Financial Crisis Inquiry Commission
Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope. Who was to blame?
"The government, writ large, had a hand in creating the conditions that encouraged the approval of dubious mortgages. It was the government, in the form of Congress, that repealed Glass-Steagall, thus allowing certain banks that had previously viewed mortgages as a source of interest income to become instead deeply involved in securitizing pools of mortgages in order to obtain the much greater profits available from trading. It was the government, in the form of both the executive and the legislature, that encouraged deregulation..."
- Judge Jed Rakoff
The philosophical roots of Janet Yellen's economics voodoo, it seems, are in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman). The following excerpt perfectly encapsulates her philosophy (which is thoroughly Keynesian and downright scary): Fed Vice Chairman Yellen laid out what she called the 'Yale macroeconomics paradigm' in a speech to a reunion of the economics department in April 1999. "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not," said Yellen, then chairman of President Bill Clinton's Council of Economic Advisers. "Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes," although there is "uncertainty with which to contend." She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.
All the histrionics over the next Fed chairman, pardon chairwoman, choice are over. WSJ reports that Obama is set to announce Mr., pardon Mrs Janet Yellen as Bernanke's replacement tomorrow at 3 pm at the White House. "The nomination would conclude a long and unusually public debate about Mr. Obama's choice which started last June when he said that Ben Bernanke wouldn't be staying in the post after his term ends in January. Mr. Obama gave serious consideration to his former economic adviser, Lawrence Summers, who pulled out in September after facing resistance from Democrats in the Senate." However, while a Yellen announcement, largely priced in, in a normal environment would have been good for at least 10-20 S&P points, with the debt ceiling showdown the far more immediate concern, the choice of the Chairwoman may not be the buying catalyst that it would have otherwise been.
Are you ready for Janet Yellen? Wall Street wants her, the mainstream media wants her and it appears that her confirmation would be a slam dunk. She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is actually good for an economy. She was reportedly the architect for many of the unprecedented monetary decisions that Ben Bernanke made during his tenure, and that has many on Wall Street and in the media very excited. Noting that we "already know that Yellen is on board with Bernanke's easy money policies", CNN recently even went so far as to publish a rabidly pro-Yellen article with this stunning headline: "Dear Mr. President: Name Yellen now!" But after watching what a disaster Bernanke has been, do we really want more of the same? It doesn't really matter whether she is a woman, a man, a giant lizard or a robot, the question is whether or not she is going to continue to take us down the path to ruin that Bernanke has taken us.
When we first posted this article a month ago, few paid attention as the entire world was gripped in Summer-mania. Now that Summers is out of the picture, and the monetary policy acumen of the former San Fran Fed president are under the spotlight, it is probably an opportune time to recall Janet Yellen's ability to foresee the future heading into the great financial crisis whose five year anniversary took place this weekend. Or rather lack thereof, because as the following excerpt from a 2010 FCIC hearing, noticed first by the NYT, demonstrates, if this is the best Fed head replacement we can do then we may as well fast forward to the Great Financial Crisis ver 2.0: “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
“For my own part I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” - Janet Yellen, 2010
Egan-Jones may have been barred from rating sovereigns for 18 months due to missing a comma here or there in its NRSRO application (when everyone knows this was merely retribution for downgrading the US ahead of all the other rating agencies), but now the time has come for that other rating agency which dared to follow in EJ's footsteps and downgrade the US of AmericaAA+ in August 2011 to be punished: Standard & Poors. Moments ago we learned that federal and state prosecutors will five civil charges against S&P for its mortgage bond ratings during the housing crisis.
Meet the man, who many say (most of whom correctly) has been running pretty much everything from deep behind the scenes.
Addressing his perception of lessons learned from the financial crisis, Ben Bernanke is speaking this afternoon on poor risk management and shadow banking vulnerabilities - all of which remain obviously as we continue to draw attention to. However, more worrisome for the junkies is the total lack of QE3 chatter in his speech. While he does note the words 'collateral' and 'repo' the proximity of the words 'Shadow, Institutions, & Vulnerabilities' are awkwardly close.
Latest from Ed Pinto, who piles on the blame the GSEs argument with some new data and analysis in The American, AEI's online magazine. This will not help the cognitive illusion being so skillfully maintained by our friends Ritholtz and Nocera, who still cannot bring themselves to admit that Wall Street runs the GSEs just like a private SIV. Lawyers and first loss exposure is the only difference.
Proof Of Another Big US Bank Collapse? Investment Banks Rated "Buy" By Other Banks? What Does It Take For Investors To Learn?Submitted by Reggie Middleton on 08/23/2011 11:24 -0500
Here I present hardcore grassroots analysis compared to Wall Street's best and brightest. It's disappointing to say the least and leads us through a traipse through very recent history that brings us full circle to a major bank failure/run today... Okay, maybe not today, but sometime between tomorrow afternoon and the end of the 4th quarter.
You have read Dealbook's superficial (and practically dictated) defense of Goldman's subprime bet. Below we present David Fiderer's a vastly different perspective than the one shared by straight-to-HBO expert A.R.S., which provides a far more realistic perspective of what really happened with Goldman and its "big short."
Update: Hearing has been delayed until 3 pm.
While we await to find and bring to our readers the channel that will carry today's hearing between the House Financial Services Committee on the topic of "Federal Reserve Lending Disclosure: FOIA, Dodd-Frank, and the Data Dump" chaired by Ron Paul and Fed and NY Fed General Counsels, Thomas C. Baxter, Jr., and Scott G. Alvarez, below we present their prepared testimony that was just released by the New York Fed. The key section from the testimony: "We remain concerned that a more rapid release of information about borrowers accessing the discount window and emergency lending facilities could impair the ability of the Federal Reserve to provide the liquidity needed to ensure the smooth working of the financial system. If institutions believe that publication of their use of Federal Reserve lending facilities will impair public confidence in the institution, then institutions may choose not to participate in these facilities. Experience has shown that banks’ unwillingness to use the discount window can result in more volatile short-term interest rates and reduced financial market liquidity that, in turn, can contribute to declining asset prices and reduced lending to consumers and small businesses." Luckily, courtesy of $1.6 trillion in excess reserves, and the stigma now associated with Discount Window borrowings, for everyone except for Dexia, we doubt the Fed will ever have to worry about the discount window before the banking kleptoracy blows itself up once again.
Excessive Leverage Helped Cause the Great Depression and the Current Crisis ... And Government Responds by Encouraging MORE LeverageSubmitted by George Washington on 04/29/2011 12:37 -0500
The Fed may be talking like Smokey the Bear, but it continues to hand out matches trying to increase leverage ...
David Stockman concludes his two part series on Crony Capitalism (part one here) with this scathing take down of the Federal Reserve. Hopefully this is nothing new to anyone at this point... "The destructive result of the Federal Reserve’s earlier housing and consumer credit bubble became the excuse for embracing a destructive zero interest rate policy which is self-evidently fueling even more destruction. This destruction is namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households; the illusion in Washington that Uncle Sam can comfortably manage $14 trillion in debt because the interest carry is close enough to zero for government purposes; and the next round of bursting bubbles building up among the risk asset classes... So in the present circumstances, ZIRP and QE2 amount to a monetary Hail Mary. There is no monetary tradition whatsoever that says the way back to U.S. economic health and sustainable growth is through herding Grandma into junk bonds and speculators into the Russell 2000."