Courtesy of Tyler Durden and Geoffrey Batt of zero hedge: “
Of course, everyone knows the Fed does not care about inflation, or, it seems, the economy, unless of course Goldman Sachs recently changed its name to Inflation Economy, Inc.
(emphasis mine)
In testimony before Congress, Ben Bernanke talked about the dual mandate [of the Fed], which is growth and inflation.
Of course, anyone who knows anything about the Federal reserve knows that this answer is only ½ true. The actual mandate is to control inflation and minimize unemployment.
Given that he has been Fed Chairman for 4 years, and that he has been on the Fed for 8 years, he knows this, and he also knows therefore that growth does not necessarily mean low unemployment (see Recovery, Jobless).
He made this statement, along with talking down more fiscal stimulus and likening social security to bank robbery, which are well outside of the purview of the Federal Reserve.
It’s pretty clear that Ben Bernanke does not give a damn about employment, or the social safety net, except to the degree that it influences Wall Street profits, and he’s the wrong man for the job.
I would also note, as I have before, the “rock star” Fed Chair is a bad thing, both for democracy, bad for the economy.
Yep, here’s another example morality, or lack thereof, of the American “Entrepreneur with someone else’s Money,” usually abbreviated to MBA, class. While executives were running companies, like UAL, LTV, WestPoint Stevens, Polaroid, Reliance Insurance, and Pillowtex into the ground, they were taking hundreds of millions of dollars in salaries:
UAL Corp., US Airways Group Inc. and eight other companies paid executives $350 million in the five years before the U.S. was forced to take over their under-funded employee pension plans, a government report said.
One airline company missed $979 million in required pension contributions while its top three executives took $55.5 million in compensation, and another paid four executives $120.4 million amid two bankruptcies, a Government Accountability Office report today found. Data including dates of the pension terminations, stock awards and pay levels show the unnamed companies were UAL, the parent of United Airlines, and US Airways.
Benefits to retirees were cut in some cases by as much as two-thirds, as executives got salary increases, stock awards, retention bonuses and other pay, the GAO said in a report that studied pension takeovers from 2002 through 2005. Representative George Miller of California is considering legislation that will freeze executive compensation if a company’s rank-and-file pension plan becomes significantly under-funded.
The problem here is that the Federal Pension Guarantee Corporation (FPGC) had to take over their pensions, at what will eventually be a cost of billions to the taxpayers, in addition to cutting pensions of ordinary guys who played by the rules and did their jobs to the best of their abilities.
Here’s an idea: If the FPGC has to take over a pension, they get to claw back anything that senior executives got over the pay of the President of the US for the preceding 10 years.
Then maybe, just maybe, these guys won’t use the pension funds to juice the numbers for this year’s bonuses.
And here they are, ordered, and numbered for the year so far.
6 Banks, the FDIC is hungry tonight.
After decades saying that, “It wasn’t their job,” and that it, “Couldn’t be done,” the Federal Reserve is now casting itself as the nation’s premier bubble fighter:
Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing.
Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they’ve followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms “perhaps the most difficult problem for monetary policy this decade.”
The money quote, which follows, is that, “Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power.”
Ben Bernanke does not want to stamp out bubbles, he is just trying to give members of Congress an excuse not to clip his wings.
Unemployment h/t Calculated Risk
Unemployment over recessions h/t Calculated Risk
Back to where we started before Congress gave the credit card companies a big wet kiss.
I think that this is the first time that I’ve tot this since Thanksgiving. Sorry, it’s been hectic.
The lede, of course, it the unemployment numbers, and we now have the official numbers for November, and they are surprisingly not bad (using the phrase “good” for double digit unemployment is an absurdity): Non Farm Payroll fell by only 11,000 in November, and the Unemployment rate fell by 0.2% to 10.0%. (The ADP prediction from earlier this week was way off)
Initial unemployment claims fell by 5K, to 457,000, with the 4-week moving average falling 14,250 to 481,250, both of which are the lowest since the 3rd quarter of last year.
On the other hand, continuing claims rose by 28K to 5.47 million, and the number of people who were collecting extended (emergency) unemployment benefits the number of people collecting extended benefits under federal programs rose by 327K to 4.53 million for the week ending November 14, when the bill that Congress passed extending benefits kicked in, so there are more people collecting benefits now than there were last week….A lot more.
Seeing as how the US Economy needs to add roughly 150,000 jobs a month just to account for a growing workforce, at best we are in a “getting crappy less quickly” stage, and at worst, it could be a dead cat bounce.
In non-employment related metrics, we have the both the ISM Non-Manufacturing Index and the ISM Manufacturing Index falling, though the latter is still indicating expansion, just very slow expansion, though the November Chicago Purchasing Managers Index rose to a 15-month high, and the Fed’s Beige Book is showing improvement.
The reason that I am not optimistic, in addition to being bearish by temperament, is because retail sales fell below estimates for the start of the holiday season, and because personal bankruptcy filings are still horrific, (see pic) they were down in November from October, but still up 12% from Year over Year.
In real estate, 30-year fixed mortgages fell.
And in the world of central banks, the European Central Bank has kept its benchmark rate at 1%, though it gave indications that it would be walking away from its quantitative easing, which drove both oil and the dollar down.
If Barack Obama was supposed to be about anything, he was supposed to be about engaging in at least marginal meaningful antitrust and consumer protections, and Comcast buying NBC Eniversal, (NBC, Universal Studios, NBC Universal Television Group, NBC News, USA Network, Syfy, CNBC, MSNBC cable TV, NBC.com, MSNBC.com, iVillage, Bravo, qubo, Telemundo Television Studios, The Weather Channel, and Hulu according to the Wiki) is the antithesis of this.
My guess is that this sale will proceed without any major interference from Barack Obama and His Evil Minions™, because Barack Obama really isn’t about anything.
Bernie Sanders, the Independent Senator from Vermont, has placed a hold on the Ben Bernanke renomination as Federal Reserve Chair:
Mr. Sanders, an independent, is not a member of the Senate banking committee, but he has frequently accused the Federal Reserve of bailing out Wall Street firms and the banking industry at the expense of ordinary citizens.
“In this country, there is profound disgust at what happened on Wall Street,” Mr. Sanders said in an interview. “People want a new direction and people are asking, where was the Fed? How did the Fed allow this to happen, when one of their mandates is to oversee the safety and soundness of the banking system?”
Mr. Sanders said he would place a hold on Mr. Bernanke’s nomination when it reached the Senate floor. Under Senate rules, lawmakers would need 60 votes to override Mr. Sanders and proceed with a vote.
They will get the 60 votes anyway, because there are at least 20 ‘Phants who will move to support him, because if someone new comes in, they will have to be more hostile to Wall Street than Bernanke, because the rage over the banker bailouts is so great.
Personally, I think that, in order to create real independence for the central bank, we should go the FBI route: One term for the Fed Chair in their lifetime.
So, we have another Nobel Prize winner who argues that a small tax on financial transactions in order to generate revenue for stimulus and to discourage speculation is a good thing.
He also lays some whup-ass on Timothy “Eddie Haskell” Geithner for his opposition to the idea, which is a good thing, and further notes that much of the short term leverage that nearly destroyed the world financial system was an artifact of rapid fire speculative trades.
One item of note is that Krugman makes a very good point about the fact, notwithstanding the claims of opponents, it will be difficult for anyone to avoid paying the tax:
The main argument made by opponents of a financial transactions tax is that it would be unworkable, because traders would find ways to avoid it. Some also argue that it wouldn’t do anything to deter the socially damaging behavior that caused our current crisis. But neither claim stands up to scrutiny.
On the claim that financial transactions can’t be taxed: modern trading is a highly centralized affair. Take, for example, Tobin’s original proposal to tax foreign exchange trades. How can you do this, when currency traders are located all over the world? The answer is, while traders are all over the place, a majority of their transactions are settled — i.e., payment is made — at a single London-based institution. This centralization keeps the cost of transactions low, which is what makes the huge volume of wheeling and dealing possible. It also, however, makes these transactions relatively easy to identify and tax.
This is true. While I might, find a local vendor on the street to exchange currency in Cairo, Egypt, because I could beat the official rate, and avoid a tax of less than ¼%, if I were trading millions of dollars, I need to have a place where I can settle the transactions, and taxes would be assessed there.
It would be hard to implement without the US being on board, which is where the real rub is.
H/t Calculated Risk
The lede here is that the corrected numbers for US GDP are out, and it’s way down, to +2.8%, down from the initial estimate of 3.5%.
Even more worrying is that the primary reason for the drop is that that consumer demand is way down, which does not bode well for the holiday season.
Some things to note on this:
GDP is still down year over year, and at this won’t be back to the pre-recession level until sometime in 2011.
Also, the credit card data has more evidence of consumer deleveraging, with late payments on credit cards falling in the 3rd quarter, though delinquencies were up in October.
The Conference Boards Consumer Confidence index roses in November, but still at levels indicating contraction, 49.5, where 90 is more or less neutral.
The Federal Reserve Bank of Chicago also released its National Activity Index, and it fell slightly (PDF), to -1.08, which indicates that things are still moving in a recessionary direction.
In real estate, the 3rd quarter numbers are in, and the S&P/Case-Shiller Home Price Index showed home prices increasing 3.1%, though it’s still down 9% year over year, and existing home sales rose an astounding 10% in October.
The timing here shows why this housing “recovery” is a mirage. Existing home sales rose in October because these were people scrambling to get in under the wire for the new home tax credit.
Some quick math shows that the median existing home prices in the US is $173,100, and $8000 is 4.62% of that, so the the degree to which the tax credit is driving price deltas is probably pretty significant.
Meanwhile, we are having some significant movement in the bond/central bank world, both nationally and internationally, with Fitch cutting its rating Mexico’s sovereign debt, the Bank of Israel yesterday raising its overnight lending rate by a 25 basis points (¼%), and Colombia’s central bank cutting its rate by 50 basis points (½%), because inflation is below expectations, and they want to give their economy a boost.
My guess is also that Columbia wants to push its currency down to help with its trade balance.
US Treasuries rose in their most recent auction, probably because investors are looking for safe havens following the downward GDP revision.
Certainly the GDP revision pushed oil down, though interestingly enough the dollar fell against both the Yen and Euro.
So, the Federal Reserve’s Open Market Committee’s minutes have been released, and there were concerns that abnormally low interest rates might fuel speculative excesses?
Really? How could could anyone conclude that after all the prosperity that Alan “Bubbles” Greenspan droping rates to unprecedented lows, and then keeping them there in order to keep George W. Bush in office deal with the hangover from the dotcom crash?
Yes, of course it’s a worry:
Federal Reserve officials said record-low interest rates might fuel “excessive” speculation in financial markets and possibly dislodge expectations for low inflation, according to minutes of their meeting released today.
“Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period,” minutes of the Nov. 3-4 meeting said, “including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations.”
While policy makers agreed that the chances of such effects were “relatively low, they would remain alert to these risks,” the minutes showed. Fed officials at their meeting indicated the benchmark lending rate would remain near zero “for an extended period” as long as inflation expectations are stable and unemployment fails to decline.
But it appears that “fed officials” are going to use some more of their “Federal Reserve Fairy Dust”, to prevent this, or at least make sure that the chances of such effects are, “relatively low.”
Audit the Fed, then reform it.
Well, I think that it’s becoming clear that the reason that Barack Obama is relying on Timothy “Eddie Haskell” Geithner and Lawrence Summers as the core of his economic team is not an accident.
Not only has his economic team been captured by Wall Street, but Barack Obama has been captured by Wall Street:
If the White House and congressional leaders get their way, the vaunted new oversight council charged with overseeing systemic risk in the financial markets will actually be a house organ of the Treasury Department, lacking the independence required to challenge decisions by government regulators, among others.
Rep. Keith Ellison (D-Minn.) last week tried to fix that, by offering an amendment in the House Financial Services Committee that would give the council an independent staff and independent source of funding. But he was forced to withdraw the amendment after it became clear that he wouldn’t get Chairman Barney Frank’s approval, said a source familiar with the committee’s deliberations.
Let’s be clear here, this council is supposed to review not just systemic risk, but also the behavior of the regulators:
As proposed by the Obama administration, the House bill calls for the council to be headed by the Treasury Secretary, who would pick his own staff from within the Treasury Department.
But not only is the council supposed to keep watch over firms and activities that pose a risk, it’s also supposed to oversee the work of other regulators in mitigating threats and supervise financial regulation as a whole, according to the bill’s language. In short, it has a mandate to watch over everything that could possibly endanger the financial system – including inaction and incompetence by regulators.
So, why are Barack Obama and His Stupid Minions™ so absolutely determined to place the centerpiece of his regulatory reform thoroughly under the branch of the executive designed to be a lapdog for large banking interests?
I do not think that Barack Obama is that stupid, that is clear, though while a candidate, and now President, Barack Obama has always been a bit of a cipher.
The answer, I think, lies in his background.
Barack Obama is literally Chicago School, as in the University of Chicago, where he taught for 12 years, and his first “big name” economic advisor is Austan Goolsbee, who is faculty there, and I think that Barack Obama is clearly very devoted to the idea that the government must be held back to prevent it from interfering with economic “innovation”.
Simply put, he is enthralled by the vision of Chicago School economics, as conceived by Milton Friedman and given flesh by Alan “Bubbles” Greenspan, and so he sees his primary role in economic reform to be ensuring that it is toothless and completely controlled by the large Wall Street banks.
When Senator Dick Durbin (D-IL) said that, “The banks own the place,” he was referring to Congress, but it’s true of the White House.
They own Barack Obama too.
You know, the one that goes, “If you make Dan Quayle your VP, then no one in their right mind will try to remove you from office for your role selling arms to Iran and diverting the proceeds to the Contras.”
Come to think of it, Ronald Reagan had a very similar policy…Thanks a lot, little Mikey Dukkakis.
In any case, I heard a leak that I hope is being motivated by the same dynamic.
I don’t know that it is, but I do know that when I heard this, I got that look on my face that my older brother says, “Looks like a cow that just stepped on its own udder.”
The leak is that the Obama administration is looking for a potential replacement for Timothy “Eddie Haskell” Geithner have already begun.
Since the criticism of him is that he’s too close to the big banks and Wall Street, and too lenient on them as a result, the word on the street is that his replacement will be……
Wait for it………
Wait for it………
Wait for it………
Wait for it………
Wait for it………
JPMorgan Chase CEO Jamie Dimon:
As support for Treasury Secretary Timothy Geithner wanes on Capitol Hill amid frustration with the Obama administration’s handling of the economy, JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement.
Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered because of the country’s high unemployment rate, the weakness of the dollar, the slow pace of the recovery and the government’s mounting deficit.
Great googly moogly.
David Brooks has endorsed Geithner’s choices and policies.
The only way that there could be a clear sign that Geithner was a disaster would be if William Kristol or Sarah Palin endorsed his policies.
Crooks and Liars has a very illuminating clip on just what Alan Grayson expects to find in an audit of the Fed.
While I love Grayson’s line that, “Well we are in Emerald City right now. We’ve arrived in Emerald City. Toto has just run underneath the curtain…,” the important quote, and the important question is the more significant quote, “Well what I think is favoritism towards selected big banks that have failed and led us to the brink of national bankruptcy.”
What is clear is that for a long time, at least since Alan “Bubbles” Greenspan became Fed Chairman, was that the “Greenspan Put”, which Wiki calls:
The Fed’s pattern of providing ample liquidity resulted in the investor perception of put protection on asset prices. Investors increasingly believed that when things go bad, the Fed would step in and inject liquidity until the problem got better. Invariably, the Fed did so each time, and the perception became firmly embedded in asset pricing in the form of higher valuation, narrower credit spreads, and excess risk taking. It has been criticized as a form of privatizing profits and socializing losses, and as inflating a speculative bubble in the lead-up to the 2008 financial crisis.
(emphasis mine)
Has been a factor of life.
Basically, if you were big enough, and f$#@ed up badly enough, the United States Fedral Reserve System would bail you out.
I think that there are a number of reasons, the first being that in doing so, you can make yourself look good, and I also believe that in the Ayn Rand addled mind of Greenspan, speculators are Rand’s noble capitalists, and as such need to be coddled and protected.
The best example of this is probably the collapse of Long Term Capital Management (LTCM), where Greenspan set up a bailout that competed with a much more severe haircut for the investors, to see this, but it happened over, and over, and over, and over again.
The only reason that Greenspan could get away with this, and be called a genius for getting away with this, was because he concealed, and in some cases flat out lied, about what he was doing.
That needs to end.
It is corrosive to democracy, it is corrosive to society, and it is corrosive to finance.
Congressman Peter DeFasio Calls for “Timmy” Geithner to be fired.
Also coming from right wing ‘Phant Kevin Brady
Representative Peter DeFasio (D-OR-4) has now explicitly called for Barack Obama to fire Timothy Geithner, though you will note in the video (top) that he calls him “Timmy” (at about 1:35), which I think is a very deliberate slight.
And, according to The Hill, that removing him, as well as Larry Summers, is now the consensus position for the Congressional Populist Caucus (CPC).
We are also seeing similar calls from the right wingers in the Republican Party too, note the calls made to Geithner’s face by Texas whack-doodle Kevin Brady (R-TX-8).
Of note, it appears that Brady’s accusation actually got under Geither’s skin (bottom video).
When Brady brought up his performance as President of the New York Bank of the Federal Reserve, and suggested that his performance there was sub-par, it’s clear that Geithner was irate at this suggestion.
And here they are, ordered, and numbered for the year so far.
H/t driftglass.
On Tuesday, we were getting reports from there was a conspiracy afoot to emasculate the bill in the dead of night, using an amendment put forward by Representative Mel Watt (D-NC) wherein the GAO could “audit” the Fed, but could not actually get detailed information. It actually made the Federal Reserve less transparent.
Yves Smith rather colorfully, and very accurately described the amendment as, “Tantamount to saying you are permitted to operate a strip club as long as the patrons are prohibited from looking at un or underclad bodies.” (heh)
What followed was a bit of theater, where the opponents of the audit, rolled out economists who argued that the audit proposal was destructive, but neglected to mention their own financial ties to the Federal Reserve:
But far from a broad cross-section, the “prominent economists” lobbying on behalf of the Watt bill are in fact deeply involved with the Federal Reserve. Seven of the eight are either currently on the Fed’s payroll or have been in the past.
The Fed connections are not outlined in the letter sent around to committee members on Wednesday, but are publicly discernible through a review of their resumes, which are all posted online.
It should also be noted that the publishing staff of almost every significant economic academic journal has similar conflicts of interest with regard to the Federal reserve.
Well, despite the best efforts of the Federal Reserve, and Barney Frank, and Mel Watt, the Paul/Grayson audit bill was passed by the House Finance Committee by a vote of 43-26, 15 Dems voted for it, in addition to all the Republicans.
Hopefully, this will progress further, but my guess is that the knives will be coming out on this.
Major props to Ryan Grim of HuffPo, he’s the author of the HuffPo links here, who has been on this like white on Rice.
Once again, the Fed discovers consumers in order to forestall an audit, and the Consumer Financial Protection Agency taking over their purview.
This time, the Fed is going after fees on gift cards.
Seriously, is there anyone with two brain cells to rub together who does not understand that the Federal Reserve was hostile to the idea of actually enforcing consumer protections until Congress started about auditing it and taking away some of its enforcement power.