic assets on their books.

In a working paper of the Joint CRIDES/IRES/CECRI Working Paper Series on Institutional Competition between Common Law and Civil Law on contract modification as a solution to the subprime crisis,  we show how cognitive crises can be dealt with in contract law and hence in the assessment of the value of mortgage loans. US banks do not yet seem to be aware of that solution, however, and the point remains that the cognitive failure of financial engineering in the sub-prime crisis continues to be invoked to justify their reluctance to re-price their toxic assets.

While in 2002 US banks have wholeheartedly welcomed Heizo Takenaka’s vigorous enforcement of the strategic triad of write-downs, recapitalization and restructuring of the banking sector in Japan, they would certainly balk at a similar treatment to themselves by the US government. Although even the strongest US banks have gladly accepted short-term bail-outs, and many not so strong ones continue to depend on what George Soros calls “artificial life support”, and although there was significant prodding even from the Bush Administration in the Bank of America/Merrill Lynch merger, an all-out government-led restructuring of the banking sector would be rejected as not in keeping with free market rules and share-holder rights. In view of the large literature on the uniqueness of the relationship between government and business in Japan, the Takenaka strategy can easily be discarded as not applicable to the West. Timothy Geithner has a much more restrained view of government’s role in financial markets, and his view is shared by the “centrist” spectrum of the Democratic Party. Together with the Republican Party, this spectrum appears to command the inclination of a majority of the US Congress in this respect.

In the West, if everything else fails, the endgame will inevitably involve protracted legal battles. We believe that there is indeed a legal solution to the balance sheet crisis resulting from the sub-prime failure. In the working paper already cited, we argue that the earlier the legal dimension of failed sub-prime lending is recognized, the easier it will be to avoid the enormous cost of such an endgame.

2. Identifying new sources of global growth

If we take President Obama by his word, the American economy will no longer be consumer of last resort for the world economy.  Unlike Japan’s economy in 2003, the recovery of today’s world economy will not be assisted by some “external” source of demand. Private enterprises and public policy-makers everywhere in the world will have to look beyond demand-pull from abroad and organize Schumpeterian supply-push innovation that creates its own demand. This is the most promising form of strategic pragmatism in the economic field. Japan’s microelectronic revolution in the 1970’s and America’s software revolution in the 1980’s are the leading examples. Post-war Europe did not offer a technological revolution, but mustered strategic pragmatism for political innovation: the functional integration of Europe’s economy. Its success demonstrated that prosperity springs not only from Ricardian comparative advantage in international trade, but also from trade between industrial nations producing similar goods and services.

There is, however, one new source of demand to consider: the domestic demand of 3 bn people in Asia. Except for Japan and urban coastal China, it is not yet fully present in markets. But it just waits to be awakened by adequate policies of economic and social development as well as economic integration in Asia. Western China’s pent-up demand and the emerging Chinese legislation of a social security system on the Northern European pattern will unleash enormous domestic dynamics, offsetting some of the declining US demand for Chinese products. ASEAN+3 seems on course to organize proper flows from savings to investments in the Asian region (see our post “is Asia’s integration less functional than Europe’s,”). Thanks to such an “Asian solution” to the American sub-prime crisis, Europe’s functional experience may yet be tested on a global level.

Lawmakers on both sides question power, handling of Wall Street bailouts

The Associated Press
WASHINGTON – Suddenly the Federal Reserve is everybody’s punching bag.

Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say.

The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits.

Former Fed Chairman William McChesney Martin Jr. famously said that the central bank’s job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.

The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates — perhaps just ahead of next year’s midterm elections.

Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama’s nomination of Bernanke to a second four-year term as chairman.

Many economists and Fed watchers say congressional efforts to rein in the Fed’s powers could interfere with the central bank’s ability to help guide the fragile economy to recovery.

The Fed’s very independence and its unique ability among U.S. institutions to create money out of thin air enabled it to act quickly to stabilize the nation’s financial system after it froze up last September after the bankruptcy of the Lehman Brothers investment house, Fed backers say.

“It might have been the Fed’s finest moment when it had to jump into the market,” said David M. Jones, a former Fed economist and president of DMJ Advisors, a Denver-based consulting firm. “We still have to wait to see how effective the Fed is in its exit strategy and whether it can keep inflation in check. But this badgering by Congress, even if there is populist sentiment, is inappropriate.”

The Fed’s aggressive intervention also set the stage for the current criticism. Many lawmakers question whether the Fed’s money machine has mainly benefited financial markets and not the broader economy. Lawmakers are also peeved that the central bank acted without congressional involvement when it brokered the 2008 sale of failed investment bank Bear Stearns and engineered the rescue of insurer American International Group.

Bernanke, first appointed by President George W. Bush, has worked closely with both Treasury Secretary Timothy Geithner and Bush Treasury Secretary Henry Paulson in confronting the worst financial crisis in decades. Geithner also has gotten his share of congressional wrath, mainly for his administering of the $700 billion bank bailout fund.

“In the past, the Federal Reserve was held in very high esteem,” said Rep. Ron Paul of Texas, a libertarian-leaning Republican who twice ran for president and remains a darling of skeptics of Washington. Now, it’s “the source of our problem,” suggests Paul, author of the best-seller “End the Fed.”

Usually an outlier, Paul suddenly has found an army of at least 307 House colleagues and 30 senators marching behind his legislation to subject the Fed to intense scrutiny by Congress’ Government Accountability Office. The House Financial Services Committee endorsed Paul’s approach 43-26 last week over objections from its chairman, Rep. Barney Frank, D-Mass.

The bill would authorize Congress to audit not only the Fed’s lending programs but its basic decisions to set monetary policy by raising or lowering interest rates. Paul has been introducing a version every year since the early 1980s, but this is the first time it has garnered any serious attention.

Senate Banking Committee Chairman Chris Dodd, D-Conn., who will preside over Bernanke’s confirmation hearings, has proposed legislation that would strip the Fed of its bank-regulation authority and give the Senate a role in selecting the 12 regional Federal Reserve bank presidents.

Dodd says his measure would return the Fed to its core mission of setting monetary policy, claiming it proved itself “an abysmal failure” by not cracking down on risky lending practices that led to the financial meltdown.

Dodd is in an extremely tight battle for re-election, even though he has served in Congress for 35 years.

“I don’t think it ever hurts to have a member of Congress stand up and denounce the Fed. There is a lot of anger out there, and this is basically a therapeutic gesture,” said Ross Baker, a political scientist at Rutgers University.

Still, Baker said, it probably isn’t wise to tamper with the formula that makes the Fed “very much an anomaly in American government. It’s independent, it has to be. You don’t want the Fed to be under the control of the president. And it kind of sits out there — not in the executive branch, not in the legislative branch, not in the judicial branch. Sort of its own little element in the separation-of-powers constellation.”

While the Fed is subject to some congressional oversight, its decisions don’t have to be ratified by the president or Congress. Fed officials are not paid with money appropriated by Congress.

Should Bernanke be worried?

“Not only should be worried, he’s clearly ratcheted up his game in terms of his communications with Congress,” said Norman Ornstein, a senior fellow at the American Enterprise Institute.

Ornstein said the Fed bashing this time is different from before, with “a broader base of support. And it’s coming from people who in the past would not have hit the Fed. There’s a lot of populist anger out there — on the left, in the center and on the right. And politicians are responsive to that.”

Los indicios son contradictorios, pero la recuperación estadounidense parece lenta. Ben Bernanke, presidente de la Reserva Federal, dio días atrás una evaluación pesimista de las perspectivas económicas. La tasa de desempleo ya está en 10,2% -alta para los estándares estadounidenses- y la tendencia es al alza. La atención en Washington se está concentrando en la necesidad de actuar.

La Casa Blanca y sus aliados en el Congreso preferirían no hablar de otro paquete de estímulo fiscal. El primero fue impopular y muchos lo ven como un fracaso. En cambio, se está discutiendo la “propuesta de ley de los puestos de trabajo”. Las medidas que se están considerando incluyen ventajas impositivas, nuevos programas de obra pública e iniciativas que permitan compartir trabajos. Todo esto se discutirá el mes próximo, en un foro que se realizará en la Casa Blanca.

Las nuevas iniciativas fiscales y monetarias pueden tener sentido, pero la administración debe evitar caer en una trampa. Para poder estimular la demanda, debe permitirse que las medidas orientadas a crear trabajo incrementen el déficit de presupuesto en el corto plazo. El gobierno no debe sentirse tentando a negar esta consecuencia por el nerviosismo que causa la expresión estímulo fiscal. Su disminuida credibilidad podría no soportar una treta semejante. En cambio, la Casa Blanca debería enfatizar su decisión de volver a poner el déficit bajo control una vez que la economía se haya recuperado.

Sin embargo no ha dicho nada de esto, excepto para ofrecer despreocupadas y decididamente poco efectivas palabras alentadoras. Este problema de credibilidad en el largo plazo es crucial porque limita la libertad fiscal del gobierno en el corto plazo. Que le den otro nombre al segundo estímulo, si tienen que hacerlo, pero que no finjan que su efecto sobre el déficit será neutral. Y que, de manera urgente, empiecen a establecer una estrategia para lograr el equilibrio fiscal en el largo plazo.

En lo que ser refiere a una nueva propuesta de ley que apunte a la creación de trabajo, dos medidas resultan recomendables. La primera debería ser indiscutible: continuar extendiendo beneficios a los desempleados y mantenerlos hasta que la tasa de desempleo vuelva a niveles más normales. Esto actúa directamente sobre la recesión y, además, es seguro que el dinero que llega así a los bolsillos de los desempleados será gastado y no ahorrado.

Otra idea buena, aunque más complicada, es darle a las firmas un crédito fiscal sobre sus cargas sociales si expanden el empleo. Habría que vincular el crédito al crecimiento en el costo laboral total, para limitar la posibilidad de manipular los números, y concentrarse en los trabajadores con bajos salarios. De todos modos, lo que puede lograrse tiene un límite: otra trampa que hay que evitar es la de prometer demasiado. Pero esta medida, si forma parte de una propuesta de ley inteligentemente proyectada, puede hacer más bien que mal.

Glenn Beck Talks New World Order with Damon Vickers

Geithner slammed by Congressman during hearing on Capitol Hill

Rep. Ron Paul (R-TX) is like Ozzy-era Black Sabbath: You shouldn’t dislike the music just because of the fans. To be sure, the music isn’t consistently awesome – and in fact some of it just blows – and the majority of die-hard Sabbath worshipers grasp nuance and refinement the way Sarah Palin grasps basic sentence structure. Nonetheless, those tunes that are great really are great, and at least you can talk to Sabbath fans about some subjects, as opposed to, say, Toby Keith fans, where reconstructive dental surgery is always a possibile outcome of straying into controversial topics.

So it is with Paul, who is pretty darn close to espousing the libertarian ideal. In libertarianism there is much for a progressive to love, especially for gays and pot smokers… doubly so for gay pot smokers. The simplicity of the idea, the harkening back to the rugged forging of a new nation where only an individual’s own limitations (and occassionally those pesky natives) stood in the way of Man meeting his potential, has broad appeal.

Rep. Ron Paul: When he's right, he's right

Also, he was against the Iraq War. This is a permanent feather in his cap, never to be taken away. Not even if Ozzy-era Ron Paul someday becomes Ronnie James Dio-era Ron Paul and just sounds terrible all the time.

That is a ways away, though, as evidenced by the latest-breaking news from Capitol Hill. Proving himself once again a contributor to the national dialogue, while so many of his Republican colleagues remain steadfast detractors, Paul is challenging the Obama administration to live up to its pledge of transparency. On this issue, he is right on the money.

Late Thursday afternoon, the House Financial Services Committee, chaired by Rep. Barney Frank (D-MA), approved a measure to assess upfront fees against large Wall Street firms to help pay for the dissolution of nonbank financial institutions, whereas taxpayers have hitherto been footing the bill. Included in the proposal was a plan to audit the operations of the Federal Reserve Bank.

From the New York Times:

The votes on fees and on the Fed audit came despite objections from the Obama administration. They illustrated the strong sentiment in Congress to curb the central bank’s power and assure voters that taxpayers won’t be on the hook for future Wall Street failures.

If Mr. Frank can win final passage in his committee in two weeks, the House could vote on the full overhaul next month.

On auditing the Fed, the committee adopted a plan by Representative Ron Paul, Republican of Texas, that had the support of a bipartisan roster of more than 300 members of Congress. It would give the Government Accountability Office the authority to audit the entirety of the Fed’s balance sheet, credit facilities and all securities purchase programs. Critics, led by Mr. Frank and Representative Melvin Watt, Democrat of North Carolina, argued that Mr. Paul’s proposal was too intrusive and could indirectly lead to higher interest rates. They proposed a more limited audit.

“If we open all of the discussions, the deliberations, the transactional gives and takes, what we will do is scare off capital because other governments will not deal with our Fed,” Mr. Watt said.

Mr. Paul, who ran a long-shot campaign for president last year, argued that Mr. Watt’s more limited proposal would exclude much of the Fed’s work from scrutiny.

“There is no reason in the world why this country and our people can’t know eventually about what’s going on in the Federal Reserve,” Mr. Paul said.

Mr. Paul could not be more correct. The Federal Reserve has always been a problematic institution, right down to the not-quite-private, not-quite-public status under which it operates. Lately, it has been arguably more powerful than any president’s economic advisory council or any Congressional committee, and, first under Alan Greenspan and later Ben Bernanke, became an instrument of making Milton Friedman economics official U.S. policy. Greenspan pressed for financial services deregulation and supported the bubble-driven markets of the late 1990s and early 2000s, and was a disciple of the perverse and nonsensical ideology of Ayn Rand’s Objectivism. (Greenspan has since apologized, sort of, but not for being a Randian.)

Paul and his followers have a great deal of animus toward “fiat money” systems in general (wherein only government-sanctioned currency is legal tender, and the value of currency is not linked to or backed by actual assets, such as gold). The Federal Reserve is the administrator of America’s fiat money structure, and thus the cries of “End the Fed” shouted by Ron Paul adherents.  Notwithstanding the many ways dismantling the Federal Reserve Bank is an unnecessary and currently impossible task, the basic sentiment is not one shared by The National Razor. Fiat money is fine.

What is not fine is the idea that the entity to which the economic fortunes of this country are tied should operate under such a cloud of secrecy. That somehow the White House travel office received more official scrutiny in the late ’90s than the Fed may go some way toward explaining how things got so incredibly FUBAR this decade, and where we should turn our collective probing gaze to fix the fiasco in the next.

Sadly, the Obama administration is not on board. With Treasury Secretary Timothy Geithner an alumnus of the New York Federal Reserve Board, and Chief Economic Advisor Larry Summers, well, just a schmuck, the “change we need” is looking a lot like the mess we’ve had. That Obama’s sweeping overhaul plans for the federal government do not currently include the (semi)governmental institution at the center of the crisis only confirms how necessary it is that the Fed be audited and, if need be, restructured. Goldman Sachs and AIG may have been “too big to fail,” but the Federal Reserve is not too big to be investigated.   

If anything, Obama should be at the vanguard of this push. Ron Paul is vehemently opposed to the health insurance reform bills being considered by Congress if they include a public option, which means that his followers, mainly registered independents, are as well. They may never come around to embracing a public option with open arms, but mollifying them with action on their most important issue, the Fed, will help immensely. On days like today, when the non-partisan Congressional Budget Office released an estimate that the Senate health reform bill under consideration would reduce federal budget deficits by close to $200 billion over the next decade, it would behoove the administration to be able to tout such a victory without having to face uncomfortable questions about transparency and defend an entity that was complicit in our financial turmoil.

Not only that, it would be doing what Obama promised to do.

It is happening.  People are losing their individual freedoms around the world.  The leaders of the EU nations are meeting to elect the first president of the EU. 

And what do the citizens of the respective countries have to say about it?

Nothing

And if you think this is not coming to America you had better think again.  It is what Kyoto and Copenhagen are about.  It is reflected in the actions of Democratic Representative Paul Kanjorski.  It is what the various stimulus plans are about.  It is why Obama, Bernanke, Geithner and the socialists in the US government are attempting to destroy the value of the US$ by monetizing the debt.  If this all goes according to their plans the world will be forced into a single currency which will be regulated by something like the IMF and at that point, it is all over but the crying.

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) – Imports in August +1.1 % m/m from +0.1 % in August slightly better than expectations of +0.9 % Exports in August -1.8 % m/m from +1.7 % (revised from +2.2 %) in July worse than expectations of +1.7 % Sept. final CPI -0.4 % m/m from +0.2 % -0.3 % y/y from 0.0 % as per expectations. Sept. final … Imports in August +1.1 % m/m from +0.1 % in August slightly better than expectations of +0.9 % Exports in August -1.8 % m/m from +1.7 % (revised from +2.2 %) in July worse than expectations of +1.7 % Sept. final CPI -0.4 % m/m from +0.2 % -0.3 % y/y from 0.0 % as per expectations. Sept. final HICP -0.5 % m/m from +0.3 % -0.5 % t/t from -0.1 % slightly worse than expectations. French Data French Industrial Production in August +1.8 % m/m from +0.3 % (revised from +0.1 %) better than market expectations of +0.5 % Italian Data Italian Industrial Output in August +7.0 % m/m the biggest rise since 1990. This way exceeded market expectations of +0.6 % July was revised from +1.0 % to +2.4 % m/m. Annually -18.3 % from -17.9 % (revised from-18.2 %) expectations were –17.7 % y/y.. UK Data Merchandise Trade balance in Aug. – 6.24 billion Stg. from -6.431 billion (revised from -6.48 billion) market expectations -6.3 billion. PPI Output prices for Sept. +0.5 % m/m from +0.3 % (revised from +0.2 %) expectations +0.1 %, +0.4 % y/y   from -0.3 % (revised from -0.4 %) expectations -0.1 % PPI Input prices for Sept. -0.5 % m/m from +2.0 % (revised from +2.2 %) expectations -0.8 %, -6.5 % y/y   from -7.7 % (revised from -7.5 %) expectations -6.7 %. Canadian Data Unemployment rate in Sept. fell to 8.4 % from 8.7 % The number of people added to the workforce in Sept. was 31,600 (+91,600 full-time -30,000 part-time) from 27,100 the previous month versus expectations of 5,000 Comments/News China’s Vice President Xi Jinping says that China and the EU should strengthen their dialogue on macro-economy and financial issues and they should both oppose protectionism. He reiterates that the economic recovery will be a long process and that the economic situation in China is stabilizing. IEA (International Energy Agency) raises Q4 2009 world oil demand forecast by 530,000 bpd (barrels per day) to 85.2 million bpd and raises Q4 OPEC oil demand estimate by 500,000 bpd. It also lifts its 2010 global oil demand forecast to 1.42 million bpd, up 150,000 bpd from its previous forecast, raising forecasts for the 3rd consecutive month. Oil traded down to 71.35 has now recovered and trades at 71.44. US President Barack Obama wins the Nobel Peace Prize. FINMA (The Swiss Financial Market Supervisory Authority) says it will tighten Swiss banking regulations if international rules turn out stricter FINMA’S Chairman adds that if international rules turn out to be weaker Swiss regulations will not be softened. He says the regulator gas political support but he believes opposition may increase from market movers. Dollar against the Swiss trading lower at 1.0295 Ben Bernanke’s speech in Washington has been the main story for the market all morning. The speech was made last night during the Asian trading time zone and resulted in a reversal of the lower dollar trend. Some traders used it as an excuse to take profit on their short positions. Bernanke said that he was prepared to implement exit strategies and tighten monetary policy but now is not the time as he does not see sufficient evidence yet in the economic recovery for them to be implemented. He gave no indication on timing or the pace of the exit strategy but it will be when the time is right and when he sees stronger evidence of the economic recovery. Jean-Claude Trichet saying the economy shows signs of stabilization. The recovery ahead will be very gradual and could still involve substantial risks. He adds that constant monitoring of the financial system resilience should be part of the new regime. He concludes “Thrifty, prudent housekeeping is Europe’s main safeguard against the risk of a bubble economy”. Currencies A very quiet start to the session with currencies Range bound until mid-morning when the dollar reversed its overnight moves and gave up its gains predominately against the Yen to a low of 88.78. The Japanese Yen also strengthening against the Euro and Sterling causing a low in cable of 1.5932 and a high in the Euro of 1.4745. Late in the session dollar Canada in expectation of good employment data fell from 1.0540 area to around 1.0500 the on the release of the better than expected data fell to 1.0453. Ranges EUR / USD      1.4710 / 1.4745 USD / JPY       88.64 / 89.40 GBP / USD      1.5932 / 1.6030 USD / CHF      1.0277 / 1.0320 USD / CAD      1.0423 / 1.0550 AUD / USD     0.9019 / 0.9082 NZD / USD      0.7346 / 0.7406 EUR / JPY       130.84 / 131.66 EUR / GBP      0.9182 / 0.9242 GBP / YEN      141.63 / 143.08 Gold                 1043.70 / 1049.90 Rates as at 7.30 am:- EUR/USD 1.4766/69 USD/JPY 88.65/68 GBP/USD 1.5998/02 USD/CHF 1.0281/85 USD/CAD 1.0428/32 AUD/USD 0.9078/82 NZD/USD 0.7402/08 EUR/JPY 130.90/94 EUR/GBP 0.9226/30 GBP/JPY 141.87/95 Gold 1049.70/50 OIL 71.39 Dollar Index 76.130 (0.00) Stock Markets Nikkei closed at 10,016-39 higher by 183-92 (+1.87 %) Hang Seng closed at 21,499-44 higher by 6-54 (+0.03 %) Kospi closed at 1,646-79 higher by 31-33 (+1.94 %) Shanghai Composite Index closed at 2,911,715 higher by 132,289 (+4.76 %) FTSE 100 at 5,150-05 LOWER BY 4-50 (-0.09 %) CAC 40 at 3,797-76 lower by 9-05 (-0.24 %) DAX 30 at 5,708-54 lower by 8-00 (-0.14 %) Have a great weekend

<!–TITOL:

European Morning Market Wrap-UpFITITOL–>

Source: European Morning Market Wrap-Up

]]> http://freedomforthepeople.wordpress.com/2009/11/17/federal-reserve-loses-court-case/ Wed, 18 Nov 2009 00:54:49 +0000 jack2hammer http://freedomforthepeople.wordpress.com/2009/11/17/federal-reserve-loses-court-case/ http://riverdaughter.wordpress.com/2009/11/17/tuesday-midmorning-call/ Tue, 17 Nov 2009 15:49:28 +0000 dakinikat http://riverdaughter.wordpress.com/2009/11/17/tuesday-midmorning-call/

Coffee Break - Lyndon Stokes

Morning Conflucians!

I discovered one more laundry detergent that gives me hives yesterday!  This one is actually labeled Natural Elements and is supposed to have mango and apple essence in it.  Well, last night I slept in benadryl  bliss.  Today, I rewash absolutely ALL the laundry I did on Sunday which was basically a huge amount. Hope your day turns out to be better than mine. So, I just woke up and this is a little late.  Sorry!

The Nation Politic:

It seems every one in the media and politics has lost all perspective over Sarah Palin.  She’s a bigger media sensation now than she was during the presidential election and even Oprah Winfrey used her to boost sagging ratings. So, what’s up with this?

Here’s some links for you to explore the Sarah Mania.  Sarah(on her facebook page), David Brody at the whacko pseudo news spewed by CBN, and most of the wing nut sites are all over the Newsweek cover which they say is sexist and biased.  Since when did the right wing care about sexism?

I predict this cover will become a bigger story over the next 24-48 hours and let’s face it. This isn’t JUST about media bias. This cover should be insulting to women politicians. Where’s the sexy photo of Mitt Romney? Why not a picture of Tim Pawlenty with an unbuttoned shirt relaxing on a couch in the Twin Cities?

Meanwhile, a CBS poll says that less than 1 in 4 have a favorable view of Sarah Palin.

Just 23 percent of those surveyed in a new CBS News poll have a favorable view of the former Alaska governor. That matches her favorable rating in July, when Palin announced she was resigning from her job as governor.

Thirty-eight percent, meanwhile, have an unfavorable view of Palin — also roughly matching her July rating. Another 37 percent say they are undecided or haven’t heard enough, despite the spotlight on Palin in recent days tied to the imminent publication of her memoir, “Going Rogue.”

So, Andrew Sullivan live blogged the Oprah Interview.  Yes, he did !

4.23 pm. A good question: did the campaign agree to multiple interviews with Couric before the interview started? Palin says she thought there was only one interview. Can we verify this, Mr Schmidt? Is this yet another bald-faced lie?

4.21 pm. Oprah gives the game away: “This was in the book so I assume it was fair game.” Oprah clearly agreed in advance only to ask questions from the book’s own narrative.This is not journalism; it’s celebrity puffery. Of course, it’s Oprah.

4.18 pm. So far, most of Oprah’s questions can be summarized as: “Isn’t it weird how great you are?” In the last segment, Palin was actually forced to be more critical of her campaign than Oprah is. One wonders: is Oprah this desperate to boost her ratings? Is anyone on TV actually interested in finding out the truth?

4.17 pm. “I’m sorry I apologized.”

4.16 pm. Oprah is simply reiterating the arguments of the book as if they were true, even though all this is disputed. There is no journalism being committed here. As I suspected.

The Economy:

Robert Reich wrote an op-ed peice in the WSJ today about China and the American Jobs Machine that’s worth a look.

China’s capital spending is on the way to exceeding that of the U.S., but its consumer spending is barely a sixth as large. Chinese companies are plowing their rising profits back into more productive capacity—additional factories, more equipment, new technologies. China’s massive $600 billion stimulus package has been directed at further enlarging China’s productive capacity rather than consumption. So where will this productive capacity go if not to Chinese consumers? Net exports to other nations, especially the U.S. and Europe.

Many explanations have been offered for the parsimony of Chinese consumers. Social safety-nets are still inadequate, so Chinese families have to cover the costs of health care, education and retirement. Young Chinese men outnumber young Chinese women by a wide margin, so households with sons have to accumulate and save enough assets to compete in the marriage market. Chinese society is aging quickly because the government has kept a tight lid on population growth for three decades, with the result that households are supporting lots of elderly dependents.

But the larger explanation for Chinese frugality is that the nation is oriented to production, not consumption. China wants to become the world’s pre-eminent producer nation. It also wants to take the lead in the production of advanced technologies. The U.S. would like to retain the lead, but our economy is oriented to consumption rather than production.

China’s got issues but it’s the force to be dealt with for this century.  How will the China Summit go?

Whoever keeps spreading those damned rumors about the Fed being accountable to no one has never sat in a branch across the table from BOG auditors with a report.  I have and they’ll rip you a new one if you don’t have your house in order, believe me.  I’ve had to clean up audit results for Atlanta’s branches before and they can get damn nit picky! So, the NY Fed is on the catbird seat and guess who was in charge at the time of the audit?

Here’s a report on an Audit for the NY Fed over AIG in today’s business section at the NYT.

The Federal Reserve Bank of New York gave up much of its power in high-pressure negotiations with the American International Group’s trading partners last year, according to a government report made public on Monday.

Just two days before the New York Fed paid A.I.G.’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance.

UBS, of Switzerland, alone offered to give a break to the New York Fed in the negotiations last November over how to keep A.I.G. from toppling and taking other banks down with it. It would have accepted 98 cents on the dollar.

But UBS’s good-faith gesture was quickly drowned out by Goldman Sachs and the top French bank regulator. They argued, with others, that it would be improper and perhaps even criminal to force A.I.G.’s trading partners to bear losses outside of bankruptcy court.

The banks and the regulator were confident that the New York Fed was not willing to push A.I.G. into bankruptcy, because earlier in the fall the New York Fed had stepped in with $85 billion to prop up the insurer.

The New York Fed, led then by Timothy F. Geithner, who is now the Treasury secretary, therefore had little leverage in the negotiations, according to a post-mortem of what has emerged as the most inflammatory episode in the rescue of A.I.G.

Uh-oh.  Timmy’s in the well again!  Better Get Lassie!!!!

Yves Smith at Naked Capital gets some not some pleasant insider information about home foreclosures.

About a week ago, I got this message from a reader:

“I heard a rumor from a very well placed source that BOFA will foreclose 500,000 houses over the next 10 months. They plan to move these houses very aggressively; they will go to auction 90 days from foreclosure if they are not sold by then. Someone else, very highly placed in Fanny Mae, confirmed this and said there are at least that many again in the rest of the banking system.”

Now I will be honest, I have no idea whether this is true, and when I ran it by my investors buddies, the reaction I got was incredulity “Why would BofA want to shoot itself in the foot?” was typical.

But what does “BofA” mean in the message? Is it “BofA as lender who holds the mortgages on its books” or is it “BofA as servicer, who profits handsomely from foreclosures?” Remember, the rationale for buying Countrywide was to get hold of its servicing operation. And there has a good deal of evidence that regulators are tolerating some lax valuations on mortgages. Moreover, more aggressive liquidations might be seen, at least initially, as a plus by investors. Recall when banks first started taking subprime-related writedowns, the assumption was they were putting the losses behind them. And ironically, it seemed that with each quarter, the writeoffs kept getting bigger, yet the party line each time was, “Ah yes, they have really cleaned house, now haven’t they?”

This is still a major clusterfuck and it’s about time somebody REALLY does something about it.

I watched Bernanke’s speech in NY yesterday. He was questioned by Henry Kaufman among others.  If you don’t catch it on CSpan, you can watch it here at Bloomberg.com.  He’s not expecting a robust recovery but moderate growth.  Read this as a jobless recovery.

Meanwhile, we had a less than robust uptick in Industrial Production last month, a key leading indicator of future economic activity.

Industrial production in the U.S. rose less than forecast in October, restrained by a reduction in auto manufacturing as the effects of trade-in incentives dissipated and a decline in demand for business equipment.

Output at factories, mines and utilities rose 0.1 percent following an increase of 0.6 percent in September, the Federal Reserve said today in Washington. Manufacturing production fell for the first time in four months, while utility output jumped by the most since December.

Auto manufacturing declined following the biggest three- month surge since the 1970s and companies are staying cautious about the strength of the recovery with unemployment at a 26- year high. The labor market explains why “significant economic challenges remain,” Federal Reserve Chairman Ben S. Bernanke told the Economic Club of New York yesterday.

“We’re seeing improvement in fits and starts,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York, who correctly forecast the increase in production. “This is suggesting the recovery is going to be uneven.”

Noriel Roubini, Doctor Doom and Gloom, says the Worst is Yet to Come and suggests we all ‘hunker down’.

Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

The long-term picture for workers and families is even worse than current job loss numbers alone would suggest. Now as a way of sharing the pain, many firms are telling their workers to cut hours, take furloughs and accept lower wages. Specifically, that fall in hours worked is equivalent to another 3 million full time jobs lost on top of the 7.5 million jobs formally lost.

This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries.

Other measures tell the same ugly story: The average length of unemployment is at an all time high; the ratio of job applicants to vacancies is 6 to 1; initial claims are down but continued claims are very high and now millions of unemployed are resorting to the exceptional extended unemployment benefits programs and are staying in them longer.

Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.

With that dismal note, try to  have a nice day!

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]]> http://solitariogeorge.wordpress.com/2009/11/17/meredith-whitney-la-analista-mas-popular-de-ee-uu-advierte-la-economia-probablemente-volvera-a-entrar-en-recesion/ Tue, 17 Nov 2009 13:43:09 +0000 solitariogeorge http://solitariogeorge.wordpress.com/2009/11/17/meredith-whitney-la-analista-mas-popular-de-ee-uu-advierte-la-economia-probablemente-volvera-a-entrar-en-recesion/ http://econotwist.wordpress.com/2009/11/17/wall-street-el-dorado/ Tue, 17 Nov 2009 12:41:00 +0000 econotwist http://econotwist.wordpress.com/2009/11/17/wall-street-el-dorado/ http://sobereconomist.com/2009/11/17/obama-bernanke-sending-mixed-messages/ Tue, 17 Nov 2009 03:27:25 +0000 djussila http://sobereconomist.com/2009/11/17/obama-bernanke-sending-mixed-messages/

Nov 16 – President Obama and Fed Chairman Ben Bernanke are either confused, liars, or more likely – both. Lately, due to a lack of confidence in the U.S dollar and economic fundamentals, the duo have been making very public comments about the state and future of the U.S dollar and economy. President Obama, during his Asian tour, said a deeper relationship between the U.S. and China is critical to the economic prosperity of both countries. I am amazed he even said that with a straight face. A quick look at his credentials will show he is no friend of free trade. Tariffs on Chinese tires and steel, possibly more tariffs on Chinese glossy paper and phosphates, clearly shows that free trade is not on the agenda – but protectionism is.

Also – President Obama is sending a mixed message to the Chinese government. Obama is trying to encourage the Chinese to let their currency appreciate in value. Yet, on the other hand, he is trying to encourage the Chinese government to keep buying U.S treasuries, so the U.S. can continue to fund their “recovery” programs. So President Obama wants the Chinese to save their money, all awhile lending it to the U.S. simultaneously? It’s one or the other, you’re not going to get it both ways. But the President understands that the U.S economy is completely based on spending borrowed money and without their entire phony economy would come crashing down. Obama is simply saying what he needs to try to retain confidence in the dollar.

Obama also made a comment saying the U.S, in order to re balance, needs to save more and consume less. Of course this is just spin, because all of the U.S policies are geared toward getting Americans to spend more of their money. Think Cash for Clunkers, Home buyers tax credit. Not to mention the dangerously low interest rates.

Speaking of the Fed, Federal Reserve Chairman Ben Bernanke reaffirmed in a midday speech that the central bank would hold interest rates at record-low levels for an “extended period,” and that he didn’t see signs that the money being pumped into the economy by the government was creating speculative bubbles. This is, of course more political spin.  He is simply saying what the speculators hoped he would say, and predictably stocks and bonds got a short boost. The entire “recovery” is one bubble because it is being traded in dollars, which are loosing in value quicker than ever. Predictably, he see’s no problem at all with the inflation in the market. After all if he admitted the truth, that they were inflating they’re way out of recession, the dollar would be quickly abandoned and the U.S would would be worse than where it started.

But maybe, thats what should happen….

- Sober Economist.

 

]]> http://takafulsmartmedic.wordpress.com/2009/11/17/us-stocks-at-13-month-closing-highs/ Tue, 17 Nov 2009 02:50:26 +0000 Smartmedic http://takafulsmartmedic.wordpress.com/2009/11/17/us-stocks-at-13-month-closing-highs/

Salam,

US market is going higher!

NEW YORK (Reuters) – U.S. stocks rose broadly on Monday, sending indexes to fresh 13-month closing highs, after Federal Reserve Chairman Ben Bernanke reinforced expectations that interest rates would stay low to spur growth.

Bernanke repeated that the Fed was likely to keep interest rates exceptionally low for “an extended period,” a pledge that weighed on the U.S. dollar and drove investors to snap up shares of natural resource companies as prices of global commodities — from gold to wheat — shot higher.

In a speech before the Economic Club of New York, Bernanke said the recovery would not be as robust as previously hoped, and rising unemployment and tight bank lending were significant headwinds.

The S&P materials (^GSPM - News) and energy (SNP:^GSPE -News) indexes each climbed more than 2.3 percent. Individual stock standouts included Exxon Mobil Corp (NYSE:XOM - News), up 2.7 percent to $74.43 amid higher crude oil prices, and Caterpillar Inc (NYSE:CAT - News) up 2.8 percent.

“The overriding message from Bernanke is that interest rates will stay low and remain low for the near to medium term. It seems that the market likes that,” said Dennis Cajigas, senior market strategist at Lind-Waldock, a retail brokerage firm in Chicago.

“Investors essentially are borrowing against low rates in the dollar and putting that money in areas that they feel will react well against inflation, such as crude oil, energy, gold, commodities (and) stocks because the expected return should be higher over time.”

In the last hour of trading stocks briefly pared gains as Meredith Whitney, a prominent analyst, said in a CNBC television interview the stock market run-up was not supported by fundamentals.

The Dow Jones industrial average (DJI:^DJI - News) gained 136.49 points, or 1.33 percent, to 10,406.96. The Standard & Poor’s 500 Index (^SPX - News) shot up 15.82 points, or 1.45 percent, to 1,109.30 — its first close above the psychologically important 1,100 level for the first time since October 2008.

The Nasdaq Composite Index (Nasdaq:^IXIC - News) jumped 29.97 points, or 1.38 percent, to 2,197.85.

The benchmark S&P 500 is now up 64 percent since the 12-year closing low of March 9.

Caterpillar, whose fortunes are closely tied to the commodities industries, was one of the biggest boosts to the Dow, along with Boeing Co (NYSE:BA - News), up 3.6 percent to $52.48.

Shares of AK Steel Holding Corp (NYSE:AKS - News) rose 7.9 percent to $18.77, while gold miner Newmont Mining Corp (NYSE:NEM - News) added 2.8 percent to $52.39. The ARCA gold bugs index (AMEX:^HUI -News) jumped 3.3 percent after COMEX December gold hit a record above $1,140 an ounce.

On Nasdaq, Intel Corp (NasdaqGS:INTC - News) shares rose 2.2 percent to $20.25 after the chipmaker raised its quarterly dividend by more than 12.5 percent. The semiconductor index (^SOXX - News) climbed 2 percent.

Monday’s economic data showed October retail sales rose a brisk 1.4 percent last month but were much less impressive with auto sales stripped out. In addition, September figures were revised to show a larger drop overall than earlier reported. (nN16507114)

Even though Bernanke made a rare statement on foreign exchange markets, saying the Fed was watching the U.S. dollar closely, the greenback found very little reprieve.

The United States and China failed to reach an agreement over currencies at a summit of the Asia Pacific Economic Cooperation forum in Singapore.

Bernanke, commenting on the dollar’s decline, said the Fed is attentive to changes in the U.S. currency, and the Fed’s mandate will help ensure the greenback remains strong.

“If you take away stimulus, this economy falls apart. He knows it. He’s boxed in here, he can’t raise rates. It’s impossible,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “So what do we do? We continue to buy equities because that’s what the trade is.”

Volume was moderate, with about 1.15 billion shares changing hands on the New York Stock Exchange, below last year’s estimated daily average of 1.49 billion. On the Nasdaq, about 2.13 billion shares traded, below last year’s daily average of 2.28 billion.

Advancing stocks outnumbered decliners on the NYSE by a ratio of about 9 to 2, while on the Nasdaq, nearly seven stocks rose for every two that fell.

(Additional reporting by Rodrigo Campos; Editing by Padraic Cassidy)

(source: finance.yahoo.com)

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]]> http://gregip.wordpress.com/2009/11/13/the-u-s-in-2010-the-feds-next-battle/ Sat, 14 Nov 2009 03:00:35 +0000 gregip http://gregip.wordpress.com/2009/11/13/the-u-s-in-2010-the-feds-next-battle/