Federal Reserve

In this oldie but a goodie, Ron Paul hammers home the point of why the Federal Reserve needs to finally be accountable and transparent, despite the desires of Barney Frank, Wall Street, Ben Bernanke and all the current failed system's apparatchicks who will stop at nothing to perpetuate the broken status quo. For regular readers none of this should be news. For everyone else, this 1 hour program is a must watch. Clip courtesy of Fora TV and the Cato Institute.

A vigilant reader, who combed through the backup of today's Consumer Credit G.19 statement points out a flagrant and obvious error in the Fed's data. While luckily the data impact is not major (at most $4 billion, which in our day and age is a pithy 50% of Goldman's FICC trading desk bonus), the implication that the Fed does not check its work in something as critical as one of the core data series (or at least it used to be until a few machines took over the market, to whom, as today indicated, a record credit contraction somehow ended up being a positive event) is very, very troubling.

Bad news for fixed income market monopolist Goldman Sachs. Kansas City Fed President Thomas Hoenig, in response to a question from University of Maryland Professor Carmen Reinhardt said "dismembering firms is a fair thing to consider." Hoenig further clarified that regulators "have people who are experts who understand what's going on inside institutions who could figure out how to carve out" some parts of a financial institution if they are taking undue risks with taxpayer backing." Surely, we expect LloydBlankfein to comment promptly on how even the Federal Reserve is now thoroughly underappreciating the divine nature of its prop/flow-focused business model, and how originating the proactively entire volume of OTC quote flow is just a natural side effect of completely cornering the CDS, bond and loan market.

Jim Bianco submits: "The Federal Reserve owns 80% of AIG. With each passing day it looks like the Federal Reserve is adopting AIG Financial Product’s business practices. That is, when faced with a financial problem, they create complicated tools (like CDS). When critics says these new products will not work, tell them they do not know what they are talking about and create even more complicated tools to dazzle everyone. Once the tools are so complicated that no one understands them, you will be hailed as an expert with no peer. You might even be named TIME’s Person of the Year."

Much has been written about the residential mortgage market and the problems it has caused and has yet to cause. The
following analysis focuses on this issue from the perspective of the ratio of outstanding mortgage debt versus real
personal income. Mortgage debt is represented by the Household and Non-Profit Mortgage Liabilities from the Federal
Reserve’s flow of funds report; personal income is represented by real personal income net of government transfers
from the Bureau of Economic Analysis.

Adam Smith, Charles Darwin and George Washington are not only rolling in their graves, they are dancing the macarena. A new study by the UMich School of Business has found what everyone has known since the crisis began, if not centuries prior: that the biggest, crappiest banks were guaranteed to get more bailout funding the more political ties they had (and more kickbacks they had offered). Is this sufficient to claim that capitalism in its purest sense has been corrupted beyond repair, courtesy of political intervention and constant pandering? Probably not, but it sure makes a damn good argument. In any case, the data is sufficient for all bears to start keeping a track of which banks are increasing their lobbying efforts and funding: those are the ones where the greatest weakness is likely still to be uncovered (if it hasn't already). And while the political relationship probably is not a big surprise to any realistic readers, another finding of the study makes a solid case for abolition of the "apolitical" Federal Reserve:

A new study by Ross professors Ran Duchin and Denis Sosyura found that
banks with connections to members of congressional finance committees
and banks whose executives served on Federal Reserve boards were more
likely to receive funds from the Troubled Asset Relief Program, the
federal government's program to purchase assets and equity from
financial institutions to strengthen its financial sector.

The unsupervised Federal Reserve gets to make or break banks, presumably under the gun of its one and only master, Goldman Sachs, which has already destroyed its major historical competitors: Bear Stearns and Lehman Brothers. This is a sufficient condition to not only audit the central bank but to immediately seek its abolition, and also to commence anti-trust proceedings against Goldman Sachs which is not only a monopoly, but by extension has veto power over the very regulatory mechanism that is supposed to keep it "fair and honest." The system is truly broken.

The Fed's balance sheet assets are back to all time highs at $2.2 trillion, while the "collateralization" of the dollar with MBS/agencies hits an all time low of 89.7%. Look for the dollar to be backed by increasingly less valuable securities.

Stephen Colbert destroys "Dr. Blankcheck von Moneypants." Must watch clip.

Ben "Darth" Bernanke...

This raises the broader—and very contentious—issue of whether monetary policy should seek to lean against potentially dangerous swings in asset prices. The answer is far from clear, because the use of monetary policy for these ends necessarily compromises the attainment of other macroeconomic goals. Because such use of monetary policy is costly, high priority should be assigned to developing regulatory tools to address systemic risk. Even so, the crisis of the past two years has prompted many of us to reexamine the widely held view that monetary policy should respond to asset prices only to the extent that they influence the anticipated trajectories of inflation and unemployment. Further research into the connections among monetary policy, the banking and financial sectors, and systemic risk is needed to help answer this question." - Janet Yellen

Ms. Yellen: we respectfully would like to say that you could not be more wrong. In essence your question of whether the Fed should inflate asset bubbles, defines the Fed's completely perverted and flawed agenda better than any other tongue-in-cheek elaboration for the continued worthless existence of your money printing syndicate.

Goldman Sachs, which lately has been caught in a toxic spiral of potential misrepresentations (courtesy of the SIGTARP report which plainly refuted the firm's claims that it was not on the hook vis-a-vis AIG, and by the way, Ms. Tavakoli, we are waiting for you to retract your apology to the 85 Broad team) and horrendous PR (first Blankfein apologizing for something, then Gasparino telling Lloyd he should step down), may be the final straw that finally breaks open the Fed's "book of death" (for the middle class, f/k/a "book of life" for the banker cartel). Ahead of tomorrow's hearings on various Fed transparency initiatives, Rep. Elijah Cummings is calling for a complete tear down of the existing Fed structure, and demands an overhaul to the "minimal accountability" that the Fed issubject to courtesy of the current Wall Street perpetuated ( and lobbied) status quo.

"The now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve in connection with Maiden Lane III once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counterparties or the details of the payments, warning that disclosure of the names would undermine AIG's stability, the privacy and business interests of the counterparties, and the stability of the markets. After public and Congressional pressure, AIG disclosed the identities. Notwithstanding the Federal Reserve warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market or damaged legitimate interested of the counterparties. The lesson that should be learned - one that has been made apparent time after time in the Government's response to the financial crisis - is that the default position, whenever Government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with Government funds. While SIGTARP acknowledges that there might be circumstances in which the public's right to know what its Government is doing should be circumscribed, those instances should be very few and very far between."

- Neil Barofsky

A fantastic history of the reasons for, and the creation of, the Federal Reserve, courtesy of Murray Rothbard and our friends at Mises Institute, with the article originally appearing in Quarterly Journal of Austrian Economics, Vol. 2, No. 3 (Fall 1999), pp. 3–51. It is also reprinted in A History of Money and Banking in the United States and as a monograph. This is a must read for anyone who is curious why the Federal Reserve (with or without Goldman) is the sole organization responsible for not only perpetuating the interests of a select few of financial oligarchs, but in essence shaping monetary, fiscal, financial and political policy in the entire developed world. If after reading this, one is not convinced that the Fed screams a need for at least some supervision or accountability, one is likely a borderline-corrupt Senator who is on the payroll of Citi, Bank of America and/or Goldman Sachs (or, what may be worse, infinitely naive).

Total Federal Reserve balance sheet assets for the week of November 11 of $2,146 billion ($1 billion lower compared to the prior week's $2,147 billion).

The Federal Reserves is doing what they always do, bailing out their pals on Wall Street. My findings have strengthened my bullish outlook on the stock market even more, and they offer undisputable proof that the Federal Reserve is involved in illiquid CMS excepting activities via TALF. I do not think commercial real estate will be a problem. Remember, the commercial mortgage bond market is only $700 billion. The
residential mortgage bond market is $8.95 trillion.