Archive for the ‘Federal Reserve’ Category
Sunday, October 27th, 2013
THE WALL STREET JOURNAL
Book Review: ‘The Map and the Territory,’ by Alan Greenspan
Alan Greenspan argues that Wall Street didn’t predict the 2008 crisis because it paid scant attention to the insights of behavioral economics.
Oct. 22, 2013
EXCERPT FROM THIS ARTICLE: Bubbles and crashes will always be characteristics of free-market systems, but they need not lead to economic crises. In 1987 the stock market fell over 20% in a single day, but the effect on economic activity was minimal because holders of common stock weren’t highly leveraged. The bursting of the Internet bubble in early 2000 left only a mild imprint on the financial system and the real economy for the same reason. The crash of the housing bubble was devastating because the toxic mortgage-backed assets were held by highly leveraged institutions, and this debt was short-term rather than “permanent” and thus especially susceptible to “runs” where lenders were unwilling to “roll over” their short-term loans. “It was the capital impairment on the balance sheets of financial institutions that provoked the crisis,” Mr. Greenspan writes. In his view, the answer is not more regulation but more capital.
“The Map and the Territory” ranges beyond the market crisis and predictive models. Mr. Greenspan offers a conservative but balanced discussion, for instance, of the need to restrain the growth of entitlement spending. In his section on income inequality he emphasizes the role of globalization and the rise in stock-based compensation, as well as the failure of our education system to produce skills for the workforce that match the needs of the economy. He says that immigration reform, by loosening the requirements for H-1B visas, would allow us to draw on a large pool of skilled workers abroad and thus stabilize income inequality. At the moment, immigration restrictions protect, and thus subsidize, high-income earners from global wage competition.
The financial crisis of 2008 and the deep recession that followed forced each of us—perhaps most notably, Alan Greenspan —to question the fundamental assumptions about risk management and economic forecasting. Mr. Greenspan, the nation’s chief forecaster as chairman of the Federal Reserve Board, steered the nation through almost two decades of prosperity and relative stability, retiring from the Fed in 2006 with an unparalleled reputation for prescience. And then came the economic crisis, and no one’s reputation for prescience survived.
In prepared remarks before a congressional hearing a month after Lehman’s September 2008 bankruptcy, Mr. Greenspan declared: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity (myself especially) are in a state of shocked disbelief.” He was hardly alone in failing to predict the economic tsunami. Equally clueless were government officials, Wall Street practitioners and professional economists. In “The Map and the Territory,” Mr. Greenspan tries to explain what went wrong and offers suggestions for how we can do a better job. (more…)
Posted in Banking, Bankruptcy, Big Government, Economy, Entitlements, Fannie and Freddie, Federal Reserve, Financial Meltdown, Government Regulation, Housing Market, Obama Administraiton and Policy | No Comments »
Wednesday, July 17th, 2013
If you are looking for a good, easy to read book on why the U.S. recovery has been so painfully slow, Frank Roche’s new book, ‘The Five Structural Barriers to American Strength and Prosperity’ will lay out the 5 main reasons that are holding our country back.
The policies that our government have been following since the 1960’s and 70’s just might have something to do with it. Frank Roche discusses our immigration policy, fiscal policy, U.S. international trade policy, regulatory policy and the U.S. education policy. Nancy
THE FIVE STRUCTURAL BARRIERS TO AMERICAN STRENGTH AND PROSPERITY
BY FRANK ROCHE, Market Economist, Adjunct Professor of Economics and capital markets expert
Publication Date: May 28, 2013
The weak cyclical recoveries from America’s first two recessions in the 21st Century are exposing a long camouflaged and ignored truth. That is, bad public policy as practiced by elected and appointed officials at the state and federal level since the 1960’s has engendered serious structural problems for the U.S. economy reducing potential real GDP, with cascading effects on employment, income distribution, and national savings while inducing higher levels of dependency on government for basic needs like food, clothing, and shelter. The structural damage done by too much immigration, too much debt, too many imports, too many laws, rules & regulations, and not enough quality education over the past 35-40 years has finally been revealed in the below potential performance of the U.S. economy. The empirical evidence is clear; the underlying U.S. economy is getting weaker not stronger.
Frank Roche takes several important issues facing America; gives you the data, graphs, and curves; pulls no punches; and lays out the problems in an easy manner to follow . Frank takes the heady stuff and explains the why. The writing style is friendly and conversational – which was totally unexpected. This is a good book and a great read for all of us who want the facts.
Posted in American History, Big Government, Book Reviews, Congress, Economy, Education, Federal Reserve, Frank Roche, Free Trade, Government Regulation, Illegal Immigration, Legal Immigration, Obama Administraiton and Policy | No Comments »
Wednesday, May 1st, 2013
Posted in Banking, Economy, England, EU ( European Union), Europe, Federal Reserve, Housing Market, Inflation, Interest Rates, Pensions, Spending, Stimulus, Videos, Wall Street | No Comments »
Saturday, February 23rd, 2013
THE WASHINGTON TIMES
DECKER: 5 Questions with BB&T’s John Allison
‘It’s easier for government to control a few large institutions’
By Brett M. Decker– Brett M. Decker, former Editorial Page Editor for The Washington Times, was an editorial page writer and editor for the Wall Street Journal in Hong Kong, Senior Vice President of the Export-Import Bank, Senior Vice President of Pentagon Federal Credit Union, speechwriter to then-House Majority Whip (later Majority Leader) Tom DeLay and reporter and television producer for the legendary Robert
Friday, May 11, 2012
Decker: You told me you couldn’t create your company in today’s environment. That’s quite a startling statement about such a successful business. Why not?
Allison: BB&T grew through local decision-making and personalized service focused on small businesses and the middle market. The current regulatory environment not only imposes extraordinary cost on smaller financial institutions, it makes it difficult to treat each customer as a special individual. Personalized service is now considered by the regulators to be “disparate” treatment. Small-business lending is part science and part art. It is extraordinarily difficult to execute a personalized value proposition with bank examiners micromanaging every decision.
Decker: Banks are used as whipping boys to impute blame for the collapse of the housing market, but government played a central role in the mortgage crisis. Can you explain how Washington intervention manipulated the market with such disastrous results?
Allison: Government policy is the primary cause of the financial crisis. The Federal Reserve “printed” too much money in the early 2000s to avoid a mild recession, which led to a massive misinvestment. The misinvestment was focused in the housing market due to the affordable housing (subprime) lending policies imposed by Congress on the giant Government Sponsored Enterprises (Freddie Mac and Fannie Mae), which would never have existed in a free market. When Freddie and Fannie failed, they owed $5.5 trillion and had $2 trillion in subprime loans. Because Freddie/Fannie had such a dominate share of home-mortgage lending in the United States (75 percent), they drove down the lending standards for the whole industry. (more…)
Posted in Banking, Bankruptcy, Big Business, Big Government, Congress, Democrats, Dodd/Frank Financial Regulations, Economy, Entitlements, Fannie and Freddie, Federal Reserve, Financial Meltdown, Government Regulation, Healthcare, Housing Market, Interest Rates, Medicare/Medicaid, Obama, Obama Administraiton and Policy, Obamacare, Socialism, Wall Street | No Comments »
Thursday, January 24th, 2013
Money for Nothing
Who caused the financial collapse? Just about everyone.
Lewis E. Lehrman
January 14, 2013, Vol. 18, No. 17
The Financial Crisis and the Free Market Cure – Why Pure Capitalism Is the World Economy’s Only Hope by John A. Allison, McGraw-Hill 320 pages, $28
EXCERPT FROM THIS ARTICLE: As the head of a major American bank, Allison was witness to the decisions of government, Federal Reserve leaders, and banking CEOs that led to a huge speculative bubble and the collapse of the financial system, including Fannie Mae, Freddie Mac, virtually the entire cartel of big banks and brokers, and major companies. Allison guides us, with a gimlet eye, through taxpayer-subsidized bailouts of these wards of the state, focusing on a reckless, insolvent, privileged financial oligarchy—subsidized by a feckless Fed, a dilatory Treasury, and a politicized FDIC. The coercive power of the federal government, and the moral hazard of excessive regulation, is dissected and debunked.
To appreciate this landmark work it is necessary to know a bit about the author’s background.
John Allison is not only a banker-entrepreneur; he is also a recognized intellectual leader of American business. Moreover, Allison’s financial expertise is a product of his personal biography: In a mere two decades, he built BB&T (Branch Banking & Trust Co.), a comparatively small Southern bank of $4.5 billion in assets, into a $152-billion financial enterprise, making it one of America’s largest and most profitable banks. But unlike many overpaid, underperforming CEOs, Allison focused his leader-manager skills—at modest compensation—on behalf of his employees, customers, and shareholders. (more…)
Posted in American History, Banking, Bankruptcy, Big Government, Book Reviews, Congress, Democrats, Economy, Fannie and Freddie, Federal Reserve, Financial Meltdown, GOP, Government Regulation, Interest Rates, Liberalism, Wall Street | No Comments »
Wednesday, January 2nd, 2013
We’ve Been ZIRPed
The perils of the zero interest rate policy.
Andy Kessler
December 24, 2012, Vol. 18, No. 15
EXCERPT FROM THIS ARTICLE: Savers are getting ripped off. Interest rates are near zero, yet the inflation rate as of October 2012 was 2.2 percent, which means real interest rates are negative 2 percent, so savings are being diluted by 2 percent a year. It’s a stealth, non-voted-on tax, maybe as much as $200-300 billion a year. This is not news. The Roman emperors debased their coins from 4.5 grams of pure silver to less than a tenth of a gram over a few centuries. Hardly anyone noticed until the Visigoths (or was it the Vandals?) showed up to sack Rome. The U.S. dollar has been diluted by 96 percent since the Federal Reserve was created 99 years ago. Modern vandals!
Father-son talks are always difficult, but it was time to teach my teenager about how things work. I dragged him to our local branch of Wells Fargo and opened a checking account with ATM card privileges and a savings account where he deposited his hard-earned umpiring cash. Having worked on Wall Street for 25 years, I stroked my chin and provided some sage advice: Checking accounts don’t pay interest, so keep your money in the savings account and just move it to checking when you need it. None other than Albert Einstein, I noted, said, “compound interest is the most powerful force in the universe.”
His first bank statement showed interest income of $0.01—and a series of $35 fees for insufficient funds, wiping out all his money. I got a “You’re a financial genius, Dad,” dripping with sarcasm.
My son got ZIRPed. Senior citizens living on fixed incomes are getting ZIRPed. We all are. Since December 2008, when Ben Bernanke’s Federal Reserve started buying mortgage backed securities in order to “solve” the financial crisis, we have all been subject to a zero interest rate policy.
Banks were (and still are) sitting on piles of underwater mortgages. They can’t sell them at depressed prices, else they trigger losses and writedowns to their leveraged balance sheets and maybe—yikes—go bankrupt. The stock market knows this, which is why Bank of America shows $20 in book value (assets minus liabilities) on their balance sheet, but the stock is selling for under $11. Citigroup’s book value is $64, and the stock is $37. Better that banks had been stripped of these mortgages back in 2009 via temporary nationalization or good bank/bad bank splits. But no one had the courage, so instead we are subject to ZIRP, at least through mid-2015.
The Fed’s concept was simple: With interest rates at zero, capital will flow to other financial assets with better returns. Like the stock market, which would allow banks to raise capital and deleverage their balance sheets so they could slowly but surely write down all those crappy mortgages. Or into real estate, which might raise prices and make those bank mortgages less underwater.
Conceptually, ZIRP has worked. The stock market is up 12 percent in 2012. Bank stocks like Bank of America’s have doubled off their lows. Real estate investment trusts, or REITs, are up 15 percent. Yet in the real world, ZIRP is a huge FAIL. GDP growth in 2012 will come in at an anemic 2 percent after a 1.7 percent tick up in 2011. ZIRP is not growing the economy. And no growth means no jobs. (more…)
Posted in Banking, Economy, Federal Reserve, Interest Rates, Obama Administraiton and Policy | No Comments »
Tuesday, September 18th, 2012
The Magnitude of the Mess We’re In
The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.
By George P. Shultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor – The authors are senior fellows at Stanford University’s Hoover Institution. They have served in various federal government policy positions in the Treasury Department, the Office of Management and Budget and the Council of Economic Advisers
Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don’t want, but need, to hear.
Where are we now?
Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.
The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.
The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens’ and institutions’ purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.
The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.
Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008. (more…)
Posted in Banking, Bankruptcy, Big Government, Economy, Election 2012, Federal Reserve, Interest Rates, Obama, Obama Administraiton and Policy, Spending, Wall Street | No Comments »
Monday, March 26th, 2012
Posted in American History, Bankruptcy, Big Government, Budget for 2012, BUDGET FOR 2013, Debt Ceiling, Entitlements, Federal Reserve, History, Interest Rates, National Defense, Obama Administraiton and Policy, Spending, Videos | No Comments »
Friday, February 24th, 2012
‘Stupid’ and Oil Prices
Obama’s Forrest Gump analysis of rising gas prices.
‘The American people aren’t stupid,” thundered President Obama yesterday in Miami, ridiculing Republicans who are blaming him for rising gasoline prices. Let’s hope he’s right, because not even Forrest Gump could believe the logic of what Mr. Obama is trying to sell.
To wit, that a) gasoline prices are beyond his control, but b) to the extent oil and gas production is rising in America, his energy policies deserve all the credit, and c) higher prices are one more reason to raise taxes on oil and gas drillers while handing even more subsidies to his friends in green energy. Where to begin?
It’s true enough that oil prices can’t be commanded from the Oval Office, so in that sense Mr. Obama’s disavowal of blame is a rare show of humility in the face of market forces. Would that he showed similar modesty in trying to command the tides of home prices, car sales (“cash for clunkers”), or the production of electric batteries.
The oil price surge has several likely sources. One is the turmoil in the Middle East, especially new fears of a supply shock from a conflict with Iran. But it’s worth recalling that Mr. Obama also blamed the last oil-price surge, in spring 2011, on the Libyan uprising. Moammar Gadhafi is now gone and Libyan oil production is coming back on stream, yet oil prices dipped only briefly below $90 a barrel and have been rising since October. Something else must be going on. (more…)
Posted in Democrats, Economy, Election 2012, Federal Reserve, Industry, Interest Rates, International Affairs, Iran, Middle East, Obama, Obama Administraiton and Policy, Oil Industry | No Comments »
Tuesday, February 7th, 2012
The Fed Votes No Confidence
The prolonged—’emergency’—near-zero interest rate policy is harming the economy.
By CHARLES SCHWAB Mr. Schwab is founder and chairman of the Charles Schwab Corporation
We’re now in the 37th month of central government manipulation of the free-market system through the Federal Reserve’s near-zero interest rate policy. Is it working?
Business and consumer loan demand remains modest in part because there’s no hurry to borrow at today’s super-low rates when the Fed says rates will stay low for years to come. Why take the risk of borrowing today when low-cost money will be there tomorrow?
Federal Reserve Chairman Ben Bernanke told lawmakers last week that fiscal policy should first “do no harm.” The same can be said of monetary policy. The Fed’s prolonged, “emergency” near-zero interest rate policy is now harming our economy.
The Fed policy has resulted in a huge infusion of capital into the system, creating a massive rise in liquidity but negligible movement of that money. It is sitting there, in banks all across America, unused. The multiplier effect that normally comes with a boost in liquidity remains at rock bottom. Sufficient capital is in the system to spur growth—it simply isn’t being put to work fast enough.
Average American savers and investors in or near retirement are being forced by the Fed’s zero-rate policy to take greater investment risks. To get even modest interest or earnings on their savings, they move out of safer assets such as money markets, short-term bonds or CDs and into riskier assets such as stocks. Either that or they tie up their assets in longer-term bonds that will backfire on them if inflation returns. They’re also dramatically scaling back their consumer spending and living more modestly, thus taking money out of the economy that would otherwise support growth. (more…)
Posted in Banking, Economy, Federal Reserve, Housing Market, Inflation, Interest Rates, Obama Administraiton and Policy | No Comments »