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Letter To House Financial Services Committee
November 18, 2009
House Financial Services Committee
2129 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Frank, Ranking Member Bachus, and Members of the Committee,
During the past two years, the Federal Reserve dramatically changed
its operating procedures. Instead of simply setting interest rates to
influence macroeconomic conditions, it rapidly acquired a wide variety
of private assets and extended massive secret bailouts to major
financial institutions.
There are still many questions about the Fed's behavior in these new
activities, including potential cronyism and favoritism in its
distribution of many trillions of dollars. As the Special Inspector
General for the Troubled Assets Relief Program recently wrote about
their bailout of AIG, the Fed's "strategy to pursue concessions from
counterparties offered little opportunity for success, even in light of
the willingness of one counterparty to agree to concessions."
The Federal Reserve balance sheet expanded to more than $2 trillion,
along with implied and explicit backstops to Wall Street firms that
could cost even more. Who received the money? Against what collateral?
On what terms and conditions? The only way to find out is through a
complete audit of the Federal Reserve. That's why we support the
Paul-Grayson amendment requiring a complete audit.
The Watt amendment does not repeal the existing provisions that
prohibit a GAO audit of the Federal Reserve. In fact, it adds entirely
new additional categories of restrictions. Instead of opening up the
Fed's secretive activities to public inspection, the Watt amendment
cloaks it in further secrecy.
A vote for the Watt amendment is a vote for more secret bailouts. We urge you to support Paul-Grayson instead.
Sincerely,
Dean Baker, Economist, Center for Economic Policy Research
William Black, Professor of Economics and Law
Tyler Durden, Blogger, Zero Hedge
Thomas Ferguson, Professor of Political Science, University of Massachusetts, Boston
James K. Galbraith, Economist, University of Texas
Leo Gerard, President, United Steelworkers Union
Jane Hamsher, Blogger, Firedoglake.com
Rob Johnson, Economist
Naomi Klein, Author, No Logo and The Shock Doctrine
Yves Smith, Blogger, Naked Capitalism
Andrew Stern, President, SEIU
Richard Trumka, President, AFL-CIO
L. Randall Wray, Professor of Economics, Center for Full Employment and Price Stability
»
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No we're not the sameCause we don't know the game
What we need is awareness, we can't get careless
You say what is this?
My beloved lets get down to business
Fight the Power.
-Public Enemy
'In the past, the perceived state of randomness was thought to be due to chance. However given the strangeness of math we can show that chaos affects any system that has some sort of sensitive dependence on an initial condition. Any small change or uncertainty in conditions at a starting point will eventually make predictions about the system and its behavior extremely difficult if not impossible.'
-Dimitris N.Chorafas
'The derivatives group received its marching orders from the firm's leader, John Mack. Following Mack's lead, my ingenious bosses became feral multimillionaires: half geek, half wolf. When they weren't performing complex computer calculations, they were screaming about how they were going to "rip someone's face off” or "blow someone up.”'
-Frank Partnoy
(Ripping the taxpayers' face off continues, first some oldies and then today's WSJ. -AM)
Pixie Dust , 11/25/08 :
It was always the same conversation. Create a synthetic that follows the yield curve but gives you some juice over treasuries. Create some sort of RAV (remote asset vehicle) and then get that AAA pixie dust sprinkled on top of it . Usually the person describing it was a current or past associate of a Master of the Universe.
Yield pigs would line up at the trough if it was as safe as treasuries but had some juice, they proclaimed.
Different than all the known exotics that we've heard of - they spoke about this new 'straw into gold' synthetic.
This synthetic could be applied to anything- hence the RAV- much like Palin's turkey chopper, a construct that would suck in any sizable asset and spit out the synthetic.
Having a Heston moment as I read the WSJ describe how the dirty apes:
'In effect are issuing(Goldman) synthetic Treasury bonds, at a much higher yield than straight Treasury bonds."
The article goes on to say: "Responding to banks' urging, the Treasury department agreed to guarantee the bonds, backing the "full faith and credit" of the U.S. government." "Citigroup, General Electric (as well as JP Morgan and Morgan Stanley named elsewhere) and other companies have signed up to sell bonds under the plan."
You had to go and do it didn't you? You had to go and blow it all up...
Calling All Meatballs, 11/26/08 :
Our new monetary industrial policy i.e., synthetic Treausries where the RAV is the issuing company, is fraught with peril. Building a federally mandated sausage factory for the Masters of the Universe will end up making sovereign and private risk ubiquitous and to the detriment of the sovereign.
We are all derivatives now, 11/29/08 :
The Masters of the Universe turned themselves into the RAV, got the AAA pixie dust and put themselves to market. It is not too often where, we the people, get to witness and insure the birth of a new asset class.I'm glad that it is only a liquidity problem and not a solvency problem ...
Goldie and the girls just got the keys to the safety deposit box.
Third a trillion meatballs so far, 8/11/09 ;
The Temporary Liquidity Guarantee Program has spewed out about a third of a trillion of these 'industrial' treasuries and maintained that level for the last four months.
Although originally envisioned as short-term - as of June 30, 2009 terms at issuance of over 2 but less than 3 years totaled 23.6%, and terms over 3 years totaled 38.4%.
I expect we'll break the cap, which is twice this level, and extend it several times.
Today's WSJ :
By PETER EAVIS
Congress should be doing all it can to remove moral hazard from the financial system. Instead, it is in danger of increasing it.
Following the credit crunch, lawmakers need to ensure banks can't borrow at below-market rates because of perceived government backing. After all, banks' access to cheap funding helped inflate the credit bubble.
Instead, Congress is heading in the opposite direction. Legislation being considered already contained features that could end up being used to provide taxpayer backing to bank creditors. But Wednesday the House Financial Services Committee went even further by approving a measure that would allow banks to issue government-backed debt in difficult periods.
It could effectively enshrine a recently expired program that helped banks sell more than $600 billion of subsidized debt during the crisis.
(Nancy Capitalists in a Sovereign Democracy that are hell bent to seek rent. -AM)
Granted, this temporary measure helped prevent a liquidity crisis.
(Liquidity crisis? Hit me! -AM)
But making it permanent could dissuade banks from ensuring their balance sheets are more resistant to funding pressures, and bank creditors from doing proper analysis.
(Going, going gone. -AM)
Proponents of the measure say there are plenty of other things in the legislation aimed at reducing risk in the banking sector, like tougher capital requirements. But those things don't need debt guarantees to work. If Washington wants bank creditors to do their homework, it needs to leave some uncertainty in the system.
(Damn dirty apes. Its' a madhouse! -AM)
Mscreant, Commenter, ZeroHedge
Ya wanna see a great letter? Come around the corner...I've got something ta show ya:
http://www.lewrockwell.com/paul/paul608.html
I got the email/duplicate of this post from Hamscher and responded with comment in support.
Thanks for making it happen. I also have directly contacted my representatives, as I've done that so many times for so many years. I watch with interest, waiting for that day we reach the tipping point.
(I don't know why the story isn't giving me a REPLY button, so I replied here.)
tip e. canoe, citizen, Earth
X
Dixie Zero, Soon-to-be Subsistance Farmer, Backwoods
Tyler, could you provide background on how this letter came to be? Who was the original author?
Andrew Stern, President, SEIU
What up, dogg! I c u brought yo' thuggs wit' choo.
http://www.thehotjoints.com/wp-content/uploads/2009/08/SEIU.jpg
Better yet, was it read? do we know?
Any one have any idea why Rep. Ron Paul and Senator Jim DeMint would praise Rep. Watts amendment in their Wall Street Journal article? Is this professional courtesy of a fellow representative?
Their statement seems to contradict the theme of the letter referenced above and the letter I sent to the editorial borad of every newspaper in Rep. Watt's district.
http://online.wsj.com/article/SB1000142405274870478230457454228097100904...
From Anon above's article:
"While Rep. Mel Watt's (D., N.C.) efforts to audit the new lending facilities authorized to bail out private firms such as AIG is a step in the right direction, it is still just a first step."
Use Watt's punked out bill as a shoe in the door?
You act indignant and you fight and bicker. Take your opponent's sell out and try to build on it.
The show ain't over yet, or this is a dog and pony show.
I like your idea of writing the editorial board of my own local newspapers in order to increase public visibility of the corrupt Federal Reserve Board and their cronies. Oddly my gerrymandered district has its primary base in North Houston while I live in West Austin so I will have to send my editorial to Houston as well as locally when I mention Mike McCaul, my state representative.
+1. But CC Hank Paulson too.
Props to the signers for taking a stand.
This letter makes a good straw man for some follow-up emails that I intend to send to my governmental servants from Texas, Cornyn, Hutchison, and McCaul. I will need to include comments and queries regarding their biggest contributors being finance (e.g. JPM) and real estate industries.
TD thanks for sending the message to the house financial services committee
you are in excellent company as indicated by the rest of the signatories
i have seen here and elsewhere in the blog sphere the argument as to whether the Fed is a private entity or an agency of the US federal government
given the Feds bailout of foreign banks i guess the real question should be is the US federal government an agency of the Federal Reserve
Tyler always finds the best content. The way static cling finds whatever I'm wearing. Tyler, you rock. Now let's see if I can get that math question in under 5 attempts. I'm feeling lucky.
TD thanks for sending the message to the house financial services committee
you are in excellent company as indicated by the rest of the signatories
i have seen here and elsewhere in the blog sphere the argument as to whether the Fed is a private entity or an agency of the US federal government
given the Feds bailout of foreign banks i guess the real question should be is the US federal government an agency of the Federal Reserve
All in all not bad, but I wonder if you should have included a reminder that the ultimate benefactor of greater oversight or transparency would be the electorate. For example, a line or two like:
Ultimately, the American people are obligated to pay, figuratively and literally, for the actions taken theoretically on their behalf by the Federal Reserve. We remind the Congressman that the American people have no say in either who runs the Fed or how it is run, yet these are the people who suffer the consequences if things go wrong. The Bill introduced by Representatives Paul and Grayson, in contrast to the Watt Bill, would provide the taxpayers with a degree of insight into how their money is being spent, and would go a long way to obviate the possibility of actions being affected which benefit a select few at the expense of the many.
Tyler,
Here's to you going Raymond K. Hessel in D.C. and getting manners handled appropriately.
Unscarred by trials
A new level......
Nice Rusty.
Sorry, only about a week late in getting back to it, but I'm glad to see a fellow Anselmo fan is lurking within.
TD, I actively support this cause and your letter. However, signing in your pen name of Tyler Durden is not going to command a response from the recipients. Your Congressional correspondence should be in your real name. It's time to take off the mask and present yourself in the same manner as when we write our elected officials. The founding fathers risked their lives and fortunes with their actions. At this juncture, so should we all.
disagree. Tyler Durden is an idea, and they are signing that idea to the paper, as representative of all of us and our own ideals. Who the Tylers are is irrelevant.
You can also add your name to the above urgent letter.
Here is the link:
http://action.firedoglake.com/page/s/fedrejectwatt?source=fdlemail111909
They also provide the opportunity for you to donate some of your fortune.
Will do; thanks.
Thank you simone.
Thanks simone
Any one have any idea why Rep. Ron Paul and Senator Jim DeMint would praise Rep. Watts amendment in their Wall Street Journal article? Is this professional courtesy of a fellow representative? Their statement seems to contradict the theme of the letter referenced above and the letter I sent to the editorial borad of every newspaper in Rep. Watt's district.
Always remember life is but a grand theatre on a grand stage and the politician its greatest thespian.
How to go TD....keep hammering. Thank you!
TD, so lets say the Paul version passes and the GAO audits the FED.
Lets look ahead shall we;
When will this first audit take place? How long will the audit take?
How will the information be disclosed to Congress, and subsequently, the people and the world?
If the audit is conducted properly and the GAO members are not spoon fed, the information could be very damming to the FED in abuse of legislated powers. If the audit leads to removal of FED powers, now what?
Who will set monetary policy?
Just food for thought.
----------
One of the biggest recipients of FED money printing is the Executive branch. Without the FED being secretive, how can you even contemplate the ridiculous fiscal budget from the President. Without both fiscal and monetary policy acting in concert, to achieve the goal of showing the world our commitment the the US dollar, FED transparency may only accelerate its decline.
IMHO, FED transparency will quickly force Congress and the President to act on behalf of the dollar. In ways that will not be politically popular. Are they up to this challenge?
----------
I would like to propose that audit of the FED should be comprised of two efforts:
1) A large 3 month (quarterly) GAO audit, plus a final fiscal year audit.
2) A running oversight audit, GAO staffers permanently on-site at both the FRBNY and FRDC to focus on special in-depth audit topics. This running audit staff would be much smaller than the full audit staff, but could expand depending on the magnitude of the special projects. The topics would not be disclosed ahead of time, and some may even be a floating option depending on current activities. There would be quest auditors from TARP oversight, FDIC and so on.
Keep up the good work,
Mark Beck
I see the Fed audit as a necessary disaster. The results will be horrific, because the American money system, and thus the world's, will be seen for what it is: a completely arbitrary attempt, at any given moment, to determine how "rich" we are. This is the awful secret behind all the many shell games the Fed plays. The complexity is designed to conceal, insofar as possible, that we're broke. The audit, far from reassuring the international community, will encourage the rest of the world's financial centers to come up with something new. And once we lose the unilateral right to determine how rich we are, we're done.
At first blush I agree with you. But then again, most of the world's banking systems are insolvent. If USA stepped up to bat first, showed its uglies to the world, and cleaned house, yes we would crash, but we would also, possibly, be the first in line to be trusted because we did this and set an example for the rest of the world. We put our cards fearlessly on the table, and perhaps others could follow. See what is really wrong, get a good overview, and fix it. The debate I think would become the one worlders against the localizationers.
No, there is nothing I have seen in these people that says they have the capacity to do this.
Do we trust a serial killer to walk the streets again?
Isn't the problem to fix the Fed itself? Isn't fractional reserve banking creative slavery?
They create money out of nothing, we pay interest on it. That interest is our sweat; our labor; which they didn't do. They get our sweat by changing numbers on a microchip (Fedspeak: printing). We don't need anyone to tame inflation - we don't need a volatile money supply in the first place. Inflation is theft.
A REAL audit of the Fed would end the United States as we know it. This really is a house of cards. The national infrastructure is so weak as it is - monies being diverted into bank accounts without accountability - they talk of some magical green innovation that is around the corner that will save us. Humbug! We rely too much upon oil for nearly gddmn everything - hybrid cars aren't even worth the tax credit.
Now, please understand I'm not trying to give you any lesson here - from previous posts you've made I feel you are much more rounded in your understanding of "how things work" than I - it's just that I cannot accept anything less than a currency backed by a precious metal (if not actual precious metal coinage!) - the founding fathers knew this would happen. Everything else leads to manipulation: busts, booms, and then, on a long enough timeline, back to zero: worthless. Oh, I forgot millions dead in wars with both sides financed by bankz that hedge their betz and get the loser to pay the debtz.
People (not, I would hope, most ZHers) never learn that unbacked paper money is a Faustian bargain - we the People will always remain in forums debating about this until we have precious metal as a monetary foundation - prosperity comes very quickly after corruption and deception are minimized! Ya can't fake gold! (well, that is, we have yet to see the effects of this tungsten-gold 'fiasco')
I agree. When I said "fix it" I did not mean the Fed. I meant the entire system of distributing goods, services, and energy known affectionately as the world economy. When we become confused about what money is and who to trust, in a transition, there will be irregularities, shortages, and third world conditions, popping up like zits all over the country.
One world order will tempt folks because if they can get a good overview they will want to standardize. But standardization and centralization is why we have a fragile system. To much interdependence and specialization of functions. We need to be re-localizing now, but we gotta deal with all these greedy dumb asses who can't see past the numbers in their bank accounts to prevent their own destruction.
<rant off>
(spell check got dumb asses for me, heh, heh, heh)
I have often discussed the most effective way of purging our centralized government obligation to debt. The discussion always moves towards an ultimatum collectively from the states, to repudiate the national debt or face succession, dissolution of the united states. I am not a historian or I would very much like to write a book titled:
The Un-United States of America.
Looking at the legal precedents for States Constitutional rights over that of the Central Government. Without the States United there is no central government. The situation today would clearly be different than the Civil War. It would be all of the States breaking from a debt obligation that can never be paid.
Anyway, it is one of the more popular topics for the legal constitutional types.
You know what this bailout reminds me off?
It reminds me of those mobs that trash their downtown areas after their hometown team wins the big one. Roaming the streets, breaking into stores, stealing TVs, etc.
The only difference is that noone is taking pictures of the mess and noone is passing these to the police for prosecution.
What a fucking waste of time.
The only solution to this problem will be mete out with guns and lots and lots of bullets.
This isn't me talking, this is reality.
Wake the fuck up you stupid nerds.
I am Chumbawamba.
So why do you keep coming back here sweetheart? Isn't this blog just a "fucking waste of time?"
Hmmm?
+1 "stupid nerds"
(I almost missed this one: ___ times 24 equals 24)
All they need is Moral Justification to engage in Private Manipulation.
Umm, the esteemed senator from Montana is Max Baucus, not Bachus. Please tell me that the actual letter spelled his name right.