Federal Reserve

A Break in the Ranks at the Fed - A Most Important Speech

The Kansas Federal Reserve President, Thomas Hoenig, representing himself, just gave one hell of a speech, Too Big Has Failed. Calculated Risk, (who found this gem), said this is a call for nationalization. Is it?

In the speech, Hoenig states:

we have not defined a consistent plan and not addressed basic shortcomings and, in some cases, the insolvent position of these institutions.

Hoenig then acknowledges while the United States is trying to avoid nationalization, it's happening anyway, slow, painful and piecemeal. He also suggests the current series of actions are adding to market uncertainty.

Hoenig describes current actions on the financial crisis, the results and offers a road map of policy suggestions.

The Bomb - McCain vs. Obama Plans on the Financial Implosion

madison implodeNews moves at lightening speed.    One minute the story is Lehman Brothers going bankrupt, the next is Barclays is now going to buy some of it, in the asset fire sale in the bankruptcy court.


AIG is like watching a building implode, in slow motion.   Bank of America is buying Merrill Lynch, yet no one is questioning any of this, including their purchase of another in trouble mortgage firm, CountryWide.  

So, what specifically do these Presidential candidates plan to do about all of this? Right now, we have more finger pointing of the two campaigns with little details on actual policy plans or positions.

Result of the Fed's rate cuts: global inflation, US stagnation

University of Oregon economist Tim Duy is rapidly becoming one of my favorite reads. His insight into how loosey goosey low interest rates in the US have engendered blowback unforeseen by the Fed is a great example:

For my part, I am concerned that the Fed appears to have written off the dollar. My concern stems from rising international tensions - the Fed is dumping additional liquidity into the system at a time when most central banks are attempting to turn off the faucet. The Fed is implicitly, if not explicitly, relying on countries with fixed exchange rates to absorb that additional liquidity at the cost of inflation in those economies. Moreover, those economies with floating rates become the anti-Dollar bets.…

Federal Reserve considering Unconstitutional measures

By now everyone should be familiar with the fact that the Federal Reserve bailed out Wall Street investment bank Bear Stearns. You are probably aware that your taxes are now underwriting $380 Billion in subprime, mortgage-backed securities (that's $1,251 for every man, woman, and child in America).

But it wasn't until I read this article did I realize just how much trouble we are in.

"The U.S. dollar is a 'faith-based currency' dependent on the credibility of a central bank"
-- Dallas Federal Reserve Bank President Richard Fisher

The world's faith in the U.S. Dollar is based on not just on the credibility of our central bank (aka the Federal Reserve), but reflected in how they manage their own portfolio.

Bush's "Hoover Plan"

Last week the financial markets swung wildly back and forth between "We're All Going To Die!" and "Hurray! We're Saved!".
At the center of this drama was the buyout of the insolvent investment bank Bear Stearns by JP Morgan Chase. Most of the attention was focused on the fact that JPM bought Bear Stearns for just $2 a share, thus giving current shareholders the shaft.
While this is a worthy characteristic to focus on, I was more interested in the fact that JPM only agreed to this deal after the Federal Reserve offered to shift $30 Billion of Bear Stearns mortgage-backed securities onto its books.

Derivatives- Investment Vehicles No One Understands

When you bite down into that hamburger, do you know what's in it?   Well, the new mystery meat is the massive financial black box (what's inside is anyone's guess!) world of derivatives and credit default swaps.

Finally, the New York Times writes a detailed article, What Created This Monster, and exposes even world leading economists do not know what derivatives are or in most cases, the details of how they work.

These products are virtually hidden from investors, analysts and regulators, even though they have emerged as one of Wall Street’s most outsized profit engines. They don’t trade openly on public exchanges, and financial services firms disclose few details about them

Winter Watch & Dr. Strangelove: Trial Ballooning More Disasters

While the markets rallied and folks cheered the Feds, proclaimed they saved the day, a dissenter emerges in the form of Winter Watch via Dr. Strangelove: Trial Ballooning More Disasters.

Today, the Fed announced a new liquidity plan.

the Fed announced a plan to resuscitate the ailing credit markets by lending $200 billion to battered financial firms in exchange for debt- or mortgage-backed securities. Starting March 27, the central bank is planning to offer weekly auctions, which could exceed $200 billion if there is sufficient demand, the Fed said.

I felt alone in the perception of an enabled ponzi subprime mortgage game continuing unabated, a shell game to push off this greedy disaster onto the taxpayer. Was I wrong? Did I just not understand? After all the market went up the highest 1 day rise in 5 years.

From Winters: