Chris Dodd Stripping Down the Fed and OMG Loller Dollar Rally

I can't believe my eyes, is this for real?

Reuters called it "bold financial reform" and Bloomberg said it was a "toothless tiger", now WSJ has a turn in critiquing Christopher Dodd's financial reform bill and it appears as though the best bit out of all of this is that regional Fed banks may be getting a bit of a shake-up if all goes according to Dodd's diabolical plan.

Disclaimer: I don't trust that dude as far as I can throw him so don't go celebrating just yet.

So far, Reuters' Felix Salmon has the best take, until Market Ticker starts cursing.


Sen. Christopher Dodd's proposal to revamp financial market regulation includes provisions that would change the way the Federal Reserve chooses directors at the central bank's 12 regional banks, putting more power in Washington and giving the White House and Senate a say in who runs those banks.

The Fed could fight hard against the provisions, which rewrite the 1913 Federal Reserve Act which gave birth to the modern central bank and subsequent rewrites in the 1930s. Fed officials have been worried for months that Congress would rewrite the law and diminish the Fed's political independence. A proposed revamp in the House doesn't change these governance rules. Mr. Dodd's proposals now make the Fed's independence a part of the broader debate on regulatory reform.

San Francisco Fed President Janet Yellen said Tuesday that, though she believes the Fed should play an increasingly central role in monitoring systemic risk, regional banks shouldn't face a diminution of their roles.

"I think we have something very valuable with the Federal Reserve system and the way it works," she said. "Congress set it up to center power not 100% with Washington [but to give] people based in other parts of the country eyes and ears and [to enable them to] have some say over monetary policy. That has served our country very well."

The Fed has an unusual structure that mixes public and private interests. The seven-member a Federal Reserve Board in Washington, which plays the dominant role in setting interest rates, is appointed by the president and its members confirmed by the U.S. Senate. But the Fed system also includes 12 regional banks, each of which has a nine-member board of directors chosen from the private sector. These banks have a say in certain interest rates and also are designated by the Fed to help regulate private banks in those districts. Their private-sector directors, among others things, help choose the presidents of the regional Fed banks, who cast votes on monetary policy in the Federal Open Market Committee.

Each regional bank has nine directors divided into three classes. Under current law, Class A directors represent banks and are chosen by local bankers in each district. Class B directors represent the broader public and are chosen by banks in each district. Class C directors represent the public and are chosen by the Federal Reserve Board in Washington.

Sen. Dodd, a Connecticut Democrat, is proposing that Class A and Class B directors be chosen by the Fed's Board of Governors in Washington, not by private banks and that two of the Class C directors be chosen by the Fed board. Under this bill, the chairman of every regional bank board would be appointed by the President of the U.S. and confirmed by the Senate.

Fed officials have been reviewing their governance for several months. Critics argue that the Fed's regional banks are too close to private banks which the Fed helps to regulate.

Dodd also wants a single regulator and to strip the Fed of bank supervision, and I mean strip in the nicest sense of the word since the move would leave those bumbling asshats at the Fed dictating monetary policy and not much else, leaving them in their most naked and blind state. Please, at least they get the bank supervision thing right some of the time.

Market Ticker has the summary here for your reading pleasure.

Oh and while we're on the subject, Market Ticker also shows us why this "rally" is, was, and will continue to be bullshit (thanks, KD!):

Yet more BS Fedspeak, this time in the mainstream media:

In separate speeches, Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.

That's because there is no real economic recovery at all.

Folks, you don't have to engage in any sort of "conspiratorial" thinking on this whatsoever. You only need examine the facts.

The rally in the market has exactly nothing to do with the economy and the outlook for it. It is tied to one and only one thing - the decline in the dollar.


You're free to believe in any thesis you'd like with regards to economic recovery. But a strong economy is correlated with a stronger currency - that is, the underlying strength of America, along with her ability to support her currency via current and future production, which translates into the ability to raise tax revenues and thus cover debt.

ince March The Federal Reserve and Federal Government have in fact promulgated and prosecuted policies that do the exact opposite. The stock market has responded not to forward economic prospects, as is often claimed, but rather to the "hot money" flows of foreign and domestic speculators and a dollar-based carry trade engendered by The Fed's zero-percent interest rates.

Yes, the stock market could go to all-time highs - for a short while - if this is allowed to continue. But oil (priced in dollars) would be $300 and the dollar would be at 40 - everything you buy that is imported would literally double (or more) in price, and your standard of living, since energy is in everything, would be cut in half - or worse.

How well will the stock market do over the intermediate and longer term when the 70% of the economy that is consumer spending (that's you, dear reader!) is destroyed by ramping import costs - whether the government calls that "inflation" or not?

Well good, I'm glad we cleared all of that up. Head to the Ticker for the charts (I'm afraid of them, myself, charts were never my deal pfffft) but essentially the only reason stocks look so great is because the dollar looks so bad. No shit. That simple huh?

Anyway, sure we want to leave the Fed with monetary policy and little else?

The discussion draft of Dodd's bill may be found here and the full text is here (all 1136 pages of it) if you have absolutely nothing better to do.

I know I don't. See you bitches on the other side.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

The rally in the market has exactly nothing to do with the economy and the outlook for it. It is tied to one and only one thing - the decline in the dollar.

From a consumer standpoint, I think of money (any money, not just the dollar) as what I call “past money” (cash) and “future money” (credit). Past money is real. I can hold it in my hand and know what I had to do in order to obtain it (don’t ask). It has a value to me that future money does not. I think of future money as what some fool will lend me based on their assumptions of what my prospects are in life. I work in the industry and know that many of people in this field really have no “feel” or instinct for lending and collecting. They tend to be technocrats and most of them are scared shitless at the moment. In a consumer economy where consumers have saved very little of their past money and there is reluctance on both sides of the transaction where future money is concerned, it stands to reason to me that past money should have a premium attached to it – in the form of interest rates paid on savings, it presently does not but where price deflation is concerned, at least in St. Louis, that is where the premium is to be realized. At the moment, most of my living expenses are either level or actually declining. I’ve not had a rent change in five years. My cat’s food is unchanged from one year ago. My grocery bill at the moment is about equal to where it was three years ago. Motorcycle prices are lower. Gasoline (at the moment) is less (but very volatile). I hope to realize quite a bit of that “past money premium” when I’ve saved enough to feel comfortable buying a home. In a news story yesterday, the local utility company has said that they intend to reduce rates for the upcoming year on electricity. I am suffering with some pretty crappy rates paid on my savings at the moment. Nothing is doing well, not regular savings, not certificates, not money market accounts but I’m not ready to throw in the towel on the dollar just yet. It still has “In God We Trust” on it and by that I interpret that as to trust how the Creator made people – they love money! After all, the friendly neighborhood prostitute does not trade services for anything but dollars. The guy down the street will give a 4 cent per gallon discount on your purchase of gas and a discount on hooch if you pay in cash instead of credit. Big ships don’t turn on a dime and that goes for the way people go about living their lives. Credit didn’t become a success overnight but it is steadily going down hill at the moment.


Anonymous said...

Notice they are hoarding "cash" - not gold, not beanie babies, not futures contracts, not lawn jockey statues, not Maplethorpe "works of art", not classic comic books... get the picture? My theory is that the "500 of the largest non-financial firms" suspect that they will realize a premium on their savings in the way of price deflation.