These types of headlines and systemic changes are really commonplace and to be expected we are "likely to skirt a recession and see accelerating growth in the second half of the year."
Why do all these little stories of late break on the weekends while the markets are closed? Seriously the bloomberg article has the draft swirling around DC all week. Things this big are never secrets for that long. Link:
Great! Reorganizing the regulators in the middle of the crisis. This is all about generating political cover. It will do nothing to prevent what is currently unfolding.
Beware whenever the Bush administration tries to "modernize" anything. Modernizing forest management means more logging; modernizing air pollution means more pollution; modernizing social security means less security.
Funny, so the FED gets to allow the housing bubble to explode and turn a blind eye saying it's good. Then, they say they need MORE power to regulate. Huh?
This is a power grab by pigmen. Any time someone screams for more power in times of crisis is when you absolutely know it is a power grab.
You can't polish a turd into something other than a shiny turd.
You can't make the US financial regulatory apparatus into something other than a joke because it's going to be made of the same career failures. You can grant them new Terror Fighting(tm) powers despite the fact that they are the primary authors of this mess, but you can't make them any smarter.
Winners may not always repeat their wins, but losing formulas produce consistent results. Why not ask yourselves, "why is all the talent in the Empire in hiding from official jobs?" rather than how to give yourselves new titles and new promotions?
I know some of you from the Fed are reading this and I want you to stop and think about what a total failure your institutional response has been.
Now, in the MIDDLE OF THE CRISIS, AND IN THE MIDDLE OF AN ELECTION YEAR, you decide to start the food fight into what kind of regulator you are going to have to be to prevent the next problem you just created? How about not approving so many megabank mergers over the last two decades and not creating a massive global credit bubble to provide economic cover to the Administration in the wake of the WTC attacks? No reconfiguration of the boxes on the TO&E can help until you as an organization can appreciate the scope of your failure. All you are going to do is waste resources and political capital pursuing stupid and unworkable solutions.
Thanks in advance for turning my country into Japan.
Re: I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years, Mr. Paulson will say in a speech on Monday,
See that's the whole f--king key.
If we have the periods of stress every 5-10 years, i.e. frequent mild recessions, then the economy basically wipes it's own ass.
The Federal Reserve is largely unnecessary.
Alas, these recessions are a bit like going to the dentist -- painful in the short-term but beneficial in the long-term. And the politicians in office at the time don't want to be associated with any kind of discomfort, lest they be thrown out next election.
So instead of trying to educate the public that this occasional distress is necessary, they now propose something that basically amounts to a financial SS.
I don't dismiss the need for some regulation and oversight -- I think an entity that provides liquidity in times of crisis and increases borrowing costs durring times of excess is highly desirable in an ideal world.
Unfortunately such an entity, in practice, is very likely to be abused by the power hungry and the status quo for personal gain at the expense of the general population.
It is simple fact that the history of the most powerfully concentrated governments is the history of the most savage abuses against humanity.
The only antidote to these abuses is an informed, concerned, and politically influential populace. As I understand it our nation was founded on this concept. And maybe I'm overly idealistic, but I like to think this accounts for a lot of the United States' success in the past.
This is the problem I have with regulation right now -- if the people that make up this country aren't in the position to understand its importance and demand that it be to their benefit, then this regulation is very likely to be an instrument of subjgation.
I don't think most people here are at the point where they "get it" yet.
But I think there are some people who do, and want to expliot this situation for their own personal benefit... without regard to anybody else.
Extreme measures in the face of what everyone in public is saying will be a "mild recession" (2nd half 2008 growth!) makes you wonder what is going on, under the hood, at the Lehman Bros, Washington Mutuals, Etrades, and Wachovias of the world.
This document certainly seems written by several different people. In some places it stresses enhanced regulation, in others it talks about remaining competitive with other financial centers.
I think this is a great time to introduce reform, if for no other reason than the current Wall Street actors can't show up in Washington and claim everything's fine and laissez-faire is working just dandy. No doubt there will be people, just like the NRA after a massacre, who say "Now isn't the time..." I really wonder how much deference Greenspan's views will be given on his Legacy Saving Tour 2008.
Bullish? Bearish? This is a regulatory issue, and unless someone can argue that whatever changes will affect the long term returns of the markets (good luck proving that), I see it as generally neutral with a small bullish bias if it gives renewed confidence fair, functioning capital markets.
That said, Washington can't even figure out its approach to the comparatively minor issue of what to do with 'distressed' mortgagors and mortgagees, and they've had months to work on that, so I'm not seeing legislation passed and signed on regulatory reform anytime soon, unless it's of the fig-leaf variety.
This is about the unitary POTUS seeking more power. What will be the oversight to prevent abuse of this power? Somehow now the Treasury department will know what to do about a market and economy that they had a hand in trashing.
Tom Stone writes:
AC,don't forget to add "Armed" to informed and involved.
Tom Stone
Maybe 100 years ago I'd agree with you, but in a time where the government has tanks and jets and nukes, "armed" in the traditional sense is an anachronism. Once we have the technology to kill everybody on the planet it doesn't make much since to talk about killing each other.
If we avoid that fate, then I think "wars" will be fought and won with information and the capacity to process it and act on it before the next guy.
Given that an war fought on a battlefield is necessarily a game after the invention of WMD, the wars of the future may be fought in the financial and economic arena.
Right now I see that the Average Joe in the US is almost powerless there.
Sorry to be cheesy, but it's time for a different definition of "armed" IMO.
The only reform I want to see is the revocation of the Federal Reserve Act. The institution as a whole has proven to be plague upon the nation. It has presided over and caused the Great Depression I, the Dot-Com stock market bust, and now the Great Depression II. Abolish the Federal Reserve.
Will the Bush Administration have anything whatsoever to do with these new powers? Because if so, I'd rather wait until they are gone. I don't care how bad things are; the Bushies can make them far, far worse.
Sorry about the link, not sure what's wrong with it. You may have to go to the NY times, and look at page 13 of the executive summary of this article.
Below is the paragraph in which it appears. Seems to me, if the gov't is coming out and explicitly saying Freddie and Fannie are on their own based on their own resources, the mortgage industry is vaporized. Until now, I think there's been implied backing. This might be worse than anything that is proposed.
Context Paragraph from Ny times executive summary:
Finally, some consideration should focus on including GSEs within the traditional prudential regulatory framework. Given the market misperception that the federal government stands behind the GSEs' obligations, one implication of the optimal structure is that PFRA should not regulate the GSEs. Nonetheless, given that the federal government has charged the GSEs with a specific mission, some type of prudential regulation would be necessary to ensure that they can accomplish that mission. To address these challenging issues, in the near term, a separate regulator should conduct prudential oversight of the GSEs and the market stability regulator should have the same ability to evaluate the GSEs as it has for other federally chartered institutions.
Maybe 100 years ago I'd agree with you, but in a time where the government has tanks and jets and nukes, "armed" in the traditional sense is an anachronism. Once we have the technology to kill everybody on the planet it doesn't make much since to talk about killing each other.
Not to be insulting but, you are being simplistic. Killing everyone on the planet is not requiring of very much skill is war is politics by means of force. The measure of military force is the ability to affect nuanced policy changes at affordable costs. Killing everyone is an infinitely bankrupt cause with an infinitely high cost.
No guerilla army ever beats its enemies on the battlefield or matches them man for man until the ragged conclusion of affairs. Insurgency warfare is a logistical and political contest, not an armed struggle per se. Tanks and jets are, if anything, beneficial to the insurgent because they represent the enemy's attachment to fixed hierarchies and capital goods that can be subject to indirect pressure. The idea that the people of America could kick hard enough to change government policy isn't very hard to believe. The populace of Iraq appears to be kicking quite hard to me with little more than small arms.
I don't really see how poo-pooing the armed individual accomplished much other than absolving you of the moral responsibility of tending to the state at the ultimate risk of your life. Not that I'm an advocate of armed insurrection under the current conditions but there are situations like canceled elections where there's really no alternative other than to let your Republic expire.
Is it certain? No life saving measure is; the gun is the last, worst tool of the political activist. That doesn't make it less important or real, as so much trades on the threat of that tool.
Paging the Great Moderation! Urgent call on the white courtesy phone for the Great Moderation!
Welcome to the Great Demoderation.
This mid-cycle slowdown could turn out to be the worst downclimb in history if the Federal Reserve chairman and his essentially limitless term isn't given enough power over the US economy to supercede that of the president of the United States who is constitutionally limited to an 8 year term.
All we need is a return to the gold standard and to fix the value of the dollar at $500/oz. of gold.All these problems will vanish.VOTE FOR RON PAUL!!!
Reading everything and my thought was akin to what you just wrote, i.e. we have a democratically elected (no snarky remarks please) but an economic czar who'll have his/her hands into everything.
I don't really see how poo-pooing the armed individual accomplished much other than absolving you of the moral responsibility of tending to the state at the ultimate risk of your life. Not that I'm an advocate of armed insurrection under the current conditions but there are situations like canceled elections where there's really no alternative other than to let your Republic expire.
There are still practical reasons for being "armed" in the conventional sense.
What I'm saying is that if you think that makes you safe, you're kidding yourself.
The hedge fund industry has executed the greatest hold-up in history without so much as a gun-shaped lump in their pocket.
Think about that.
How did they get everbody's hard earned wealth without a single act of physical violence?
Another report that thinks 'subprime' is the root of the current problem.
In housing, in banking, in markets, in anything, the only way to stabilize against falling or crashing markets if to prevent matkets from rising in other than a slkow, controlled manner. What agency or administrator - or President, for that matter - has got the smarts or the guts to do that?
What's just amazing to me is that the folks that got us in the mess get more power to get is into an even bigger mess!
In 2005 the Greenspan Fed couldn't be a bigger cheerleader for the wonders of the financial innovations that brought us securitization and immense growth in illiquid derivatives. Paul Volcker on the other hand was warning that we are skating on thin ice and all this debt and leverage was bound to blow up.
Its not regulations as much as the regulators. If you get a fox to guard the hen house - what can you expect? The problems that we face now in the credit markets are the most telegraphed issues. Blogs like this one came about because many people recognized the insanity as common sense and prudent practices were thrown out the window. No one should be surprised. We will continue to slip down the slippery slope as long as crony capitalism is what we practice.
dryfly - i'll be happy to back you up soon on that Japan vs US argument. The only thing IMO that might keep us from spiraling much lower than they went, is that we will have a growing population, and a growing working age population over the next decade. But we've got bigger problems of course, and one possible result of that plus above is that we only manage to achieve a much higher unemployment rate in the end.
Also, the more you read about Japan in the 90s, the more you'll come across journal articles which reference a certain bearded someone who is up to his ears lately. It wasnt an accident that he was chosen to run the Fed when he was, because it was already clear to many then that he'd be using every one of his techniques for trying to stave off the effects of a credit bust that might end up working its way through to what are ever so euphemistically called endogenous capital constraints.
OK,
if that story is true it is high time to get nervous. I recommend World War Z by Max Brooks and getting used to the idea that force may be necessary to preserve oneself!
Yup, malabar. And that is what is so F-ed up about Hillary proposing to put Rubin and especially Greenspan on her little special committee that will take two years to even figure out how to define the problem. Ridiculous.
All we need is a return to the gold standard and to fix the value of the dollar at $500/oz. of gold.All these problems will vanish.VOTE FOR RON PAUL!!!
I wish we never had fiat. If we didn't I'd invent it and get richer than Midas... maybe buy a lot of land and gold with all the money I made - or whole industries.
Think about it. The thing that makes gold a valuable saving mechanism is because we run a fiat system & have central banks.
I don't hate the idea of the fed or central banks - I hate mismanagement & abuse of their mission: monetary stability. Demanding their abolishment is like demanding we abolish police & courts & jails because sometimes the mob boys buy cops & judges. The people have to take control of their gov't - no gov't just gives the pigmen even more room to move.
"If the citizens neglect their Duty and place unprincipled men in office, the government will soon be corrupted; laws will be made, not for the public good so much as for selfish or local purposes; corrupt or incompetent men will be appointed to execute the Laws; the public revenues will be squandered on unworthy men; and the rights of the citizen will be violated or disregarded."
How did they get everbody's hard earned wealth without a single act of physical violence?
It wasn't a hold up - we were happy to let them have it. As a nation we all but mailed them the checks via mortgage refis & credit card payments every month.
Blaming them for this mess is like blaming lottery winners for turning the ticket. You pays your money and you takes your chances...
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House. (Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House. (Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
Minh | 03.28.08 - 11:35 pm | #
They are probably correct - I don't see a McCain presidency being terribly different from a Bush presidency. Won't be exactly more of same but close.
Fractional-reserve on the other hand, was "invented" by someone. It was fraud and deceit from day 1.
SweetHomeKilla | 03.28.08 - 11:37 pm | #
I love fiat - it is the great stuff since sliced bread. You don't have to own it - use whatever want to store value... but its cheap & readily plentiful for transactions. What could be better.
The way you screw up 'metal' as a store of value is by having gov'ts control it again. Metalheads really don't want that even if they say they do.
There are still practical reasons for being "armed" in the conventional sense.
What I'm saying is that if you think that makes you safe, you're kidding yourself.
Nothing makes me safe. Safety is an illusion. You can only be incrementally more secure. It's a dangerous illusion rather than an interesting irrelevancy because it really changes the price schedule for security for there to be an absolute, and people really love the concept.
The hedge fund industry has executed the greatest hold-up in history without so much as a gun-shaped lump in their pocket.
Next, I imagine the bankers will decamp with the capital in their pockets to Gulf Emirates and other city-states amenable to their economic ambitions. All our newfound joy for financial regulation and ineffectual centralization will make us merely an encumbered player on a stage that we no longer dominate.
Think about that.
How did they get everybody's hard earned wealth without a single act of physical violence?
Political connivance and outright treachery? But are the hedgies really the ultimate villains here? I see the central liquidity conduit / counterparty banks as the real villains of this piece. The hedgies are really no more than high-profile versions of the mortgage brokers -- guys who were convinced to take on outsized lines of credit and attempt to beat the house.
I think at least some of the big banks planned ahead of time to go "insolvent" once they were too big to fail, extract national-scale wads of capital, and run with the cash.
The Nation
The Big One?
"For more than a decade, we Americans have been living on an economic San Andreas fault--a foundation of fracturing competitiveness covered by unsustainable consumer spending with money borrowed from foreigners. A financial earthquake was inevitable. We don't know how high on the recession Richter scale the current crisis will take us, but it increasingly looks like, as they say in San Francisco, "The Big One." Is This the Big One?
"Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House."
No hope there either I'm afraid, lobbyist money doesn't care who they are.
Until lobbying is made the equivalent of bribery if money is changing hands and campaigns are paid for by the taxpayers with a set spending caps nothing will change.
Many people that have practiced fractional-reserve "banking" were killed as a result. It wasn't until the bankers grew large and legitemate that they were able to escape the punishments that society normal gives for enormous theft.
What is the root cause of the large disparity of wealth? You can't pinpoint any one organization to find the answer. It's the tools of fiat(the fed), deficit spending, the income tax, and complete control of congress by the corporate/banking establishment.
Why don't you people read history. What did Lincoln, Jefferson, Jackson, etc. have to say about these issues. What about the history of the previous national central banks, have any of you people who claim that fiat is fine as long as it's properly regulated say that you have read about the previous attempts?
We don't even have to outlaw fiat, we just have to enforce legitemate penalties for losing other people's money, remove the government sanctioned monopolies and fix our overcomplicated sham of a legal system. Then let the government carry out it's monetary role as defined by the constitution.
The way you screw up 'metal' as a store of value is by having gov'ts control it again.
If you mean setting the standards of weights and measurement, then i disagree. If you are talking about the fractional-reserve gold standard, then I agree, because it's not the governments role to monopolize what can be accomplished by private industry.
Those that claim private industry can't do the job don't understand that eliminating the centralization also prevents such large scale boom and bust cycles. Failures tend to be smaller and more spread out over time. It allows for competition and eliminates the ability to control interest rates.
Many people that have practiced fractional-reserve "banking" were killed as a result. It wasn't until the bankers grew large and legitemate that they were able to escape the punishments that society normal gives for enormous theft.
If we have a real depression some of them might be killed again.
The point Killa is you are playing the house game with the house chips - that is the rule and it has always been the rule whether fiat or metal based chips are used.
If you don't like - go underground and stay away from fiat money as much as possible - turn every penny that falls in your hands into something else 'tangible'... land gold productive capacity whatever. Turn them back into fiat for immediate transactions only then reconvert any remainder or change back into something tangible again.
But fiat is NEVER going away... they disappear for sure but are simultaneously replaced with another. That genie is never going back in the bottle. Deal with it.
I've been thinking of it as "Homeland Security for the Fed". Except of course, Homeland Security didn't try to found FEMA on the morning Hurricane Katrina was hitting New Orleans.
If you are talking about the fractional-reserve gold standard, then I agree, because it's not the governments role to monopolize what can be accomplished by private industry.
Frac Res has nothing to do with private industry. I'm damned glad we don't have private industry making more 'money' - they caused enough damage already.
I want well managed central banks to do what they are supposed to do - manage the fiat supply & not let it blow up. They do that then I'll take care of my own private business thank you very much.
Seriously - if you don't like dollars, don't own any. But they aren't going away anytime soon (just getting less valuable).
Now you are showing your ignorance. In the US there have been more private fractional reserve currencies than there have been national. They were bad then just like now, but they would only devastate smaller areas when they fialed, instead of a global economy. It's the nature of debt based money.
But they aren't going away anytime soon (just getting less valuable).
it's the financial version of the department of homeland security.
LOL. I was thinking the same thing this morning in the shower - that will be next>>>> 'The Department of Financial Security'. Roll all the economic related agencies (Commerce, Treasury, IRS, etc.) & the Fed into one giant department 'cause we know having it all under one boss makes it more efficient. Else the terra-ists might win...
People who argue that the gold standard era was an oasis of free market tranquility should perhaps read some actual history books which cover financial and economic crises throughout history.
If you are unconvinced by that assertion, read Lombard Street (Bagehot). He discusses the origin of the banking system and money markets, and it explains why the U.K. economy massively outgrew everywhere else during the 1800s. One sentence summary: the money market/banking system allowed U.K. firms (and the gov't) access to the global savings of the country (eventually world), while on the continent it was nearly impossible to marshal those savings, as they were too fragmented.
As posters have argued above: fiat money - deal with it.
The privately Fed w/more power to intercede in the markets on behalf of the government? No thanks. (Goddamned pack of thieves).
Fiat money is a concept. I don't bank on concepts. Fiat money separates me from the value of my stored value at someone else's whim. No thanks.
With the awesome ability of our forefathers to organize, state a platform and a plan, and execute that plan - even with rudimentary communications tools - it's amazing that we can't come to grips and deal with what is obviously a move to nullify our Constitution. What good are the internets tubes if we can't use them to gain our political end?
People who argue that the gold standard era was an oasis of free market tranquility
Who argued that?
I'm simply arguing that centrally controlled national fiat is a tool of tyranny. I would rather not bend over like a little bitch and "deal with it". Instead I will tell everyone who will listen about it's true nature.
btw. I have done just fine playing the inflation game, but I do have a heart for those suffering as a result of the fiat enabled war machine, especially the nuclear dumping(DU) that is going on.
Fiat isn't a concept. Or at least when i look in my pocket i don't pull out concepts, i pull out dollar bills and i purchase goods and services with them. So i'm unclear on how that's a concept. Seems pretty tangible to me.
But i like the new mantra here dryfly...fiat is here. deal with it. and if you don't like dollars, don't own any.
Now, to return to topic, the most interesting sidebar about this plan is the fact that the IBs will have to show the world their knickers if they want access to financial markets. That was said by Paulson who suggested that if the Fed could see under their covers, they would know if they were a risk or even how much of a risk. That seems pretty reasonable to me.
The ability of the crooks to mass-misinformed public is the root cause of tyranny, then and only then, the centrally controlled national fiat system is involved.
All in all, the candidates’ positions on the mortgage crisis tell the same tale as their positions on health care: a tale that is seriously at odds with the way they’re often portrayed.
Mr. McCain, we’re told, is a straight-talking maverick. But on domestic policy, he offers neither straight talk nor originality; instead, he panders shamelessly to right-wing ideologues.
Mrs. Clinton, we’re assured by sources right and left, tortures puppies and eats babies. But her policy proposals continue to be surprisingly bold and progressive.
Finally, Mr. Obama is widely portrayed, not least by himself, as a transformational figure who will usher in a new era. But his actual policy proposals, though liberal, tend to be cautious and relatively orthodox.
Do these policy comparisons really tell us what each candidate would be like as president? Not necessarily — but they’re the best guide we have.
The next one in to 1600 Pennsylvania isn't going to do anyone any favors either - well, at least no one who doesn't already have the phone # for the bat cave.
Sen. Obama brings Penny Pritzker in. Ms. Pritzker is currently the good Senator's National Finance Chair. Ms. Pritzker was the captain of the boat when Superior Bank tanked back in '01. How much did that cost the taxpayers? We know that it cost the depositors of Superior at least $50 million that they will never see despite the fact that the Pritzker family is worth somewhere in the neighborhood of $30 Billon of which roughly $2 Billion is Ms. Pritzker's personal wealth.
Sen. Clinton brings in JB Pritzker - Ms. Pritzker's younger brother. Mr. Pritzker is currently a spokesperson for the Clinton campaign.
You all know the Pritzkers whether you know them or not. Hyatt hotels, Marmon Group, TransUnion Credit, etc. If I remember correctly, Thomas Pritzker appeared on stage at a fundraising event with David Marriott and President G.W. Bush a scant four months after the FDIC placed Superior Bank into receivership.
Sen. McCain has Phil Gramm in his camp. In addition to being in the UBS ranks, we've got both him and his wife tied to Enron in at least two different ways, Gramm-Leach-Bliley and...Ok..I can't take anymore...
The "people" are going to lose regardless of which choice is made in November. There is an obvious opportunity for power to be grabbed and friends to be set up. Obviously, current rules and regs simply are not going to be enforced. That being the case, new ones are going to have to be created in order to allow the old ones to be forgotten as quickly as possible.
The Fed? "SWAT" Teams? Somehow I'm hearing "Stop! - Or I'll say "Stop!" again." I can't wait to hear the new theme music....
Bush's track record as a businessman and a Governor was available to the electorate, yet he was elected, twice. Even when we knew what would happen, we elected him (in this case we does not include me - I saw the failed businesses and broken pensioners he left in his wake).
This administration has been seeking "regulations" in order to prevent congress from passing more stringent rules. The only purpose of this proposed regulation, besides "too little, too late" is to try to divert Congress.
I'm all for it: i'm also for a new Federal Automatic Regulation Tax.
This year we'll start it at 1/2%, increasing over the next twenty years to 7%, in 1/4% annual increments.
"Fiat isn't a concept." Of course it is but so is gold and silver and anything else that we use as a store of wealth.
Digging into the archives I have an actual transcript of the original negotiation of that infamous island that has been the center of so many shenanigans. As in many things PC varies during the context of the times
Dutch translator We want to buy this island from you.
Native 1" WTF
Native 2 Man we only have the hunting rights to the lower east side every third full moon. Tell him we sell him that.
Chief "What are you going to give us.
Dutch translator We will give you ten gold coins
Native 1 WTF
Native 2 What are we going to do with that.
Chief They are pretty but what are they used for?
Dutch translator You can put it in a bank so no one can steal it and it can gain interest.
Native 1 WTF
Native 2 "I am not sure my wifes mother will understand."
Chief We are a little short of those facilities here
Dutch translator "Well you can always dig a hole and put it into the ground so no one would know that you got it."
Native 1 WTF
Native 2 WTF
Chief You expect me to go back and tell the other chiefs this Friday at the big dance and tell the m I got some yellow rocks that I cannot show them because I had to bury it somewhere."
Dutch translator "Alright our final offers is ten gold and five silver coins"
Native 1 "Chief I really need some bling for the big dance"
Native 2 "Chief what if we got enough bling to outfit the whole tribe for this Friday and besides the hunting sucks here."
Chief What do you go in beads?
the most interesting sidebar about this plan is the fact that the IBs will have to show the world their knickers if they want access to financial markets.
That seems pretty reasonable to me.
ipodius | 03.29.08 - 12:55 am | #
As much as I respect your opinion, BS. People are already complaining about the cooked books of the regulated banks as pertains to level three accounting. Who the hell is going to be able to understand the IB books if they (the IB's) choose to obfuscate? Hell, they apparently can't understand their own books. Or is Bear Stearns really worth $80/share? Hell, ask that of any of them, as long as their bonuses are rolling in, the bank is profitable and steady as a rock.
The Securities Industry and Financial Markets Associations (SIFMAs) Asset Management Group (AMG) is part of a letter of agreement that was signed by the senior managers of 17 major derivatives dealers (Major Dealers). The agreement serves as an update to the Federal Reserve Bank of New York and other regulators and outlines goals, strategies and major benchmarks toward the continued improvement and streamlining of operational efficiency within the credit and equities derivatives markets.
The SEC as well as the EU's top market regulator have been exploring how to build a barrier-free transatlantic securities market that could ultimately give investors more choice.
"The steps we are announcing today are designed to better coordinate SEC regulation of the U.S. capital markets with our counterparts' regulation in the larger global marketplace," SEC Chairman Christopher Cox said in a statement.
The SEC's plan includes exploring initial agreements with the agency's foreign counterparts and potentially reforming rules to make it easier for U.S. investors to access foreign broker dealers.
The Securities Industry and Financial Markets Association (SIFMA), a Wall Street trade group, urged the SEC to reform broker dealer rules immediately.
"The consumer has lost whatever support they might have had from wages and salaries," said Joshua Shapiro, the chief United States economist at MFR, a New York research firm. "There's no momentum, no growth."
Spending by consumers is the primary engine of the economy, accounting for more than two-thirds of the gross domestic product. Recent surveys suggest the drop-off will continue. Confidence in the economy remained at a 16-year low in March, according to a separate report released Friday by the University of Michigan and Reuters.
Americans also feel worse now about the economy's prospects than at any time since 1973, according to a private survey of 2,500 households released earlier this week.
Re: Lockhardt has been a pain in the ass for too long, take away his job!
The proposal would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books not just of commercial banks but of all segments of the financial services industry.
The administration proposal would also consolidate the current scheme of bank regulation by shutting down the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency, which regulates nationally chartered banks.
The plan recommends that the Securities and Exchange Commission, which regulates stock trading, be merged with the Commodity Futures Trading Commission, which regulates futures trades for oil, grains and various other commodities.
Yves at nekkid capitalism nails it pretty well: "There is less here than meets the eye, and what is here is guaranteed not to be implemented during the remaining months of the Bush presidency. And that of course is precisely the point of this exercise. Appear to be doing something and dump the mess in the lap of your successor."
Wall street gang wanted and got less regulation. Then they looted the citizens. Satisfied with their take, now they do not want the citizens to figure out who the looters are and what to do with them. As a distraction tactic comes all these proposals for increased regulation.
...money is more than a medium of exchange, more than a store of wealth. It functions as the very foundation of our judgments and measurements and comparisons of value. Money projects an influence that extends far beyond commerce itselfit imposes order and meaning on all things. It establishes a base for determinations that frame even those many decisions apparently unaffected by monetary considerations; its reassuring stability undergirds ethics, purpose, hope, loyalty, kindness, charity, courage, and commitment.
And:
When money is robbed of concrete meaning, the moorings on everything else are cut loose. The effect is subtle, but powerful because the subtlety goes unremarked...(and) deep in the psychological dynamics of the human brain, there is recognition that truthfulness has been replaced by fakery. Events that once took place in reality are now taking place on a stage. The words and the gestures are all the same, the characters unchanged, but in some vague way it all seems a sham.
The Bush administration is finalizing a plan to rescue thousands of homeowners facing foreclosure by helping them refinance into more affordable loans, the Washington Post reported in its Saturday edition.
The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth due to declining home prices, the Post reported, citing unnamed government officials.
If enacted, it would mark the first time the White House has committed federal dollars to help the most hard-pressed borrowers.
Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of these loans and issue new, smaller loans in exchange for the backing of the U.S. government, the Post said.
Even American leaders are taking note. Senator Carl Levin, Democrat of Michigan, has announced his own inquiry into tax evasion by Americans in Liechtenstein, and both he and Senator Barack Obama are pushing legislation that would give the federal government new powers to track down money in Switzerland and elsewhere.
Fiat money destroys society.
unirealist | 03.29.08 - 4:27 am | #
I thought that was fluoride that did that.
If you really believe that stuff (your italicized quote) then my answer to you is:(1) avoid fiat money per se and (2) hide from society... because fiat money is not going away and society good or bad isn't going to change regarding acceptance of it.
Jas Jain: I enjoy your analysis and humor. If you should ever decide to go elsewhere, please advise where you go, to those of us who think your post are educational and thought provoking.
More melting
1. Auction rate securities debacle
2. Heloc default
3. Lehman poots are acting funny again.
The Wall Street Journal carries this depressing story today:
'Auction Rates' Clip Tech Firms' Profits. Write-Downs Mount
After Market Seizes Up For Cash Alternative
by Rebecca Buckman
Technology firms, which traditionally shunned debt and were thought to be relatively immune to a credit crunch, are seeing their earnings dented by holdings of auction-rate securities.
Dallas telecom company MetroPCS Communications Inc. recently took an $83 million charge related to auction-rate securities, the arcane debt instruments -- once thought to be as safe as cash -- that are now nearly impossible to sell in today's jittery markets. Last Thursday, hand-held-device maker Palm Inc. said it, too, would take a charge for auction-rate holdings, though it hasn't disclosed how much.
Well, I'll be the first to say it, at least on this board. This plan is DOA.
Relax folks, it's going nowhere. Bush is a lame duck and the Dems control congress. They will never allow this to pass, as it would help McCain in November and Obama/Hillary want more regulation, not less.
Expect lots of talk and no action from the beltway bandits 'til 2009. May move markets for a day or so, in the end it will mean nothing.
I wish one of these people attacking the idea of fractional reserve banking would explain how you could have anything like a modern economy without it. Does anyone really think that the elimination of bank loans, along with the elimination of interest bearing accounts, would be a good thing?
Last night I kept seeing bubbleheads Pisani and Bartiromo prodding their reluctant interviewees to call a bottom early last week, claiming the failure of BSC was the turning point. How Convenient... to ignore the entire economy and the cycle when you call a bottom. Makes it a lot easier to draw in the marks for another clipping.
I wonder what Ben has in store or Monday, ahead of the open. I hope it's good. I need a little indecision early, so I can fortify positions.
Here we go again ...another inept attempt from the incompetent and totally corrupt Bush admin to perpetuate the financial engineered driven bullshit US economy with massive market bubbles ( e.g. stocks, real estate ).
Will this address these systemic US economy problems ?
United States needs $1B a day from Chinas or its economy ( and US $ ) will likely collapse.
United States $10 Trillion national debt
United States trade deficit of $800B/yr
The derivatives 'ticking bomb' that grew into a massive bubble, from about $100 trillion in 2000 to $516 trillion by 2007 that is starting to go off in blowback stages.
the way too many Americans who are already overwhelmed by personal debt racking up a household debt-to-income ratio of 1.42 ( for total of $13.8 trillion in debt including mortgages ) that already matches the countrys $14 trillion G.D.P.
The cost of Bush to America since 2000 which is $32 Trillion dollars in total liabilities and unfunded commitments for future payments.
Haven't read the long-term proposals but the short-term proposal mostly stink. I've made a list of the major points I get out of the first 10 pages (short-term stuff). It's basically a bunch of proposals to eliminate federal regulation or provide ways for corporations to ignore state legislation. Nothing apart from improving coordination would have done anything to prevent the current mess or will do anything to help with the slide. This is an attempt to slide in some Bush pet projects that should never be adopted as "emergency measures". I concur that it looks like the Homeland Security fiasco which mostly just rearranged deck chairs but put FEMA under Brown and helped kill a couple thousand Americans in Katrina.
Individual points:
1) Create a council of all federal financial bodies - probably a good idea
2) Nationalize mortgage lending regulation - will cancel the useful rules many states are setting up. We certainly won't see anything useful nationally while Bush is in office. Bad idea.
3) Cancel the thrift charter - so the FHLB can make loans to any bank, ie help bail out Citi. Bad idea.
4) Nationalize insurance regulation - how is this going to help? Prevent New York from being able to do something? Bad idea.
5) Merge commodities and security regulation, with commodities regulation being preferred - bad idea. Just what we need, less transparency in the securities market.
6) Make it easier for finance companies to self-regulate - bad idea, duh
7) Legalize more structured finance products - bad idea
This is just muddying the waters. We need Obama's Stop Fraud system for mortgages, not this. We need analogous systems for all the securities and insurance flimflam that's been going on (primarily meaningful risk disclosure).
The elimination of fractional reserve banking, I believe, would not eliminate loans but just reduce the number of loans. Interest will still be paid.
And what is this thing called a modern economy? Is that an economy where a fruit-picker can buy a $700,000 house for 50 times his income? That's modern?
The elimination of fractional reserve banking, I believe, would not eliminate loans but just reduce the number of loans. Interest will still be paid.,/i>
If banks are required to keep as reserves 100% of deposits, how do they make loans? Why would they pay interest on accounts that they can't use to generate revenue themselves?
ac said: "This mid-cycle slowdown could turn out to be the worst downclimb in history if the Federal Reserve chairman and his essentially limitless term isn't given enough power over the US economy to supercede that of the president of the United States who is constitutionally limited to an 8 year term."
Respectfully, nonsense.
In 5 of the last 6 recessions, by the time the Wright Model B yield curve had risen to this steep a level (long rates higher than short rates), the recession was over.
The only exception was the 2001 recession. By the time the yield curve was at the same level then as it is now, it was October, 2001, at the tail-end of the recession.
Given that there's been this much stimulus in the absence of a clear recession, with the economy simply having slowed to a lower level of positive growth, I don't think you're going to believe what happens next.
I'd express an opinion on Jas Jain's long Treasury bond position given these conditions, except that I don't want to expose my fellow board-members to such a cascade of vitriol and swear words.))
With all the instability regarding "cash-like" instruments, I decided to dig in a bit to my money market funds. I don't hold a lot of cash in them, preferring FDIC insured CD's, but I was curious as to their safety.
I have one that invests in "Government Securities". Took a closer look, and it appears to have Fannie Mae, Freddie Mac, and a big chunk of repurchase agreements with brokerage firms collateralized by, you guessed it, mortgage backed securities. Not real comforting.
Then I checked out a money market fund based on municipal tax free securities. Found a bunch of items called VRDN's. I'm wondering if these are like the ARS's that UBS gave their investors a haircut on.
For those of you that are thinking your money market funds are just like cash, you might want to dig in a bit as you may find some rather exotic investments in them.
I wish one of these people attacking the idea of fractional reserve banking would explain how you could have anything like a modern economy without it. Does anyone really think that the elimination of bank loans, along with the elimination of interest bearing accounts, would be a good thing?
All lending and investment banking would be done by the State.
You want a loan, the Fed will materialize the money in your account at 0% interest + fees, but you WILL pay this money back because if you don't the IRS will garnish yo' ass.
You want interest, check out TreasuryDirect's new SuperFast™ TreasuryChecking™.
One of the most striking differeces between the Bush neo-cons and traditional conservatives is the neo-cons love of centralized power. Traditionally, Republicans are the party of Federalism, but I guess corporations find it easier to bribe a few senators rather than scores of state reps. Localization is a movement of the political Left to attempt to resist globalization and support local community businesses, arts, and agriculture. There many reasons for this movement: environmentalists support how localization reduces energy costs and protects local farmland from development, anti-corporate activists support local independent small businesses from corporate chains, economic activists argue for keeping dollars on the local community rather that going to Wall Street or China. Although all of these movements are associated with the Left, the Democratic party is the party of strong centralized government, not decentralized local government. It is the Republicans who are mostly associated with Federalism, although through the neo-cons the Republican party has become the party of big government conservatism and corporate fascism. Most of those who champion localization have not yet taken the step from local business to local government, but there is an opportunity for a new political coalition of the paleo-cons and neo-libs seeking decentralized government and to push power as far as possible to localities and to demand the ability to make decisions concerning the course of their communities. If the Republicans can break the grip of the neo-cons, and re-brand their philosophy localization rather than Federalism, they have the best chance of attracting those interested in localization.
Thanks Fair Econ, for actually digging into the "up is down" Orwellspeak of the proposal. This is a Bush admin. staple -- we should all be wise to it now.
And the last thing we need to do with this crisis is check ourselves into Ayn Rand fantasy camp and pretend that the government should back off (especially in the form of pretending to regulate). Reality and my tax dollars scream otherwise.
The risks of loan products and the securities they might be bundled into have to be made utterly transparent -we're talkin pure food and drug act-type transparency, and the penalties for concealing risk have to be high.
And maybe most importantly, there ought to be deterrents for pension and investment-fund managers who take on such high risk in the name of fat fees (or political favors).
The market will never, ever set these kinds of safeguards in place themselves.
Bob Brandt said: "The potential for 'mis-use' of the SWAT teams is unbelievable. More corrupt billionaires for the taxpayers to clean up behind."
No, IMO, but something worse instead.
This is the "Homeland Security" response: Re-organize a group of agencies under a new umbrella, with additional layers of bureaucracy that slow-down and reduce the effectiveness of responses.
On the upside, though, we could tap the phone-lines and e-mails of the wrong-doers, re-define these criminals as "enemy financial combatants" and put them in military prisons indefinitely without trial, recourse, or appeal.
Don't sell America short, some things just work themselves out for the best all on their own.
I realize that it is hard for born-and-bred American dopes to come to terms with the fact that the whole financial system was criminalized under Greenspan-Bernanke with full assistance of the USG (Rubin, Clinton, Bush, etc.).
Just follow the money.
How much money Bankrupters and Fraudsters of New York City (BFNYC) made during 1995-2007 Twin Bubbles compared to the general population, or the GDP? Coincidence?? Were the financial innovations for the good of the economy or for the specific benefits of BFNYC???
Greenspan-Rubin-Bernanke fully supported the innovations, financial weapons of mass destruction, that are now going to be deadly for the economy. These Crooks were scamming the public and not innovating in the good sense. Innovations were cover up for the systemic fraud by these parasites. These NYC Crooks were raised in a culture of fraud.
By the way - the Fed is now propping up banks and IB's. Monolines may be next to get propped. Ofcourse you would only do that right about the time when the S&P is about to enter a 20% correction.
If the Republicans can break the grip of the neo-cons, and re-brand their philosophy localization rather than Federalism, they have the best chance of attracting those interested in localization.
JS | Homepage | 03.29.08 - 11:57 am
Exactly who and where are these moderate to liberal Republicans that believe in for fiscal restraint and hands-off government ?
Senator John Heinz died in a helicopter crash in 1991 and there are no more Sen Barry Goldwater's in the GOP who had tremendous influence and carried a big stick i.e. was the guy who told Nixon his gig is up, warned us about the sordid implications of Christian wacko pact with GOP, and became more of a liberal Republican later in life.
If McBush wins ( a no nothing about economic policy ) this country is doomed.
barely said: "Given Ben's disregard for free markets, I agree. Of course, that's when the 10yr yield goes parabolic. Now... how can he fix that?"
He won't be able to. He'll be forced to chase it by tightening the Fed funds rate.
That will be the time when recession becomes a genuine threat, not now. Since the Fed is still in "easing" mode and will be reluctant to start tightening again until the "recession" is over and the "recovery" is on solid ground, who knows how long it will take for the real recession to materialize?
"Treasury also endorsed the CFTC's use of so-called principles-based regulation, in which overarching guidelines trump specific rules. Treasury said the SEC should apply the principles approach to its oversight of stock exchanges."
principles-based regulation? How do you create a legal regulatory system from "principles"?
km4,
Obama is a democrat's democrat. He's as much in favor of centralized power as the rest. His proposals are all for more power to the central government, I see no idication that he is in favor of localization and decentralized power.
The numbers in Yves Smith's Credit Crunch Leaves No Market Unscathed post at Naked Capitalism seem to imply that fee income and workload at investment banks must be down about 50%.
Indeed, the issuance of certain types of securities -- and so presumably also the inflow of associated fees -- seems to have nearly ground to a halt.
Might we be on the brink of a 50% down-sizing of Wall Street?
If you're going to have a fractional reserve banking scheme, why have any reserve at all? Isn't the fraction only there as window dressing - to add pseudo legitimacy to the monetary system?
There are two questions one should ask before engaging in fractional reserve, fiat banking:
What is the fraction required to back credit extended, and;
what is it that the banks are required to hold a fraction of in the first place?
If you have a 1/30 reserve requirement, and something goes wrong, how do you cover? The answer is, you don't cover: the system fails. This is how we end up with bag-holders.
As for what is being held in reserve, is it paper? Is it goodwill? (Precious little of that commodity). Is it a proclamation of value, sprung fully-formed from the head of Zeus? Is it beaver pelts? Land? Gold? Tulip bulbs? I'd go with any of the commodities before I went with the "take my word for it" variety.
Fractional reserve fiat banking is bullshit (in this case, "bullshit" meaning intellectual dishonesty). It's made of bullshit, backed by bullshit, and sustained by bullshit.
We'd be better off if we returned to private banks issuing their own notes - backed by whatever that bank chooses. If you want fiat, go for it.
The bank I would choose would hold gold in reserve for 100% of every note issued.
15 pages of diversionary nonsense. Including a brief history of financial regulations and the positive and negative roles they have played in our history....yet one big one was left out.
Glass-Steagall....I wonder why. It's as if, to Paulson, and the rest of the crooks he represents...it is akin to Harry Potter's "he who shall not be named".
Sometimes it is not what you say but what you don't that brings clarity to your message.
Misean said: "A steel reinforced concrete main pillar is failing, and the Fed has a couple of 2x4's. Not likely to hold."
Well, except that the Fed has a virtually endless supply of 2X4's and can persuade the concrete not to be as heavy or fall as quickly.
JMO, but engineering analogies (where the physical laws are constants) don't work very well when applied to finance or the economy (where the laws are always flexible, and even breakable in the service of the "greater good").
Obama is a democrat's democrat. He's as much in favor of centralized power as the rest. His proposals are all for more power to the central government, I see no idication that he is in favor of localization and decentralized power.
JS | Homepage | 03.29.08 - 12:26 pm | #
A democrat's democrat is simply glib subjective comment ! And I see Obama moving more towards localization and decentralized power than the fossilized brain called McBush who knows jack shit about economic policy, flips flops more than fish, is a panderer, and thinks he can win with all that foreign policy experience that amounts to exactly what?.
"Well, except that the Fed has a virtually endless supply of 2X4's and can persuade the concrete not to be as heavy or fall as quickly."
How so? Are you arguing the ridiculous "The Fed prints money" argument? Because it does not. It buys and sells debt. It's foundation is gov't debt, well until recently. None of Bernutty's actions have increased M1. The Fed increases M1 buy buying treasuries and increasing it's balance sheet. This is done through TOMA and SOMA operations. The Fed has been near meticulous in sterilizing all of the sill things B.S. Bernutty has been doing.
As I wrote yesterday:
SOMA and TOMA are the most powerful Fed actions in the world and'll blow your head clean off.
The Fed favors a graduated $ decline. Monetization would cause a flood of external $ sales, which would route the dollar. The Fed does not want this.
So no, they do not have an unlimited supply of 2x4's.
"The FED shall have the power to print or electronicaly create money as much as they want, whenever the f.. they want."
Amendment to Article 1 Section 8
Of course, banks would also offer time deposits. You put your PM in the vault for a year, under contract, the bank can lend it out, and pay you interest for that and earn a fee for the service.
To follow up on km4's comment - that might be a strong enough endorsement to get him elected after Bush regardless of his real qualifications or lack there of.
In the eyes of my 20 something kids Bush has done to the GOP what Jimmy Carter did in the late 70s to the Democratic Party for most of my then 20 something peers - it will be a tough job convincing these 'kids' that GOPers don't equal Bushies... might stick with them their whole life (like the Carter stigma stuck to Democrats with so many of us).
Be an interesting election - I feel McCain will easily win but who the hell really knows.
"JMO, but engineering analogies (where the physical laws are constants) don't work very well when applied to finance or the economy (where the laws are always flexible, and even breakable in the service of the "greater good")."
No. TINSTAAFL! There is no such thing as a free lunch. TPTB may be able to change the rules of the game unfairly. This just reconfigures who is the final bagholder. It does not erase the loss. Nor does it strengthen the foundation.
--
Criminal gangs and crime stories always make for fascinating talks among the populace. That is precisely what we got and there are endless things to talk about.
What have had for the past dozen years are bank robberies in reverse -- bankers robbing the general public and the taxpayers! There will continue to be headlines as more and more is revealed about the criminal activities and their fallout. And we have foxes guarding the henhouse, no?
Americans can never have enough entertainment. What would be great entertainment would be to put 100 of the top Fed officials and banksters on trial and televise it.
""The FED shall have the power to print or electronicaly create money as much as they want, whenever the f.. they want."
Amendment to Article 1 Section 8"
Really? And have a dollar route. You actually believe this?
SOMA and TOMA are the most powerful Fed actions in the world and'll blow your head clean off.
The Fed favors a graduated $ decline. Monetization would cause a flood of external $ sales, which would route the dollar. The Fed does not want this.
So no, they do not have an unlimited supply of 2x4's.
Until they get a wiff of 'deflation' then it will be off to the money production equivalent of Weyerhauser & Georgia Pacific. (Ben: "Hey Kev, where did we put those chain saws & hard hats? We got work to do..."
So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization?
If that stuff came roaring home, the Fed would barely have time to hit the print button before the dollar was chasing the Zimbabwe currency to toilet paper status.
SOMA TOMA, oddly enough literally translated, it just means 'Body, Tomb' two nouns thrown together to encapsulate the idea that in Plato's philosophy the body is an inconvenience, a grave, in which we are incarcerated and imprisoned until death releases us.
But in this case refers to the Fed's System Open Market Account, etc.
They are inventing a plethora of new critters TSLF, PDCF, TAF, OMO, TDWP in this fun shell game of "debt, what debt?"
Anonymous | 03.29.08 - 12:26 pm | # - "principles-based regulation? How do you create a legal regulatory system from "principles"?"
Actually, it works pretty well. One of the core flaws in rule-based systems is that over time, the targets of regulation will find ways around the rules. For example, we could write a law saying it's illegal to stick a knife in another person's chest, so instead you beat them over the head with a rock. The principles based alternative is to say you may not end the life of another person.
Lehman Brothers Holdings Inc. said it plans legal action against Marubeni Corp. to recover funds ``fraudulently misappropriated.'' Marubeni said it's also a victim in the fraud that media reports put at as much as $403 million.
...Census figures show that Miami-Dade County had among the highest home vacancy rates of major U.S. metropolitan areas at the end of last year -- about 4.4 percent, up from 1.6 percent in 2001. The national average is 2.8 percent....
@5% vacancy...& pop growth stalling looks like a recipe for price plunge..
~ 3 mil pop
say about 1.2 mil household..
say about 60000 homes vacant?
miami area sales are in region of max 1000 unit sales/month. This looks disastrous.. (back on the envelope calc)
Fed operations. They enter the market and buy or sell treasuries. They do this for either temporary terms (often called repos) or permanently (very rare).
If the Fed buys treasuries it increases M1. The opposite occurs if the Fed sells. The "printing press" monetiztions that would be needed for the Fed to print it's way out of this, would have to be permanent.
--
Ignorant, or clueless, people have been calling for the parabolic rise in long-term US Treasury yields for a very long time. They claim to be smarter than the Treasury bond market. One of these people is Dr Doomed, Marc Faber. I am sure that we have our fair share of such people on this blog.
US Treasury yields would follow the Japanese example of the past 15 years -- they will go down, go down, and then go down some more.
So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization?
They wouldn't care - until AFTER it happened. Devil you vs maybe devil?
If that stuff came roaring home, the Fed would barely have time to hit the print button before the dollar was chasing the Zimbabwe currency to toilet paper status.
For that to happen all the other FCBs would have to pile on... and that assumes they believe decoupling (they don't need to export to us anymore & can let the dollar free fall without hurting their own industries & employment). You think they are likely to do that? I don't... I don't think the fed does either.
Its fiat chicken worldwide... until there is a crash that is. In that mode they can make a whole lot of 2X4s...
If there is no fractional reserve banking, my understanding is that reserves don't have to equal deposits, but that loans should not exceed deposits.
Under fractional reserve banking, total loans are always smaller than total deposits, because part of deposits are kept in reserve.
If there were no fractional reserve banking, there could be no loans, period. The bank would have to charge depositors for keeping their money. 100% reserve. Actually, there would be no banks, because the market would find other ways to perform deposit taking and lending.
The anti-FRB crowd just doesn't get that FRB is banking, period. The whole point of having banks is to match up people with money with people who need to borrow.
Yesterday, President Bush visited Novadebt, a credit counseling service in New Jersey, to promote his Hope Now Alliance, which is intended to help homeowners facing foreclosure. But while there, Bush gave out the wrong toll-free number (despite a large sign with the correct number hanging behind him).
Danny Cerchiaro, a homeowner attending Bushs speech, whispered the correct number in Bushs ear after the speech. Bush then quickly returned to the lectern and recited the correct number:
There are hundreds of thousands of homeowners like Theresa and Danny who can benefit from calling HOPE NOW. And so one of my purposes is to make it clear there is a place where you can get counseling. And I want my fellow citizens, if youre worried about your home, to call this number: 188-995-HOPE [sic]. Let me repeat that again: 188-995-HOPE. [ ]
Thank you all very much.
Danny just told me Ive got to get the number right 1-888-995-HOPE.
When Nixon closed the Glod window, FCB's panicked and the dollar dropped like a stone. I have papers on European banks taking inventory of office supplies to realign their balance sheets after the event.
In this wired environment, Bernutty putting his mouse cursor over the print button would be the click heard 'round the world.
And that's enough for this debate today. I think I'll go for a walk.
--
M1 has the highest correlation with CPI. M3 was useless and I am glad that it was discontinued. No conspiracy there. Inflationists are conspiracy theorists.
Once you go beyond 100% reserve for the notes, we're into speculation and inflation (not that no inflation is possible). All I want from my bank is to know that I every note I carry can be redeemed for a fixed, tangible commodity (for me, that's gold). If I choose to speculate with my notes outside the bank, that's fine - but I do not want the bank to have fractional reserves.
Every option should be available for trading the notes themselves - the demand in any particular bank note could stimulate new markets, investment opportunities, etc. Because any transaction would grant someone the right to remove that portion of the reserve commodity from your bank account, people would assess and scrutinize their investments more carefully, and with a more "reality-based" set of criteria. Does your CEO make 40X your average worker? No thanks. You're just now seeing a market in fuel efficient vehicles? No thanks.
On a tangential note, There was an interesting piece on NPR a few days ago, having to do with Dubai, and Islamic law governing the charging of interest (Dubai has t find a work-around for issuing bonds). One of the ways of making money from money under this restricted scenario, is direct investment in business (more like partnership, less like a powerless shareholder) for a share of the assets and profits of the partnership. This would seem to lend itself to a very dynamic, yet sable economy.
"If there were no fractional reserve banking, there could be no loans, period."
Nonsense. Those with more gold than needed for a period of time would seek out bankers who would take their gold on a time deposit. The owner would earn interest, and the banker would lend out the gold, at a rate higher than paid the owner. Loans have existed since time immemorial.
leaving with this on topic quote again, (such a los having competent fearless folks being in charge) -
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson
The Debate Over the Recharter of the Bank Bill, 1809
"direct investment in business (more like partnership, less like a powerless shareholder) for a share of the assets and profits of the partnership. This would seem to lend itself to a very dynamic, yet sable economy."
Well of course that is preferable. I'm just responding to the idea that loans would be impossible under such a scenario.
Further, any growing economy would have gradual deflating prices of goods and services, which, in and of itself provides a return to Average Joe, for the PM he hides in the matress.
Actually this EUR/USD chart illustrates the current lack of confidence in the dollar perfectly. Just like after Nixon closed the gold window. I don't think it can be any worse than it already is.
In this wired environment, Bernutty putting his mouse cursor over the print button would be the click heard 'round the world.
Last word - FCBs might hear the click but their response won't be to dump dollar reserves - it would be to BUY them & dump their own currency. That is unless they decide they don't need the US export market anymore.
Your assumption is only correct IF decoupling is real... you believe in decoupling? I don't - not entirely, some 'yes' but within limits... the current dollar fall is definitely hitting their limit of comfort.
That is a key concept. They don't hold dollars to make a return - they hold dollars to protect their merchantilist exporters. Until they give up on exports they won't stop buying & holding dollars.
And while the 'private' FX market is much larger, it is fragmented and follows the FCBs... read some of Macro Man's stuff, he refers to SAFE as 'Voldermort' . Few have been successful breaking a FCB stranglehold... Soros of course being the most noteworty. I don't see it happening any time soon.
Under fractional reserve banking, total loans are higher than deposits. For example, here's the Bankrate-dot-com 2007 summary for Washington Mutual:
WASHINGTON MUTUAL BANK
Financial summary ($ in Thousands) 2007
Total Assets $327,205,503 Mortgage Loans, Net 237,502,659
Mortgage-Backed Securities 20,078,866
Investments 14,577,007 Deposits 180,106,184
Borrowings 100,754,859
Equity 26,404,630
And yes, the whole point of banks is to match up people with money with people who need to borrow, but that's money we're talking about, not fictitious capital. Besides, isn't it clear that too many people in recent years thought they needed to borrow, and could do so only because banks could invent capital to lend to them?
And maybe most importantly, there ought to be deterrents for pension and investment-fund managers who take on such high risk in the name of fat fees (or political favors).
Oh yes, corporate governance is one of my hobby horses. The CEOs are chosen by the self-perpetuating interlocking board system without much input from shareholders or any control by taxpayers. Then when they push their companies and - in this case - the world economy to the brink of bankruptcy they decamp with golden parachutes as large as a small country's GDP, leaving shareholders and taxpayers to foot the bill.
Oh, when the phone rings at 3 AM I want the guy answering it to know when the US should go to war. And that's Obama. McCain and Hillary can't make that decision right.
Also, when the next financial crisis hits I want the president to be the one who wanted to fix mortgage fraud, the lynchpin of this mess, a year before TSHTF. Not McCain or Hillary, who STILL aren't making proposals to fix it almost a year after TSHTF.
El Cliffo, no, fractional reserve requires loans be less than deposits+capital. Borrowings are a form of deposit, so WaMu did NOT invent money. (It is likely to lose a lot though.)
We keep looking for answers to the economic system we are stuck with. The isms have been defeated. We don't want to address the power structure. Even changing to a gold standard leaves the big money manipulators in place.
Regulations to clean up this mess won't stop the coming fire sale of America's assets to the big money low bidders. It's the structure of the system that allows wealth transfers UP into the highest echelons of wealth that is rigid and unchanging.
We have a modern day monarchy of elites accumulating and concentrating capital as the middle class slides into pauperizarion and debt insolvency.
The usually astute and perceptive Misean strangely writes, "So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization?"
I agree. The concern about dollar devaluation is huge. This doesnt mean it will not continue but in order to maintain even a semblance of economic growth, Europeans will be forced to devalue. The political pressure is increasing dramatically (by France in particular). It is affecting everybody including Switzerland.
In fact, dollar devaluation might well be the second major destabilizing force in the current financial crisis. It forces all kinds of unexpected and undesirable policy choices onto even prudent central bankers and politicians. The mess is just starting to unfold.
If the see severe recoupling then I expect the worst is still to come as the foreign reserves will abruptly get spent instead of accumulated with lots of unintended consequences both in the U.S. and abroad. We are well on our way!
Is lending impossible under a full reserve system? No, it isn't. However, the scenario Misean is describing means that no one who can't give up all of their liquidity is going to be loaning money to a bank. What his approach is trying to do is to eliminate a mismatch in duration; fractional reserve banks are effectively lending long and borrowing short, with the duration of the borrowing being anything from zero to infinity.
However, unless you can find enough individuals willing to lend long directly, eliminating the fractional reserve doesn't solve the problem. Any loans that banks make that are longer than the duration of the time deposits have the same problem. It can be time to redeem the CDs, and if the bank can't call the loans back in, it defaults.
This is just dumb. Loans may have existed forever, but efficient loans have not.
Technically, deposits are a form of borrowing. Who gives a toot which form of borrowing banks use? Aunt Mabel's checking account and callable paper have the same effect. Aunt Mabel's CDs and noncallable paper also have the same effects. So what if the bank shifts from CDs to noncallable paper?
"... the whole point of banks is to match up people with money with people who need to borrow..."
El Cliffo | 03.29.08 - 1:43 pm
The whole point of banks should be to hold, secure, and protect a physical store of value.
In a free market, I'm sure the lenders and borrowers will find each other just fine without the middle man.
I'm not a religious man (being a Stoic, and all), but I do find it interesting that in the Bible, the only people who got an ass whuppin' from JC were the money-changers.
As Polonius warned Laertes:
"Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry."
There are many very old cultural prohibitions and caveats regarding what we're currently into.
Stupid past generations - they didn't know anything. They didn't even have TV. Losers.
The main foreign holders of dollars are foreign governments that are running on a Brobdignagian scale vendor financing frauds like those run by the managements of Nortel and Lucent during the telecoms bubble.
They have no more incentive to call in those loans than did Nortel and Lucent management -- calling such loans can only lead directly to the exposure of the fraud.
That can happen only if (when?) those governments fall, and are replaced by new governments wishing to discredit the old.
Marcus Aurelius, I was mainly quoting the other guy about the whole point of banks, as we know them, and that's what banks do. Of course, your version of what banks should do is much better.
RE I really see it as a big game of chicken with the huge US CAD at the source. The last time we had something like this it was with Japan mid 1980s & we worked out the Plaza Accords to constrain US CAD growth WITHOUT imposing a lot of tariffs.
Of course that was the root of a lot of japan's later problems (the lost generation resulted from that boom bust). That didn't go unnoticed by the ROTW.
Now or CAD problems are with a large group but especially China & Gulf States. It has to end - we need to pay our own bills & make some of our own stuff (import less or export a LOT more).
The key link is getting the RMB & Gulf currencies to float - after that happens, a lot of this will straighten out... except of course we in the dollar zone will be a lot poorer in purchasing power terms. So be it - we've been living on borrowed time (and money) for far too long.
The EU is caught dead square in the middle - there isn't a lot they can do about it (other than destroy their own currency).
This one will take time to work through. It isn't going to be pretty.
Does anybody ever think about how difficult it would be to ban fractional reserve banking? If you have ANY kind of callable loan it's trivial to set up something indistinguishable from fractional reserve banking. Geez, just have an investment company issue redeemable preferred and provide vault storage thereof and there you are.
Fractional reserve banking is about trust (so is lending). I don't trust fractional reserve banking, and I don't loan money (if you're a friend, I'll give you money if you really need it. If you can give it back in whole or in part, fine. If not, that's fine, too. No pint in making a liar and a cheat of you, and a fool of myself).
El Cliffo, you are just wrong. A fractional reserve bank can't lend more than its deposits + capital. Your quotation of WM's balance is inaccurate. Go take a look at the whole thing:
What you will see is that they have 327,913 million dollars in assets, most of which is in some form of loan. They have 303,329 million dollars of liabilities, all of which is some form of borrowing. Of that amount, 181,926 million dollars is deposits. They also have 24,584 million dollars of shareholder equity, most of which is retained earnings. Add 303,329 and 24,584, and you magically get 327,913, just like my accounting professor says you should.
Fractional reserve banking is what allows reserves to be less than total deposits. Go read about it.
I agree the U.S. CAD is at the root of the problem and it will get resolved one way or another.
The Gulf States are in a difficult position right now, caught between inflation and political loyalty/international stability. Loosening the dollar peg has internal as well as external political consequences. It is politically tantamount to publicly severing ties with the U.S. which no one in power in these countries is willing to do at this point. This is why it has taken so long and may take quite a bit longer especially by SA who is the key to how this develops.
I dont see China moving to a floating RMB soon especially not in the current environment. The last thing the Chinese want is to be subjected to the whims of foreign players and having even less control over their destiny in a time of crisis. The last few months have made such a move an impossibility IMO.
Fractional reserve banking is about trust (so is lending). I don't trust fractional reserve banking, and I don't loan money (if you're a friend, I'll give you money if you really need it. If you can give it back in whole or in part, fine. If not, that's fine, too. No pint in making a liar and a cheat of you, and a fool of myself).
Fine. You're more than welcome to keep your money under your mattress. The rest of us would prefer to have a functioning economy.
"This doesnt mean it will not continue but in order to maintain even a semblance of economic growth, Europeans will be forced to devalue."
Actually, Eurozone EU15 total trade balance was 14.4 negative for year 2006 and 23 billion positive for year 2007 despite huge euro appreciation!
Even Italy improved, deficit went from -20 billion up to -10. Both imports and exports are about 1450-1500 billion euros.
Eastern Europeans actually have much bigger deficits and are much more in trouble and that shows in EU27 statistics, deficit was -192.2 for 2006 and -185.1 for 2007.
"People who will not turn a shovel of dirt on the project, not contribute a pound of material, will collect more money, from the United States, than will the people, who supply all the material and do all the work. This is the terrible thing about interest (usury). . . But here is the point: if the nation can issue a dollar bond, it can also issue a dollar bill. The element that makes the bond good, makes the bill good also. The difference, between the bond and the bill, is that the bond lets the money-broker collect twice the amount of the bond, and an additional 20%. Whereas the currency, the honest sort, provided by the Constitution, pays nobody, but those who contribute in some useful way. It is absurd, to say that the country can issue bonds, and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the people. If the currency issued by the people were no good, then the bonds would be no good either. It is a terrible situation, when the Government, to insure the national wealth, must go into debt and submit to ruinous interest charges, at the hands of men, who control a fictitious value of gold. Interest is the invention of Satan." - Thomas Alva Ediso
Meriwether's largest hedge fund - profitable in each year since its 1999 launch - is down 28% y-t-d. The fund now surely faces investor redemptions, a problematic "high-water mark" (hedge funds must make up for past losses before they can again collect performance fees) and a resulting exodus of top talent
re-written at end of paragraph to be....
"... and a resulting exodus of top loser's"
You'r fixin' to pay through the nose for your "functional economy". Under the mattress, in the bank - makes no difference if it's based only on trust. Federal Reserve Notes are not very good money, lately.
Banning of central banking isn't going to happen. True. They run the show. We are their subjects. Throw out all the textbook concepts of our society, economy, and polity. It's not what we were told by the Ivory Tower. The education system is like the media...it's owned and controlled. We are shouting at the wind. The cycles are planned and executed IMO.
Endless war is profitable...it will continue. We still think there are nations and there are politically but the evolution of the global economy is into a system where the big players can play.
The system is cheap cheap labor, drop or default the expensive safety net, declare more wars in the Middle East, build more prisons, heighten Homeland security, execute the executive orders when the time is right. Does this sound like democracy and the free market? No.
It's the central banking system where the big money behind the banks take over the assets and resources.
Americans are losing their home equity nest egg as we speak. A whole generation of savings is being wiped out in a matter of months it appears.
"Usury: A charge for the use of purchasing power, levied without regard to production; often without regard to the possibilities of production." - Ezra Pound, Canto XLV
I would argue forcefully that the leveraged speculating community for some years now has assumed the key role of unappreciated marginal source of demand for risk assets - risky debt instruments financing asset inflation, in particular. Over time, Wall Street "alchemy" mastered the process of transforming virtually unlimited risky loans into perceived safe and liquid securities. A sizable - and growing - chunk of these securities were then purchased on leverage by the rapidly expanding speculator community, in the process fueling an increasingly mal-adjusted U.S. Bubble Economy. We're now witnessing it all beginning to wind down. End of an Era
"... Actually, Eurozone EU15 total trade balance was 14.4 negative for year 2006 and 23 billion positive for year 2007 despite huge euro appreciation! ..."
I know. However, this isn't at issue here. The fact is that the EUR has appreciated significantly over the past two years and a lot of these exports were done under contracts written assuming very different currency rates.
The recent actions by BMW and Volkswagen to expand production in the U.S. are not accidents. The screaming of Airbus is not an accident, their hedges have evaporated. Now European producers have to be even more competitive with U.S. ones and it will be extremely difficult without cutting domestic wages.
Cutting wages in the current climate of inflation could be somewhat difficult, just look at recent German wage negotiations. Europeans, rightfully so, are extremely concerned!
"It has to end - we need to pay our own bills & make some of our own stuff (import less or export a LOT more)."
Check!
Marcus,
"You'r fixin' to pay through the nose for your "functional economy". Under the mattress, in the bank - makes no difference if it's based only on trust. Federal Reserve Notes are not very good money, lately.
You have been robbed, and you defend the robbers."
Pure poetry. I should grab the guitar and fire off a few riffs under that theme.
How about family/friends reserve banking? It seems to be working for me? Brings back trust in lending. Why not lend with lower % rate than cc cards, auto, personal, business? I'm making more interest off a relative than a cd and I TRUST them. The heck with banks. I'm betting against them one small loan at a time.
I like the old west way of business and crime. If someone stole your money, you caught them and dealt with it however that may be! You murder or rape, someone would find you and make sure you didn't do it again. Today, they let all of them off to easy!!!!
--
I wonder what happened to the idea of limiting the powers of the governments, especially, the Federal govt? When it comes to the economy and interventions in the economy the Federal govt and the Federal Reserve have unlimited powers. No?
Theories of govts and political systems are fine, but it is the practice that matters.
Federal Reserve banks are privately owned corporations (Lewis vs. US, case #80-5905, 9th Circuit, June 24, 1982). As such, they are not required by the Securities and Exchange Commission to publish a list of major shareholders. Federal Reserve notes are not backed by gold, but by the assets of the Federal Reserve, namely the power of Congress to tax people.
There is a widespread assumption that there is no bottom to the pockets of the Federal Reserve. Not quite. The Fed has a finite amount of actual assets--mostly Treasury obligations backed by the "full faith and credit" of the government, which is a commitment to raise taxes if necessary to pay the debt. These assets total about $800 billion, some $400 billion of which have been obligated to back up loans. If the loans default, the Fed has to sell the Treasury notes in order to settle. If there are enough of these failures, the Fed could exhaust its assets. It would then have to resort to really "printing money"--issuing promissory notes not backed up by anything--or get bailed out by the Treasury, putting taxpayers further in the hole. Long before the Fed is down to the last of its stash of Treasury notes, more skittish domestic and foreign investors will flee the dollar. Interest rates would balloon and prices of oil and other imports would skyrocket. Credit would freeze, investment would plummet and tens of millions of Americans would be out on the street, with neither a job nor a roof over their heads.
Unlikely? Yes, still. Unthinkable? Not anymore. Estimates of Wall Street's losses already run well up to $500 billion. A 20 percent drop in housing prices would translate into a $4 trillion drop in the value of housing assets. A large chunk of that loss would destroy the value that underlies the mortgage-backed securities the Fed has now agreed to guarantee.
But well short of such a worst-case scenario, the country seems headed for major economic damage that will severely test whatever we have left of safety nets. It took five years from the time the recovery began in 1983 for the unemployment rate to return to pre-recession levels. Once we reach the bottom of this trough, it could be a very long time before American consumers, whose spending accounts for some 70 percent of our economy, crawl out of the debt hole and back into the shopping mall. The Japanese have still not recovered from their similar housing/debt crash in the early 1990s.
Virtually everyone who has studied Japan in the 1990s and the United States in the 1930s concludes that in both cases the government acted too late with too little in order to stop the debt dominoes from tumbling through the entire economy.
But the American political system seems as seized up as the credit markets. As the Federal Reserve tries desperately to put an overdosed Wall Street on life support, President Bush remains dizzily detached, periodically repeating his moronic mantra against government intervention in the free market. At a press conference that is impossible to parody, Treasury Secretary Henry Paulson announced the Administration "plan" to safeguard the nation against a future crisis. It boiled down to a hope that the finance industry would do a better job of policing itself and that individual states would see to any new laws that might be needed. In what the New York Times dryly reported were his "most extensive comments to date about the credit and market problems," Paulson, formerly co-chair of the investment firm Goldman Sachs, firmly told reporters that he was not interested in finding "scapegoats." No kidding.
I think there's another huge disaster coming in defined benefit pension plans. Here's some rough numbers:
Public DB plan assets: $3 trillion.
Private DB plan assets: $2 trillion.
PBGC assets: $50 billion.
Total assets: $5.05 trillion
Total liabilities @5% discount rate: $5.5 trillion.
Total liabilities @3% discount rate: $6-7 trillion.
The discount rate is important because liabilities of DB plans are the discounted present value of expected future payouts. Pension Protection Act mandated a less favorable discount rate, and now interest rates have dropped.
But asset numbers above don't include losses from mortgage-backed and asset-backed securities and stocks. If assets decline sharply in a downturn, there could be a $2-3 trillion shortfall.
You can't let DB plans just pay down assets to current retirees until they go broke, leaving future retirees stranded. There would have to be a fairness carve-up and/or bailout.
Part of the shortfall could be made up by heavy contribution costs mandated by PPA on plan sponsors. This could hammer earnings for years.
Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments -- potential relief for tens of thousands of struggling debtors.
Sheriff John Green said he would halt sales of foreclosed properties in April and would seek a court order extending a moratorium for an unspecified period.
His action follows a nonbinding resolution passed unanimously by the Philadelphia City Council on Thursday calling on Green to stop the sales to give borrowers more time to seek a settlement that would prevent them from losing their homes.
When law enforcement decides to stop enforcing existing law and use "non binding resolutions" as the new law to go by the inmates are running the asylum.
This report from Novosti looks credible to me. Note as well that another admiral, after Fallon, opposed to a conflict with Iran, one John "Boomer" Stufflebeem, was fired from the Navy on flimsy charges on March 24. That's two admirals in two in two weeks--one the head of Centcom, the other the head of the 6th Fleet. Right after Cheney left Saudi Arabia, the kingdom ordered preparations for nuclear fallout. Moreover, Cheney visited countries encircling Iran. I wonder if an attack on Iran would be launched in part to distract the world from a financial meltdown. What would the effect be on the Treasury market? Flight to safety? Or still more dollar aversion? Oil prices would likely rise. Wouldn't gold be a more likely safe haven than dollar assets?
MOSCOW, March 27 (RIA Novosti) - Russian military intelligence services are reporting a flurry of activity by U.S. Armed Forces near Iran's borders, a high-ranking security source said Tuesday.
"The latest military intelligence data point to heightened U.S. military preparations for both an air and ground operation against Iran," the official said, adding that the Pentagon has probably not yet made a final decision as to when an attack will be launched.
He said the Pentagon is looking for a way to deliver a strike against Iran "that would enable the Americans to bring the country to its knees at minimal cost."
He also said the U.S. Naval presence in the Persian Gulf has for the first time in the past four years reached the level that existed shortly before the invasion of Iraq in March 2003.
Col.-Gen. Leonid Ivashov, vice president of the Academy of Geopolitical Sciences, said last week that the Pentagon is planning to deliver a massive air strike on Iran's military infrastructure in the near future.
A new U.S. carrier battle group has been dispatched to the Gulf.
The USS John C. Stennis, with a crew of 3,200 and around 80 fixed-wing aircraft, including F/A-18 Hornet and Superhornet fighter-bombers, eight support ships and four nuclear submarines are heading for the Gulf, where a similar group led by the USS Dwight D. Eisenhower has been deployed since December 2006.
The U.S. is also sending Patriot anti-missile systems to the region.
Me too - I have two son's military age (one is expecting a son of his own this summer). The only good thing you can say is that the report comes from Russia - their press is a jingoist as ours.
Misean, how could we go wrong with such a great amendment? Just look at Zimbabwe. Their stock market is going through the roof and the zimbabwean people have more money than god. Way to go!
PS It also worked very well during the "Weimar republic", in France (John Law), etc. You can not go wrong with that kind of amendment.
"that would enable the Americans to bring the country to its knees at minimal cost."
How fucking stupid are they?!?!? From IRAN side it is like shooting ducks in bathtub. They do not have to worry about sinking and those mountains...you could not even hope for better place for anti-ship missile batteries.
I have trouble believing that the Fed would allow itself to be dragged down with everything else. Sure, the Fed is pumping liquidity at a reckless rate trying to prevent deflation, while speculators mis-read this as inflation. But at the end of the day, deflation will prove to be unavoidable and the Fed will not chase it to its own demise. It will allow what must happen, to happen, and preserve itself. The intinct of survival and self preservation will kick in just as it has on Wall Street.
Here we go folks, the people that brought you this current catasrophy, the privately owned and operated Federal Reserve controlled by it owners, the member banks, are about to control our entire regulatory structure of the financial system.
Hank Paulson will unveil a plan to give the private bankers at the Federal Reserve the power to regulate most of not all of our financial system by passing Congress altogether... That's rght privatization of our entire financial regulatory system.
Misean said: "The Fed is putting patches on a damn about to burst."
There you go again, comparing unchanging laws of physics to societal laws which can be changed at will.
When the levees broke in New Orleans, that involved physical laws over which we had no control.
When FEMA didn't respond fast enough, that was because of societal laws over which we did have control.
Do you see the difference?
Seriously, though, if an EMT goes to an accident site and stabilizes an injured victim by stopping his bleeding until he can get surgery at the hospital, that would also be "patching a damn about to burst."
If you're going to use inflammatory language like this, the least you can do is define "burst" in real terms that everyone can grasp. Are we going to have a bank holiday? Stock markets closed? Unemployment at 8%? Gasoline rationing? Food shortages?
And perhaps some mention of how much of the "dam burst" has already been factored-in to a market where the banks have already taken a severe beating (Bear, Stearns stock down to single digits from $170, for example, or the SP500 going through a sizeable -17% correction).
I "get" the whole von Mises thing and all, I've been reading Prudent Bear since the last Millenia, but come on.
The Securities and Exchange Commission is out today with a letter to companies that own a lot of financial instruments whose current market value must be reported to shareholders. For more than a few companies, disclosing market values is neither easy nor convenient.
The issue is the application of SFAS 157, which governs the way companies compute fair value of assets, assuming they have to do so anyway. (Banks and brokers have to do that a lot, but I wont go into the details of when they can avoid it.) The rule took effect on Jan. 1, although some companies adopted it last year.
The rule sets out three categories of assets, with different ways to value them. Category 1 includes assets with easily observable market values. I.B.M. stock closed today at $114.57, and it is not easy to justify a different value if your quarter ended today. Category 2 is a little fuzzier, where there are observable markets that provide a good guide to prices of your asset, even though there is no direct market. And then there is Category 3, which is essentially mark to model.
In companies that adopted Statement 157 early, we have seen a lot of assets end up in Category 3. That may be proper, since there are plenty of complex financial instruments for which there is not much of a market these days. But it also provides companies with a way to fudge figures.
The S.E.C. letter asks companies for some disclosures on how they came up with those values, and on why a lot of assets may have moved into Category 3. Such disclosures can only help investors.
But one part of the letter stood out to me, providing an excuse for companies to ignore a market value if they dont like it (italics added):
Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale. Only when actual market prices, or relevant observable inputs, are not available is it appropriate for you to use unobservable inputs which reflect your assumptions of what market participants would use in pricing the asset or liability.
That sounds to me like an invitation to fudge. Some people on Wall Street think that nearly every sale today is a forced sale. There are entire categories of collateralized debt obligations where most, if not all, of the trades, occur because a holder has received, or expects, a margin call.
What the S.E.C. should require is a disclosure when a company concludes that a market price should be ignored because it came from a forced liquidation or distress sale. Then there should be a disclosure of how much lower that distress price was from the value the company is using in its own valuation.
Alternatively, there could be a simple rule, at least for banks. If you will ignore this price as irrelevant when you decide whether to send out margin calls to those to whom you have lent money, then you can ignore that market price when you make your own reports. But if you wont lend based on a valuation that ignores actual market prices, then you should not use that valuation for your own accounts.
we aren't Japan. We will be lucky if we end up like Japan
Born in Cali, 1967. Lived in Tokyo, 1992-2000. Back in Cali, 2000-now.
The LA Riots of 1992 were a formative experience for me (lived in West LA at the time).
Japan has a lot of impoverished people, but doesn't have entire communiities of people that will riot like that. Much less class distinction helps, they've got the same hereditary wealth element that we do but the middle class goes further down the totem pole.
I think you may be missing the intent of the exemption in 157 and the problems with it.
It's entirely appropriate to ignore a distress sale on assets expected to be run off. Consider a factory producing widgets. The factory next door may have been sold at a distressed price for any number of reasons, none of which materially impair the ability of the widget factory to produce widgets. Users of WidgetCo's financial statements expect to be able to assess the prospects for widget production profits, and don't likely consider the carrying cost of the factory as available liquidity.
The problem arises where the asset in question is one in which investors and lenders are encouraged to think the asset can be liquidated to meet short term cash needs. The presumption is that the asset can't or won't be held for income and run off, but rather is available for sale to meet calls for liquidity.
I'm certainly no expert on FAS157, but it seems to me that the problem is in the practical implications of using a rule where a principle is more appropriate.
Yes, because giving the Fed - the unregulated 4th branch of our new government - MORE power makes a lot of sense. After all, they did so well in preventing Bubbles under Greedspam and have thus done a great job protecting the dollar and keeping prices stable under Bubbles Benover Bernanke. Right...
These types of headlines and systemic changes are really commonplace and to be expected we are "likely to skirt a recession and see accelerating growth in the second half of the year."
Average Joe, I think the NY Times headline - "markets stable" - is a little extreme - it reads like the "Plunge Protection Team".
These are proposals to change the regulatory system. Some are probably good, some bad - and it will take some reading to figure out the difference.
Best Wishes.
Why do all these little stories of late break on the weekends while the markets are closed? Seriously the bloomberg article has the draft swirling around DC all week. Things this big are never secrets for that long. Link:
Paulson May Propose New Financial Overseers, SEC-CFTC Merger - Bloomberg.com
Great! Reorganizing the regulators in the middle of the crisis. This is all about generating political cover. It will do nothing to prevent what is currently unfolding.
"Keep Markets Stable"? Which markets are stable?
Effe
This is obviously bullish for the market, even if it's bearish. Know what I mean?
Beware whenever the Bush administration tries to "modernize" anything. Modernizing forest management means more logging; modernizing air pollution means more pollution; modernizing social security means less security.
Hooray for the PPT! Big rally on Monday!!! Treasury puts more regulation on financial services companies...
Oh wait.
Prudent Bear had a great writeup on this one...
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The good part is, SWAT will preempt by swapping dirt for treasuries.
"Duh markets vill remain schtable und dey vill like it! Ve wil send die SCHVAT teams into duh wery korners uf duh industrie und ve vill prevail!"
Wonderful- Atlas Shrugged revisited- who IS John Galt?
Funny, so the FED gets to allow the housing bubble to explode and turn a blind eye saying it's good. Then, they say they need MORE power to regulate. Huh?
This is a power grab by pigmen. Any time someone screams for more power in times of crisis is when you absolutely know it is a power grab.
Billy Shears writes:
This is obviously bullish for the market, even if it's bearish. Know what I mean?
I agree. I think analysts are going to be working all weekend long to come up with a bullish rationalization for this one.
You can't polish a turd into something other than a shiny turd.
You can't make the US financial regulatory apparatus into something other than a joke because it's going to be made of the same career failures. You can grant them new Terror Fighting(tm) powers despite the fact that they are the primary authors of this mess, but you can't make them any smarter.
Winners may not always repeat their wins, but losing formulas produce consistent results. Why not ask yourselves, "why is all the talent in the Empire in hiding from official jobs?" rather than how to give yourselves new titles and new promotions?
I know some of you from the Fed are reading this and I want you to stop and think about what a total failure your institutional response has been.
Now, in the MIDDLE OF THE CRISIS, AND IN THE MIDDLE OF AN ELECTION YEAR, you decide to start the food fight into what kind of regulator you are going to have to be to prevent the next problem you just created? How about not approving so many megabank mergers over the last two decades and not creating a massive global credit bubble to provide economic cover to the Administration in the wake of the WTC attacks? No reconfiguration of the boxes on the TO&E can help until you as an organization can appreciate the scope of your failure. All you are going to do is waste resources and political capital pursuing stupid and unworkable solutions.
Thanks in advance for turning my country into Japan.
Re: I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years, Mr. Paulson will say in a speech on Monday,
See that's the whole f--king key.
If we have the periods of stress every 5-10 years, i.e. frequent mild recessions, then the economy basically wipes it's own ass.
The Federal Reserve is largely unnecessary.
Alas, these recessions are a bit like going to the dentist -- painful in the short-term but beneficial in the long-term. And the politicians in office at the time don't want to be associated with any kind of discomfort, lest they be thrown out next election.
So instead of trying to educate the public that this occasional distress is necessary, they now propose something that basically amounts to a financial SS.
I don't dismiss the need for some regulation and oversight -- I think an entity that provides liquidity in times of crisis and increases borrowing costs durring times of excess is highly desirable in an ideal world.
Unfortunately such an entity, in practice, is very likely to be abused by the power hungry and the status quo for personal gain at the expense of the general population.
It is simple fact that the history of the most powerfully concentrated governments is the history of the most savage abuses against humanity.
The only antidote to these abuses is an informed, concerned, and politically influential populace. As I understand it our nation was founded on this concept. And maybe I'm overly idealistic, but I like to think this accounts for a lot of the United States' success in the past.
This is the problem I have with regulation right now -- if the people that make up this country aren't in the position to understand its importance and demand that it be to their benefit, then this regulation is very likely to be an instrument of subjgation.
I don't think most people here are at the point where they "get it" yet.
But I think there are some people who do, and want to expliot this situation for their own personal benefit... without regard to anybody else.
This proposal is another attempt to transfer power from the congress to the excutive.
The Bushies are using this crisis, like all cirses, to further their reach.
Maybe they meant to say that the market SMELLS like a stable?
AC,don't forget to add "Armed" to informed and involved.
Extreme measures in the face of what everyone in public is saying will be a "mild recession" (2nd half 2008 growth!) makes you wonder what is going on, under the hood, at the Lehman Bros, Washington Mutuals, Etrades, and Wachovias of the world.
Can we surmise insolvency?
This document certainly seems written by several different people. In some places it stresses enhanced regulation, in others it talks about remaining competitive with other financial centers.
I think this is a great time to introduce reform, if for no other reason than the current Wall Street actors can't show up in Washington and claim everything's fine and laissez-faire is working just dandy. No doubt there will be people, just like the NRA after a massacre, who say "Now isn't the time..." I really wonder how much deference Greenspan's views will be given on his Legacy Saving Tour 2008.
Bullish? Bearish? This is a regulatory issue, and unless someone can argue that whatever changes will affect the long term returns of the markets (good luck proving that), I see it as generally neutral with a small bullish bias if it gives renewed confidence fair, functioning capital markets.
That said, Washington can't even figure out its approach to the comparatively minor issue of what to do with 'distressed' mortgagors and mortgagees, and they've had months to work on that, so I'm not seeing legislation passed and signed on regulatory reform anytime soon, unless it's of the fig-leaf variety.
Paging the Great Moderation! Urgent call on the white courtesy phone for the Great Moderation!
this is the "shock doctrine" in action. Those of you who have read the book by N. Klein recognize it.
This is about the unitary POTUS seeking more power. What will be the oversight to prevent abuse of this power? Somehow now the Treasury department will know what to do about a market and economy that they had a hand in trashing.
Did anyone notice this gem about Freddie and Fannie buried in the executive summary:
...Given the market misperception that the federal government stands behind the GSEs' obligations...
- NY Times...
Isn't this saying, the govt does not back the GSE's? I thought there's been an implied backing up until now. So Freddie and Fannie are on their own?
Oops. Too late...
Tom Stone writes:
AC,don't forget to add "Armed" to informed and involved.
Tom Stone
Maybe 100 years ago I'd agree with you, but in a time where the government has tanks and jets and nukes, "armed" in the traditional sense is an anachronism. Once we have the technology to kill everybody on the planet it doesn't make much since to talk about killing each other.
If we avoid that fate, then I think "wars" will be fought and won with information and the capacity to process it and act on it before the next guy.
Given that an war fought on a battlefield is necessarily a game after the invention of WMD, the wars of the future may be fought in the financial and economic arena.
Right now I see that the Average Joe in the US is almost powerless there.
Sorry to be cheesy, but it's time for a different definition of "armed" IMO.
Everything being done by this lame duck administration is being done to further their ideological goals. Regulation is not one of their goals.
The only reform I want to see is the revocation of the Federal Reserve Act. The institution as a whole has proven to be plague upon the nation. It has presided over and caused the Great Depression I, the Dot-Com stock market bust, and now the Great Depression II. Abolish the Federal Reserve.
...Given the market misperception that the federal government stands behind the GSEs' obligations...
I bet every one of those analysts will skip that line.
This is obviously bullish for the market, even if it's bearish. Know what I mean?
I hope Paulson tells all his friends to go short.
That would be awesome.
Will the Bush Administration have anything whatsoever to do with these new powers? Because if so, I'd rather wait until they are gone. I don't care how bad things are; the Bushies can make them far, far worse.
Da Man, no, only GNMA is backed by the Treasury's ability to tax.
Da Man,
your link doesn't work.
"So Freddie and Fannie are on their own?"
Only until they blow up and that is exactly what is going to happen.
Erik,
here is the link. Page 13
- NY Times
Sorry about the link, not sure what's wrong with it. You may have to go to the NY times, and look at page 13 of the executive summary of this article.
Below is the paragraph in which it appears. Seems to me, if the gov't is coming out and explicitly saying Freddie and Fannie are on their own based on their own resources, the mortgage industry is vaporized. Until now, I think there's been implied backing. This might be worse than anything that is proposed.
Context Paragraph from Ny times executive summary:
Finally, some consideration should focus on including GSEs within the traditional prudential regulatory framework. Given the market misperception that the federal government stands behind the GSEs' obligations, one implication of the optimal structure is that PFRA should not regulate the GSEs. Nonetheless, given that the federal government has charged the GSEs with a specific mission, some type of prudential regulation would be necessary to ensure that they can accomplish that mission. To address these challenging issues, in the near term, a separate regulator should conduct prudential oversight of the GSEs and the market stability regulator should have the same ability to evaluate the GSEs as it has for other federally chartered institutions.
Maybe 100 years ago I'd agree with you, but in a time where the government has tanks and jets and nukes, "armed" in the traditional sense is an anachronism. Once we have the technology to kill everybody on the planet it doesn't make much since to talk about killing each other.
Not to be insulting but, you are being simplistic. Killing everyone on the planet is not requiring of very much skill is war is politics by means of force. The measure of military force is the ability to affect nuanced policy changes at affordable costs. Killing everyone is an infinitely bankrupt cause with an infinitely high cost.
No guerilla army ever beats its enemies on the battlefield or matches them man for man until the ragged conclusion of affairs. Insurgency warfare is a logistical and political contest, not an armed struggle per se. Tanks and jets are, if anything, beneficial to the insurgent because they represent the enemy's attachment to fixed hierarchies and capital goods that can be subject to indirect pressure. The idea that the people of America could kick hard enough to change government policy isn't very hard to believe. The populace of Iraq appears to be kicking quite hard to me with little more than small arms.
I don't really see how poo-pooing the armed individual accomplished much other than absolving you of the moral responsibility of tending to the state at the ultimate risk of your life. Not that I'm an advocate of armed insurrection under the current conditions but there are situations like canceled elections where there's really no alternative other than to let your Republic expire.
Is it certain? No life saving measure is; the gun is the last, worst tool of the political activist. That doesn't make it less important or real, as so much trades on the threat of that tool.
Paging the Great Moderation! Urgent call on the white courtesy phone for the Great Moderation!
Welcome to the Great Demoderation.
This mid-cycle slowdown could turn out to be the worst downclimb in history if the Federal Reserve chairman and his essentially limitless term isn't given enough power over the US economy to supercede that of the president of the United States who is constitutionally limited to an 8 year term.
Nothing funny going on here.
Obama is copying his cousin Bush with the modernize/update/21st-Century euphemisms for the power grabs.
From July 2007 to now: http://tinyurl.com/2utabd and http://tinyurl.com/2vwpv6
Does the FDIC hiring and SWAT team constitute the PPT's "Surge" to defeat the evil-doers?
All we need is a return to the gold standard and to fix the value of the dollar at $500/oz. of gold.All these problems will vanish.VOTE FOR RON PAUL!!!
Wonderful- Atlas Shrugged revisited- who IS John Galt?
Richard | 03.28.08 - 10:19 pm | #
Last I heard John Galt moved to rural Colorado and is cooking crystal meth and growing greenhouse weed...
ac:
Reading everything and my thought was akin to what you just wrote, i.e. we have a democratically elected (no snarky remarks please) but an economic czar who'll have his/her hands into everything.
America moves from a republic to a corporation?
Don't think that I care for this.
I don't really see how poo-pooing the armed individual accomplished much other than absolving you of the moral responsibility of tending to the state at the ultimate risk of your life. Not that I'm an advocate of armed insurrection under the current conditions but there are situations like canceled elections where there's really no alternative other than to let your Republic expire.
There are still practical reasons for being "armed" in the conventional sense.
What I'm saying is that if you think that makes you safe, you're kidding yourself.
The hedge fund industry has executed the greatest hold-up in history without so much as a gun-shaped lump in their pocket.
Think about that.
How did they get everbody's hard earned wealth without a single act of physical violence?
Thanks in advance for turning my country into Japan.
byzantine_ruins | Homepage | 03.28.08 - 10:22 pm | #
I've said it 100 times - I'll say it 100 more... we aren't Japan. We will be lucky if we end up like Japan.
Another report that thinks 'subprime' is the root of the current problem.
In housing, in banking, in markets, in anything, the only way to stabilize against falling or crashing markets if to prevent matkets from rising in other than a slkow, controlled manner. What agency or administrator - or President, for that matter - has got the smarts or the guts to do that?
What's just amazing to me is that the folks that got us in the mess get more power to get is into an even bigger mess!
In 2005 the Greenspan Fed couldn't be a bigger cheerleader for the wonders of the financial innovations that brought us securitization and immense growth in illiquid derivatives. Paul Volcker on the other hand was warning that we are skating on thin ice and all this debt and leverage was bound to blow up.
Its not regulations as much as the regulators. If you get a fox to guard the hen house - what can you expect? The problems that we face now in the credit markets are the most telegraphed issues. Blogs like this one came about because many people recognized the insanity as common sense and prudent practices were thrown out the window. No one should be surprised. We will continue to slip down the slippery slope as long as crony capitalism is what we practice.
Another report that thinks 'subprime' is the root of the current problem.
Well, Greenspan was the champion of 'subprime'.
Again, that's the Federal Reserve's baby.
dryfly - i'll be happy to back you up soon on that Japan vs US argument. The only thing IMO that might keep us from spiraling much lower than they went, is that we will have a growing population, and a growing working age population over the next decade. But we've got bigger problems of course, and one possible result of that plus above is that we only manage to achieve a much higher unemployment rate in the end.
Also, the more you read about Japan in the 90s, the more you'll come across journal articles which reference a certain bearded someone who is up to his ears lately. It wasnt an accident that he was chosen to run the Fed when he was, because it was already clear to many then that he'd be using every one of his techniques for trying to stave off the effects of a credit bust that might end up working its way through to what are ever so euphemistically called endogenous capital constraints.
OK,
if that story is true it is high time to get nervous. I recommend World War Z by Max Brooks and getting used to the idea that force may be necessary to preserve oneself!
Yup, malabar. And that is what is so F-ed up about Hillary proposing to put Rubin and especially Greenspan on her little special committee that will take two years to even figure out how to define the problem. Ridiculous.
This just scrolled across the WSJ
Lehman May Be Victim of Fraud - WSJ.com
All we need is a return to the gold standard and to fix the value of the dollar at $500/oz. of gold.All these problems will vanish.VOTE FOR RON PAUL!!!
I wish we never had fiat. If we didn't I'd invent it and get richer than Midas... maybe buy a lot of land and gold with all the money I made - or whole industries.
Think about it. The thing that makes gold a valuable saving mechanism is because we run a fiat system & have central banks.
I don't hate the idea of the fed or central banks - I hate mismanagement & abuse of their mission: monetary stability. Demanding their abolishment is like demanding we abolish police & courts & jails because sometimes the mob boys buy cops & judges. The people have to take control of their gov't - no gov't just gives the pigmen even more room to move.
"If the citizens neglect their Duty and place unprincipled men in office, the government will soon be corrupted; laws will be made, not for the public good so much as for selfish or local purposes; corrupt or incompetent men will be appointed to execute the Laws; the public revenues will be squandered on unworthy men; and the rights of the citizen will be violated or disregarded."
Noah Webster - (1758-1843)
Slam-dunk
How did they get everbody's hard earned wealth without a single act of physical violence?
It wasn't a hold up - we were happy to let them have it. As a nation we all but mailed them the checks via mortgage refis & credit card payments every month.
Blaming them for this mess is like blaming lottery winners for turning the ticket. You pays your money and you takes your chances...
Slam-dunk
Anonymous | 03.28.08 - 11:31 pm | #
Where is Noah when you need him...
<a href="http://www.reuters.com/article/marketsNews/idUSSP28617520080329?sp=true>From Reuters
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House. (Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
dryfly-
You wouldn't get rich from inventing fiat because nobody would value it unless you were already extremely powerful.
Fractional-reserve on the other hand, was "invented" by someone. It was fraud and deceit from day 1.
Many analysts and some Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House. (Reporting by John Poirier and Glenn Somerville; Editing by Louise Heavens)
Minh | 03.28.08 - 11:35 pm | #
They are probably correct - I don't see a McCain presidency being terribly different from a Bush presidency. Won't be exactly more of same but close.
is this how they do it in Zimbabwe? i heard their stockmarket has been booming.
Fractional-reserve on the other hand, was "invented" by someone. It was fraud and deceit from day 1.
SweetHomeKilla | 03.28.08 - 11:37 pm | #
I love fiat - it is the great stuff since sliced bread. You don't have to own it - use whatever want to store value... but its cheap & readily plentiful for transactions. What could be better.
The way you screw up 'metal' as a store of value is by having gov'ts control it again. Metalheads really don't want that even if they say they do.
There are still practical reasons for being "armed" in the conventional sense.
What I'm saying is that if you think that makes you safe, you're kidding yourself.
Nothing makes me safe. Safety is an illusion. You can only be incrementally more secure. It's a dangerous illusion rather than an interesting irrelevancy because it really changes the price schedule for security for there to be an absolute, and people really love the concept.
The hedge fund industry has executed the greatest hold-up in history without so much as a gun-shaped lump in their pocket.
Next, I imagine the bankers will decamp with the capital in their pockets to Gulf Emirates and other city-states amenable to their economic ambitions. All our newfound joy for financial regulation and ineffectual centralization will make us merely an encumbered player on a stage that we no longer dominate.
Think about that.
How did they get everybody's hard earned wealth without a single act of physical violence?
Political connivance and outright treachery? But are the hedgies really the ultimate villains here? I see the central liquidity conduit / counterparty banks as the real villains of this piece. The hedgies are really no more than high-profile versions of the mortgage brokers -- guys who were convinced to take on outsized lines of credit and attempt to beat the house.
I think at least some of the big banks planned ahead of time to go "insolvent" once they were too big to fail, extract national-scale wads of capital, and run with the cash.
The Nation
The Big One?
"For more than a decade, we Americans have been living on an economic San Andreas fault--a foundation of fracturing competitiveness covered by unsustainable consumer spending with money borrowed from foreigners. A financial earthquake was inevitable. We don't know how high on the recession Richter scale the current crisis will take us, but it increasingly looks like, as they say in San Francisco, "The Big One."
Is This the Big One?
"Treasury officials have said they don't expect recommendations made during the current administration to become law but hope it will be used a springboard for the next resident of the White House."
No hope there either I'm afraid, lobbyist money doesn't care who they are.
Until lobbying is made the equivalent of bribery if money is changing hands and campaigns are paid for by the taxpayers with a set spending caps nothing will change.
Many people that have practiced fractional-reserve "banking" were killed as a result. It wasn't until the bankers grew large and legitemate that they were able to escape the punishments that society normal gives for enormous theft.
What is the root cause of the large disparity of wealth? You can't pinpoint any one organization to find the answer. It's the tools of fiat(the fed), deficit spending, the income tax, and complete control of congress by the corporate/banking establishment.
Why don't you people read history. What did Lincoln, Jefferson, Jackson, etc. have to say about these issues. What about the history of the previous national central banks, have any of you people who claim that fiat is fine as long as it's properly regulated say that you have read about the previous attempts?
We don't even have to outlaw fiat, we just have to enforce legitemate penalties for losing other people's money, remove the government sanctioned monopolies and fix our overcomplicated sham of a legal system. Then let the government carry out it's monetary role as defined by the constitution.
"Why don't you people read history."
Most of us here have, the sad fact is were out numbered.
The way you screw up 'metal' as a store of value is by having gov'ts control it again.
If you mean setting the standards of weights and measurement, then i disagree. If you are talking about the fractional-reserve gold standard, then I agree, because it's not the governments role to monopolize what can be accomplished by private industry.
Those that claim private industry can't do the job don't understand that eliminating the centralization also prevents such large scale boom and bust cycles. Failures tend to be smaller and more spread out over time. It allows for competition and eliminates the ability to control interest rates.
So, will this be "The Patriot Act II"
"for good and security" of the financial markets?
Many people that have practiced fractional-reserve "banking" were killed as a result. It wasn't until the bankers grew large and legitemate that they were able to escape the punishments that society normal gives for enormous theft.
If we have a real depression some of them might be killed again.
The point Killa is you are playing the house game with the house chips - that is the rule and it has always been the rule whether fiat or metal based chips are used.
If you don't like - go underground and stay away from fiat money as much as possible - turn every penny that falls in your hands into something else 'tangible'... land gold productive capacity whatever. Turn them back into fiat for immediate transactions only then reconvert any remainder or change back into something tangible again.
But fiat is NEVER going away... they disappear for sure but are simultaneously replaced with another. That genie is never going back in the bottle. Deal with it.
It's good that the Fed has more power.
I don't want to be projected int the corn field.
YouTube -
I have no idea where this link leads, but it might be good. It was in my cache.
Cheers,
So, will this be "The Patriot Act II"
I've been thinking of it as "Homeland Security for the Fed". Except of course, Homeland Security didn't try to found FEMA on the morning Hurricane Katrina was hitting New Orleans.
If you are talking about the fractional-reserve gold standard, then I agree, because it's not the governments role to monopolize what can be accomplished by private industry.
Frac Res has nothing to do with private industry. I'm damned glad we don't have private industry making more 'money' - they caused enough damage already.
I want well managed central banks to do what they are supposed to do - manage the fiat supply & not let it blow up. They do that then I'll take care of my own private business thank you very much.
Seriously - if you don't like dollars, don't own any. But they aren't going away anytime soon (just getting less valuable).
don't you guys get it?
it's the financial version of the department of homeland security.
a bunch of regulatory agencies lumped into one and trump the states (err f^@& the states) outta the way.
yeah, like make the national guard do 3 tours of duty over there and skip the draft.
sure it 'll work. just wait for the financial Katrina and you'll see
heckofajob coxxie, or snowie, or hankie or what ever.
yeah i did read it
no i didn't study it
i'll try to listen to reason, but...
the part about consolidating state insurance oversight with the feds, and merging the SEC with the CFTC just pushed me over the edge.
Frac Res has nothing to do with private industry.
Now you are showing your ignorance. In the US there have been more private fractional reserve currencies than there have been national. They were bad then just like now, but they would only devastate smaller areas when they fialed, instead of a global economy. It's the nature of debt based money.
But they aren't going away anytime soon (just getting less valuable).
don't you guys get it?
it's the financial version of the department of homeland security.
LOL. I was thinking the same thing this morning in the shower - that will be next>>>> 'The Department of Financial Security'. Roll all the economic related agencies (Commerce, Treasury, IRS, etc.) & the Fed into one giant department 'cause we know having it all under one boss makes it more efficient. Else the terra-ists might win...
Free market, babies!
FFDIC,
Thanks for the link, I like this
Otto von Bismarck once remarked, "There is a Providence that protects idiots, drunkards, children and the United States of America."
At least no bankers in the list.
White House caves. Bush & Co. to bailout specuvestors and dolts. Washington Post - front page.
Bush Readying Mortgage Aid Plan
At-Risk Owners Could Get Cheaper Loans
People who argue that the gold standard era was an oasis of free market tranquility should perhaps read some actual history books which cover financial and economic crises throughout history.
If you are unconvinced by that assertion, read Lombard Street (Bagehot). He discusses the origin of the banking system and money markets, and it explains why the U.K. economy massively outgrew everywhere else during the 1800s. One sentence summary: the money market/banking system allowed U.K. firms (and the gov't) access to the global savings of the country (eventually world), while on the continent it was nearly impossible to marshal those savings, as they were too fragmented.
As posters have argued above: fiat money - deal with it.
per msg above
Bush Readies Mortgage Aid Plan - washingtonpost.com
Late to this party, and I won't be staying.
My two cents:
Er..uh..
People who argue that the gold standard era was an oasis of free market tranquility
Who argued that?
I'm simply arguing that centrally controlled national fiat is a tool of tyranny. I would rather not bend over like a little bitch and "deal with it". Instead I will tell everyone who will listen about it's true nature.
btw. I have done just fine playing the inflation game, but I do have a heart for those suffering as a result of the fiat enabled war machine, especially the nuclear dumping(DU) that is going on.
Fiat isn't a concept. Or at least when i look in my pocket i don't pull out concepts, i pull out dollar bills and i purchase goods and services with them. So i'm unclear on how that's a concept. Seems pretty tangible to me.
But i like the new mantra here dryfly...fiat is here. deal with it. and if you don't like dollars, don't own any.
Now, to return to topic, the most interesting sidebar about this plan is the fact that the IBs will have to show the world their knickers if they want access to financial markets. That was said by Paulson who suggested that if the Fed could see under their covers, they would know if they were a risk or even how much of a risk. That seems pretty reasonable to me.
The ability of the crooks to mass-misinformed public is the root cause of tyranny, then and only then, the centrally controlled national fiat system is involved.
Here's an example:
All in all, the candidates’ positions on the mortgage crisis tell the same tale as their positions on health care: a tale that is seriously at odds with the way they’re often portrayed.
Mr. McCain, we’re told, is a straight-talking maverick. But on domestic policy, he offers neither straight talk nor originality; instead, he panders shamelessly to right-wing ideologues.
Mrs. Clinton, we’re assured by sources right and left, tortures puppies and eats babies. But her policy proposals continue to be surprisingly bold and progressive.
Finally, Mr. Obama is widely portrayed, not least by himself, as a transformational figure who will usher in a new era. But his actual policy proposals, though liberal, tend to be cautious and relatively orthodox.
Do these policy comparisons really tell us what each candidate would be like as president? Not necessarily — but they’re the best guide we have.
Bush Readying Mortgage Aid Plan
At-Risk Owners Could Get Cheaper Loans
The securities will be backed with Iraqi oil revenue
ipodus:
You should look up the word fiat.
The next one in to 1600 Pennsylvania isn't going to do anyone any favors either - well, at least no one who doesn't already have the phone # for the bat cave.
Sen. Obama brings Penny Pritzker in. Ms. Pritzker is currently the good Senator's National Finance Chair. Ms. Pritzker was the captain of the boat when Superior Bank tanked back in '01. How much did that cost the taxpayers? We know that it cost the depositors of Superior at least $50 million that they will never see despite the fact that the Pritzker family is worth somewhere in the neighborhood of $30 Billon of which roughly $2 Billion is Ms. Pritzker's personal wealth.
Sen. Clinton brings in JB Pritzker - Ms. Pritzker's younger brother. Mr. Pritzker is currently a spokesperson for the Clinton campaign.
You all know the Pritzkers whether you know them or not. Hyatt hotels, Marmon Group, TransUnion Credit, etc. If I remember correctly, Thomas Pritzker appeared on stage at a fundraising event with David Marriott and President G.W. Bush a scant four months after the FDIC placed Superior Bank into receivership.
Sen. McCain has Phil Gramm in his camp. In addition to being in the UBS ranks, we've got both him and his wife tied to Enron in at least two different ways, Gramm-Leach-Bliley and...Ok..I can't take anymore...
The "people" are going to lose regardless of which choice is made in November. There is an obvious opportunity for power to be grabbed and friends to be set up. Obviously, current rules and regs simply are not going to be enforced. That being the case, new ones are going to have to be created in order to allow the old ones to be forgotten as quickly as possible.
The Fed? "SWAT" Teams? Somehow I'm hearing "Stop! - Or I'll say "Stop!" again." I can't wait to hear the new theme music....
Minh | 03.29.08 - 12:57 am
Bush's track record as a businessman and a Governor was available to the electorate, yet he was elected, twice. Even when we knew what would happen, we elected him (in this case we does not include me - I saw the failed businesses and broken pensioners he left in his wake).
Marcus Aurelius,
"we elected him" ?
You means in "Florida recount" ? '
Or you're one among those 13 justices ?
'cause we know having it all under one boss makes it more efficient.
heh, that's right, nobody's been appointed "~~-Czar" for this crisis yet.
guess we've been czarred out-with this admin. 297 days.
Nice post. Really liked it..
Don't forget to update it regularly.
I am looking for new updates dieing to read more stuff from you ..
JOB-HUNT
Aims at helping the Fresh Graduates, Engineers, MBAs to get jobs in good companies
JobHolic.co.in
This administration has been seeking "regulations" in order to prevent congress from passing more stringent rules. The only purpose of this proposed regulation, besides "too little, too late" is to try to divert Congress.
I'm all for it: i'm also for a new Federal Automatic Regulation Tax.
This year we'll start it at 1/2%, increasing over the next twenty years to 7%, in 1/4% annual increments.
"Fiat isn't a concept." Of course it is but so is gold and silver and anything else that we use as a store of wealth.
Digging into the archives I have an actual transcript of the original negotiation of that infamous island that has been the center of so many shenanigans. As in many things PC varies during the context of the times
Dutch translator We want to buy this island from you.
Native 1" WTF
Native 2 Man we only have the hunting rights to the lower east side every third full moon. Tell him we sell him that.
Chief "What are you going to give us.
Dutch translator We will give you ten gold coins
Native 1 WTF
Native 2 What are we going to do with that.
Chief They are pretty but what are they used for?
Dutch translator You can put it in a bank so no one can steal it and it can gain interest.
Native 1 WTF
Native 2 "I am not sure my wifes mother will understand."
Chief We are a little short of those facilities here
Dutch translator "Well you can always dig a hole and put it into the ground so no one would know that you got it."
Native 1 WTF
Native 2 WTF
Chief You expect me to go back and tell the other chiefs this Friday at the big dance and tell the m I got some yellow rocks that I cannot show them because I had to bury it somewhere."
Dutch translator "Alright our final offers is ten gold and five silver coins"
Native 1 "Chief I really need some bling for the big dance"
Native 2 "Chief what if we got enough bling to outfit the whole tribe for this Friday and besides the hunting sucks here."
Chief What do you go in beads?
the most interesting sidebar about this plan is the fact that the IBs will have to show the world their knickers if they want access to financial markets.
That seems pretty reasonable to me.
ipodius | 03.29.08 - 12:55 am | #
As much as I respect your opinion, BS. People are already complaining about the cooked books of the regulated banks as pertains to level three accounting. Who the hell is going to be able to understand the IB books if they (the IB's) choose to obfuscate? Hell, they apparently can't understand their own books. Or is Bear Stearns really worth $80/share? Hell, ask that of any of them, as long as their bonuses are rolling in, the bank is profitable and steady as a rock.
SIFMA is the voice of Paulson:
The Securities Industry and Financial Markets Associations (SIFMAs) Asset Management Group (AMG) is part of a letter of agreement that was signed by the senior managers of 17 major derivatives dealers (Major Dealers). The agreement serves as an update to the Federal Reserve Bank of New York and other regulators and outlines goals, strategies and major benchmarks toward the continued improvement and streamlining of operational efficiency within the credit and equities derivatives markets.
The SEC as well as the EU's top market regulator have been exploring how to build a barrier-free transatlantic securities market that could ultimately give investors more choice.
"The steps we are announcing today are designed to better coordinate SEC regulation of the U.S. capital markets with our counterparts' regulation in the larger global marketplace," SEC Chairman Christopher Cox said in a statement.
The SEC's plan includes exploring initial agreements with the agency's foreign counterparts and potentially reforming rules to make it easier for U.S. investors to access foreign broker dealers.
The Securities Industry and Financial Markets Association (SIFMA), a Wall Street trade group, urged the SEC to reform broker dealer rules immediately.
Wow. Look what I just found on the left margin under Google ads:
Bear Stearns Job Listings
Top Quality Jobs Updated Daily. Apply online at eFinancialCareers
Finance jobs, investment banking jobs & recruitment: Finance jobs sector
Wonder how that search is going to turn out.
...deck chairs...
"The consumer has lost whatever support they might have had from wages and salaries," said Joshua Shapiro, the chief United States economist at MFR, a New York research firm. "There's no momentum, no growth."
Spending by consumers is the primary engine of the economy, accounting for more than two-thirds of the gross domestic product. Recent surveys suggest the drop-off will continue. Confidence in the economy remained at a 16-year low in March, according to a separate report released Friday by the University of Michigan and Reuters.
Americans also feel worse now about the economy's prospects than at any time since 1973, according to a private survey of 2,500 households released earlier this week.
Re: Lockhardt has been a pain in the ass for too long, take away his job!
The proposal would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books not just of commercial banks but of all segments of the financial services industry.
The administration proposal would also consolidate the current scheme of bank regulation by shutting down the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency, which regulates nationally chartered banks.
The plan recommends that the Securities and Exchange Commission, which regulates stock trading, be merged with the Commodity Futures Trading Commission, which regulates futures trades for oil, grains and various other commodities.
Yves at nekkid capitalism nails it pretty well: "There is less here than meets the eye, and what is here is guaranteed not to be implemented during the remaining months of the Bush presidency. And that of course is precisely the point of this exercise. Appear to be doing something and dump the mess in the lap of your successor."
http://tinyurl.com/3bkt7p
Uh oh. Government has showed up and they are determined to "help."
Wall street gang wanted and got less regulation. Then they looted the citizens. Satisfied with their take, now they do not want the citizens to figure out who the looters are and what to do with them. As a distraction tactic comes all these proposals for increased regulation.
But fiat is NEVER going away...That genie is never going back in the bottle. Deal with it.
That depends on whether this crisis gets as bad as I think it will. In another three years, fiat may be dead as a doornail (maybe not permanently).
There is a fundamental problem with fiat that has never been fixed, and likely is theoretically unfixable.
dryfly, here we go:
...money is more than a medium of exchange, more than a store of wealth. It functions as the very foundation of our judgments and measurements and comparisons of value. Money projects an influence that extends far beyond commerce itselfit imposes order and meaning on all things. It establishes a base for determinations that frame even those many decisions apparently unaffected by monetary considerations; its reassuring stability undergirds ethics, purpose, hope, loyalty, kindness, charity, courage, and commitment.
And:
When money is robbed of concrete meaning, the moorings on everything else are cut loose. The effect is subtle, but powerful because the subtlety goes unremarked...(and) deep in the psychological dynamics of the human brain, there is recognition that truthfulness has been replaced by fakery. Events that once took place in reality are now taking place on a stage. The words and the gestures are all the same, the characters unchanged, but in some vague way it all seems a sham.
Fiat money destroys society.
The Bush administration is finalizing a plan to rescue thousands of homeowners facing foreclosure by helping them refinance into more affordable loans, the Washington Post reported in its Saturday edition.
The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth due to declining home prices, the Post reported, citing unnamed government officials.
If enacted, it would mark the first time the White House has committed federal dollars to help the most hard-pressed borrowers.
Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of these loans and issue new, smaller loans in exchange for the backing of the U.S. government, the Post said.
Bush readying mortgage aid plan: report
| Reuters
Here it comes.
Crazy Paulson said two days ago that there was too much governnental intervention..
No he proposes this?
WTF?
Why the rules for banking need to change:
The Daily Mash - BANK PROFITS PLUNGE FROM OBSCENE TO REPULSIVE
Is Atlas shrugging?
Aynn Rand must be turning in the grave to see all the collectivists working their magic.
for the heinous financial crimes comitted by the wall street crooks, where is the punishment?
Swiss banks under pressure over secrecy
Even American leaders are taking note. Senator Carl Levin, Democrat of Michigan, has announced his own inquiry into tax evasion by Americans in Liechtenstein, and both he and Senator Barack Obama are pushing legislation that would give the federal government new powers to track down money in Switzerland and elsewhere.
Trying to Get the Swiss to Talk - NY Times
It is their money after all. You are only using it.
"for the heinous financial crimes comitted by the wall street crooks, where is the punishment?"
Surely you jest, slap on the wrist and back to the races just like after the dot bomb bubble. The US government is bought and paid for.
IMNSHO three reasons for this:
Jeebus I sound cynical - I can haz pony now?
as dryfly said; that genie is never going into the bottle again. pandora's box was opened 400 years or so ago, and isn't going to close.
I hear this phrase often: "eventually all fiat goes to zero."
but everybody seems to ignore the equally true saying:"all gold/metal based currencies eventually go to fiat."
My comment:
This crisis couldnt have happened to a nicer Administration...
And ac regarding arms: the Irakis seem to do well with there AK 47 ...so dont be to dishearted may the 2nd amendment is good for something...
Well said, 4th world country here we come.
The race to the bottom continues.
Fiat money destroys society.
unirealist | 03.29.08 - 4:27 am | #
I thought that was fluoride that did that.
If you really believe that stuff (your italicized quote) then my answer to you is:(1) avoid fiat money per se and (2) hide from society... because fiat money is not going away and society good or bad isn't going to change regarding acceptance of it.
Get used to it - move on.
w writes:
It is their money after all. You are only using it.
w | 03.29.08 - 9:22 am | #
Give to Caesar that which is Caesar's...
Jas Jain: I enjoy your analysis and humor. If you should ever decide to go elsewhere, please advise where you go, to those of us who think your post are educational and thought provoking.
LiveLeak.com - Top U.S. accountant , David Walker talks to 60 Minutes about the biggest threat to the U.S. today
LiveLeak.com - Top U.S. accountant warns of pending fiscal tsunami
Head of the Government Accountability Office (GOA), David Walker, speaking about the economy.
Basically he says bend over.
More melting
1. Auction rate securities debacle
2. Heloc default
3. Lehman poots are acting funny again.
The Wall Street Journal carries this depressing story today:
'Auction Rates' Clip Tech Firms' Profits. Write-Downs Mount
After Market Seizes Up For Cash Alternative
by Rebecca Buckman
Technology firms, which traditionally shunned debt and were thought to be relatively immune to a credit crunch, are seeing their earnings dented by holdings of auction-rate securities.
Dallas telecom company MetroPCS Communications Inc. recently took an $83 million charge related to auction-rate securities, the arcane debt instruments -- once thought to be as safe as cash -- that are now nearly impossible to sell in today's jittery markets. Last Thursday, hand-held-device maker Palm Inc. said it, too, would take a charge for auction-rate holdings, though it hasn't disclosed how much.
Well, I'll be the first to say it, at least on this board. This plan is DOA.
Relax folks, it's going nowhere. Bush is a lame duck and the Dems control congress. They will never allow this to pass, as it would help McCain in November and Obama/Hillary want more regulation, not less.
Expect lots of talk and no action from the beltway bandits 'til 2009. May move markets for a day or so, in the end it will mean nothing.
I wish one of these people attacking the idea of fractional reserve banking would explain how you could have anything like a modern economy without it. Does anyone really think that the elimination of bank loans, along with the elimination of interest bearing accounts, would be a good thing?
We are all Alice in Wonderland.
This looks an awful lot like deregulation. Amazing.
Recession may last 18 years:
Booyah!
Have a nice day!
Last night I kept seeing bubbleheads Pisani and Bartiromo prodding their reluctant interviewees to call a bottom early last week, claiming the failure of BSC was the turning point. How Convenient... to ignore the entire economy and the cycle when you call a bottom. Makes it a lot easier to draw in the marks for another clipping.
I wonder what Ben has in store or Monday, ahead of the open. I hope it's good. I need a little indecision early, so I can fortify positions.
Bottom callers get another opportunity.
Here we go again ...another inept attempt from the incompetent and totally corrupt Bush admin to perpetuate the financial engineered driven bullshit US economy with massive market bubbles ( e.g. stocks, real estate ).
Will this address these systemic US economy problems ?
Of course not....America is broken !
Haven't read the long-term proposals but the short-term proposal mostly stink. I've made a list of the major points I get out of the first 10 pages (short-term stuff). It's basically a bunch of proposals to eliminate federal regulation or provide ways for corporations to ignore state legislation. Nothing apart from improving coordination would have done anything to prevent the current mess or will do anything to help with the slide. This is an attempt to slide in some Bush pet projects that should never be adopted as "emergency measures". I concur that it looks like the Homeland Security fiasco which mostly just rearranged deck chairs but put FEMA under Brown and helped kill a couple thousand Americans in Katrina.
Individual points:
1) Create a council of all federal financial bodies - probably a good idea
2) Nationalize mortgage lending regulation - will cancel the useful rules many states are setting up. We certainly won't see anything useful nationally while Bush is in office. Bad idea.
3) Cancel the thrift charter - so the FHLB can make loans to any bank, ie help bail out Citi. Bad idea.
4) Nationalize insurance regulation - how is this going to help? Prevent New York from being able to do something? Bad idea.
5) Merge commodities and security regulation, with commodities regulation being preferred - bad idea. Just what we need, less transparency in the securities market.
6) Make it easier for finance companies to self-regulate - bad idea, duh
7) Legalize more structured finance products - bad idea
This is just muddying the waters. We need Obama's Stop Fraud system for mortgages, not this. We need analogous systems for all the securities and insurance flimflam that's been going on (primarily meaningful risk disclosure).
You know, Hank - the Shnapster was friggin' JOKING, already.
that prediction
The elimination of fractional reserve banking, I believe, would not eliminate loans but just reduce the number of loans. Interest will still be paid.
And what is this thing called a modern economy? Is that an economy where a fruit-picker can buy a $700,000 house for 50 times his income? That's modern?
The elimination of fractional reserve banking, I believe, would not eliminate loans but just reduce the number of loans. Interest will still be paid.,/i>
If banks are required to keep as reserves 100% of deposits, how do they make loans? Why would they pay interest on accounts that they can't use to generate revenue themselves?
CR=Code Red
ac said: "This mid-cycle slowdown could turn out to be the worst downclimb in history if the Federal Reserve chairman and his essentially limitless term isn't given enough power over the US economy to supercede that of the president of the United States who is constitutionally limited to an 8 year term."
Respectfully, nonsense.
In 5 of the last 6 recessions, by the time the Wright Model B yield curve had risen to this steep a level (long rates higher than short rates), the recession was over.
The only exception was the 2001 recession. By the time the yield curve was at the same level then as it is now, it was October, 2001, at the tail-end of the recession.
Given that there's been this much stimulus in the absence of a clear recession, with the economy simply having slowed to a lower level of positive growth, I don't think you're going to believe what happens next.
I'd express an opinion on Jas Jain's long Treasury bond position given these conditions, except that I don't want to expose my fellow board-members to such a cascade of vitriol and swear words.
))
Sebastia
the curtain may have lifted but the fat lady hasn't sung. I'm not even sure the libretto for the acts after the intermission has been written yet.
a bit off topic, but:
With all the instability regarding "cash-like" instruments, I decided to dig in a bit to my money market funds. I don't hold a lot of cash in them, preferring FDIC insured CD's, but I was curious as to their safety.
I have one that invests in "Government Securities". Took a closer look, and it appears to have Fannie Mae, Freddie Mac, and a big chunk of repurchase agreements with brokerage firms collateralized by, you guessed it, mortgage backed securities. Not real comforting.
Then I checked out a money market fund based on municipal tax free securities. Found a bunch of items called VRDN's. I'm wondering if these are like the ARS's that UBS gave their investors a haircut on.
For those of you that are thinking your money market funds are just like cash, you might want to dig in a bit as you may find some rather exotic investments in them.
Don't want to be paranoid, but I'm paranoid.
"I don't think you're going to believe what happens next"
Another bubble what else
I wish one of these people attacking the idea of fractional reserve banking would explain how you could have anything like a modern economy without it. Does anyone really think that the elimination of bank loans, along with the elimination of interest bearing accounts, would be a good thing?
All lending and investment banking would be done by the State.
You want a loan, the Fed will materialize the money in your account at 0% interest + fees, but you WILL pay this money back because if you don't the IRS will garnish yo' ass.
You want interest, check out TreasuryDirect's new SuperFast™ TreasuryChecking™.
One of the most striking differeces between the Bush neo-cons and traditional conservatives is the neo-cons love of centralized power. Traditionally, Republicans are the party of Federalism, but I guess corporations find it easier to bribe a few senators rather than scores of state reps. Localization is a movement of the political Left to attempt to resist globalization and support local community businesses, arts, and agriculture. There many reasons for this movement: environmentalists support how localization reduces energy costs and protects local farmland from development, anti-corporate activists support local independent small businesses from corporate chains, economic activists argue for keeping dollars on the local community rather that going to Wall Street or China. Although all of these movements are associated with the Left, the Democratic party is the party of strong centralized government, not decentralized local government. It is the Republicans who are mostly associated with Federalism, although through the neo-cons the Republican party has become the party of big government conservatism and corporate fascism. Most of those who champion localization have not yet taken the step from local business to local government, but there is an opportunity for a new political coalition of the paleo-cons and neo-libs seeking decentralized government and to push power as far as possible to localities and to demand the ability to make decisions concerning the course of their communities. If the Republicans can break the grip of the neo-cons, and re-brand their philosophy localization rather than Federalism, they have the best chance of attracting those interested in localization.
The potential for 'mis-use' of the SWAT teams is unbelievable. More corrupt billionaires for the taxpayers to clean up behind.
After the recent rage of greed on Wall Street, I think it is highly stupid to put forward something like this.
I am waiting for the rage to build to an interesting election in Nov 2008.
Thanks Fair Econ, for actually digging into the "up is down" Orwellspeak of the proposal. This is a Bush admin. staple -- we should all be wise to it now.
And the last thing we need to do with this crisis is check ourselves into Ayn Rand fantasy camp and pretend that the government should back off (especially in the form of pretending to regulate). Reality and my tax dollars scream otherwise.
The risks of loan products and the securities they might be bundled into have to be made utterly transparent -we're talkin pure food and drug act-type transparency, and the penalties for concealing risk have to be high.
And maybe most importantly, there ought to be deterrents for pension and investment-fund managers who take on such high risk in the name of fat fees (or political favors).
The market will never, ever set these kinds of safeguards in place themselves.
Richard writes:
Wonderful- Atlas Shrugged revisited- who IS John Galt?
Dead, Richard. Long since.
Sebastian still using the obsolete and irrelevant Model B aircraft as the only means to predict the economic climate.
Q: Do you use candles or have you graduated to the incandescent bulb.
GE is getting out of certain consumer finance sectors.
http://www.bloomberg.com/apps/news?pid=20601109&sid=avQDopy4rUWg&refer=exclusive
They seem to have solid timing for exits. I'd watch MA, V and AXP over the next 6 months.
Bob Brandt said: "The potential for 'mis-use' of the SWAT teams is unbelievable. More corrupt billionaires for the taxpayers to clean up behind."
No, IMO, but something worse instead.
This is the "Homeland Security" response: Re-organize a group of agencies under a new umbrella, with additional layers of bureaucracy that slow-down and reduce the effectiveness of responses.
On the upside, though, we could tap the phone-lines and e-mails of the wrong-doers, re-define these criminals as "enemy financial combatants" and put them in military prisons indefinitely without trial, recourse, or appeal.
Don't sell America short, some things just work themselves out for the best all on their own.
S.
If there is no fractional reserve banking, my understanding is that reserves don't have to equal deposits, but that loans should not exceed deposits.
--
More evidence supporting my conclusions, no?
I realize that it is hard for born-and-bred American dopes to come to terms with the fact that the whole financial system was criminalized under Greenspan-Bernanke with full assistance of the USG (Rubin, Clinton, Bush, etc.).
Just follow the money.
How much money Bankrupters and Fraudsters of New York City (BFNYC) made during 1995-2007 Twin Bubbles compared to the general population, or the GDP? Coincidence?? Were the financial innovations for the good of the economy or for the specific benefits of BFNYC???
Greenspan-Rubin-Bernanke fully supported the innovations, financial weapons of mass destruction, that are now going to be deadly for the economy. These Crooks were scamming the public and not innovating in the good sense. Innovations were cover up for the systemic fraud by these parasites. These NYC Crooks were raised in a culture of fraud.
Jas
By the way - the Fed is now propping up banks and IB's. Monolines may be next to get propped. Ofcourse you would only do that right about the time when the S&P is about to enter a 20% correction.
"Monolines may be next to get propped"
Given Ben's disregard for free markets, I agree. Of course, that's when the 10yr yield goes parabolic. Now... how can he fix that?
If the Republicans can break the grip of the neo-cons, and re-brand their philosophy localization rather than Federalism, they have the best chance of attracting those interested in localization.
JS | Homepage | 03.29.08 - 11:57 am
Exactly who and where are these moderate to liberal Republicans that believe in for fiscal restraint and hands-off government ?
Senator John Heinz died in a helicopter crash in 1991 and there are no more Sen Barry Goldwater's in the GOP who had tremendous influence and carried a big stick i.e. was the guy who told Nixon his gig is up, warned us about the sordid implications of Christian wacko pact with GOP, and became more of a liberal Republican later in life.
If McBush wins ( a no nothing about economic policy ) this country is doomed.
Obama !
I keep reading about Fed props.
A steel reinforced concrete main pillar is failing, and the Fed has a couple of 2x4's. Not likely to hold.
Cheers,
barely said: "Given Ben's disregard for free markets, I agree. Of course, that's when the 10yr yield goes parabolic. Now... how can he fix that?"
He won't be able to. He'll be forced to chase it by tightening the Fed funds rate.
That will be the time when recession becomes a genuine threat, not now. Since the Fed is still in "easing" mode and will be reluctant to start tightening again until the "recession" is over and the "recovery" is on solid ground, who knows how long it will take for the real recession to materialize?
S.
Is Obama really the one you want answering that phone at 3 AM?
http://www.imao.us/img/barack_answers_the_call.jpg
http://tinyurl.com/3x9q7z
"Treasury also endorsed the CFTC's use of so-called principles-based regulation, in which overarching guidelines trump specific rules. Treasury said the SEC should apply the principles approach to its oversight of stock exchanges."
principles-based regulation? How do you create a legal regulatory system from "principles"?
km4,
Obama is a democrat's democrat. He's as much in favor of centralized power as the rest. His proposals are all for more power to the central government, I see no idication that he is in favor of localization and decentralized power.
Is Obama really the one you want answering the phone at 3 AM?
[link fixed]
IMAO: There Is an International Crisis at 3 A.M.; President Obama Answers the Call
The numbers in Yves Smith's Credit Crunch Leaves No Market Unscathed post at Naked Capitalism seem to imply that fee income and workload at investment banks must be down about 50%.
Indeed, the issuance of certain types of securities -- and so presumably also the inflow of associated fees -- seems to have nearly ground to a halt.
Might we be on the brink of a 50% down-sizing of Wall Street?
What will be the consequences?
If you're going to have a fractional reserve banking scheme, why have any reserve at all? Isn't the fraction only there as window dressing - to add pseudo legitimacy to the monetary system?
There are two questions one should ask before engaging in fractional reserve, fiat banking:
If you have a 1/30 reserve requirement, and something goes wrong, how do you cover? The answer is, you don't cover: the system fails. This is how we end up with bag-holders.
As for what is being held in reserve, is it paper? Is it goodwill? (Precious little of that commodity). Is it a proclamation of value, sprung fully-formed from the head of Zeus? Is it beaver pelts? Land? Gold? Tulip bulbs? I'd go with any of the commodities before I went with the "take my word for it" variety.
Fractional reserve fiat banking is bullshit (in this case, "bullshit" meaning intellectual dishonesty). It's made of bullshit, backed by bullshit, and sustained by bullshit.
We'd be better off if we returned to private banks issuing their own notes - backed by whatever that bank chooses. If you want fiat, go for it.
The bank I would choose would hold gold in reserve for 100% of every note issued.
"...Of course, that's when the 10yr yield goes parabolic. Now... how can he fix that?"
You seem not to have read his helicopter speech. The Fed can print money to buy anything it wants to -- especially 10yr Treasuries.
15 pages of diversionary nonsense. Including a brief history of financial regulations and the positive and negative roles they have played in our history....yet one big one was left out.
Glass-Steagall....I wonder why. It's as if, to Paulson, and the rest of the crooks he represents...it is akin to Harry Potter's "he who shall not be named".
Sometimes it is not what you say but what you don't that brings clarity to your message.
Don't sell America short
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
I've made a hell of a lot of money since 03 doing exactly that.
Misean said: "A steel reinforced concrete main pillar is failing, and the Fed has a couple of 2x4's. Not likely to hold."
Well, except that the Fed has a virtually endless supply of 2X4's and can persuade the concrete not to be as heavy or fall as quickly.
JMO, but engineering analogies (where the physical laws are constants) don't work very well when applied to finance or the economy (where the laws are always flexible, and even breakable in the service of the "greater good").
Sebastia
I'd express an opinion on Jas Jain's long Treasury bond position
what is JJ's position?
Obama is a democrat's democrat. He's as much in favor of centralized power as the rest. His proposals are all for more power to the central government, I see no idication that he is in favor of localization and decentralized power.
JS | Homepage | 03.29.08 - 12:26 pm | #
A democrat's democrat is simply glib subjective comment ! And I see Obama moving more towards localization and decentralized power than the fossilized brain called McBush who knows jack shit about economic policy, flips flops more than fish, is a panderer, and thinks he can win with all that foreign policy experience that amounts to exactly what?.
Seb,
"Well, except that the Fed has a virtually endless supply of 2X4's and can persuade the concrete not to be as heavy or fall as quickly."
How so? Are you arguing the ridiculous "The Fed prints money" argument? Because it does not. It buys and sells debt. It's foundation is gov't debt, well until recently. None of Bernutty's actions have increased M1. The Fed increases M1 buy buying treasuries and increasing it's balance sheet. This is done through TOMA and SOMA operations. The Fed has been near meticulous in sterilizing all of the sill things B.S. Bernutty has been doing.
As I wrote yesterday:
SOMA and TOMA are the most powerful Fed actions in the world and'll blow your head clean off.
The Fed favors a graduated $ decline. Monetization would cause a flood of external $ sales, which would route the dollar. The Fed does not want this.
So no, they do not have an unlimited supply of 2x4's.
Cheers,
"The FED shall have the power to print or electronicaly create money as much as they want, whenever the f.. they want."
Amendment to Article 1 Section 8
Marcus,
Of course, banks would also offer time deposits. You put your PM in the vault for a year, under contract, the bank can lend it out, and pay you interest for that and earn a fee for the service.
Cheers,
Obama is a democrat's democrat.
To follow up on km4's comment - that might be a strong enough endorsement to get him elected after Bush regardless of his real qualifications or lack there of.
In the eyes of my 20 something kids Bush has done to the GOP what Jimmy Carter did in the late 70s to the Democratic Party for most of my then 20 something peers - it will be a tough job convincing these 'kids' that GOPers don't equal Bushies... might stick with them their whole life (like the Carter stigma stuck to Democrats with so many of us).
Be an interesting election - I feel McCain will easily win but who the hell really knows.
[/end politics mode]
Seb,
Missed this gem:
"JMO, but engineering analogies (where the physical laws are constants) don't work very well when applied to finance or the economy (where the laws are always flexible, and even breakable in the service of the "greater good")."
No. TINSTAAFL! There is no such thing as a free lunch. TPTB may be able to change the rules of the game unfairly. This just reconfigures who is the final bagholder. It does not erase the loss. Nor does it strengthen the foundation.
Cheers,
--
Criminal gangs and crime stories always make for fascinating talks among the populace. That is precisely what we got and there are endless things to talk about.
What have had for the past dozen years are bank robberies in reverse -- bankers robbing the general public and the taxpayers! There will continue to be headlines as more and more is revealed about the criminal activities and their fallout. And we have foxes guarding the henhouse, no?
Americans can never have enough entertainment. What would be great entertainment would be to put 100 of the top Fed officials and banksters on trial and televise it.
Jas
Broker,
""The FED shall have the power to print or electronicaly create money as much as they want, whenever the f.. they want."
Amendment to Article 1 Section 8"
Really? And have a dollar route. You actually believe this?
Cheers,
soma toma?
SOMA and TOMA are the most powerful Fed actions in the world and'll blow your head clean off.
The Fed favors a graduated $ decline. Monetization would cause a flood of external $ sales, which would route the dollar. The Fed does not want this.
So no, they do not have an unlimited supply of 2x4's.
Until they get a wiff of 'deflation' then it will be off to the money production equivalent of Weyerhauser & Georgia Pacific. (Ben: "Hey Kev, where did we put those chain saws & hard hats? We got work to do..."
soma toma?
Confused | 03.29.08 - 1:04 pm | #
SOMA TOMA COMA... the bankers fraternity.
dryfly,
"Until they get a wiff of 'deflation'"
So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization?
If that stuff came roaring home, the Fed would barely have time to hit the print button before the dollar was chasing the Zimbabwe currency to toilet paper status.
Cheers,
SOMA TOMA, oddly enough literally translated, it just means 'Body, Tomb' two nouns thrown together to encapsulate the idea that in Plato's philosophy the body is an inconvenience, a grave, in which we are incarcerated and imprisoned until death releases us.
But in this case refers to the Fed's System Open Market Account, etc.
They are inventing a plethora of new critters TSLF, PDCF, TAF, OMO, TDWP in this fun shell game of "debt, what debt?"
Anonymous | 03.29.08 - 12:26 pm | # - "principles-based regulation? How do you create a legal regulatory system from "principles"?"
Actually, it works pretty well. One of the core flaws in rule-based systems is that over time, the targets of regulation will find ways around the rules. For example, we could write a law saying it's illegal to stick a knife in another person's chest, so instead you beat them over the head with a rock. The principles based alternative is to say you may not end the life of another person.
Lehman Brothers Holdings Inc. said it plans legal action against Marubeni Corp. to recover funds ``fraudulently misappropriated.'' Marubeni said it's also a victim in the fraud that media reports put at as much as $403 million.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZpc4GcT3.Ns&refer=home
dunno bout you guys, but if Lehmans's throw'en stones....
Poll in the Globe and Mail:
In the next few years, under a new president, will America regain its lost status as the world's only superpower or will its current decline continue?
* It will regain its lost status as the world's only superpower
* Its current decline will continue
miami tidbit from miami herald...
...Census figures show that Miami-Dade County had among the highest home vacancy rates of major U.S. metropolitan areas at the end of last year -- about 4.4 percent, up from 1.6 percent in 2001. The national average is 2.8 percent....
@5% vacancy...& pop growth stalling looks like a recipe for price plunge..
~ 3 mil pop
say about 1.2 mil household..
say about 60000 homes vacant?
miami area sales are in region of max 1000 unit sales/month. This looks disastrous.. (back on the envelope calc)
confused,
Fed operations. They enter the market and buy or sell treasuries. They do this for either temporary terms (often called repos) or permanently (very rare).
If the Fed buys treasuries it increases M1. The opposite occurs if the Fed sells. The "printing press" monetiztions that would be needed for the Fed to print it's way out of this, would have to be permanent.
Cheers,
--
Ignorant, or clueless, people have been calling for the parabolic rise in long-term US Treasury yields for a very long time. They claim to be smarter than the Treasury bond market. One of these people is Dr Doomed, Marc Faber. I am sure that we have our fair share of such people on this blog.
US Treasury yields would follow the Japanese example of the past 15 years -- they will go down, go down, and then go down some more.
Jas
So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization?
They wouldn't care - until AFTER it happened. Devil you vs maybe devil?
If that stuff came roaring home, the Fed would barely have time to hit the print button before the dollar was chasing the Zimbabwe currency to toilet paper status.
For that to happen all the other FCBs would have to pile on... and that assumes they believe decoupling (they don't need to export to us anymore & can let the dollar free fall without hurting their own industries & employment). You think they are likely to do that? I don't... I don't think the fed does either.
Its fiat chicken worldwide... until there is a crash that is. In that mode they can make a whole lot of 2X4s...
Misean,
Curious about your M1 comment.
Money supply - Wikipedia, the free encyclopedia
M1 is the most liquid measure there is. The problem is actually in M3 which the government decided to stop publishing in Mar'06 (interesting!)
Money Supply M3 Revisited
Noble
jassi:
not if dollar devlauation scares the foreign investors..
US would have to bring its military muscle on..
"... So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization? ..."
You mean like this?
Swiss Franc monthly chart with Moving Average and Momentum : Graph Gallery
Its fiat chicken worldwide...
Until it's fiat black swa
"US would have to bring its military muscle on.."
What a lovely turn of events that would be...not that it doesn't chronically occur.
If there is no fractional reserve banking, my understanding is that reserves don't have to equal deposits, but that loans should not exceed deposits.
Under fractional reserve banking, total loans are always smaller than total deposits, because part of deposits are kept in reserve.
If there were no fractional reserve banking, there could be no loans, period. The bank would have to charge depositors for keeping their money. 100% reserve. Actually, there would be no banks, because the market would find other ways to perform deposit taking and lending.
The anti-FRB crowd just doesn't get that FRB is banking, period. The whole point of having banks is to match up people with money with people who need to borrow.
Our Idiot-In-Chief in true form...
Yesterday, President Bush visited Novadebt, a credit counseling service in New Jersey, to promote his Hope Now Alliance, which is intended to help homeowners facing foreclosure. But while there, Bush gave out the wrong toll-free number (despite a large sign with the correct number hanging behind him).
Danny Cerchiaro, a homeowner attending Bushs speech, whispered the correct number in Bushs ear after the speech. Bush then quickly returned to the lectern and recited the correct number:
There are hundreds of thousands of homeowners like Theresa and Danny who can benefit from calling HOPE NOW. And so one of my purposes is to make it clear there is a place where you can get counseling. And I want my fellow citizens, if youre worried about your home, to call this number: 188-995-HOPE [sic]. Let me repeat that again: 188-995-HOPE. [ ]
Thank you all very much.
Danny just told me Ive got to get the number right 1-888-995-HOPE.
dryfly,
When Nixon closed the Glod window, FCB's panicked and the dollar dropped like a stone. I have papers on European banks taking inventory of office supplies to realign their balance sheets after the event.
In this wired environment, Bernutty putting his mouse cursor over the print button would be the click heard 'round the world.
And that's enough for this debate today. I think I'll go for a walk.
Cheers,
Anonymous | 03.29.08 - 1:22 pm |
My post.
--
M1 has the highest correlation with CPI. M3 was useless and I am glad that it was discontinued. No conspiracy there. Inflationists are conspiracy theorists.
Jas
Misean:
I agree, to an extent.
Once you go beyond 100% reserve for the notes, we're into speculation and inflation (not that no inflation is possible). All I want from my bank is to know that I every note I carry can be redeemed for a fixed, tangible commodity (for me, that's gold). If I choose to speculate with my notes outside the bank, that's fine - but I do not want the bank to have fractional reserves.
Every option should be available for trading the notes themselves - the demand in any particular bank note could stimulate new markets, investment opportunities, etc. Because any transaction would grant someone the right to remove that portion of the reserve commodity from your bank account, people would assess and scrutinize their investments more carefully, and with a more "reality-based" set of criteria. Does your CEO make 40X your average worker? No thanks. You're just now seeing a market in fuel efficient vehicles? No thanks.
On a tangential note, There was an interesting piece on NPR a few days ago, having to do with Dubai, and Islamic law governing the charging of interest (Dubai has t find a work-around for issuing bonds). One of the ways of making money from money under this restricted scenario, is direct investment in business (more like partnership, less like a powerless shareholder) for a share of the assets and profits of the partnership. This would seem to lend itself to a very dynamic, yet sable economy.
FWIW
Here's a guy who cant read a 10-digit telephone number but is supposed to oversee the Treasury to Propose Changes to U.S. Regulatory Structure ?
No wonder the economy is circling the bowl - any number over 9-digits apparently stumps the decider!
yogurt,
"If there were no fractional reserve banking, there could be no loans, period."
Nonsense. Those with more gold than needed for a period of time would seek out bankers who would take their gold on a time deposit. The owner would earn interest, and the banker would lend out the gold, at a rate higher than paid the owner. Loans have existed since time immemorial.
Cheers,
dryfly said: "SOMA TOMA COMA... the bankers fraternity."
I got my economics degree Soma Toma Coma, Blue Sky School of Economics.
Go "Fightin' Liars", "Up, Up, and Away!"
S.
"I think I'll go for a walk."
Me too!
leaving with this on topic quote again, (such a los having competent fearless folks being in charge) -
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson
The Debate Over the Recharter of the Bank Bill, 1809
Marcus,
"direct investment in business (more like partnership, less like a powerless shareholder) for a share of the assets and profits of the partnership. This would seem to lend itself to a very dynamic, yet sable economy."
Well of course that is preferable. I'm just responding to the idea that loans would be impossible under such a scenario.
Further, any growing economy would have gradual deflating prices of goods and services, which, in and of itself provides a return to Average Joe, for the PM he hides in the matress.
Cheers,
Seb,
Cheers,
the banks and corporations that will grow up around them will deprive the people of all property until their children
and here we have the financial sector taking 40% of the corporate profits last year. Unbelievable.
Danny just told me Ive got to get the number right 1-888-995-HOPE.
1-888-995-HOSED also works
Actually this EUR/USD chart illustrates the current lack of confidence in the dollar perfectly. Just like after Nixon closed the gold window. I don't think it can be any worse than it already is.
Euro monthly Chart with Moving Average and Momentum : Graph Gallery
Expections about further dollar devaluation are already baked into the cake.
Anonymous posted: "You mean like this?
404 Not Found chfmth.shtml"
Wow, nice find and nice resource. You should get a name so we can distinguish you from the other anonymousii so we can thank you properly.
S.
In this wired environment, Bernutty putting his mouse cursor over the print button would be the click heard 'round the world.
Last word - FCBs might hear the click but their response won't be to dump dollar reserves - it would be to BUY them & dump their own currency. That is unless they decide they don't need the US export market anymore.
Your assumption is only correct IF decoupling is real... you believe in decoupling? I don't - not entirely, some 'yes' but within limits... the current dollar fall is definitely hitting their limit of comfort.
That is a key concept. They don't hold dollars to make a return - they hold dollars to protect their merchantilist exporters. Until they give up on exports they won't stop buying & holding dollars.
And while the 'private' FX market is much larger, it is fragmented and follows the FCBs... read some of Macro Man's
stuff, he refers to SAFE as 'Voldermort' . Few have been successful breaking a FCB stranglehold... Soros of course being the most noteworty. I don't see it happening any time soon.
Under fractional reserve banking, total loans are higher than deposits. For example, here's the Bankrate-dot-com 2007 summary for Washington Mutual:
WASHINGTON MUTUAL BANK
Financial summary ($ in Thousands) 2007
Total Assets $327,205,503
Mortgage Loans, Net 237,502,659
Mortgage-Backed Securities 20,078,866
Investments 14,577,007
Deposits 180,106,184
Borrowings 100,754,859
Equity 26,404,630
And yes, the whole point of banks is to match up people with money with people who need to borrow, but that's money we're talking about, not fictitious capital. Besides, isn't it clear that too many people in recent years thought they needed to borrow, and could do so only because banks could invent capital to lend to them?
And maybe most importantly, there ought to be deterrents for pension and investment-fund managers who take on such high risk in the name of fat fees (or political favors).
Oh yes, corporate governance is one of my hobby horses. The CEOs are chosen by the self-perpetuating interlocking board system without much input from shareholders or any control by taxpayers. Then when they push their companies and - in this case - the world economy to the brink of bankruptcy they decamp with golden parachutes as large as a small country's GDP, leaving shareholders and taxpayers to foot the bill.
Oh, when the phone rings at 3 AM I want the guy answering it to know when the US should go to war. And that's Obama. McCain and Hillary can't make that decision right.
Also, when the next financial crisis hits I want the president to be the one who wanted to fix mortgage fraud, the lynchpin of this mess, a year before TSHTF. Not McCain or Hillary, who STILL aren't making proposals to fix it almost a year after TSHTF.
El Cliffo, no, fractional reserve requires loans be less than deposits+capital. Borrowings are a form of deposit, so WaMu did NOT invent money. (It is likely to lose a lot though.)
We keep looking for answers to the economic system we are stuck with. The isms have been defeated. We don't want to address the power structure. Even changing to a gold standard leaves the big money manipulators in place.
Regulations to clean up this mess won't stop the coming fire sale of America's assets to the big money low bidders. It's the structure of the system that allows wealth transfers UP into the highest echelons of wealth that is rigid and unchanging.
We have a modern day monarchy of elites accumulating and concentrating capital as the middle class slides into pauperizarion and debt insolvency.
Borrowings are not deposits, and they are not capital. Borrowings are debt.
The usually astute and perceptive Misean strangely writes, "So you assume foreign holders of dollars, and dollar assets wouldn't sell if they got a whiff of Fed monetization?"
Sell?
To whom?
Dryfly,
I agree. The concern about dollar devaluation is huge. This doesnt mean it will not continue but in order to maintain even a semblance of economic growth, Europeans will be forced to devalue. The political pressure is increasing dramatically (by France in particular). It is affecting everybody including Switzerland.
In fact, dollar devaluation might well be the second major destabilizing force in the current financial crisis. It forces all kinds of unexpected and undesirable policy choices onto even prudent central bankers and politicians. The mess is just starting to unfold.
If the see severe recoupling then I expect the worst is still to come as the foreign reserves will abruptly get spent instead of accumulated with lots of unintended consequences both in the U.S. and abroad. We are well on our way!
Is lending impossible under a full reserve system? No, it isn't. However, the scenario Misean is describing means that no one who can't give up all of their liquidity is going to be loaning money to a bank. What his approach is trying to do is to eliminate a mismatch in duration; fractional reserve banks are effectively lending long and borrowing short, with the duration of the borrowing being anything from zero to infinity.
However, unless you can find enough individuals willing to lend long directly, eliminating the fractional reserve doesn't solve the problem. Any loans that banks make that are longer than the duration of the time deposits have the same problem. It can be time to redeem the CDs, and if the bank can't call the loans back in, it defaults.
This is just dumb. Loans may have existed forever, but efficient loans have not.
Technically, deposits are a form of borrowing. Who gives a toot which form of borrowing banks use? Aunt Mabel's checking account and callable paper have the same effect. Aunt Mabel's CDs and noncallable paper also have the same effects. So what if the bank shifts from CDs to noncallable paper?
"... the whole point of banks is to match up people with money with people who need to borrow..."
El Cliffo | 03.29.08 - 1:43 pm
The whole point of banks should be to hold, secure, and protect a physical store of value.
In a free market, I'm sure the lenders and borrowers will find each other just fine without the middle man.
I'm not a religious man (being a Stoic, and all), but I do find it interesting that in the Bible, the only people who got an ass whuppin' from JC were the money-changers.
As Polonius warned Laertes:
"Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry."
There are many very old cultural prohibitions and caveats regarding what we're currently into.
Stupid past generations - they didn't know anything. They didn't even have TV. Losers.
The main foreign holders of dollars are foreign governments that are running on a Brobdignagian scale vendor financing frauds like those run by the managements of Nortel and Lucent during the telecoms bubble.
They have no more incentive to call in those loans than did Nortel and Lucent management -- calling such loans can only lead directly to the exposure of the fraud.
That can happen only if (when?) those governments fall, and are replaced by new governments wishing to discredit the old.
Marcus Aurelius, I was mainly quoting the other guy about the whole point of banks, as we know them, and that's what banks do. Of course, your version of what banks should do is much better.
RE I really see it as a big game of chicken with the huge US CAD at the source. The last time we had something like this it was with Japan mid 1980s & we worked out the Plaza Accords to constrain US CAD growth WITHOUT imposing a lot of tariffs.
Of course that was the root of a lot of japan's later problems (the lost generation resulted from that boom bust). That didn't go unnoticed by the ROTW.
Now or CAD problems are with a large group but especially China & Gulf States. It has to end - we need to pay our own bills & make some of our own stuff (import less or export a LOT more).
The key link is getting the RMB & Gulf currencies to float - after that happens, a lot of this will straighten out... except of course we in the dollar zone will be a lot poorer in purchasing power terms. So be it - we've been living on borrowed time (and money) for far too long.
The EU is caught dead square in the middle - there isn't a lot they can do about it (other than destroy their own currency).
This one will take time to work through. It isn't going to be pretty.
Sorry, El cliffo.
Does anybody ever think about how difficult it would be to ban fractional reserve banking? If you have ANY kind of callable loan it's trivial to set up something indistinguishable from fractional reserve banking. Geez, just have an investment company issue redeemable preferred and provide vault storage thereof and there you are.
Does anybody ever think about how difficult it would be to ban fractional reserve banking?
Doesn't matter - isn't going to happen. They have a better shot at banning sex. Its the financial equivalent of becoming a 'Shaker'.
Fractional reserve banking is about trust (so is lending). I don't trust fractional reserve banking, and I don't loan money (if you're a friend, I'll give you money if you really need it. If you can give it back in whole or in part, fine. If not, that's fine, too. No pint in making a liar and a cheat of you, and a fool of myself).
El Cliffo, you are just wrong. A fractional reserve bank can't lend more than its deposits + capital. Your quotation of WM's balance is inaccurate. Go take a look at the whole thing:
IRWeblink
What you will see is that they have 327,913 million dollars in assets, most of which is in some form of loan. They have 303,329 million dollars of liabilities, all of which is some form of borrowing. Of that amount, 181,926 million dollars is deposits. They also have 24,584 million dollars of shareholder equity, most of which is retained earnings. Add 303,329 and 24,584, and you magically get 327,913, just like my accounting professor says you should.
Fractional reserve banking is what allows reserves to be less than total deposits. Go read about it.
fractional reserve banking Definition
Fractional-reserve banking - Wikipedia, the free encyclopedia
Dryfly,
I agree the U.S. CAD is at the root of the problem and it will get resolved one way or another.
The Gulf States are in a difficult position right now, caught between inflation and political loyalty/international stability. Loosening the dollar peg has internal as well as external political consequences. It is politically tantamount to publicly severing ties with the U.S. which no one in power in these countries is willing to do at this point. This is why it has taken so long and may take quite a bit longer especially by SA who is the key to how this develops.
I dont see China moving to a floating RMB soon especially not in the current environment. The last thing the Chinese want is to be subjected to the whims of foreign players and having even less control over their destiny in a time of crisis. The last few months have made such a move an impossibility IMO.
Fractional reserve banking is about trust (so is lending). I don't trust fractional reserve banking, and I don't loan money (if you're a friend, I'll give you money if you really need it. If you can give it back in whole or in part, fine. If not, that's fine, too. No pint in making a liar and a cheat of you, and a fool of myself).
Fine. You're more than welcome to keep your money under your mattress. The rest of us would prefer to have a functioning economy.
"This doesnt mean it will not continue but in order to maintain even a semblance of economic growth, Europeans will be forced to devalue."
Actually, Eurozone EU15 total trade balance was 14.4 negative for year 2006 and 23 billion positive for year 2007 despite huge euro appreciation!
Even Italy improved, deficit went from -20 billion up to -10. Both imports and exports are about 1450-1500 billion euros.
Eastern Europeans actually have much bigger deficits and are much more in trouble and that shows in EU27 statistics, deficit was -192.2 for 2006 and -185.1 for 2007.
dryfly:
"People who will not turn a shovel of dirt on the project, not contribute a pound of material, will collect more money, from the United States, than will the people, who supply all the material and do all the work. This is the terrible thing about interest (usury). . . But here is the point: if the nation can issue a dollar bond, it can also issue a dollar bill. The element that makes the bond good, makes the bill good also. The difference, between the bond and the bill, is that the bond lets the money-broker collect twice the amount of the bond, and an additional 20%. Whereas the currency, the honest sort, provided by the Constitution, pays nobody, but those who contribute in some useful way. It is absurd, to say that the country can issue bonds, and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the people. If the currency issued by the people were no good, then the bonds would be no good either. It is a terrible situation, when the Government, to insure the national wealth, must go into debt and submit to ruinous interest charges, at the hands of men, who control a fictitious value of gold. Interest is the invention of Satan." - Thomas Alva Ediso
Doesn't matter - isn't going to happen. They have a better shot at banning sex. Its the financial equivalent of becoming a 'Shaker'.
Lol. You said it much better than I did.
Meriwether's largest hedge fund - profitable in each year since its 1999 launch - is down 28% y-t-d. The fund now surely faces investor redemptions, a problematic "high-water mark" (hedge funds must make up for past losses before they can again collect performance fees) and a resulting exodus of top talent
re-written at end of paragraph to be....
"... and a resulting exodus of top loser's"
Fine. You're more than welcome to keep your money under your mattress. The rest of us would prefer to have a functioning economy.
Keep It Simple, I'm Stupid | Homepage | 03.29.08 - 2:17 pm
The rest of us?
You'r fixin' to pay through the nose for your "functional economy". Under the mattress, in the bank - makes no difference if it's based only on trust. Federal Reserve Notes are not very good money, lately.
You have been robbed, and you defend the robbers.
Sheesh.
Banning of central banking isn't going to happen. True. They run the show. We are their subjects. Throw out all the textbook concepts of our society, economy, and polity. It's not what we were told by the Ivory Tower. The education system is like the media...it's owned and controlled. We are shouting at the wind. The cycles are planned and executed IMO.
Endless war is profitable...it will continue. We still think there are nations and there are politically but the evolution of the global economy is into a system where the big players can play.
The system is cheap cheap labor, drop or default the expensive safety net, declare more wars in the Middle East, build more prisons, heighten Homeland security, execute the executive orders when the time is right. Does this sound like democracy and the free market? No.
It's the central banking system where the big money behind the banks take over the assets and resources.
Americans are losing their home equity nest egg as we speak. A whole generation of savings is being wiped out in a matter of months it appears.
"Usury: A charge for the use of purchasing power, levied without regard to production; often without regard to the possibilities of production." - Ezra Pound, Canto XLV
I would argue forcefully that the leveraged speculating community for some years now has assumed the key role of unappreciated marginal source of demand for risk assets - risky debt instruments financing asset inflation, in particular. Over time, Wall Street "alchemy" mastered the process of transforming virtually unlimited risky loans into perceived safe and liquid securities. A sizable - and growing - chunk of these securities were then purchased on leverage by the rapidly expanding speculator community, in the process fueling an increasingly mal-adjusted U.S. Bubble Economy. We're now witnessing it all beginning to wind down. End of an Era
thanks Mr. Noland
Usury is forbidden by Allah
"... Actually, Eurozone EU15 total trade balance was 14.4 negative for year 2006 and 23 billion positive for year 2007 despite huge euro appreciation! ..."
I know. However, this isn't at issue here. The fact is that the EUR has appreciated significantly over the past two years and a lot of these exports were done under contracts written assuming very different currency rates.
The recent actions by BMW and Volkswagen to expand production in the U.S. are not accidents. The screaming of Airbus is not an accident, their hedges have evaporated. Now European producers have to be even more competitive with U.S. ones and it will be extremely difficult without cutting domestic wages.
Cutting wages in the current climate of inflation could be somewhat difficult, just look at recent German wage negotiations. Europeans, rightfully so, are extremely concerned!
They have successfully banned sex in one European country--Vatican City.
Well, they've banned some kinds of sex, anyway..
dryfly,
"It has to end - we need to pay our own bills & make some of our own stuff (import less or export a LOT more)."
Check!
Marcus,
"You'r fixin' to pay through the nose for your "functional economy". Under the mattress, in the bank - makes no difference if it's based only on trust. Federal Reserve Notes are not very good money, lately.
You have been robbed, and you defend the robbers."
Pure poetry. I should grab the guitar and fire off a few riffs under that theme.
Cheers,
tg-well said
How about family/friends reserve banking? It seems to be working for me? Brings back trust in lending. Why not lend with lower % rate than cc cards, auto, personal, business? I'm making more interest off a relative than a cd and I TRUST them. The heck with banks. I'm betting against them one small loan at a time.
or this
Personal Loans and Online Investing | Peer-to-Peer Lending - Prosper
I like the old west way of business and crime. If someone stole your money, you caught them and dealt with it however that may be! You murder or rape, someone would find you and make sure you didn't do it again. Today, they let all of them off to easy!!!!
Bring back the old days
jm,
"sell to whom"
Exactly. The point of the dollar route of the following sentence.
Cheers,
Misean:
A really hot surfer-style riff (followed by the sound of humongous wave crashing) would work well.
Km4, regarding your post above...yeah the great leader has a problem with numbers...
i read this TRUE story at another site...
recently, during the presidents morning brief a few generals, admirals, sec state, treasury defense etc sitting around the big table...
secretary rice informs the president that 3 Brazilian troops were killed last night near the Venezuela boarder.
the morning brief goes on.
then the preznit turns to ms. rice and says, "hey about those 3 Brazilian troups killed last night...
you know... i have a problem with big numbers... tell me, how much is in a brazillion?
Marcus,
I was working with a more Iron Maideneque galloping horses thing.
But I'll give it a shot.
Cheers,
--
I wonder what happened to the idea of limiting the powers of the governments, especially, the Federal govt? When it comes to the economy and interventions in the economy the Federal govt and the Federal Reserve have unlimited powers. No?
Theories of govts and political systems are fine, but it is the practice that matters.
Jas
Federal Reserve banks are privately owned corporations (Lewis vs. US, case #80-5905, 9th Circuit, June 24, 1982). As such, they are not required by the Securities and Exchange Commission to publish a list of major shareholders. Federal Reserve notes are not backed by gold, but by the assets of the Federal Reserve, namely the power of Congress to tax people.
Excerpt from THE NATION Is This the Big One?
There is a widespread assumption that there is no bottom to the pockets of the Federal Reserve. Not quite. The Fed has a finite amount of actual assets--mostly Treasury obligations backed by the "full faith and credit" of the government, which is a commitment to raise taxes if necessary to pay the debt. These assets total about $800 billion, some $400 billion of which have been obligated to back up loans. If the loans default, the Fed has to sell the Treasury notes in order to settle. If there are enough of these failures, the Fed could exhaust its assets. It would then have to resort to really "printing money"--issuing promissory notes not backed up by anything--or get bailed out by the Treasury, putting taxpayers further in the hole. Long before the Fed is down to the last of its stash of Treasury notes, more skittish domestic and foreign investors will flee the dollar. Interest rates would balloon and prices of oil and other imports would skyrocket. Credit would freeze, investment would plummet and tens of millions of Americans would be out on the street, with neither a job nor a roof over their heads.
Unlikely? Yes, still. Unthinkable? Not anymore. Estimates of Wall Street's losses already run well up to $500 billion. A 20 percent drop in housing prices would translate into a $4 trillion drop in the value of housing assets. A large chunk of that loss would destroy the value that underlies the mortgage-backed securities the Fed has now agreed to guarantee.
But well short of such a worst-case scenario, the country seems headed for major economic damage that will severely test whatever we have left of safety nets. It took five years from the time the recovery began in 1983 for the unemployment rate to return to pre-recession levels. Once we reach the bottom of this trough, it could be a very long time before American consumers, whose spending accounts for some 70 percent of our economy, crawl out of the debt hole and back into the shopping mall. The Japanese have still not recovered from their similar housing/debt crash in the early 1990s.
Virtually everyone who has studied Japan in the 1990s and the United States in the 1930s concludes that in both cases the government acted too late with too little in order to stop the debt dominoes from tumbling through the entire economy.
But the American political system seems as seized up as the credit markets. As the Federal Reserve tries desperately to put an overdosed Wall Street on life support, President Bush remains dizzily detached, periodically repeating his moronic mantra against government intervention in the free market. At a press conference that is impossible to parody, Treasury Secretary Henry Paulson announced the Administration "plan" to safeguard the nation against a future crisis. It boiled down to a hope that the finance industry would do a better job of policing itself and that individual states would see to any new laws that might be needed. In what the New York Times dryly reported were his "most extensive comments to date about the credit and market problems," Paulson, formerly co-chair of the investment firm Goldman Sachs, firmly told reporters that he was not interested in finding "scapegoats." No kidding.
I think there's another huge disaster coming in defined benefit pension plans. Here's some rough numbers:
Public DB plan assets: $3 trillion.
Private DB plan assets: $2 trillion.
PBGC assets: $50 billion.
Total assets: $5.05 trillion
Total liabilities @5% discount rate: $5.5 trillion.
Total liabilities @3% discount rate: $6-7 trillion.
The discount rate is important because liabilities of DB plans are the discounted present value of expected future payouts. Pension Protection Act mandated a less favorable discount rate, and now interest rates have dropped.
But asset numbers above don't include losses from mortgage-backed and asset-backed securities and stocks. If assets decline sharply in a downturn, there could be a $2-3 trillion shortfall.
You can't let DB plans just pay down assets to current retirees until they go broke, leaving future retirees stranded. There would have to be a fairness carve-up and/or bailout.
Part of the shortfall could be made up by heavy contribution costs mandated by PPA on plan sponsors. This could hammer earnings for years.
OT:
http://tinyurl.com/33uyec
Philadelphia suspends sales of foreclosed homes
Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments -- potential relief for tens of thousands of struggling debtors.
Sheriff John Green said he would halt sales of foreclosed properties in April and would seek a court order extending a moratorium for an unspecified period.
His action follows a nonbinding resolution passed unanimously by the Philadelphia City Council on Thursday calling on Green to stop the sales to give borrowers more time to seek a settlement that would prevent them from losing their homes.
When law enforcement decides to stop enforcing existing law and use "non binding resolutions" as the new law to go by the inmates are running the asylum.
rich,
I began banging the drums on DB's last summer. This is the Achiles heal, as well as the monolines/ratings.
The Fed is putting patches on a damn about to burst.
Cheers,
This report from Novosti looks credible to me. Note as well that another admiral, after Fallon, opposed to a conflict with Iran, one John "Boomer" Stufflebeem, was fired from the Navy on flimsy charges on March 24. That's two admirals in two in two weeks--one the head of Centcom, the other the head of the 6th Fleet. Right after Cheney left Saudi Arabia, the kingdom ordered preparations for nuclear fallout. Moreover, Cheney visited countries encircling Iran. I wonder if an attack on Iran would be launched in part to distract the world from a financial meltdown. What would the effect be on the Treasury market? Flight to safety? Or still more dollar aversion? Oil prices would likely rise. Wouldn't gold be a more likely safe haven than dollar assets?
MOSCOW, March 27 (RIA Novosti) - Russian military intelligence services are reporting a flurry of activity by U.S. Armed Forces near Iran's borders, a high-ranking security source said Tuesday.
"The latest military intelligence data point to heightened U.S. military preparations for both an air and ground operation against Iran," the official said, adding that the Pentagon has probably not yet made a final decision as to when an attack will be launched.
He said the Pentagon is looking for a way to deliver a strike against Iran "that would enable the Americans to bring the country to its knees at minimal cost."
He also said the U.S. Naval presence in the Persian Gulf has for the first time in the past four years reached the level that existed shortly before the invasion of Iraq in March 2003.
Col.-Gen. Leonid Ivashov, vice president of the Academy of Geopolitical Sciences, said last week that the Pentagon is planning to deliver a massive air strike on Iran's military infrastructure in the near future.
A new U.S. carrier battle group has been dispatched to the Gulf.
The USS John C. Stennis, with a crew of 3,200 and around 80 fixed-wing aircraft, including F/A-18 Hornet and Superhornet fighter-bombers, eight support ships and four nuclear submarines are heading for the Gulf, where a similar group led by the USS Dwight D. Eisenhower has been deployed since December 2006.
The U.S. is also sending Patriot anti-missile systems to the region.
Disempowered Paper Puncher,
"Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments"
Cue Twilight Zone music.
YouTube -
This is melting down into insanity.
Cheers,
anon,
You just ruined my day.
Cheers,
km4, why don't you post on a political blog? Frankly, you are BORING. I wish that we had an ignore option.
You just ruined my day.
Me too - I have two son's military age (one is expecting a son of his own this summer). The only good thing you can say is that the report comes from Russia - their press is a jingoist as ours.
Say a prayer for small favors.
Misean, how could we go wrong with such a great amendment? Just look at Zimbabwe. Their stock market is going through the roof and the zimbabwean people have more money than god. Way to go!
PS It also worked very well during the "Weimar republic", in France (John Law), etc. You can not go wrong with that kind of amendment.
Bellhop said: "I wish that we had an ignore option."
We do. It's called Greasemonkey. Go get it and install it to your Firefox. You do use Firefox, don't you?
"that would enable the Americans to bring the country to its knees at minimal cost."
How fucking stupid are they?!?!? From IRAN side it is like shooting ducks in bathtub. They do not have to worry about sinking and those mountains...you could not even hope for better place for anti-ship missile batteries.
dryfly,
I understand.
Broker,
'Twas a joke, my fault.
Cheers,
Now that all the horses are long gone, let's bar the barn door.
Is this supposed to send a strong signal to the markets? Or is this supposed to keeps some regulatory heads from rolling?
I have trouble believing that the Fed would allow itself to be dragged down with everything else. Sure, the Fed is pumping liquidity at a reckless rate trying to prevent deflation, while speculators mis-read this as inflation. But at the end of the day, deflation will prove to be unavoidable and the Fed will not chase it to its own demise. It will allow what must happen, to happen, and preserve itself. The intinct of survival and self preservation will kick in just as it has on Wall Street.
But at the end of the day, deflation will prove to be unavoidable and the Fed will not chase it to its own demise.
Congress won't let it - the marching orders will come in loud & clear - either accept the mission or step aside while we appoint somebody else.
The fed will have no other choice as it 'serves' at the pleasure of congress.
Hello Disaster Capitalism !
Here we go folks, the people that brought you this current catasrophy, the privately owned and operated Federal Reserve controlled by it owners, the member banks, are about to control our entire regulatory structure of the financial system.
Hank Paulson will unveil a plan to give the private bankers at the Federal Reserve the power to regulate most of not all of our financial system by passing Congress altogether... That's rght privatization of our entire financial regulatory system.
The scariest thing about these economic problems is that they are occurring on Bush's watch. Bush is a fool who surrounds himself with fools.
PBS Frontline has out a new eye-opening documentary that recounts the Iraq war experience (which one can view over at PBS.org).
The die was cast with Iraq.
The same pattern was repeated with Katrina.
And with the current economic crisis, why would any rational person expect anything but the worst possible outcome?
DownSouth,
Darth Cheney is in charge. Shrubboy is his toy monkey. Darth Cheney has no problem with us slaves being decimated.
Cheers,
Misean said: "The Fed is putting patches on a damn about to burst."
There you go again, comparing unchanging laws of physics to societal laws which can be changed at will.
When the levees broke in New Orleans, that involved physical laws over which we had no control.
When FEMA didn't respond fast enough, that was because of societal laws over which we did have control.
Do you see the difference?
Seriously, though, if an EMT goes to an accident site and stabilizes an injured victim by stopping his bleeding until he can get surgery at the hospital, that would also be "patching a damn about to burst."
If you're going to use inflammatory language like this, the least you can do is define "burst" in real terms that everyone can grasp. Are we going to have a bank holiday? Stock markets closed? Unemployment at 8%? Gasoline rationing? Food shortages?
And perhaps some mention of how much of the "dam burst" has already been factored-in to a market where the banks have already taken a severe beating (Bear, Stearns stock down to single digits from $170, for example, or the SP500 going through a sizeable -17% correction).
I "get" the whole von Mises thing and all, I've been reading Prudent Bear since the last Millenia, but come on.
Sebastia
Does anyone know where I can find the text of the Fed Guaranty of the Bear Stearns deal?
If Market Prices Are Too Low, Ignore Them.
why do I feel sicker and sicker
If Market Prices Are Too Low, Ignore Them - Floyd Norris Blog - NYTimes.com
The Securities and Exchange Commission is out today with a letter to companies that own a lot of financial instruments whose current market value must be reported to shareholders. For more than a few companies, disclosing market values is neither easy nor convenient.
The issue is the application of SFAS 157, which governs the way companies compute fair value of assets, assuming they have to do so anyway. (Banks and brokers have to do that a lot, but I wont go into the details of when they can avoid it.) The rule took effect on Jan. 1, although some companies adopted it last year.
The rule sets out three categories of assets, with different ways to value them. Category 1 includes assets with easily observable market values. I.B.M. stock closed today at $114.57, and it is not easy to justify a different value if your quarter ended today. Category 2 is a little fuzzier, where there are observable markets that provide a good guide to prices of your asset, even though there is no direct market. And then there is Category 3, which is essentially mark to model.
In companies that adopted Statement 157 early, we have seen a lot of assets end up in Category 3. That may be proper, since there are plenty of complex financial instruments for which there is not much of a market these days. But it also provides companies with a way to fudge figures.
The S.E.C. letter asks companies for some disclosures on how they came up with those values, and on why a lot of assets may have moved into Category 3. Such disclosures can only help investors.
But one part of the letter stood out to me, providing an excuse for companies to ignore a market value if they dont like it (italics added):
Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale. Only when actual market prices, or relevant observable inputs, are not available is it appropriate for you to use unobservable inputs which reflect your assumptions of what market participants would use in pricing the asset or liability.
That sounds to me like an invitation to fudge. Some people on Wall Street think that nearly every sale today is a forced sale. There are entire categories of collateralized debt obligations where most, if not all, of the trades, occur because a holder has received, or expects, a margin call.
What the S.E.C. should require is a disclosure when a company concludes that a market price should be ignored because it came from a forced liquidation or distress sale. Then there should be a disclosure of how much lower that distress price was from the value the company is using in its own valuation.
Alternatively, there could be a simple rule, at least for banks. If you will ignore this price as irrelevant when you decide whether to send out margin calls to those to whom you have lent money, then you can ignore that market price when you make your own reports. But if you wont lend based on a valuation that ignores actual market prices, then you should not use that valuation for your own accounts.
this is eerie
Google Videos Error
Bellhop said: "I wish that we had an ignore option."
We do. It's called Greasemonkey. Go get it and install it to your Firefox. You do use Firefox, don't you?
Yes, I do. Thanks Terry!! I just installed it. You made my day!
i think Ron Paul would have abolished the Federal reserve.
we aren't Japan. We will be lucky if we end up like Japan
Born in Cali, 1967. Lived in Tokyo, 1992-2000. Back in Cali, 2000-now.
The LA Riots of 1992 were a formative experience for me (lived in West LA at the time).
Japan has a lot of impoverished people, but doesn't have entire communiities of people that will riot like that. Much less class distinction helps, they've got the same hereditary wealth element that we do but the middle class goes further down the totem pole.
It is a complex topic.
anon | 03.29.08 - 5:10 pm
I think you may be missing the intent of the exemption in 157 and the problems with it.
It's entirely appropriate to ignore a distress sale on assets expected to be run off. Consider a factory producing widgets. The factory next door may have been sold at a distressed price for any number of reasons, none of which materially impair the ability of the widget factory to produce widgets. Users of WidgetCo's financial statements expect to be able to assess the prospects for widget production profits, and don't likely consider the carrying cost of the factory as available liquidity.
The problem arises where the asset in question is one in which investors and lenders are encouraged to think the asset can be liquidated to meet short term cash needs. The presumption is that the asset can't or won't be held for income and run off, but rather is available for sale to meet calls for liquidity.
I'm certainly no expert on FAS157, but it seems to me that the problem is in the practical implications of using a rule where a principle is more appropriate.
Yes, because giving the Fed - the unregulated 4th branch of our new government - MORE power makes a lot of sense. After all, they did so well in preventing Bubbles under Greedspam and have thus done a great job protecting the dollar and keeping prices stable under Bubbles Benover Bernanke. Right...