The New World Order - and How to Profit From It?


It isn't often that I get e-mails which really grab me by the throat, shake me around like a screaming 3 month old, and leave me all wobbly and confused. Just when I've lost my faith in the ability of my inbox to shock me into attention, here comes an e-mail from Motley Fool entitled "What if it's not as bad as everybody thinks?" - innocent enough, right?

No offense to the Fool folks but I usually skip over each and every e-mail (why subscribe in the first place? Don't ask me, I like to keep an eye on the haps even if it means getting inundated with e-mails all day long), or at a minimum click through one article which seems to hold a little bit of promise. I blame Fool for starting this "Spam-a-subscriber" campaign in which they try to seduce me with promises of wealth beyond my wildest dreams if I pull a Warren Buffet and jump on the "INVESTMENT OPPORTUNITY OF A LIFETIME OMGLOLWTF!!!11!! FUX TEH RECESSION!!!!1!"

No thanks, Fool.

But I digress. Fourth article down in this particular e-mail was one such which punched me directly in the face upon opening, and which any person with half a brain cannot help but ignore. The New World Order has officially hit the mainstream. But better than the mainstream coverage of what was once considered exclusive territory of conspiracy theorists and people who smoke too much pot, now we are being told by Fool that not only does the New World Order exist but OMG you can profit from it too!

And the kicker? Henry Kissinger's name in the first sentence. Damn you, Fool, for making conspiracy theorists pull late hours chasing down the evil plot to take over the world.

International power broker Henry Kissinger -- who also happens to be Tim Geithner's first employer out of college -- said in a 2007 interview with Charlie Rose that "we're at a moment when the international system is in a period of change like we haven't seen for several hundred years."

And what's changing? Former President of the World Bank James Wolfensohn is more specific:

You will have a 22 times growth [in developing countries like Brazil, Russia, India, China, and Mexico] between now and the year 2050. And the current rich countries will grow maybe two-and-a half times. This is not just ... a modest statistical change. This is a change in terms of quantum and in terms of importance.
A new world order is emerging. What will be changing?

savvy American investors do not need to fear this global power shift, nor the dawn of the Chinese century. Many U.S. companies will benefit by expanding their international market share, and U.S. investors will profit by directly owning stocks in foreign companies.

No offense (again) to Fool... or rather, perhaps offense is warranted in this circumstance, but this is a truly moronic suggestion.

"New" is not to be feared as we have certainly digested new and revolutionary concepts in our 233 years as a country. But this is an idea no one should get behind, especially investors. The profits? Dismal for the long view as nothing birthed from this kind of control by a select few with little regard for the sound principles of economics can possibly lead to anything good.

Even if you do not subscribe to the concept of an evil plot to take over the world, what should a reasonable person believe when it comes to the AIG and Goldman Sachs-funded Group of 30, which includes Paul Volcker, Larry Summers, and Tim Geithner (just to name a few) providing President Obama with a financial recovery plan to trot to the G20?

Investment opportunities are one thing. Blatant disregard for the potential consequences of an assault on sound regulation is another.

Don't buy it. The only capitalizing that should be done in the current climate involves gold and bunkers or plans to escape to Canada and/or Central America (my personal plan). Beyond that?

Give me a break.

Philly Fedhead Plosser: Regulatory Sanity


I don't even have any comments on this. As I've said all along, regulation and supervision are needed in the banking sector (and most notably in the non-banking sector, lest we experience AIG Parte Dos at some point in future) but rushed regs squeezed out of a panic will only lead to a bigger mess down the road. Philly Fedhead Charles Plosser seems to have his wits about him (the same cannot be said of chief tool Bernanke, but I digress) and his thoughts are, as always, nearly dead-on. Take it away, Plosser:

(RTTNews) - Philadelphia Federal Reserve President Charles Plosser urged monetary policymakers to tread carefully when moving through this unprecedented financial crisis, stressing four principals for sound central bank policymaking. Speaking in Chicago on Tuesday, Plosser urged patience in making regulatory reforms.

Plosser has been hesitant about the recent expansion of the Federal Reserve's role, urging policymakers to remember that price stability is the first and foremost goal of the U.S. central bank. He called for policymakers to avoid "quick fixes," and to avoid rushing into reforms without fully examining the possible outcomes.

"Nevertheless, we can and should think about ways to strengthen market discipline," Plosser said in prepared remarks delivered to the University of Chicago Booth School of Business in Chicago. "And while I am not convinced that simply creating more regulations will guarantee financial stability, it is clear we can have better regulation and greater stability if sound principles guide our policymakers."

The Fed must not accept unrealistic expectations, Plosser warned, stating that "over-promising can erode the credibility of a central bank's commitment to meet any of its goals."

Along that line, to ensure that policymakers remain within their limits, Plosser called for the Fed to conduct policy in a "systematic way over time," despite the financial turmoil.

Finally, he urged that the Fed be continue to "pursue its policies independently from the political process and fiscal authority."

And all the Fed-watchers in the church say "Amen."

Minneapolis Fed's Stern on Too Big to Fail and Other System Hazards


Gary Stern, President of the Minneapolis Fed, must be experiencing a true I told you so moment, today evangelizing before the Brookings Institute in Washington the importance of addressing the all-important "Too Big to Fail" issue which has been the hallmark of the Fedhead's central banking career - so much so that Stern has published several pieces on TBTF. But there will be no celebrating for Stern in knowing that he warned the Fed all along the way to tackle TBTF.

Reuters reports on Stern's comments today:

Years of inaction dramatically raised the economic costs of the U.S. financial crisis, highlighting the need for a new approach, a top Federal Reserve policy-maker said on Tuesday.

"Policy-makers did not prepare for the 'too big to fail' flood; indeed, they situated themselves in the flood plain, ignored the flood warning, and hoped for the best," Gary Stern, Minneapolis Federal Reserve Bank president, said in Washington.


What Stern proposes may be taken as a slap in the face to financial institutions (especially those which have behaved recklessly in the recent past now lining up for two, three, and even four trips to milk to government teat for bailout money and protection from risky investments) but certainly sounds less revolutionary than any Geithner scheme hatched thus far.

Instead, Stern reiterated a plan he floated several months ago to combat the 'too big to fail' issue, centered on early identification of problems, prompt corrective action and clear communication related to maintenance of stability.

This "systematic focused supervision" is aimed at limiting the spillover from failing institutions.

"Our approach does not simply seek to limit systemic risk, but takes the next step of directly trying to address TBTF by putting creditors at risk of loss," he said.

Without the risk of loss, the cycle of moral hazard and excessive risk-taking will be repeated, Stern warned.


I might interject here that "the risk of loss" was always present in the business model - it is simply that these institutions for whatever reason have been allowed to proceed dangerously in spite of such risks and have been continually "rewarded" with more taxpayer backstops and conjured-up Fed funny money to cover said risks.

I give Stern points for a more realistic view of what regulatory bodies must do to prevent a repeat of the current economic collapse - unless he's just trying to sell another book, in which case he's just being a tool. Doubtful.

"The track record of (supervision and regulation) does not suggest it prevents risk-taking that seems excessive. True, long shots occasionally come in, but ... a 15 seed rarely beats a number two," said Stern in regards to recent regulatory suggestions by the current administration.

Did a Fedhead just trash Geithner's scam? It's a beautiful day for regulation indeed.

Stern may be a non-voting FOMC member and certainly the goofiest looking of the Fedheads but he also appears to have his head screwed on straight. Count him my 3rd favorite (after Lacker and Plosser) if he keeps this up. We need some sanity over there.

Social Security: Bankrupted by 2010?

well... uh... good thing we didn't privatize, I guess.

Alright, the title is a bit dramatic. But in a Washington Post article today, the Congressional Budget Office warns that the fund's annual surplus may disappear thanks to recession-based drops in payroll contributions - ten full years ahead of schedule. It has long been known that Social Security was in trouble; it's just that no one thought it would happen so quickly.

The Treasury is about to face its day of reckoning when it comes to "using its MasterCard to pay off its Visa." WP reports:

While the new numbers will not affect payments to current Social Security recipients, experts say, the disappearing surplus could have considerable implications for the government's already grim financial situation.

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

Oh, Treasury, how are you going to cover your butt for this one?

"This is not a problem for Social Security, it's a problem for fiscal responsibility," said Christian Waller, a public policy professor at the University of Massachusetts at Boston and a senior fellow at the Center for American Progress. He said the new estimates would force President Obama and his budget director, Peter Orszag, "to stay on track in what they have set out to do, and that is rein in deficits."

The CBO, Congress's nonpartisan budget scorekeeper, released its most recent estimates for the Social Security trust fund last week as part of its final budget projections for the fiscal year that begins in October.

The trust fund has long taken in more in revenue from payroll taxes and other sources than it pays out in benefits. Last August, the CBO predicted that surplus would exceed $80 billion this year and next, then rise to around $90 billion before slowly evaporating by 2020. But the rapidly deteriorating economy -- particularly the loss of more than 4 million jobs -- has driven those numbers much lower much faster, with the surplus expected to hit $16 billion this year and only $3 billion next year, then vanish entirely by 2017.

It's awfully easy to evangelize fiscal responsibility when hit with this news - but it is yet another example of too little too late. China isn't going to break off $700 billion to take care of America's aging population.

Add to this dangerous mix that new retirement and disability claims are expected to rise 12 percent this year compared to 2008 and what do you have?

The funky Ponzi accounting of Social Security is about to be exposed as the financial fraud that it is. The United States is rapidly running out of ruses and this revelation is just one more reminder of how precarious the financial state of the U.S. is.

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller," said Andrew Biggs, a resident scholar at the American Enterprise Institute. "Now they've essentially got to pay their own way, at least a little more fully.

"Instead of Social Security subsidizing the rest of the budget," he said, "the rest of the budget will have to subsidize Social Security."
A broken economy, a wounded Federal Reserve, poor Treasury auction performance, dollar fears, an inept Treasury Secretary and now a collapsing safety net for America's rapidly aging population?

Ouch. This won't end well.

SF Fed: Get to Da Choppa, Deflation is Coming

buzzword of 2009: deflation


A few years ago, when the Federal Reserve said something like "we will address (insert random macroeconomic issue here) as best we can, using any and all tools available to us," it was reasonable to assume that the Fed would keep an eye out for said random economic ill and swoop in at the first sign of trouble and adjust its plan of attack. But a few years ago, the Fed actually had the weapons available to it. Now the Fed is a broken warrior with nothing left in its bag of tricks but quantitative easing and that can only keep it limping along for so long.

And somehow the Fed still believes deflation is public enemy #1. Says WSJ's Real Time Economics:

The Federal Reserve Bank of San Francisco, in a research note released today, concludes that forecasters are betting on aggressive central bank action. “Forecasters appear to be convinced that the Federal Reserve would not be content with sustained deflation and would take policy actions to restore a positive rate of inflation,” writes John Williams, the San Francisco Fed’s director of research. “This contrasts with the 1970s, when forecasters were concerned that the Fed would tolerate high rates of inflation.”

Give the Fed a win (so far) for a successful communication policy on that front.

The Survey of Professional Forecasters puts the chance of core price deflation this year or next year at 1 in 20. The SPF sees core inflation (based on the price index for personal consumption expenditures, excluding energy and food) at 1.1% this year and 1.5% in 2010.

Mr. Williams dissects Phillips curve models of inflation and finds that one of them (based on the historical relationship between inflation and unemployment from 1961 to 2008) puts core PCE inflation at 0.3% in 2009 and a deflation rate of 0.8% in 2010
That puts the probability of deflation at 30% in 2009 and 85% in 2010.

The central bank can fight deflation by stemming slack in the economy and communicating its commitment to positive (but low) inflation rates, he writes. And the Fed is doing just that through its recent statements and its long-run inflation forecasts. “Such words, backed by appropriate actions, reinforce the anchoring of inflation expectations and reduce the chances of a deflationary spiral,” Mr. Williams says.

Says Antal Fekete of the Fed's misguided goal, "Keynesians are watching the wrong ratio, that of debt-to-GDP. No wonder they constantly go astray as they miss one danger signal after another. They are sailing in the dark with the aid of the wrong navigational equipment. They are administering the wrong medicine. Their ambulance is unable to diagnose internal hemorrhage that must be stopped lest the patient be dead upon arrival."

If you read Fekete's comments in detail, you see a belief which outlines a fate much worse than stagflation, the possibility of an extended high-inflation period, or a Zimbabwe-esque hyperinflation episode:

Denninger says that the “death spiral” will lead to fire sales of assets in a mad liquidation dash and, ultimately, to the collapse of both the monetary and political system in the United States as tax revenues evaporate. He opines that probably not one member of Congress understands the seriousness of the situation. Bernanke is risking something much worse than a Depression. He is literally risking the end of America as a political, economic, and military power.

Indeed, the financial and economic collapse of the last two years must be seen as part of the progressive disintegration of Western civilization that started with government sabotage of the gold standard early in the twentieth century. Ben Bernanke, who should have been fired by the new president on the day after Inauguration for his part in causing irreparable damage to the American republic may, in the end, have the honor to administer the coup de grâce to our civilization.

If Bernanke and his Fed understand the implications and consequences of their actions, this makes their behavior not just irresponsible but criminal.

Economists (of the academic, professional, and armchair variety) may disagree on the details but a common theme seems to resonate across varying viewpoints: something is not right over at the Fed.

But what else can you expect from vulgar Keynesians (™ Skeptical CPA)??

The Black Hole of Banking


Interesting theory on the Treasury's latest scheme to sterilize bad assets off of bank balance sheets from investment site Invest with an Edge - while Tim Geithner has yet to show that he and his non-existent team can come up with anything worth trying, according to this site his public-private "cash for trash" scheme amounts to nothing more than one big financial black hole:

Recently scientists observed the collapse of a star 50 times bigger than our own sun. After exploding into a massive supernova, the star collapsed upon itself and became a black hole whose intense gravity inexorably draws in anything that comes close - even light itself. This is also an apt description of the U.S. banking system. Having already consumed trillions of dollars, the banks - and their satellite entities such as hedge funds - are set to receive billions more under the Treasury’s new Public-Private Investment Partnership, or PPIP.

The PPIP is an elaborate contraption that defies both natural law and common sense. My cynical side makes me suspect that the complexity is no accident. It certainly has the fortuitous side effect of making the PPIP incomprehensible to the average citizen whose money is at stake. Moreover, it was cleverly designed to avoid any need to seek the approval of Congress by using the FDIC has a source of lending capital. A good thing, too, since the people who have to answer to voters are in no mood to give Wall Street another penny.

Like all the previous plans, I believe PPIP will not work, though for a different reason. The core problem is that bank balance sheets are accounting black holes. Until investors know what is there and get some assurance it is all being carried at reasonable prices, the banks cannot be trusted. PPIP allows the banks to decide for themselves which assets they will offer for sale. The worst of the toxic assets will probably stay with the banks, like an inoperable cancer that eventually consumes its host.


The problem with the plan, as most of us with two or more brain cells to rub together have gathered by now, is that these illiquid assets will inevitably be overpriced - hence the cash for trash moniker.

When fears of undercapitalization, FDIC seizure, and Treasury interference meet the promise of a taxpayer backstop, the obvious result is a car crash of risk - left to rest on taxpayers' shoulders.

The Treasury has yet to announce the asset managers it will put in place to oversee this little outfit. Expect to see alum of Goldman Sachs, JP Morgan, BofA, blah blah blah, as it seems the only economic "rockstars" of this country capable of healing our battered economy must come from the very institutions which put the smack down in the first place.

It is little wonder, then, that concerns run as high as they do that this plan, like those which have come before them, will be little more than a wasteful scramble to reward bad behavior on the part of the banks.

What happened to consequences? Punishments? Beat downs? Anything?

When an Auditor Isn't an Auditor



By now we've all heard the story of Bernie Madoff and his "auditor" - a larger financial clusterfuck has not been witnessed in recent years nor have we seen the SEC look so, well, inept of late.

From AccountingWeb, an interesting twist on Madoff's "auditor" and the ongoing issue of oversight which seems to plague the financial industry as a whole:

In a ruling that expired in January, the SEC exempted the auditors of nonpublic broker/dealers like Madoff's firm from PCAOB oversight.

The SEC is now considering making broker/dealers subject to audits. On March 26, SEC Chairman Mary Schapiro told members of the Senate Banking Committee that the SEC will propose that all investment advisers who have custody of customer assets undergo annual audits that are "unannounced." Money managers may also be subject to compliance audits by professional examiners to make sure they are adhering to securities laws, she said, according to Bloomberg.com.

The AICPA and NYSSCPA have already ousted Madoff's accountant, but the SEC might have a tough time going after the guy considering how many warnings about Madoff's shifty practices they ignored throughout the years.

In a separate civil complaint, the SEC alleges that beginning in 1995, Mr. Friehling and his family had investment accounts at the Madoff firm which were worth more than $14 million, a "blatant" conflict of interest that violated auditing rules. He and his family withdrew at least $5.5 million since 2000, the SEC said.

Among omissions on BMIS's balance sheets that would have pointed to transactions were line items allocations for transactions that had not been completed, under "customer receivables" or "customer payables," said Greg LaRoche, a broker-dealer researcher, The Wall Street Journal reports.

Obvious fraud? Or an innocent case of slipping through the regulatory cracks? Or a crime for both sides?

Hmm. The plot thickens.

Madoff's accountant faces up to 105 years in prison for misleading investors and providing materially false statements to the SEC and Madoff clients.

FASB v Taxpayer: Open Comment on FAS 157 Brings Odd Comments



Normally everyday folks like Ms. Mary Wynne don't bat an eyelash at FASB regs or invitations to comment. Conceptual Framework for Financial Reporting: The Reporting Entity? Pfft. Cash Flow Hedges: Hedging the Variable Interest Payments on a Group of Prime-Rate-Based Interest-Bearing Loans? Yeah right. Computational Guidance for Computing Diluted EPS under the Two-Class Method? As if. Joe the Plumber doesn't give a rat's ass; let the accountants contend with that gibberish.

But mark to market has gotten more facetime of late than Britney Spears' sans panty shot and though the general public may not understand the fundamentals of fair value, they still have an opinion on it. It doesn't take an understanding of the issue to understand that when you start rewriting accounting rules for the convenience of a chosen few, something has gone terribly awry with the system. Blaming the accounting? Even Jane Q. Taxpayer isn't going to sit there and allow these thieves to point fingers at the accountants for this mess. You leave my CPAs out of this.

While the accounting industry certainly has its own team of bad guys hard at work fleecing the little guy, corruption in accounting is irrelevent to the suggestion that we do away with or modify mark to market simply to make a select few lives easier.

From FT Alphaville:

The board invited submissions on its proposals earlier this month and they’ve since been published on the FASB website (HT Option ARMageddon).

Unsurprisingly, the page contains a host of submissions in favour of the proposal, notably from financial institutions such as individual Federal Home Loan Banks, who had their own accounting problems earlier this year. Also present are representations from Wells Fargo and something of an apology from SunCorp’s Thomas Graham, specifically in relation to FSP FAS 157-e (determining whether a market is not active and a transaction is not distressed).

The most entertaining of the letters, however, have to be the copious submissions penned by ordinary US citizens and taxpayers.

Most notably, this winner:

Dear

IF banks can write in the value of the assets- then grant me the authority to write in the value of my fed, state & local taxes, and tell merchants I do not owe them taxes on my purchases via fasb. Also, let me determine the value of my home and auto.
Sorry, but this is another ridiculous plan .
These organizations have ruined our economy. Is that considered a good job recommendation?

Surely there are some intelligent , practical solutions to this problem.
If I default on a loan, I have to take the consequences.
Let the offenders take the consequences of their bad assets, it’s their risk, not ours.
Vote NO on proposition FSP FAS 15V-e

Mary Wynne
US c i t i z en & Taxpayer


You go, Miss Taxpayer lady!

White House Can Make GM Head Step Down: Still Can't Seize AIG

Chuck Norris can make Election Years happen sooner
and will run for both President AND Vice President.


It is only mildly humorous that Tim Geithner is calling for increased regulatory power to seize banking institutions he deems unfit to operate (though we taxpayers hold him in such a regard and do not have such powers) in battling AIG and hedge funds yet the Obama administration is entirely allowed to tell GM to oust its CEO and install an alternate in his place.

Um... what?

ABC News:

General Motors Corp. Chairman and CEO Rick Wagoner will step down immediately at the request of the White House, and new directors will make up the majority of GM's board in a major management shake-up of the country's largest automaker, GM confirmed Monday.

The sweeping changes come just hours before President Barack Obama plans to unveil additional restructuring efforts designed to save GM and perhaps its Detroit-area competitor, Chrysler LLC, both of which are living on $17.4 billion in government loans and have requested $21.6 billion more.

GM President and Chief Operating Officer Fritz Henderson will take over as CEO, the company said in a statement released just after midnight.


Meanwhile, AIG is financially raping us from all sides to help out Citigroup, JP Morgan, and Bank of America. But GM... now GM has to do what Obama says, damnit! But Geithner needs more regulatory power to prevent another fiasco like AIG. This makes absolute sense (wtf).

Obama needs to find out where Bush hid the balls in the Oval Office and regain control of this mess.

BREAKING NEWS!! AIG: Biggest. Scam. Evar.



Zero Hedge covered a "breaking story" just hours ago on AIG being responsible for the big banks' reported "profitability" for Jan/Feb 2009. As I said at the time of the "profitability" announcements, it was painfully obvious that something stunk about this line in the first place given the fact that no one calculated the massive writedowns these banks suffered during that time, nor does any institution generally report profit for such a period in such an obvious fashion. Hey! Look at us! We're making money! Isn't that AWESOME?! Yeah, Pandit, good for you, you thieving little prick.

Anyway. ZH's article is already getting the Twitter set worked into a lather, and for good reason. There's nothing we love more than watching the AIG car crash while scratching our heads and mumbling "WTF?!" right, kids?

From ZH (the "layman's" version for the sake of my mostly non-financial readers):

AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.

In simple terms think of it as an auto dealer, which knows that U.S. taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.

Wait a minute here! Does ZH mean to tell us that there is... something awry with AIG?! That it's all a scam to fleece the taxpayer?! I am shocked!

When all is said and done, perhaps AIG will be Obama's Katrina. It is certainly on its way to looking that way.

This also furthers our view that Volcker and his Group of 30 would like little more than to advance their personal agenda through such financial chicanery - and makes the reality of Mr. Volcker whispering in Obama's ear as head of his economic recovery team all that much more frightening. And oh! Look at this - who is Chairman and CEO of the Group of 30? Jacob Frenkel - vice chair of AIG! Who, then, do you think will benefit most from the Financial Reform plan the G30 has presented to the administration in hopes that they will simply take their word for it and roll with the plan?

HELLLLLLLLLLLLO CONFLICT OF INTEREST!!

So then should Goldman Sachs' top ballsack E. Gerald Corrigan unravel himself from the Group of 30 plan to take over the world, erm, save the economy.

The MSM's trademark spin on the Group of 30's motivations is adorable to say the least. Says CNNMoney.com:

The economists' group, named the Group of 30, called for tighter regulation of the financial sector, improving coordination between government and international regulators. They also suggest regulators be allowed to work independently from politics, as political and market pressures can compromise their goals.

Central banks should be strengthened, according to the report, but not just in times of crisis. It says the Fed and other central banks should promote and maintain financial stability even when the economy is at its strongest, since market participants often make their riskiest deals during those periods.

So I take it the plan is to throw tons of cash at scapegoat institutions like AIG in a power grab for the Federal Reserve and the Group of 30? Don't forget Goldman Sachs. They're making out like bandits in all of this... mostly because that is exactly what they amount to.

So while I'm completely thrilled that Zero Hedge continues to get funneled in "top secret" confessions from real AIG employees (probably bitter that they aren't getting bonuses but are still having to put up with death threats and the stigma of working for what could easily be the most loathed institution in America at this point) who feel compelled to spill the AIG beans, none of this should come as much of a surprise.

When will you start paying attention?


It's a scam!

But does this mean we can go after the government of the United States of America when it is discovered that AIG was allowed to behave like a drunken sophomore loaded up on Jager and diet pills at the last Beta Alpha Debt Swap frat party?

Ben Bernanke: The Don Quixote of Economics



When Ben Bernanke joined Bush's team in 2006 as Chairman of the Federal Reserve, many were relieved to see a man who was, by all reports, not only an economic rocket scientist but an all-around nice guy on top of it.

Even an economics student of the Austrian school said of Dr. Bernanke after taking a class of his at NYU just before Bernanke's confirmation as head of the Fed:

Ben Bernanke is a super-star among economists. As Tyler Cowen points out at Marginal Revolution Bernanke is credited with several major contributions to economics and monetary theory. He also is a genuinely nice guy. He taught monetary history one semester at NYU when I was teaching there and several of the students in our Austrian program took his class and the consensus was: (a) he was technically the best teacher they had, and (b) he listened and carefully considered all arguments from opposing points of view, including those from the Austrian camp. I spoke with him on a few occasions in the hallways or in the elevator and had the same impression. In short, despite his super-star status he did not have any sort of pompousness.


This endearing quality of Bernanke's does not at all validate Bernanke's misguided goal from the outset of his Fed chairmanship - fighting deflation. Bernanke serves as little more than the Don Quixote of lost causes, except he's the second most powerful man in America (by some estimates fourth, though one might reasonably argue that Bernanke's post has gained some power points in as Fed actions in the last several months have so clearly demonstrated) and has the printing press to prove it.

In a 2006 speech from our friends at the Council on Foreign Relations, former Fed vice chair and Princeton economist Alan Blinder said Bernanke's largest challenges as Fed chairman would be inflation and the dollar. Guess it was too early at that point to call the housing crisis?!

“No central banker likes to gloat about his currency going down, even though Ben Bernanke will know, as Alan Greenspan did during 2002 to 2004, that it needs to go in that direction. You don’t gloat about it. You don’t cheer it along. We three will be cheering it along. At last the dollar’s going back to equilibrium, where it needs to be. But if you’re sitting in the central bank chair, you don’t do that.”


Bernanke suddenly made transparency and inflation targeting cool again before his confirmation, ushering in a Fed-watcher's wet dream of open policies, communication, and accessibility to the once-mysterious Federal Reserve policy process. Said Bernanke in his 2003 A Perspective on Inflation Targeting speech:

Personally, though, I believe that U.S. monetary policy would be better in the long run if the Fed chose to make its policy framework somewhat more explicit. First, the Fed is currently in a good and historically rare situation, having built a consensus both inside and outside the Fed for good policies. We would be smart to try to lock in this consensus a bit more by making our current procedures more explicit and less mysterious to the public.

Second, making the Fed's inflation goals and its medium-term projections for the economy more explicit would reduce uncertainty and assist planning in financial markets and in the economy more generally. Finally, any additional anchoring of inflation expectations that we can achieve now will only be helpful in the future.
And what did Bernanke turn around and do? Suffocate the M3. Who cares, you ask?

Sean Carrigan had some ideas on why Bernanke may choose to do this on Lew Rockwell's blog in 2005 that might get the M3 conspiracy theorists in a tizzy over Fed ulterior motives for cutting off its most multi-faceted monetary indicator, pointing to a few as-yet harmless little crises lingering on Bernanke's radar (like the inevitable collapse of the housing bubble):

[If] a heliborne rescue mission of the accelerated monetization of government debt were seen to be needed next March, the simultaneous suppression of the M3 data would usefully serve to obscure the extent of the US banks' role in the scheme by no longer revealing – as one of the aggregate’s particular components – what would then be the banks’ rapidly swelling repurchase agreement liabilities (all of them held against USTs & government Agency bonds).

Thus, the abandonment of M3 could disguise this Reichsbank-like response to America’s hypothetical future ills for some little while thence, delaying market fears of a hyperinflationary outcome, and so keeping "Blackhawk" Bernanke hovering over the scene of the emergency for a little longer than might otherwise be the case.

The Fed, of course, claims that M3 was just a bonus and was never all that important after all. Whatever.

So what's the final verdict? Is Ben Bernanke just too smart for his own good? Or a narcissist who believes he can outsmart us all?

What about the "nice guy" professor who made one little quip about fighting deflation via helicopter and now finds himself the brunt of any number of airborne quantitative easing jokes?

Ben Bernanke is either diabolical, an idiot, or just misguided. One of these options will rob us blind (hmm), and we can safely bet that all three will put the dollar in serious danger. And I think we've already seen that can do.

Goldman Sachs: Funding Economic Terrorism. Or at Least Financial Shenanigans

(apparently "golden balls" is a real game?)


Just as career and salary site Glassdoor.com was great to find out what actual Fed employees are saying about working for the individual Fed banks, so is it useful to see what Goldman Sachs looks like from the inside. Just a snapshot:

“If you don't mind high school politics and an awful management team, the salary and benefits are terrific.”

“Better then most, but not as good as it seems.”

“A good place to work, if you can keep your head out of the line of fire during economic downturns.”

and this giddy little winner:

“GS!!!!!”

(Testing the validity of Greendoor's information, I checked the accounting firms and stories seemed to check out with similar feedback from other sources. Case in point, KPMG)

Maxine Waters (D-CA) would like to have someone explain Goldman Sachs and frankly so would I (how do these guys get away with this crap?) - luckily she had the luxury of grilling Tim Geithner on Tuesday. From Alternet:

"You hear a lot about the dissatisfaction about the bonuses," Waters said, "but underneath all of this is a conversation about the linkages and the connections of a small group of Wall Street types that are making decisions."

Waters advanced the linkage conversation by asking Geithner to confirm whether Goldman Sachs received TARP funds, whether Geithner's current chief of staff formerly worked for the firm, whether Goldman Sachs received funds from bailout-king AIG, and whether Goldman Sachs was somehow involved in the government's decision not bail out Lehman Brothers.


While I admire Waters for taking such a stance against Geithner, I remind her that he is specifically placed there to confuse and obscure his true objective. The kid might not be all that great at public speaking but there is certainly a reason why a tax cheat with a degree in making conspiracy theorists work overtime is in the position he is.

Let's take a deeper look at Geithner's resume and connections to see why this might be.

Besides Geithner's time at the New York Fed (if I have to tell you why that is a bad sign to begin with, you aren't paying attention), he has essentially been groomed from birth to climb directly up your ass and start pillaging. His "unofficial advisers" list consists of several Goldman Sachs alum including our buddy , ex GS CEO Hank Paulson and ex New York Fedhead /Goldman Sachs managing director E. Gerald Corrigan.

Tim Geithner is also a member of the Group of 30 (HAI, you diabolical bastards! *wave*) , which parades around as a a 501(c)3 not-for-profit institution. Who are some of its contributors? Let's see!

  • American International Group
  • Board of Governors of the Federal Reserve System
  • Citi
  • Federal Reserve Bank of New York
  • JPMorgan Chase
  • Soros Fund Management
  • Morgan Stanley & Co.
  • People’s Bank of China (among many other international central banking organizations)

And look, who is this? Goldman Sachs and Co.!? I am shocked.

So let us then remember that they are funding the guys who are pumping the President with economic propaganda - or, if Obama is in on it (GS was his #2 campaign contributor, after all), supplying him with his script for G-20. Said this site (read full comments on the Group of 30 and why their "non-profit" actions may be skewed in the favor of a few *coughGoldmanSachscough*):

In January the Financial Services Working Group of the “Group of 30” financial experts issued a report with specific recommendations for global financial reforms. This is an informal group comprised of leading economists from both the U.S. and Europe. But it is noteworthy that this team was chaired by Paul Volcker, the Chairman of the U.S. Presidential Economic Recovery Advisory Board and a close economic advisor to President Obama. Its report, “Financial Reform: A Framework for Financial Stability,” contained concrete proposals that the Economist hailed as “muscular,” even radical. Besides Chairman Volcker, the G-30 includes the EU’s Larosiere and the ECB’s Trichet together with new U.S. Treasury Secretary Tim Geithner and his White House counterpart, Larry Summers, the director of the National Economic Council. Although these serving officials recused themselves from direct participation in the report, they are believed to support the bulk of the findings. “Everyone stands behind the report in spirit. No one disowned it,” an insider told the Economist.


So you see, dear Maxine Waters, this is Geithner's Goldman Sachs motivation.

This kind of economic and political manipulation should be illegal. Oh wait! It already is! Someone get Schapiro on the phone!

pffft.

The G30's Framework for Financial Stability is not only funded by GS through G30 donations but co-authored by ex NY Fedhead Goldman director Corrigan. Wonder who its recommendations would best serve?

Obama Tells Bankers To Chill the F*&k Out, He's Got This?



Everyone remembers this infamous election season photo; it's a 2008 classic, America romanticizing the dreamy, bold, ballsy new guy who'd shown up on the scene. We'd just broken up with George Bush, after all, and we were feeling pretty beaten towards the end. And in walks Barack Obama to twitter John McCain into submission. He reached out to the young adults in ways no one had before; OMG look, there he is using what we use to talk to us. So at least he had us on his side - not to say all it takes is a little Twitter and some promises of clean energy but something worked.

In fairness to the President, he (or rather, his Internet Marketing Team) is attempting to maintain that legacy on the revamped White House website, but long gone are the days when we turned him into the most badass LOLcat we'd ever seen. Obama was going to make us forget allllll about that other guy, he was going to fix the economy, and he was going to twitter about it all the way.

And where is that bad ass motherfucking Obama seen above who was going to march into the White House and take it back from mean old Bush and make everything better again? Saying this about a meeting with 15 of the biggest banksters in the country:

“Show that you get that this is a crisis and everybody has to make sacrifices,” Obama, in an interview with CBS News later in the day, said he told them [15 large banking execs]. “They agreed and they recognized it. Now the proof of the pudding’s in the eating.”

WTF is that supposed to mean?

While it's awfully cute that your speech writers feel the need to fill you with anecdotal bullshit about pudding when referencing how you dealt with 15 of the country's most subversive economic terrorists (don't mince words, that is what some of these men amount to), Mr. Obama, I remind you that we are at the least counting on that public speaking ability for which we fell in love with you.

Geithner certainly isn't going to do it.

I actually recommend the Bloomberg article on the meeting, which makes it sound like a group therapy session. Why no rush on paying back TARP? "Obama told the executives that banks shouldn’t return the money until they have adequate capital, so as not to hinder their ability to lend money." Why don't they want the money back? These banks aren't lending one way or another.

If Washington won't let them pay back TARP, why don't they just launch it from their corporate jets a la B-52 Bernanke?

TARPathon in D.C.: Big Bad Banksters Part 2


President Obama is so cute when he tries to make nice with the bankers. First they show up on Capitol Hill, get grilled, make a big scene, get reamed by Barney Frank, and then get their checks on the way out. And then you have Timmy Geithner trying to bulk up and say he's going to single-handedly regulate the hell out of any institution who dares to turn a buck, damnit. Aww, Timmy, you're so adorable.

Now we've got the big bad banksters meeting with the President in Washington for tea, crumpets, and TARP talk.

MarketWatch reports:

Top banking CEOs emerged from a Friday meeting at the White House with President Obama saying that they are on board with the administration to do whatever they can to get the economy back on track, but that they remain anxious to pay back government investments in their firm's and end their direct ties with Washington.

Chief Executive Jamie Dimon told CNBC Friday that J.P. Morgan Chase & Co. is looking for guidance from the Treasury Department about when to repay money the bank got last year from the Troubled Asset Relief Program. He also noted that Wall Street compensation practices "went too far" and that banks made a lot of mistakes in this area.

Dimon and chief executives of several other top U.S. banks made the pilgrimage to Washington Friday for a noontime meeting with President Barack Obama to discuss ongoing risks to the financial system and a new regulatory framework.

Obama told the bankers that "getting the economy back on track will require an understanding that each of us must look beyond our own short-term interests to the wider set of obligations we have to each other," the White House said.

I would like to remind Mr. Obama that he has absolutely no obligation to the bankers whom he entertained Friday but rather one to the people of the United States. Lest he be distracted by the pomp of commercial banking or influenced by, oh, I don't know, outside sources like the Street scumbags hard at work robbing the Treasury at gunpoint.

Now why do you suspect 15 of America's leading bank execs would need to meet behind closed doors with the President just days before the big G-20 meeting?

Did Obama need a pep talk before he goes up against the big boys in London from his biggest cheerleaders?

I am fairly certain that I no longer care either way. What a farce.

German Chancellor Merkel: Don't Inflate Your Hopes Just Yet



Either Angela Merkel has a wonderful sense of humor or a knack for saying the perfect words at the perfect time; either way, Merkel's warning to the G-20 against inflated expectations at this week's meeting of the money in London couldn't have been any more perfect. Expectations? How about currency? But let's not get into that.

Merkel has been against calls for additional stimulus for some time; much to the chagrin of her EU counterparts. Sorry, guys, Germany isn't playing.

“This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth,” said Merkel in her Financial Times interview. “If we want to learn from that, the answer is not to repeat the mistakes of the past.”

The global financial framework is due for a facelift, like it or not, and what hatches from G-20 will surely dictate the direction we take from here. Merkel is realistic about the G-20's abilities (unlike some of the participants *coughTimGeithnercough*), saying "We will naturally not solve the economic crisis either, and we won’t solve the issue of trade. We will definitely need to meet again."

Don't let the boys get you down, Merkel.

Will the Real Tim Geithner Please Stand Up?



Dirt Diggers Digest has some interesting thoughts on Tim Geithner - most notably pointing out that the former head of the NY Fed (who engineered some of your favorite bailouts such as "Goldman Sachs by way of AIG" for his buddy and ex-GS exec Hank Paulson) may be suffering from some type of personality disorder.

Says DDD:

Will the real Timothy Geithner please stand up? In recent days it has seemed as if two men with the same name are serving as Secretary of the Treasury. On the one hand, we have the wimpy Tim Geithner, who let AIG get away with its bonus outrage and who has come up with a new scheme to get rid of toxic assets of banks that is a massive giveaway to hedge funds. On the other hand, this week has seen the lionhearted Tim Geithner, who is proposing what appears to be an audacious expansion of federal regulation of financial markets.

The wimpy version has been around for quite a while, characterizing the Geithner who headed the Federal Reserve Bank of New York for five years before he was chosen for Treasury. A look through the online archive of the New York Fed turns up the texts of numerous speeches in which Geithner acted as a cheerleader for the forms of financial “innovation” that paved the way to the current calamity of the world economy. Geithner was not oblivious to the escalation of risk that derivatives and the like were creating, but he expressed confidence that the system could accommodate it. At most, some tinkering with the regulatory structure might be necessary.


What a douchebag. Why are we listening to him again? Geithner has yet to show he has the cojones, suave, or intellect to be at his post. But as Clusterstock so astutely pointed out earlier this month, "He won't be fired, of course--throwing him under the bus only a month or so into his tenure would embarrass the Obama administration--but we have now heard the first public discussion of a possible resignation."

Sound regulation needs a cheerleader but Geithner is not it. In fact, as I've said repeatedly, he could best serve his duty to the American people by keeping his big mouth shut. Let the grown-ups handle this crisis, Timmy, you can go back to engineering bailouts and backdoor deals for your friends at the NY Fed now, thanks!

We know that Obama isn't about to oust his Fed Golden Boy from the Treasury spot - lest he look incompetent or anything! - but Clusterstock was kind enough to offer some reasons why Geithner should resign:

  • He still has no coherent plan to fix the banking system
  • He has convinced no one that he's the right man to lead us out of this.
  • He helped design the past administration's failed bailouts
  • He was the architect of the original AIG bailout
  • He tacitly helped cover up the AIG "counterparty" bailout beneficiaries for 6 months
  • He approved the latest round of AIG bonuses last week (according to AIG)
I would like to add to that list:

  • He has obnoxious eyebrows
  • He is loathed by the markets
  • Every time he opens his mouth, God kills a baby dollar

Suck it, Timmy, no one likes you. Not even your own people. That's just sad.

EU Joins in Dropping the Monetary WMDs


The UK Telegraph has apparently dosed Ambrose Evans-Pritchard with some serious hallucinogens for the sake of spewing out misguided economic commentary to the masses. That's really the only explanation for the title "Europe fetches the monetary helicopters, at long last" - with the first sentence evangelizing the use of the printing press to stop the financial bleeding: Rejoice. After much pious posturing – and criminal wastage of time – the European Central Bank at last seems ready join the Anglo-Saxons, Japanese, Swiss, and Isrealis in printing money to fend off disaster.

AE-P, whatcha smoking over there on the other side of the pond?

First and foremost, the UK began quantitative easing before we did (at least officially) and so it only makes sense that the EU would jump on board shortly thereafter. Secondly... well there is no secondly. I'm speechless.

Said Market Oracle earlier this month, slightly more appropriately:

[C]entral banks are turning to the weapon of last resort, the so-called Nuclear Option, - or “Quantitative Easing,” (QE) in order to keep credit flowing to the private sector. Central banks are pegging overnight interest rates near zero-percent, and pumping huge amounts of cash into the money markets, by buying commercial paper, corporate and government bonds, alongside mortgages.

If done on a massive scale, QE is as a powerful stimulus, and ultimately can stabilize an economy, and buy time for the financial system to recover. Among the Group of Seven industrial nations, the European Central Bank is the most hawkish, targeting its overnight loan rate, at a paltry 1.50%, but its reluctant to cross the Rubicon, by pegging interest rates near zero-percent, and purchasing huge blocks of government bonds, in order to force long-term interest rates lower.

Duck and cover! It's the inflation bomb!

I can't imagine that any of these central bank geniuses know how to turn off the spigot once it gets chugging along - who can refuse all that funny money cranking out at once?

Market Oracle hits it on the head: "[w]ith increasing regularity, central bankers are engaged in the most extraordinary currency devaluations ever witnessed. The results of these interventions could be heightened currency volatility and stock market instability. While the Fed can afford to open the monetary flood gates now, when the economy does recover, it puts a great deal of weight on hard-core inflationists to know when to tighten again."

They must be feeling optimistic to say "when" and not "if" - call me a pessimist, I just don't believe it's appropriate to discuss recovery or any version thereof at so early a juncture.

Is this bottom yet?

How about now?

Now?

No? Alright. Guess we better keep printing. Go, Zimbabwe, go!

Feedback on the Fed... from Fed Employees

pssst... Fed... I'm watchin' you too! HAI!

In my CPA Factory internet wandering today (I do have a day job, after all), I came across a site called Glassdoor.com - type in your employer and see if anything pops up. If you are like me and at all involved in the aspect of Online reputation monitoring for your business, company, site blah blah blah, you probably already know that keeping an eye on what people are saying about you is a wise strategy to adopt. We're always watching what people are saying about our company - and surprised to find random bits here and there across the Internet.

In a perfect example of reputation monitoring from our friends at the Fed of all places, every time I write about a particular Fed President, lo-and-behold who ends up on my site shortly thereafter? This means they're monitoring what people are saying - smart, given their precarious position at the center of the financial tsunami and all.

Our company is not listed on Greendoor.com but guess who is? The Fed!

The various Fed leaders are ranked by employee satisfaction as follows:
(assuming not adopted to Geithner's move to the Treasury)

Richmond: Lacker 100% approve
Kansas City: Hoenig 100% approve
New York: Geithner 75% approve
Chicago: Evans 67% approve
Boston: Rosengren 50% approve
Dallas: Fisher 50% approve
Atlanta: Lockhart no approval ranking
St Louis: Bullard no approval ranking
San Francisco: Yellen no approval ranking
Philadelphia: Plosser no approval ranking
Minneapolis: Stern no approval ranking
Cleveland: Pianalto no approval ranking

Sadly, only one review for Bernanke's Fed and nothing juicy to jump on. Does a Fed employee in Washington have the cojones to bag on the big man? I dare you. Go on, it's anonymous.

Side note on SF Fed... as we all know, in my younger days I literally "slept with the enemy" as it were and dated an accountant for the San Francisco Federal Reserve. He was far too boring to have an opinion either way. Too bad, would have made for some exciting pillow talk.

Point of all this? Reputation management. Oh, and spying on the Fed.

SFCitizen: The Kids in San Francisco Think Ben Bernanke is a Big Fat Zero


Just wanted to pass along a post that was brought to my attention today from local blog San Francisco Citizen.

After I made an official End the Fed appearance at the anti-war rally last Saturday, my custom "BERNANKE 00%" t-shirt was a hit. "Youthful tattooed gal" bwhahaha.

Check out what SF Citizen had to say.

For the record, the shirt was making fun of the Fed's zero percent interest rate. But sometimes the fun is in the interpretation.

Dear Tim Geithner, Just Shut Up Already. Please.


I know Tim Geithner is trying really hard not to look like a complete dunce and at once save the American economy while also fulfilling the wishes of whom or whatever pulls his pretty little strings (pfft - we get that you're a puppet by now, Timmy, no use trying to pretend otherwise) but he's doing a pretty poor job. And poor Obama, he's the one who picked this idiot. It's got to be rough.

The markets hate him, the American people hate him, and no one wants to work with him at the Treasury. Ouch. I couldn't have written a better storyline if I made the story of Tim Geithner up from scratch.

But please, Timmy, whatever your goal is here, you'd do us all well to keep your trap shut for the dollar's sake. Or at least be slightly less obvious that your ultimate goal is to demolish it.

Said FT:

Mr Geithner told the Council for Foreign Relations that he had not studied the proposal by Zhou Xiaochuan, Chinese central bank governor, for greater use of special drawing rights - a synthetic currency maintained by the International Monetary Fund that represents a basket of actual currencies - in global reserves, but added: "We are quite open to that."

He said increased use of SDRs should be thought of as an "evolutionary" step rather than a step towards "global monetary union".

Who is we, Mr. Geithner? Certainly not me. And if you are open to that, perhaps OMGObamashould oust you after all .

Go back to the punishment corner and think about what you did, Timmy. You're being very, very bad.

FT continues:

The dollar fell 1.3 per cent against the euro as headlines saying "Geithner open to SDR currency" flashed across traders' screens. With the currency falling, Mr Geithner's interviewer - Roger Altman, a deputy Treasury secretary in the Clinton administration - gave Mr Geithner the chance to clarify.

The Treasury secretary said: "I think the dollar remains the world's dominant reserve currency." The dollar subsequently recovered much of its losses.

Treasury officials said Mr Geithner and President Barack Obama had both rejected the idea that a global currency could take the place of the dollar internationally and there was no change in policy. Analysts were nonetheless quick to chide Mr Geithner.

"If there is a lesson from today, it is that the dollar is on thin ice and any loose talk will be quickly punished," said Chris Turner, strategist at ING Capital Markets.
The problem is that Geithner isn't alone here. He opens his mouth, markets collapse, the dollar slides, the people panic. Wow. Who knew someone so moronic had such power to move mountains?

Just keep quiet. Please.

Philly Fedhead Plosser: It's UGLY Out There


What was with the Fedheads coming out of the woodwork yesterday to talk about the economic outlook? Plosser, Fisher, Lockhart, Stern, Lacker - they must be running interference while Bernanke and Geithner loot the ship in D.C.

Chuck Plosser is my second favorite Fedhead after Richmond's Jeffrey Lacker simply because he tells it like it is. To Reuters, Plosser said "The Federal Reserve must be careful about taking on credit risks as it broadens its new consumer lending program, even though a 'pretty ugly' economic outlook warrants aggressive action."

A Fedhead talking realistically about credit risks and treading carefully? I must be dreaming.

"We do need to expand the balance sheet, though there is a discussion about how much is enough. We're in uncharted territory so this is an issue a lot of us are grappling with," Plosser told Reuters in an interview yesterday. So what are Stern and Fisher talking about? If we're on the way to recovery, why would the Fed be seeking to further fudge up its balance sheet?

More on Plosser's thoughts from Reuters:

Plosser said it was not so much the size of the balance sheet that troubled him as its composition, and he voiced support for buying Treasury bonds.

Plosser, considered a hawk on inflation, said buying longer-term government debt will give the Fed more flexibility when the time comes to unwind its non-traditional policies. He noted they are also "more neutral in their effects on the allocation of credit" than a number of other Fed programs.

In the interview, he reiterated a warning that targeting specific markets, such as mortgage-backed securities, could open the Fed up to political pressure when the time comes for the central bank to remove its support.

The reality is that only can inflation kick into high gear with the help of the commercial banks which, frankly, aren't lending. So we're safe on that concern for a moment. But Fed independence is an entirely different story, and a key issue which Fed policymakers will have to address in the weeks and months ahead. Don't expose the ruse just yet, guys, you've got a few more miles left in this old clunker.

Plosser is also realistic about the deflation myth - perhaps he and Bernanke need to have a sit down?

Unfortunately, Plosser also exhibited telltale signs of Fedheadism in his interview, saying he wasn't entirely against SF Fedhead Yellen's suggestion that the Fed should issue its own debt and that he supported the strange joint statement by the Fed and Treasury released last Monday reiterating the Fed's position in the economy. Yeah whatever. You had me at "pretty ugly," Plosser, you should have just stuck with that.

At least some of these guys aren't completely high off the printing press fumes (*ahem* Janet Yellen, I'm talking about you).

Dallas Fedhead Fisher, Minneapolis Fedhead Stern: The End is Nigh



No, not that end.

President of the Dallas Federal Reserve Richard Fisher -- the self-proclaimed "most pessimistic member of the FOMC" -- says that the Fed's aggressive efforts are at last paying off, with a bottom easily in sight. That's awfully cute of Fisher to suggest but I'm going to have to call his bluff on this one. Even if whatever the Fed is up to is somehow leading to healing, the overall sentiment is that we're still screwed and will continue to be screwed for quite some time. Even Bernanke reversed his projection, saying on 60 Minutes that recovery would be likely towards the end of 2009 just before he announced a $1.2 trillion Fed assault on the dollar days later. Hmm?

Said Minneapolis Fed President Gary Stern, "Many pieces are now in place to contribute to improvement in financial market conditions and in business activity. There is reason to think that improvement is not too far off."

Oh contraire, mon Fed Pres! The projection makes for a cute soundbite but not much more. We've got quite a way to fall before we can start talking recovery.

Perhaps the Fed believes that it is doing what is best to salvage the economy, and perhaps the individual Fed presidents have faith in Bernanke and Geithner to pull this one off - but the general populace does not (why should we? They have demonstrated ineptitude all the way) and there is a growing sentiment outside of America that the Fed is on crack. Why again should we expect recovery?

You guys are so cute when you try to bamboozle us. What next? Fed discovers a hidden cache of unicorns stashed away in a vault?

Fed Independence Strikes Again: Lacker to Chamber of Comm in SC

Fed Noir: Lacker at Univ of Richmond
January 2009


It has been said before but never has the phrase "[a]s always, the views I express will be my own, and may not coincide precisely with the views of all of my Federal Reserve System colleagues" come from someone who may actually mean it as it did today from Richmond Fedhead Jeffrey Lacker this afternoon as he spoke in South Carolina. At least not since I've been paying attention. If anyone who has been watching the Fed longer than I have (pfft) has a better example, please feel free to school me.

William Poole, St. Louis Fed President in July of 2007.

Mary C. Daly, vice president and director of the Center for the Study of Innovation and Productivity at the Federal Reserve Bank of San Francisco on March 12th of this year.

"Profitwise," a publication of the Chicago Fed, explicitly states on its website: The material in Profitwise News and Views is not necessarily endorsed by, and does not necessarily represent views of the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of Chicago. But Chicago Fed is providing the information on their site.

The Fed Discount Window has its own site and you probably don't even want to mess with it. These guys are serious. But even the Discount Window reserves the right to its own views independent of that of the Federal Reserve System as whole. WTF? That's not even an agency. It's the Fed lending window. Well thank God the Discount Window is independent, I was worried for a minute that it was somehow biased.

And why do the individual Fed banks across the country have .org web addresses and .org e-mail addresses (take Philadelphia Fed for example) but Bernanke's Fed has a .gov?

In the Federal Reserve System, there is Bernanke and his mess and then there is the FOMC. It's easy to get lost in the noise, watching Helicopter Ben bitchslap the dollar (gold? wtf is going on here?) and Geithner strangle the markets to death with his ineptitude. But don't discount the .orgs just yet.

I digress.

Richmond Fedhead JL spoke today before the Charleston Metro Chamber of Commerce in South Carolina. The topic? Financial Conditions and the Economic Outlook. I love you, Jeffrey Lacker, but seriously? Did we need a speech on this? I appreciate the effort but I think America would like to see a little more out of the Fed at this point. The days of Fed obscurity are coming to an end and vague predictions just won't do.

Besides being the bad boy of the FOMC, Lacker appeals to me for quips like "[t]his contraction is more severe than we have seen for some time -- in fact, you have not lived through an economic contraction this severe as an adult unless you came of age before disco."

I've made you into an LOLcat, JL, safe to say I've never seen anything like this in my lifetime. Strangely, I've quizzed some who happened to be around before disco and most report that they haven't seen it this bad in their lifetimes either.

Lacker points out the obvious with the "blame the mortgage market" spiel (expected) but drops further insight in saying: "I have emphasized the possibility that risk-taking incentives, in financial markets, have been distorted by actual and perceived government financial safety net protection. I also have emphasized that much future research will be required before economists can confidently gauge the relative contributions of various causal factors."

The economists got us in this mess so I don't know if I want to put too much faith in their analysis, however I agree completely with Lacker's view on distortion. Is it too ideological to still believe in the market's ability to heal itself when cared for correctly? How is recovery possible when everyone is scrambling to throw more funny money at the problem? Perfect example? Geithner's toxic asset scheme. Like the real estate of California, this overvalued garbage (the government always seems to overpay for things with the advantage of a printing press to fund it) is a hallucination of the Treasury. Garbage. Pure and simple. Value? $0 and/or negative. Instead of applying values to this garbage, the gerbils at the Treasury should be working overtime to calculate the writedowns. Moving on...

Saying "Speculation this year about the structure of possible government rescue programs may also be contributing to financial market uncertainty," Lacker labels it uncertainty but I call it "praying for a piece of FAILout." Recent actions by the Fed and Treasury have shown that if sufficient counterparty risk exists, it has no choice but to intervene. This is exactly where everything has gone wrong. And yet it continues, despite overwhelming evidence that the situation is worsening.

Lacker himself said of the downturn's quickening pace, "[a]fter gradually weakening through most of the first three quarters of 2008, the economy has taken a dramatic turn downward in the last few months. We find ourselves in the midst of a deep recession that is stretching into its second year."

He continues:

The unprecedented response by the Fed and the government to financial market developments is by now a well-known story. The alphabet soup of new lending programs and capital injections for large banks, as well as the targeted assistance for specific institutions, have supported market segments at the heart of turmoil. They also have limited the losses born by many market participants. While equity holders in large financial institutions have seen the value of their shares erode dramatically, government and Fed actions have shielded many debt holders from loss. This is the effect of federal financial safety net protection that I believe raises the greatest concerns about moral hazard. Our response has extended well beyond what were perceived in the past to be the bounds of such protection, and this raises important questions about how markets will expect us to act in the future.

Redesigning our financial regulatory system before establishing clear boundaries around the financial safety net would be like putting the cart before the horse. I believe we should seek to scale back the boundaries of the safety net, because the cost of containing the moral hazard effects of widespread government support exceed the benefits of avoiding financial firm failures. But in any case, our choices of whom and how to regulate in the future will need to be commensurate with the status of implicit as well as explicit safety net guarantees.

Like Volcker, it seems Lacker shares the belief that enough is enough.

What rises from this crisis in terms of regulation will be critical in rewriting the banking system as we know it. Welcome to SOx for banks. I hope that Mr. Lacker realizes that by saying as much, he is putting his own institution on the line.

My thoughts? Good. If the Fed is willing to put up everything they've got in terms of independence and risk its own neck - as opposed to solely printing funny money, that doesn't show any bold or dangerous action on the part of the Fed, only dangerous for the dollar - then I'm more willing to accept that they're doing more to stop the financial bleeding than quantitative easing.

Can you buy what the Fed says? Pfft. Most likely not.

Oh well. At least it's an encouraging thought.

I hope at least in this instance, independence means exactly that and not some diluted version thereof only put there to confuse the issue further. Not like the Fed would ever do anything like that.

Unwanted Side Effect of Stimulus: States Take a Cut in Revenues

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Are you taxing the shit out of your residents? Check.
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Are you praying for a federal handout? Check.
Sorry... California DENIED.

As if things weren't bad enough for the individual states without the luxury of a printing press to print their way out of financial disaster like our federal government and already facing serious budget shortfalls in the years ahead, an announcement today that tax cuts in President Obama's Stimulus plan could have a detrimental effect on revenues if states copy federal tax changes.

The President has pledged that the "$229 billion share of the federal stimulus package 'will ensure that you don't need to make cuts to essential services that Americans rely on now more than ever,'" said AccountantsWorld.

That's all well and good but as North Carolina Senator David Hoyle said, "we have to balance our budget and the federal government doesn't. So they can spend at length what they want and print more money. We can't."

Said AP:

The total potential losses are hard to calculate nationwide, because many states are still figuring out how to spend their money from the recovery plan and haven't closely studied the fine print of the tax provisions. But 17 states performing essentially back-of-the-napkin calculations told The Associated Press they could lose at least a cumulative $1 billion in revenues through 2011 if their tax codes imitate the federal changes.

Across all 50 states, it's could be much higher: Tax experts interviewed by AP estimated the total losses anywhere from $4 billion to $60 billion over the next two years.

Well that's nothing compared to the $244 billion in budget gaps states are looking at for FY09 and FY10. Surprisingly, North Carolina seems to be facing the largest Stimulus-related loss - $320 million. California did not respond to AP inquiries on potential impact these new tax breaks will have on the state if adopted.

As a California resident who has watched the crisis hit home hard thanks to the collapse in the housing market, unreasonably high costs of living, and irresponsibility on the part of The Taxinator and state legislators, coupled with the fact that people are bailing out of the state in search of less ridiculous costs of living (nothing new), I'm willing to wager that there's a reason California would rather keep its lips zipped.

Don't fret, Senator Hoyle. The federal government is getting to the end of its rope as far as printing endless funny money is concerned - at least if you take the last Treasury auction as any indication of overall fiscal sickness tainting the once-pristine sovereign credit rating of the U.S. You may thank Helicopter Ben for that. Go, Zimbabwe, go!

Fed and Treasury shenanigans aside, the states would do themselves well to shlog through the tax particulars and make sure they aren't shooting themselves in the foot by blindly adopting federal tax changes just for simplicity's sake.

Says the AccountantsWorld report:

There's also the fact that some lost revenues will be restored when temporary tax changes in the stimulus law expire in a few years. State leaders thrilled with the extra funds from Washington are just now looking at the short-term tax consequences.

"Virtually all of the states with an income tax are going to have address these on a line-by-line item," said Roby Sawyers, an accounting professor at North Carolina State University in Raleigh. "The federal government didn't do the states any service by reducing the taxes this way."

True. But the federal government didn't necessarily do us any favors either did they?