Category: Finance

FOMC Says that Rates Should Stay Low for 2-3 Years

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I would expect Republicans’ head to explode, because they will see this as “support” for Obama.

The Fed’s Open Market Committee is saying that it expects rates to remain at near zero until at least late 2014.

The big news is that they have announced an explicit inflation target, 2%, for the first time ever.

While this is a refreshing step towards Fed transparency, we are in a debt overhang and a liquidity trap, and we should targeting a higher inflation rate, as this devalues debt and gives greater effect to low interest rates.

To my mind, they should be targeting 6-8%, but I’d take 4%.

Full Fed statement after the break.

Press Release

Release Date: January 25, 2012

For immediate release

Press Release

Release Date: January 25, 2012
For immediate release

Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee’s dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.

2012 Monetary Policy Releases

Well, Here’s One Announcement Obama Won’t Make at the SOTU

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He might be making some comments about working toward a sellout to settlement with the big banks and the mortgage services.

The reason that he won’t be touting the settlement is because there is no settlement:

FOR IMMEDIATE RELEASE
January 23, 2012

STATEMENT FROM [Iowa] ATTORNEY GENERAL TOM MILLER [Obama toady Lead AG in the negotiations]

(CHICAGO, Illinois) State Attorneys General from both parties, along with our federal partners, are today discussing the details of the progress we have made so far in settlement negotiations, including the terms we must still resolve. We have not yet reached an agreement with the nation’s five largest servicers, and we won’t reach a settlement any time this week.

As you can tell, I not a big fan of the settlement, and I think we can thank the people who have opposed the deal as currently structured, most notably Yves Smith, who has done yeoman work on teasing out the details and communicating what it all means for months, the recent condemnation of the deal by AFL-CIO President Richard Trumka is also significant. (And, as an FYI, everyone’s favorite right wing nuts, Judicial Watch, has filed suits to get related documents)

This resembles the groundswell that led to Obama vetoing HR 3808, which allowed some states shoddy documentation practices to go national.

With the increasing complaints from consumer activists about the settlement.

What are the problems?

Well on the micro level (courtesy of Yves Smith), it gives the banksters an incentive to pawn the losses off against the the mortgages that they recapitalized, avoiding the hit themselves, and giving it to pension funds, it incentivizes targeting the largest loans, and so benefits the richest, and there are no meaningful mechanisms to enforce good behavior from the mortgage servicers.

On the macro level, let’s roll Simon Johnson:

The financial sector has been the Obama administration’s Achilles’ heel. Despite coming to power in the middle of the greatest financial crisis since the Great Depression with a broad mandate for “change,” the administration has consistently deferred to big banks and done its best to keep them in business “as is.”

(Read the rest, really).

The real underlying message much of the disgust with how the government in general, and the Obama administration in particular function is that there has been a failure to stop the looting, and start prosecuting.

It’s Bank Failure Friday!!!!

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We now have the first bank closings of the year by the FDIC.

It’s a pretty busy week, 3 closings, but the last time that banks were closed was December 23, 4 weeks ago, so overall, it’s been pretty sparse, even with the holiday doldrums.

So far, it looks OK, but it’s not enough data to make any sort of projections.
And here they are, ordered, and numbered for the year so far.

  1. Central Florida State Bank, Belleview, FL
  2. The First State Bank, Stockbridge, FL
  3. American Eagle Savings Bank, Boothwyn, PA

Full FDIC list

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And here is the detail, since it is early in the year:

Whiskey Tango Foxtrot??!!??!!??

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OK, I get the optics.

Having Obama give his nomination acceptance speech in a huge outdoor stadium, with a much louder and more enthusiastic crowd, as he did in 2008.

It gives his speech more excitement.

I get it.

But to give the speech in Bank of America Stadium?!?!?!?

First, he chooses an anti-union right to work state, and now he’s testifying in an edifice named after a bank?

And it’s not just a bank.  It’s one of the “too big to fail” banks that got billions (trillions?) in taxpayer bailouts.

Great googly moogly!

Well, Damn! This is Interesting

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William Cohan, Bloomberg Columnist and former investment banker unloads on Mitt Romney with both barrels:

By bidding high early, Bain would win a coveted spot in the later rounds of the auction, when greater information about the company for sale is shared and the number of competitors is reduced. (A banker and his client generally allow only the potential buyers with the highest bids into the later rounds; after all, you can’t have an endless procession of Savile Row-suited businessmen traipsing through a manufacturing plant if you want to keep a possible sale under wraps.)

For buyers, the goal in these auctions is to be one of the few selected to inspect the company’s facilities and books on-site, in order to make a final and supposedly binding bid. Generally, the prospective buyer with the highest bid after the on-site due-diligence visit is selected by the client — in consultation with his or her banker — to negotiate a final agreement to buy the company.

This is the moment when Bain Capital would become especially crafty. In my experience — which I heard echoed often by my colleagues around Wall Street — Bain would seek to be the highest bidder at the end of the formal process in order to be the firm selected to negotiate alone with the seller, putting itself in the exclusive, competition-free zone. Then, when all other competitors had been essentially vanquished and the purchase contract was under negotiation, Bain would suddenly begin finding all sorts of warts, bruises and faults with the company being sold. Soon enough, that near-final Bain bid — the one that got the firm into its exclusive negotiating position — would begin to fall, often significantly.

Of course, some haggling over price is typical in any sale, and not everything represented by sellers and their bankers is found to be accurate under close examination. But Bain Capital took the art of negotiation over price into the scientific realm. Once the competitive dynamics had shifted definitively in its favor, the firm’s genuine views about what it was willing to pay — often far lower than first indicated — would be revealed.

And then there is the closing line:

I have no idea how Romney might behave in office. I do believe, however, that when he was running Bain Capital, his word was not his bond.

This guy has clearly been waiting for years to unload on Romney, and this take-down is truly a thing of beauty.

H/t The Shrill One.

Another Gem From Matt Taibbi

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His latest is called, “Wall Street: Everything You Need to Know.”

The nickel tour is that this is about one Jeffrey Verschleiser, who went beyond what Obama calls, “Immoral but not illegal.” He engaged in what was pretty much black letter fraud, and not only has he not been called to the dock, he is flush enough to buy all 94 rooms in an Aspen hotel for his daughter’s Bat Mitzvah.

This is a guy who was at the core of Bear Stearns’ corrupt financial transactions that took down the firm, and he was telling his associates that he was “putting lipstick on a pig”, and some of his actions appear to be straight out embezzlement.

Why he is not facing criminal prosecution is beyond me.

Read Taibbi’s piece. It puts it all in context.

We Are Doomed…

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A few days ago, I wrote about the wife of Switzerland’s central bank president engaging in insider trading.

Well what do you know, it ain’t the wife after all, it turns out that it was Philipp Hildebrand, president of the Swiss National Bank doing the insider trading:

Switzerland’s central bank was embroiled in an insider trading scandal after bank chief Philipp Hildebrand was accused of speculating on currency transactions only weeks before he instituted dramatic policy changes that shifted prices in his favour.

The accusations, which have rocked the Swiss banking industry, were made by Swiss weekly newspaper Die Weltwoche in a statement before its Thursday publication. It said that previous reports that Hildebrand’s wife was responsible for the foreign exchange transactions were misplaced and it was the bank chief who was behind the purchase and selling of currency that triggered an investigation by the Swiss National Bank (SNB).

The bank chairman also made several other dollar and euro transactions on the foreign exchange market between March and October last year, according to Die Weltwoche, which is close to the far-right Swiss People’s Party (SVP).

Let me explain just how f%$#ed we all are.

The guy in charge of regulations for the Swiss is engaging in insider trading.

If the Swiss are screwing with banking, it’s not just the end of banking as we know it, it’s the end of the the concept of money as we know it.

Stockpile canned goods and ammunition, because you can’t eat gold.

Well, Now We Know Why Louis Freeh Is the Preferred Agent of Choice for a Coverup

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Because he is a thoroughly dishonest ratf%$#, and the tell on this is that he refuses to use email:

As Eric Falkenstein observes:

People who meticulously avoid email should not be trusted, because it is simply too calculating, as if they know they are regularly committing crimes. A phone conversation can always be disavowed, you just say you were talking about last weekend’s bar mitzvah.

If his behavior as MF Global bankruptcy trustee, where he is refusing to turn over information to regulators about where customer account money went, (He’s making a bogus claim that the evidence of theft is covered by attorney client privilige) is an indication, he’s going to be a little boy rapist’s best friend at Penn State, where he is in charge of the coverup investigation.

Between his incompetence and his corrupt hackery, it’s a wonder that anyone hires him.  It’s like hiring John Dillinger to be in charge of your bank’s security.  Bernie Madoff has more credibility.

This is Not a Sudden Case of Balls

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It’s just that, at least until November 2, Barack Obama is more scared of the Occupy movement than he is of the Republicans, hence his recess appointments today:

President Obama kicked off the election year aggressively, picking a fight with congressional Republicans by sidestepping the Senate to fill the top job at the government’s newly created consumer protection bureau.

He also filled three vacancies on the National Labor Relations Board, which referees labor-management controversies — a priority of his allies in labor unions.

The appointments Wednesday, which had been stalled in the Senate, came as Obama moved to make confronting Congress a central part of his strategy for reelection. His job approval rating remains low, but Congress’ standing is even lower — “as unpopular as Ebola virus” — as one administration aide recently put it. In a confrontation between the two, the president will have the upper hand, White House aides say.

Actually, the NLRB appointments might be more significant, because the Republicans had shut down the board for lack of quorum.

I don’t expect the CFPB doing much, because Obama was dragged into the entire idea kicking and screaming, and his closest financial regulation adviser, Tim “Eddie Haskell” Geithner, hates it, and with Elizabeth Warren effectively neutered by virtue of her running for Senate, which pretty much requires her to be in lock step with the Obama administration, I expect to see a remarkably passive posture from Richard Cordray.

To paraphrase Winston Churchill, Barack Obama will do the right thing, once he believes that he has no alternative.

Matt Taibbi is Right

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When the Vampire Squid recommends a buy, sell as fast as you can:

It seems Jim O’Neill, the head of Goldman’s Asset Management department, is predicting that the United States stock market may go up “15 to 20 percent.” O’Neill apparently believes Ben Bernanke and the Federal Reserve will resort to another round of money-printing, and finally green-light the long-awaited “Qe3,” or third round of “Quantitative Easing.”

The QE programs involve the Fed printing hundreds of billions of dollars and pumping them into the marketplace, where they ostensibly stimulate the economy (although recent experience tells us that the money mostly ends up being swallowed by the financial services industry – but that’s another subject for another time). Anyway, Bernanke declined to go ahead with a third QE program in late 2011, but O’Neill apparently thinks we’ll get it in 2012. From Bloomberg:

“If QE2 doesn’t work, then we’ll get QE3,” said O’Neill, who was named chairman of the money manager in September after working as the co-head of global economics research and chief currency economist at New York-based Goldman Sachs Group Inc. since 1995. There’s a “good chance” the S&P 500 will rise 15 percent to 20 percent in the next 12 months, he said.

O’Neill added that he thought a 20 percent bump would be “relatively straightforward” for the U.S. S&P.

They pumped also pumped up the BRICS, and then shorted them, and aggressively sold their customers European bank stocks earlier this month.

Goldman Sachs is really nothing more than a ferociously criminal enterprise. They earn commissioners by advising their customers, and then they cheat them.*

The only reason to do business with them is to capitalize on their exquisitely honed revolving-door government connections.

If a prosecutor were to aggressively to pursue a RICO investigation against them, they would be toast, because the (to my mind dangerously low) standard of a, “pattern of racketeering activity,” is not a high bar to clear.

*Note to self. I need to get libel insurance.

Yes, the Complete Absence of Oversight of Central Bankers is a Good Thing…

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So there is nothing to worry about with the wife of head of the Swiss National Bank shorting the SFr just days before it’s devaluation by her husband:

My kind of story in the Swiss papers today. I love it when big shot central bankers get their dirty laundry made public.

Kashya, the wife of Philipp Hildebrand (head of the Swiss National Bank) sold Swiss Francs just a few days before the Swiss National Bank initiated exchange controls and devalued the Franc. The timing of the transactions was nearly perfect. The suggestion is that “pillow talk” between husband and wife lead to the trades.

Don’t expect heads to roll over this transgression. There has been a complete review by Swiss authorities and the conclusion is that there were no insider trading violations by the wife. That’s not to say that trades did not happen.

Apparently, Kashya Hildebrand bought ~$500,000 when she shorted the CHF. This relatively small transaction netted the Hildebrand family only ~$50,000 in less than one month. Being that the amount is so small, the conclusion is that nothing nefarious has taken place. ………….

Seriously, if I stole $50,000, I’d be in jail, with a prosecutor asking for a big chunk of bail money, but because this is one of the bankster elite, it’s no harm, no foul.

I’m, really beginning to think that we don’t need to just prosecute the financiers, but we need to go after the corrupt regulators, including the central bankers, as well.

To quote Sigourney Weaver, “I say we take off and nuke the site from orbit. It’s the only way to be sure.”

H/t Atrios.

If You Want to Go Dumpster Diving at the Fed

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Bloomberg has released the bailout secured from Federal reserve as a result of their successful FOIA litigation:

Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form.

To download a zip file of the spreadsheets, go to http://bit.ly/Bloomberg-Fed-Data. For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”

The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history.

What is revealed here, in the short form, is that the lending window was at below market rates, as opposed to the, “penalty over normal market rates,” claimed by the Fed.

Additionally, on a quick look at the article, the lending, and the backstopping, where what amounted to loan guarantees were provided as a sort of a back door subsidy to allow banks to borrow at lower rates, it appears that this totaled more than ten trillion ($10,000,000,000,000.00) dollars, or something in excess of ½ the GDP of the United States of America.

It should also be noted that this is only the stuff that Bloomberg managed to pry from the Fed’s fingers, and I’m certain that we will see this number grow as more rocks are turned over.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. Premier Community Bank of the Emerald Coast, Crestview, FL
  2. Western National Bank, Phoenix, AZ

Well, we had a three week hiatus on bank closings, but we’ve seen some action again.

This breather does mean that this will be the first time since 2008, (25 closings) we will have less than 100 bank closings.

Of course, if you want to be a pissant about this, you could add in the credit union closings, which would take us into 3 figures, but I’m not quite that much of a pissant.

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

Someone Gets It in Europe

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Vice President of the Portuguese Socialist Party has been taped saying that default is a preferable alternative to dismantling the social safety net:

“We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won’t pay,” said Pedro Nuno Santos, vice-president of the Socialist Party in the parliament.

“Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (EU-IMF Troika) accord. We should make the legs of the German bankers tremble,” he said.

Angela Merkel and the rest of the sanctimonious “Good Germans” can natter all they want about responsibility, but if one of the debtor nations says, “f%$#k you, we’re defaulting,” it’s game over for the German banking sector and their economy.

What the “Technocrats” and “Very Serious People” don’t realize is that their demands are going to make this scenario happen sooner, rather than later.

There is a saying, “If you owe the bank $1,000.00, the bank owns you, if you owe the bank $1,000,000.00, you own the bank.”