federal reserve

The Federal Reserve's Exit Plan is Another Bank Bail Out Pig Fest

The Federal Reserve is announcing an exit strategy for credit tightening, according to the Wall Street Journal.

The centerpiece will be a new tool Congress gave the central bank in October 2008: an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as "interest on excess reserves," this rate is now 0.25%.

So, the Fed pays banks interest on money lent to the Fed from the banks.

Fed considers QE 2.0

This explains why the dollar dropped so much yesterday.

(Reuters) - The Federal Reserve is discussing re-entering the mortgage-backed securities market later this year if its buying power is needed to hold down interest rates, Market News said on Tuesday in a story citing Fed officials.
The $5 trillion agency mortgage-backed securities market may weaken when last year's biggest buyer, the Federal Reserve, ends its $1.25 trillion agency MBS purchasing program at the end of the first quarter of 2010.
Fed officials, however, "are prepared to contemplate changes if need be, depending on conditions in the economy, housing finance and in financial markets more broadly," Market News said in a story written by Steven Beckner.

Implausible Deniability of Ben Bernanke

Federal Reserve Chair Ben Bernanke says the Housing Bubble is Regulator's Fault and the Fed had nothing to do with it:

“The best response to the housing bubble would have been regulatory, rather than monetary,” Bernanke said today in remarks to the American Economic Association’s annual meeting in Atlanta. The Fed’s efforts to constrain the bubble were “too late or were insufficient,” which means that regulatory actions “must be better and smarter,” he said.

Right o! Bernanke supported all of Alan Greenspan's cheap money policies:

Ben is In

Bloomberg is tallying up the Senate votes and reporting Helicopter Ben Bernanke is in by a good 66%.

Bloomberg yesterday interviewed 53 senators who aren’t on the Banking Committee, which voted 16-7 on Dec. 17 to recommend Bernanke’s nomination to the full Senate. Twenty-one lawmakers said they are inclined to vote for Bernanke, while four said they would oppose the central bank chief, giving him 37-12 support so far for a four-year term starting Feb. 1. Another 28 said they’re undecided or declined to comment.

California Democrat Dianne Feinstein and South Carolina Republican Lindsey Graham were among senators saying they’ll support Bernanke, citing his response to the financial crisis. Senators from both major parties said they expect him to be confirmed, even with at least four lawmakers trying to block or delay the nomination.

Federal Reserve Meeting Minutes - Cheap $$ r us

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The above quote is from the Federal Reserve meeting minutes.

They also purchased $1.25 trillion in MBSes (mortgage backed securities) and $175 billion of agency debt. $1.25 trillion. That is one scary number and we still cannot get derivatives reform?

The Fed is also letting a host of special liquidity funds expire on 02.01.10.

Federal Reserve Meeting Minutes - a world of hurt for working America

Ok, we are already way past the Federal Reserve's previous predictions of unemployment. Remember that? "Oh, unemployment won't hit 10%" according to Bernanke testimony. The unemployment rate is at 10.2%, U6 is 17.5% and growing.

So today we have more forecasts.

  • Q4 2010 - 9.3% to 9.7%
  • Q4 2011 - 8.2% to 8.6%
  • Q4 2012 - 6.8% to 7.5%

Good god, can we get some real labor and jobs policy going that deals with the real facts of labor economics? These numbers imply we're going to destroy hundreds of thousands of middle class lives....permanently.

Most officials said it would take five or six years for growth, unemployment and inflation to return to levels consistent with the central bank’s goals, the minutes said. Some participants said it may take longer, according to the Fed.

Senate Banking Chair - Bernanke confirmation not a foregone conclusion

Considering yesterday's amazing victory to obtain an audit of the Federal Reserve as an amendment in a Financial Reform bill passed out of committee, today we have the most amazing report.

Senator Chris Dodd, Senate Banking Chair says:

Mike Stark: “Is it a foregone conclusion that he’ll be confirmed?”

Senator Dodd: “Not necessarily, not necessarily, we’ll see how members react.”

Mike Stark: “What do you think his chances are?”

Senator Dodd: “Well I don’t know, as Chairman of the committee I don’t want to speculate how other members feel about it, we’ll see what happens.”

So, the winds may be changing for Bernanke. The hearing is on December 3rd. What I would like to know before bashing Bernanke, is who would be his replacement? If it's Larry Summers, then yea rah Helicopter Ben.

Fed Fight

It seems the Federal Reserve is coming out in full force to maintain their current power. What are they fighting against?

Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his House counterpart, have said they may change how Fed presidents are chosen or curb their power. Presidents aren’t appointed by Congress and are partly selected by banks, which lawmakers say share blame for the financial crisis.

Why is Congress trying to change the way regional Fed Presidents are selected? Because they are nominated and come from private boards and commercial banks.

federal reserve org chart

Federal Reserve regional Presidents are only approved by the Fed. governors.

The Fed proposes new credit card rules

The Federal Reserve is proposing new rules (large pdf), on credit cards.

This is a second stage of rules, to go into effect on February 22, 2010.

One of the best things is banning the credit card industry from applying payments to your lower interest rate first.

Ya know, you have a balance and you get an offer which says "2.99% on new purchases for 6 months", which you accept.

Well, your payment goes to pay off any purchases under that 2.99% interest rate and not that huge balance you have that is accruing at 17.99%!

That interest rate fake out game will be gone!

Another goodie is banks must not only disclosure exorbitant over the limit fees, but get acknowledgment from the card holder such fees are ok.

The rules also ban that lovely technique of offering you a low rate and then magically raising it in the first year you have the card.