FRBNY President And Former Goldman Partner Dudley Discusses Politicization Of The Fed

Tyler Durden's picture

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Miles Kendig's picture

The fact that the banks imploded under the feds watch does not bode well for their ability to regulate their member institutions.  Asking the fed to be a proactive regulator of banks is akin to asking Major League Baseball to constrain steroid use in the 1990's.

The fed = New Century Reserve.  Bwaaahaahaa

Anonymous's picture

"Asking the fed to be a proactive regulator of banks is akin to asking Major League Baseball to constrain steroid use in the 1990's."

Ummm, that comparison makes no sense. MLB DID go about cracking down on steroids AFTER the 1990's and have done a good job of eliminating rampant usage.

Are you saying the Fed will similarly step up to the plate?

Miles Kendig's picture

Did I mention MLB of the 2000's?  MLB did all it could in the attempt to win back fans and boost revenues in the 1990's by not only turning a blind eye to the issue, but in many ways fostering it as a means to their desired ends.  Hence my comparison.

GoldmanBaggins's picture

I am so sick of these assholes robbing us blind then telling us how wonderful they are for the country. Fact of the matter is these clowns are on borrowed time. "Truth is the daughter of time" as the old saying goes. The fools should do themselves a favor and bow out now before the pitchforks get sharpened. They won't and that is what has my attention. What event will start the revolt? Hunger? Homelessness, theft. Can't wait to see it go down.

Anonymous's picture

I don't know, but I can tell you one thing--when this blows, it's going to be a total collapse.

Hephasteus's picture

"So what can we do about the “too big to fail” problem? It is clear that we must develop a truly robust resolution mechanism that allows for the orderly wind-down of a failing institution and that limits the contagion to the broader financial system."

By limit the contagion you mean expand the contagion to the entire economy and all tax payers alive or dead present tense or future tense. We must make failure and wrongness complete security and righteousness to avoid disruptions in the "wrong" areas while people are clearly suffering disruptions anyway.

Assetman's picture

My word...

Starting with Alan Greenspan, the Federal Reserve had over two decades to put in place a "truly robust resolution mechanism" for winding down financial institutions when they flited with failure.

What we got instead was an institution that fully embraced the concept of juicing up leverage and encouraging "financial innovation"-- and simply did not understand that the risk management tools their member banks were using were grossly inadequate.  Man, that's stupid personified.

With performance like that, the Federal Reserve needs to be on probation-- and that's putting things tactfully.  Instead, we have blowhards like William Dudley still making the case that his underperforming institution deserves more oversight power, not less.  As a taxpayer my intital thought is... "well, hell no".

And we haven't even discussed the transparency issue the Federal Reserve still has a hard time understanding.  When an institution develops a pattern of making egregious policy mistakes and not providing adequate oversight for the institutions for which it oversees-- then transparency of that instituition is a prerequisite.  Moreover, the Fed has really pushed the legal bounds on what should be considered "monetary policy" (i.e. the outright purchase of MBS), and they do not think the public has any right to know the details of those purchases.  That's simply stunning... and not in a good way.

I'm actually in favor of a central bank structure that performs its their duties within the letter of the law, and encourages prudent lending practices while protecting taxpayers interests.  Oh, and if that institution can respond positively to calls for greater transparency-- that's a big bonus.

The Federal Reserve as it exists today simply does come anywhere close to meeting that description.  The more I hear their sad pleas for relevance and positioning for more oversight powers, the more I believe that the institution should be scapped. 

All in favor, say "aye".

Stevm30's picture

"I'm actually in favor of a central bank structure that performs its their duties within the letter of the law"

If you were in charge, how would you design the institution to prevent it from doing what central banks have done throughout history.  In my perspective, the very idea of a central bank is flawed and carries the seeds of its own destruction?  Why does the government need to be involved in money at all?

Assetman's picture

If I were in charge... now that's a laugher...

To answer your question, you give the central bank very limited authority to achieve very basic objectives (i.e., price stability, full employment).  You structure the entity to serve the public versus serving member banks.  You leave the authority of regulatory oversight and enforcement to an outside body.  You strictly define what role banks play in the system, and what risks and leverage they are allowed to take (I'd prefer that banks operate more like public utilities than hedge funds).  You de-centralize the decisionmaking ability on monetary policy from the NY Fed to the other 13 Fed Reserve banks, and establish a structure than demands transparency and accountability... even if after the fact.  Hey... you asked. :)

As for your other question, if the government isn't involved as an intermediary in a medium of exchange among its populace-- who/what performs that function?  Would you like to outsource the role to JP Morgan?  Or do you think gold will magically provide that medium while keeping price levels and employment in check?  I'm at a loss to find any country that has succeeded in having no central bank, but having a stable economy, full employment, and successful currency for any length of time (more than a decade).  I'm open to suggestions, though...

The issue with the Federal Reserve (as it exists today) is that it's not really a government entity-- unless that suits their purpose.  The danger from that structure is that it has left the entity virtually unaccountable, while it serves two competing interests (member banks interests to be profitable and the public objectives of price stability and full employment).   For over two decades the Fed seems to have favored serving the former over the latter-- although both interests have been somewhat in synch until now.

I don't think the idea of a central bank is necessarily flawed (if structured differently), moreso than the reliance on non-backed fiat currency as its medium.  Once you crossed the rubicon of the "full faith and credit" to replace something real (gold/silver) to back your fiat, then the seeds of destruction can certainly be planted.  In that instance, currency devaluation is almost guaranteed.

Hephasteus's picture

You have to have a central bank with a fractional reserve currency because you have to have someplace to put the trash. All fractional reserve systems eventually over leverage on the banks. You don't run fictitional accounting systems with no concern for the underlying assets with price stability without turning the banks into the equivalant of the goldsmiths fake receipt trash basket. I have no way to understand how the switch to SDR and IMF World Bank is going to get around the paradox creation that a fractional reserve system causes with massive buttload lying over 60 years or so other than to hide it completely and internally readjust everything with massive amounts of offsheet accounting and simply limiting the number of fake rich people the system creates.

All I know is I'm sleeping hours and hours a day and my dreams are total fucking garbage. It's nonsense spit at me like it means a damn thing and Imma bout to shove my fist down thier throat and yank their tongues out and shove my other fist up their ass, claw thorough thier colon wall and yank their kidneyes out and then make them lick their own kidneys in a erotic organ porn display.

If our lovely fucking ascended masters are doing some sort of confusion illusion programing all I gotta say is watch out for 1q 2010. It's going to get stupid.

Central banks are supposed to get around the problem of regional relativism of currency and make everyone suffer the devalution costs across the board. With home prices running up constantly in new york, florida, etc etc its becoming glaringly obvious how the distribution of large population center sociopaths is affecting the system. Enforcing inflation on people by shoving armies of bobblehead real estate agents parroting "Buy now or be priced out forever" is not really working well enough to inflate assets enough to keep it from being shoved back down the banks throat in the form of stupid scary unsustainable leverage. Even massive amounts of mortgage and security fraud through freddie fannie isn't keeping this from getting  turned back onto the banks and wrapped into a tight little unvomitable ball of shit.

Anonymous's picture

Theoretically it would be possible to grow debt at a slightly higher rate than productivity and then readjust leverage every so many years by means of a small recession. That of course is hard to implement as a central bank because:
a) you have to be able to time the market correctly
b) you have to have the political will to have a recession
c) Why would you have fractional reserve banking in the first place if you did this?

They WANT to have the bubble machine at their bidding, governments finance a lot of their spending this way. No fractional reserve banking would necessitate smaller government.

Anonymous's picture

"financial markets have stabilized, and the prospect of a collapse of the financial system and a second Great Depression now seems extremely remote"

What a self-serving comment, coming from a Fed President. The so-called stability we have is based entirely on accounting gimmicks; I wouldn't bet a second Great Depression is "extremely remote."

greased up deaf guy's picture

nassim taleb has most certainly bitten his lip off and broken both of his hands punching the wall after reading that quote.

Anonymous's picture

Why Scott Brown won

Over-played the traditional role of the Democratic Party as better representing the interests of the middle class than the Republican Party. If that is true, then why did Obama administration hire Goldman Sachs executives to rescue Wall Street and run the economy? The hypocrisy is not lost on voters.

If you are currently registered as either Republican or Democrat, re-register as an Independent. Why? This keeps the political machines on both parties guessing and forces the debate away from party lines and onto the issues that matter to you. It worked here in Massachusetts by accident. Maybe it can be made to work on purpose on a national scale.

Anonymous's picture

Good morning, you stupid bulls. Within the past two weeks the equity of North America's largest trucking company and Asia's biggest airline was discovered to be virtually worthless. Here's a head's up: No matter how many shares the criminal Federal Reserve secretly buys, the equity of the banks is worthless. Just wait and see.

Anonymous's picture

Dudley is just another self serving hypocrite. The fed and central bankers have been secretly manipulating politics for hundreds of years. Time to drag them out in to the light of day.

Abolish the Fed
Abolish the IRS
Demand debt free money

Cistercian's picture

 Evil speaks.They just want to continue the ponzi is what I take from this.

 The scumbags.

pros's picture


Blood-sucking vampires


Lock them all up until they give us the $13trillion back...

In Guantanamo...

each with an adequate with a supply of rags and the CIA to care for them...


Circumspice's picture

So bottom line, a Goldmanite is advocating strengthening the ties between Wall Street and the Fed.

I don't see how any harm can come of that.

buzzsaw99's picture

All GS operatives rot in hell.

Anonymous's picture

Told ya'. The banks will be relegated to the status of utilities, and commercial interest rate will be below 1% for quite some time.

Tic tock's picture

Certainly a perspective on the role of the Federal Reserve system. 

I suppose it's worth pointing out that there are some Federal Reserve Banks which have a divergent opinion on the current direction that US Central Bank policy is taking the so-called 'real' economy.

It is an international system, dominated by multinational banks, with New York as their central pit. I am not certain that the Federal Reserve has the correct financial structure so to act as a Lender of last resort to these top tier institutions. For instance, there appears to be no particularly rigorous procedure for indicating available monies in this regard. Nor has information been disseminated as to the scope, size or aims of the aforementioned portfolio, without which then forms a policy that is non-conducive for financial market stability, unless trading is performed by HFT or, and not mentioned without cause, insider knowledge. 

Which leads to the vaunted conflict of interest in hiring policy by the Federal Reserve system. Given that the Bank of International Settlements had been raising issue with Liquidity surplus, it does seem unavoidable to match the lack of prudence on the part of the Fed- by far the most responsible of the world's Central Banks- in contrast to the shorter term interests of the former employers.    

All-in-all, the question you have to answer Mr. Dudley is this,' in this system, who is at the top?'


Anonymous's picture

THIS is soooooo simple....

Separate the banks from the securities business....

They both serve separate and vitally important functions....

Ripped Chunk's picture

And CDS's??????????????


Anonymous's picture

Keiser could have directed his letter to multiple addresses especially those HQ'ed in NY:

Only Suckers Would Trust Business Today”
January 20th, 2010

Summary: Max’s letter to the editor published in today’s FT.

From Mr Max Keiser.

Sir, Richard Lambert’s critique of Sir David Hare’s play The Power of Yes is shrill and unconvincing (“Why David Hare is wrong about business”, January 18).

In fact, contrary to what Mr Lambert argues, business is absurdly easy due to the ease companies have in accessing credit at rates – engineered by banks engaging in cross-border “carry trades” in the currency market – of virtually zero. Furthermore, when these businesses lose money with their virtually free cash they lobby their respective governments for bail-outs.

Additionally, Mr Lambert states that the primary purpose of business is not to make money. This is one of those pathetic oxymorons you hear like “plausible deniability” or “jobless recovery” meant to obfuscate and protect the guilty from prosecution.

His solipsistic exercise also includes his notion that business is not a selfish pursuit. Clearly, the entire basis for free market capitalism since Adam Smith has been the pursuit of self-interest.

Finally, we are told that businesses are inherently seeking trust and that we should give them the benefit of the doubt. Sorry, but based on the litany of fraud, larceny and deceit practised by business, particularly in the City of London, it’s clear that only suckers would trust business today.

Max Keiser,
Paris, France

Anonymous's picture

Alright, Every one says Greenspan was the father of the economic crisis. Let me be the only one in the room to defend him. At least he acknowledged the fact that he must raise rates because he didn't want inflation. He also feared irrational exuberance when it came to the stock market. The only problem is, he did everything in big gulps. His timing was also a little bit off. But at least he had emotions and fears. Bernanke , Well I won't say nothing.

Ripped Chunk's picture

One of the notable psychological effects of continuous long term criminal activity (like you would see in organized crime for instance) is the feeling of "normalcy" that the "routine" daily criminal activities has on the psyche of the perpetrators. A feeling of insulation and "business as usual" so to speak.

The difference between the organized crime they make movies about and the racketeers that run our financial system is that periodically someone in "regular" organized crime gets whacked or arrested with a very good chance of long term jail time. This has an effect on the rest of the organizations members to be more careful about personal safety and also to purge the organization of suspected moles.

Since it appears that none of the financial racketeers is going to be arrested, what do we think it is going to take to get the attention of the financial syndicate to show them that "business as usual" is over???????




Anonymous's picture

"In a government of laws, the existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipotent teacher. For good or ill, it teaches the whole people by its example. If government becomes a lawbreaker it breeds contempt for law: it invites every man to become a law unto himself. It invites anarchy."

Justice Louis Brandeis

Ripped Chunk's picture

And therfore a strong police and military presence is then required to maintain order and the power base of the fascist state.

When no one wants to buy your bonds anymore, you won't be able to pay your army and police.


Anonymous's picture

Now here is a novel idea. Put people in jail for crimes rather than allowing them to buy their way out of it.

Top Chinese judge jailed for life for graft

Lndmvr's picture

Even Buffet was spewing the verbal diareea this morning.

Anonymous's picture

did you hear him...the worst of the housing crisis is behind us?

Not if this is true....
Even the affluent are having a hard time refinancing or getting loans:

They could always buy a $24 million condo on Utopia

One client of Benson's, with $8 million in assets, wanted to refinance the mortgage on his primary residence.

A self-made man, he had sold a business and put much of the proceeds in a charitable remainder unitrust that paid him $150,000 a year. He took paper losses in his stock portfolio against that income, however, which lowered his taxable income. The cash flow stayed intact but the income he showed was much lower.
$8 million in assets - and can't get a mortgage
"The loan officer didn't understand it," said Benson, "and the bank declined the loan."

Ripped Chunk's picture

The Andy Griffith of Wall Street?

Give me a fucking break.

Anonymous's picture

Shorter Dudley: "Regulatory capture FTW!"

Anonymous's picture

The Sun Could Shine Again on the Sunshine State

There is an alternative to that dark future, and perhaps it is to keep the public from waking up to it that arms are being twisted to accept the new burdens quickly. If Wall Street and the Feds won’t extend credit to California on reasonable terms, the State could simply walk away and create its own credit machine. California could put its revenues in its own state-owned bank and fan these “reserves” into many times their face value in loans, using the same “fractional reserve” system that private banks use. Many authorities have attested that banks simply create the money they lend on their books. Congressman Jerry Voorhis, writing in 1973, explained it like this:

“[F]or every $1 or $1.50 which people, or the government, deposit in a bank, the banking system can create out of thin air and by the stroke of a pen some $10 of checkbook money or demand deposits. It can lend all that $10 into circulation at interest just so long as it has the $1 or a little more in reserve to back it up.”

President Obama himself has acknowledged this “multiplier effect.” In a speech at Georgetown University on April 14, 2009, he said:

“[A]lthough there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks; where’s our bailout?,’ they ask, the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.”

If private banks can leverage deposits into multiple amounts of “credit” on their books, a state-owned bank could do the same thing, and return the profits to the public purse. One State already does this. North Dakota boasts the only state-owned bank in the nation. It is also one of only two states (along with Montana) that are currently able to meet their budgets. The Bank of North Dakota was established by the legislature in 1919 to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the State must deposit all its funds in the bank, and the State guarantees its deposits. The bank’s surplus profits are returned to the State’s coffers. The bank operates as a bankers’ bank, partnering with private banks to lend money to farmers, real estate developers, schools and small businesses. It makes 1% loans to startup farms, has a thriving student loan business, and purchases municipal bonds from public institutions.

North Dakota is not suffering from unemployment or feeling the pinch of the economic downturn. Rather, it sports the largest surplus it has ever had. If this isolated farming State can escape Wall Street’s credit crisis, the world’s eighth largest economy can do it too!

Anonymous's picture

william dudley is the largest whore in the world

crosey's picture

What is fundamentally at issue here is not “turf,”

WTF!  Hey asswipe, it's all about turf!....soooo easy for you to say now that you and your ilk are in possession of trillions of new acres that you took, FROM US!

Would someone please bitch-slap the fool.

Anonymous's picture

Maybe he can write another essay on transparency, integrity, and mark to market.

It starts with the headline: “Fed makes ‘a killing’ on AIG contracts“. Huh? That says the Fed made money, a lot of money. But read the article, and the claim is patently ridiculous:

The Federal Reserve is sitting on billions of dollars in paper profits from its controversial effort to unwind credit insurance contracts that AIG provided to banks such as Goldman Sachs, people familiar with the matter said….

Yves here. So who are these people? Presumably at the Fed, or BlackRock, the asset manager. Hardly independent, in other words. But when you dig, the representation is vastly worse than even this lame bit of cheerleading suggests.

Wednesday, January 20, 2010
FT As Shameless Fed-Booster, Runs Incredible Claims re Results on AIG Assets

MrPalladium's picture

"Consider, for example, one proposal that calls for what it terms "audits" of the Federal Reserve by the U.S. Government Accountability Office (GAO), an arm of Congress. These wouldn't be audits at all in the commonly understood sense of the term. The Federal Reserve's financial books and transactions are already audited by wide range of professionals internal and external to the institution. Rather, these new audits would involve ex-post review of Federal Reserve monetary policy decisions, a potential first step toward the politicization of a process that Congress has carefully sought to insulate from political pressures."

It is critical that we grasp the meaning of this allegation that the audit bills aim to "review Federal Reserve monetary policy decisions." This oft repeated canard operates on two levels.

The most obvious and least dangerous level is the attempt exploit the low level of average intelligence and economic literacy in Congress by reducing the issue to one of competing names and labels, thereby avoiding debate and understanding of the subtstance of the issue.

But on a second and much more important level, the Fed is using this allegation of reviewing "monetary policy decisions" as a means of foreclosing debate on which recent Fed actions are appropriate "monetary policy tools" and which are the illegal assumptions of Congress' appropriation authority - actions which are tainted with corruption through the Feds own revolving door.

Many years ago when I studied monetary economics as an undergraduate, monetary policy tools consisted of their ability to manipulate short term rates by setting the discount rate and manipulating the fed funds rate by purchasing or selling treasury securities. Those were the tools of monetary policy, and no one in Congress has suggested that the Fed's decisions concerning use of those traditional and accepted tools should be "audited."

The lengthening of the duration of Federal debt through the purchase of long term Treasury bonds with newly printed money, while novel and doubtless alarming to China, could also be considered a "traditional" tool of monetary policy.

However, the purchase of defaulted debt of various types at par from privately owned financial businesses - essentially printing money and giving it to those private corporations - is a usurpation of Congress' appropriation authority.

Since when is printing money to make good AIG's defaulted CDS a monetary policy tool?

Since when is printing money to purchase CMO's worth pennies on the dollar at par a monetary policy tool?

Since when is allowing insolvent banks to mark assets to model, and then printing money to inject reserves into those insolvent banks a monetary policy tool?

The Fed's opposition to a Congressional Audit is an attempt to arrogate unto itself the extra-statutory power to define as "monetary policy tools" actions which quite clearly encroach on Congress' exclusive appropriation powers - actions which pick and choose between and among insolvent private companies those that survive and those that fail.

Sadly, no Congress critter that I know of seems able to articulate the issue that is at stake in this debate.

bruiserND's picture

"The issue is that a reversal of Congress’ earlier decision could create the appearance that the legislature seeks to influence monetary policy decisions by establishing a mechanism to publicly second guess those decisions."

Bottom line, "you can't audit us with the GAO because it won't look good so instead reward our regulatory failure that brought a systemic collapse with more power and secrecy"

  All the pond scum is floating to the surface at the same time folks.
Please call in. 406 586-2845 studio line 406 522-8255 backup studio line
listen and call in  to Bozeman radio KMMS 1450 am due to the
miracle of live stream internet radio

I will be dedicating this Saturday's 90  minute show to the Federal Reserve starting at 3 pm MST
"From 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made political contributions totaling $1.725 billion and spent another $3.4 billion on lobbyists -- a financial juggernaut aimed at undercutting federal regulation." ...that's one million $, per year, per politician in bribes from this sector ALONE.