• Marc To Market
    04/20/2014 - 15:01
    Prak central bank balance sheets are still ahead.  Interest rate increases are still several quarters out.  Austerity has peaked.  The output gap has peaked.    What does...

Federal Reserve Bank Of Boston

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Bob Shiller Warns Fed 'Fire-Fighting' Is "Not A recipe For A Happy Ending"

If we have learned anything since the global financial crisis peaked in 2008, it is that preventing another one is a tougher job than most people anticipated. Not only does effective crisis prevention require overhauling our financial institutions through creative application of the principles of good finance; it also requires that politicians and their constituents have a shared understanding of these principles. Today, unfortunately, such an understanding is missing. “Firefighting is more glamorous than fire prevention.” Just as most people are more interested in stories about fires than they are in the chemistry of fire retardants, they are more interested in stories about financial crashes than they are in the measures needed to prevent them. That is not a recipe for a happy ending.


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Guest Post: Bizarre Updates From 'The New Normal' School Of Economics

Last week saw a full court press in defense of the current money printing exercise. As we have frequently pointed out, modern-day economic policy is evidently in the hands of utter quacks. It matters little to them that their prescriptions have failed time and again for hundreds of years – they do the same thing over and over again, as though they were escapees from an insane asylum.


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On The Fed's Sudden Need For "Risk Managers" And "Financial Engineers"

There was a time when getting a stable, lucrative financial job meant working for a hedge fund, preferably in the risk department. It still does: the biggest and most profitable hedge fund of all - the Federal Reserve - as well as its various adjunct "all P no L" offices, and judging by the spike in recent job wanted posting by said hedge fund et al, things are looking up for those who want to manage taxpayer funded "risk." For the job seekers our there disillusioned with a 2 and 20 model that no longer works in the new central planning normal, get involved. As for why the Fed would suddenly be fascinated with risk now, after its DV01 is well over $2 billion, we have no ready answers.


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Why Do Fed Officials Talk So Much In Advance Of Action?

The presidential season has started in earnest. First to hit the hustings was the president of the Federal Reserve Bank of Boston, Eric Rosengren, who, true to his blue-state roots, pressed the case for an open-ended asset purchase program. Dallas Fed President Richard Fisher made the red-state argument for easing off the monetary gas pedal. Increased chatter from Fed officials is a marker Morgan Stanley's Vince Reinhart has long-identified as signifying increased chance of Fed action. And we are hearing it. But why do Fed officials talk so much in advance of action? Fed officials must be disappointed by an economic outlook that falls short of both of their objectives. They individually think that policy can do better, but they cannot collectively agree on how.


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Frontrunning: August 7

  • Standard Chartered Falls Most in 24 Years on U.S. Iran Probe (Bloomberg)
  • Iran accusations wipe $15 billion off StanChart shares (Reuters)
  • Hilsenrath tells us that Fed Official Calls for Open-Ended Bond Buying (WSJ) - shocking indeed
  • German opposition backs fiscal union, demands constitutional change and referendum (FT)
  • Gary Gensler speaks: Libor, Naked and Exposed (NYT)
  • IMF Pushes Europe to Ease Greek Burden (WSJ)
  • Second TSE System Error in Seven Months Halts Derivatives (Bloomberg)
  • Rice Hoard Offers World Respite as Food Costs Surge (Bloomberg)
  • UK coalition in crisis over parliamentary reform (Reuters)
  • Ethics probe could deal losing hand to Nevada Democrat (Reuters)

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Is William Cohan Right That Wall Street "Regulation" Has To First And Foremost Curb Greed?

Now that the world is covered in at least $707 trillion in assorted unregulated Over the Counter derivatives (as of June 30, the most recent number is easily tens of trillions greater) and with at least one JPMorgan prop|non-prop trader exposed to having a ~$100 billion notional position in some IG-related index trade, pundits, always eager to score political brownie points, are starting to ruminate over ways to put the half alive/half dead cat back into the box. Unfortunately they are about 20 years too late: with the world literally covered in various levered bets all of which demand hundreds of billions in variation margin on a daily basis, the second the one bank at the nexus of the derivative bubble (ahem JPMorgan) starts keeling over, it will once again be "the end of the world as we know it" unless said bank is immediately bailed out. Again.


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And G-Pap Is Gone...

Headlines only, via To Vima, for now but G-Pap appears to have lived up to his word for now with L-Pap taking over. Lucas Papademos will be the new PM with Venizelos and Dimas as deputies. We still don't have a formal announcement from the government: it wouldn't be the first time a Greek media outlet has frontrun the desired outcome...


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Meanwhile In Greek "Coalition Government" News... Or Goodbye G-Pap, Hello L-Pap?

It appears we may have hit a modest coalligned snag:


So according to Europe a cabinet between the socialists and the right wing populist LAOS (to be politically correct) is still considered satisfactory? And even if G-Pap does step down, which we still believe is highly improbable, who will be he replacement? Say hello to L-Pap, the lateset Fed puppet in Europe


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Hilsenrath Speaks: "Fed Prepares To Act"

Anyone who may have been harboring doubts that the Fed will pull yet another economically destructive policy out of its bag of genocidal tricks on September 21 can now relax. Jon Hilsenrath has spoken, and while we don't know just what form QE3 will take place (as a reminder any form of duration extension, and hence, artificial risk shit can be reduced to the broad definition of Quantitative, or otherwise, easing), he does give us a menu of three options: i) Operation Twist, as first discussed by Zero Hedge back in May, ii) a reduction in the Interest on Overnight Excess Reserves (IOER) from 0.25% to something... lower, a move that would wreak havoc and completely destabilize money markets, and iii) more jawboning -  a step the would merely make existing promises, such as the ZIRP through mid-2013 even less effective. Bottom line: like it or not, in two weeks we all do the twist.


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Federal Reserve Plant To Be Next Greek Finance Minister

Update: according to sources, L-Pap has taken the smart way out and has decided to reject the offer to replace G-Pap #2.

According to Greek TV, and this is not confirmed by the Greek government yet, Lucas Papademos ("L-Pap", or "The Plant") will replace "Goldman employee of the year" Giorgios Papaconstantinou, (or G-Pap the Second as he is known on Zero Hedge) who is now the sacrificial lamb of the complete failure that is the PASOK government in Greece. A quick glance at L-Pap's resume explains why the European banking cartel is delighted with this nomination: "He followed an academic career at Columbia University, as well as
serving as Senior Economist at the Federal Reserve Bank of Boston in
. He joined the Bank of Greece in 1985 as Chief Economist, rising to
Deputy Governor in 1993 and Governor in 1994. He was Vice President of the European Central Bank from 2002 to 2010." Take a wild guess whether The Plant will be on the side of his "constituency" or of the Criminal Banking syndicate in the upcoming plunder of Greece. And yes, this is quite bullish for the Ensolventzone Central Bank (and its currency) which was about to be saddled with tens of billions of defaulted debt pledged in its nether regions as cash collateral.


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Fed's Duke: "America's Poor Have To Make A Choice Between Paying Their Gas And Their Mortgage"

And another pearl of wisdom from the Fed's uberthinkers, in this case Elizabeth Duke: "the recent increase in gasoline prices has affected consumer choices in housing and other purchases, big and small. Family incomes have not kept pace with rising costs and many families, particularly those with low-to-moderate incomes, are actually facing the decision between buying gas to drive long distances to work and paying their mortgage. During the housing boom, when gas prices were much lower, potential homebuyers moved steadily farther away from employment centers in search of more affordable homes. This was referred to as the "drive till you qualify" method of home buying. Foreclosures remain high in these areas where the cost of driving to work has become so great." At least America's poor can still afford to buying deflating iPads... And after all didn't they said QE2 was a success for everyone? Or maybe the recent Philly Fed finding that lower and middle class families are actually suffering under the QE2 mandate, much in line with expectations of everyone who is not a Princeton economics professor or alumnus, are finally being validated. Oh well, this is nothing that a little QE3 can't fix. And some more thoughts from a Ph.D. in Captain Obviousness: "the collapse of housing prices and resulting worker immobility has changed consumers' appetite for homeownership. In Fannie Mae's 2010 Own-Rent Analysis, the percentage of respondents who said they were more likely to rent their next home than buy climbed from 30 percent in January to 33 percent in December of the same year." It's insight like that that explains why those Fed governors get paid the big Bernankebux.


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Gold Explodes After Bernanke Gives QE2 Green Light: "Sees Case For Further Action" (Full Gospel Included)

More broken gospel from the Central Bank of faith and hope, as gold surges, despite what anti-gold bugs out there preach day in and out:

  • Fed's Bernanke says sees case for further action with too low inflation
  • Fed's Bernanke says Fed could buy assets, alter statement
  • Fed's Bernanke says hard to determine pace, size of any purchases, must weigh costs, benefits in deciding how aggressive to be
  • Fed's Bernanke says Fed has tools to ease when rates near zero, earlier bond-buying was successful in lowering long-term rates
  • Fed's Bernanke says risk deflation is higher than desirable, unemployment clearly too high
  • Fed's Bernanke says at current rates of inflation, short-term real interest rates are too high
  • Fed's Bernanke says unemployment to decline slowly, prolonged high unemployment would pose risk to sustainability of recovery

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Philly Fed's Plosser Speaks: Too Big To Fail Must End

Enacting a credible bankruptcy process to solve the too-big-to-fail problem, clarifying the Fed's umbrella supervision and financial stability roles, and enhancing market discipline are steps we must take to lower the probability of a future crisis. We could simplify the entire financial regulatory legislative initiative by focusing on these three key elements. We do not need huge new bureaucracies, or a complete restructuring of our regulatory agencies. - Charles Plosser


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Guest Post: Systemic Risk is All About Innovation and Incentives: Ed Kane

"It is important to recognize that the current financial crisis is rooted in the economic and political difficulties of monitoring and controlling the production and distribution of safety-net subsidies. Regulation-induced innovation by financial firms seeks relentlessly to outstrip the monitoring technology and the administrative focus that supervisory personnel use in controlling institutional risk-taking. Exclusionary laws and rigid capital regulation encourage rather than control regulatory arbitrage over time." - Professor Ed Kane, Boston College


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