Tag Archives: Federal Reserve

The Wonks Battle for the Fed

By Noah Smith – These days, essentially all of the pre-2008 models have fallen out of favor, replaced by models where finance is the key. Most people would agree that’s a good thing.

But those models are going to have just as hard a time getting conclusive support from the data, because there just isn’t much data.

So again, conclusions about whether the Fed should print money and buy bonds to fight recessions will come down to intuition. As Robert Waldmann says, “The models change but the policy proposals remain the same.” more> http://tinyurl.com/k2vkost


Apple, the Fed and the financial fallacy

By James Saft – Call it the financial fallacy, the modern tendency to concentrate on the often ephemeral movement of numbers on traders’ screens rather than the much harder to manage real world.

Apple, sitting on a $145 billion cash hoard but facing declining margins and a drought of new blockbuster products, unveiled a $55 billion increase in plans to return cash to shareholders.

The Fed, for its part, has been engaged in a five-year Herculean struggle in which it tries, by buying Treasuries and mortgage bonds, to drive asset markets higher and make us all giddy and willing to spend. more> http://tinyurl.com/brxks3m


Is the Table Set for the Next Financial Crisis?

18a US Department of the Treasury - NRHP-71001...

18a US Department of the Treasury – NRHP-71001007 (E) (Photo credit: Kansas Sebastian)

By Scott Rubin – The announcement of QE3 is wearisome for many reasons. When the Federal Reserve and Treasury started down the path of radical market intervention, many enlightened investors opined that the intervention may go on into perpetuity. By all accounts, this prognostication has been borne out thus far.

Asset prices have been artificially manipulated and do not reflect long-term economic reality. Consider for example, the U.S. Treasury market. The yield on the 10-year note is currently around 1.84 percent. Is this an accurate reflection of the credit-worthiness and fiscal situation of the U.S. government? Does it accurately reflect inflation expectations? more> http://tinyurl.com/95fr4tc

Libor Punishment Could Be Worse Than the Crime

Go Away Federal Reserve System!

Go Away Federal Reserve System!
(Photo credit: r0b0r0b)

By Mikhail Chernov – Before authorities topple more banks’ managements and scrap an indicator that has served the market for three decades, they should ask themselves a question: Who was really harmed?

Banks lowered the borrowing rates they reported for the calculation of Libor because they wanted to avoid the impression that they were in distress. Some estimates suggest U.S. dollarLibor might, at certain times during 2008, have been artificially depressed by more than 0.30 percentage point.

The misreporting was bad for investors in various securities, such as mortgage bonds tied to Libor, because it artificially lowered the payments they received. It also provided a welcome relief for millions of struggling U.S. homeowners with floating-rate mortgages, and greatly helped the Federal Reserve in its efforts to get interest rates down. more> http://tinyurl.com/cd55rzy

The 5 myths of the great financial meltdown

By Allan Sloan – It’s hard to believe, but it’s been five years and a day since the U.S. financial system‘s problems surfaced, and we’re still not even remotely close to being able to feel good about the economy.

There’s a long way to go before the economy, and people, recover from wounds inflicted by the financial meltdown. The value of homeowners’ equity — most Americans‘ biggest single financial asset — is down $4.7 trillion, about 41%, since June 2007, according to the Federal Reserve. The U.S. stock market has lost $1.9 trillion of value, by Wilshire Associates‘ count. Even worse, we’ve got fewer people working now — 142.3 million — than then (146.1 million), even though the working-age population has grown.

  • Myth No. 1: The government should have done nothing
  • Myth No. 2: The government bailed out shareholders
  • Myth No. 3: The Volcker Rule will save us
  • Myth No. 4: Taxpayers are off the hook for future failures
  • Myth No. 5: It’s the government’s fault

We’ve had more than enough shrieking and demonizing since this mess erupted in 2007. We need common sense, like the Hoenig Rule, and markets (as opposed to a zillion regulators.) more> http://tinyurl.com/6vjdle6


CONGRESS WATCH BILL: To restrict conflicts of interest on the boards of directors of Federal reserve banks (pdf), US Senate Statement by Sen. Bernard Sanders on the Federal Reserve Independence Act (pdf), US Senate The Sanders Report on the GAO … Continue reading

Pay No Attention to That Man Behind the Curtain

By Phil Angelides and Bart Dzivi – Banking in the United States is a heavily subsidized industry. The two primary and on-going sources of subsidy are the insurance of deposits, backed by the full faith and credit of the United States, and access to extraordinarily cheap money from the Federal Reserve. And that doesn’t even count the trillions of dollars showered on banks to keep them afloat during the financial crisis.

Betting on financial derivatives, where one party is long the contract, and another party is short the contract, is not an activity that can credibly lay claim to public subsidies. It does not expand capital access for businesses that put people to work and provide goods and services to the economy. It is simply a zero-sum game of chance dominated by a handful of giant banks. more> http://tinyurl.com/crtupbg