Federal Reserve

GAO Audit of Federal Reserve Reveals Strong Conflicts of Interest

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The Government Accountability Office has completed their audit of the Federal Reserve. Guess what the GAO found? Conflicts of Interest. It seems the Banksters are sitting on the Federal Reserve board, supervising their own institutions. The fox is guarding the hen house in other words. One of the most damning GAO discoveries is the timeline of Goldman Sachs turning into a holding bank and a Goldman Sachs board of directors, Stephen Friedman, also serving as the New York Federal Reserve chair.

The Fed Does the Twist!

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twistThe Federal reserve announced Operation Twist, an action from 1961 where the Fed swaps out treasuries of short maturity lengths, for longer ones, all in an attempt to flatten, or twist the yield curve. From the Economist:

Operation Twist has long been considered a failure. Early studies found little impact on yields, vindicating those who argued that the price of a security depends only on expectations—of inflation, for example, or monetary policy—not its relative supply. Eric Swanson, an economist at the Federal Reserve Bank of San Francisco, disagrees. Previous studies, he reckons, didn’t properly isolate the influence of Operation Twist from countervailing factors. By studying the behaviour of bonds right around announcements related to Operation Twist, he concludes the programme lowered yields by 15 basis points in total.

From the FOMC statement:

Fresh From Their Debt Ceiling Extortion Game, Republicans Turn to Bullying the Fed

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Members of the Federal Reserve’s Open Market Committee woke up earlier this week to find a dead fish placed on the steps of the Marriner Eccles building in Washington. Everyone knows this is a traditional Mafioso warning to the recipient that they are soon to be “sleeping with the fishes”. But who would have the audacity to so-crudely threaten the distinguished and eminent governors and presidents of the Federal Reserve System? How about those masters of intimidation and economic terrorism, the Republican Leadership in Congress.

Yes, the warning came collectively from Mitch McConnell, Jon Kyl, John Boehner, and Eric Cantor, in the form of a letter to Fed Chairman Ben Bernanke ordering him not to institute any more monetary easing. The timing was exquisitely deliberate: a day before the FOMC was due to meet to discuss monetary policy and – according to many insider reports – vote to approve some new form of Quantitative Easing.

The letter didn’t exactly say that if the Fed voted for more monetary stimulus the august members of the FOMC would find cement blocks placed around their feet, but it didn’t need to. These are the same Republican leaders who just recently threatened to throw the United States into default if they didn’t get their way. They’ve already got cement blocks placed around the feet of Barack Obama, so they’ve certainly established their bona fides for murderous thuggery.

We Can't Just Sit Here Doing Nothing

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Early in his tenure as Chairman of the Federal Reserve Board, Ben Bernanke promised to make the workings of monetary policy more transparent. By golly – that’s exactly what he’s done! We no longer read the minutes of the Federal Open Market Committee as if they contain hidden messages as to where policy might go in the future. We even bother to notice who is voting which way; gone are the days when every vote had to be unanimous because any no vote would be considered the equivalent of stabbing the Chairman in the back. These days, the people who vote no want their name out there in bright lights and their reasons spelled out in glorious detail.

The minutes released this week for the August FOMC meeting are a treasure trove of transparency. There is so much transparency because these people at the FOMC don’t know what to do. Some want more Quantitative Easing, but they don’t agree on the form it should take: add even more securities to the Fed’s gargantuan balance sheet (now equal to 4% of the entire GDP of the economy); or, sell some short term securities and buy long term securities in order to manipulate long term rates lower, yet keep the overall Fed balance sheet total unchanged.

Bernanke Jackson Hole Speech Kicks the Can Over to Obama and Congress

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bernake say whatFederal Reserve Chair Ben Bernanke gave his long awaited Jackson Hole speech this morning. Now all are reading between the lines on whether more quantitative easing will be done and picking apart every single word as if Bernanke speaks in cryptography.

 

First, here is the speech paragraph that will generate quantitative easing, or QE3 buzz:

In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.

Clearly QE3 is still on the table from this speech.

$1.2 Trillion to Banks, You 0

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Bloomberg News has researched a bombshell story, the Federal Reserve gave $1.2 trillion in secret loans to banks during the financial crisis, from August 2007 until April 2010. This is in addition to the TARP bail outs which was publicly known.

The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The top three banks at peaking borrowing are: Morgan Stanley, $107.3 billion, Citigroup took $99.5 billion, Bank of America $91.4 billion, or a total of $298.2 billion. Gets worse, foreign banks amounted to half the loans.

Half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

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