Bill Dudley

CNBC is parading the fact that its chief eCONomist Steve Liesman, who by now has learned that there is a difference between EUC and Extended Claims, and that when Tim Geithner tells him that the US will not monetize debt, he is lying, has managed to get a 20 minutes interview with former Goldman Sachs managing director and current FRBNY president Bill Dudley. Alas, having gone through the transcript, this interview is complete garbage, with nothing new or relevant, and we are looking far more to the upcoming official statement by Bob Corker's disclosure of how he intends to clip Blackhawk Ben's dual mandate main rotor (it was oddly enough the same Bob Corker who just last year was bashing everyone who wanted to audit the Fed. Go figure - then again it was the same Bob Corker who did his best to kill the Volcker Rule, so a pattern did emerge...). As for confirming the idiocy of the Fed, the only relevant section from Liesman's interview is the following excerpt...

Former Goldman chief economist and current FRBNY and PPT President Bill Dudley has guaranteed QE2: "I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long." Dudley's remarks demonstrate the wide opinion rift at the Fed, where those who don't feel like crucifying the dollar (Kocherlakota, Hoenig, Plosser) are directly faced with such middle class monsters as Dudley and the Doves (which does have a rockband like quality to it). Nobody should have any doubt as to which side will ultimately win this argument...

Dudley talks theory, avoids practice, when discussing the driving force behind today's market - the biggest asset bubble reflation in history. Although to be fair, Dudley does destroy the concept of efficient markets and notes that when we enter the irrational exuberance everyone piles on the same side of the trade, only to realize there is nobody to sell to when the bubble pops. Dudley says nothing to indicate that Fed pundits are anything beyond theoretical puppets of Wall Street, whose sole purpose is to reflate the market to the highest possible point before recent events catch up with Wall Street surreality. And we quote, courtesy of Geoffrey Batt: state of emergency in Thailand, Kyrgyzstan and parts of South Africa, increasing violence in Iraq and Pakistan, bombing in India, multiple bombings in Russia, imminent Greek default, talk of Iran invasion, Karzai claiming he may join the Taliban, South Korean ship attacked and destroyed, Israel considering using nukes as a preemptive weapon, UK elections, massive banker backlash, and so much more. Yet all investors care about is whether the iPad's WiFi can penetrate 1 inch of drywall (ignoring that by buying apple shares, they are selling life insurance on Steve Jobs), and whether everyone can pretend just long enough that there is nothing moving this market but excess liquidity, before it all unravels with the 1% of the population that has profitted the most long taken profits and relaxing on a beach in a non-extradition Pacific island.

"What I would like to do today is to explain in some detail the logic underlying this expectation that economic conditions will warrant exceptionally low levels of the federal funds rate for an extended period...There has to be a further demand impulse— be it a decline in household saving rates, a rise in business investment relative to profits, a further expansion of fiscal stimulus or an improvement in the net trade balance via an increase in exports relative to imports." Bill Dudley of Goldman Sachs, wait, formerly Goldman Sachs, now just of the New York Fed, who implores Americans to be patriotic and stop saving. Dudley hints at the inevitable endgame: "The fact that our foreign indebtedness is for the most part denominated in our own currency is a huge advantage in the event the dollar were to come under significant downward pressure."

From FRBNY's Bill Dudley "the big banks in the United States have been able to raise a large amount of equity capital to put themselves in a stronger position. I believe that Federal Reserve actions over the last year and a half have contributed very substantially to this improvement." No doubt. Also, "the Fed and Treasury did not intervene during the recent crisis to save the financial system (and with it, some big financial firms) for its own sake. We intervened because a collapse of the financial system would have done irreparable harm to Main Street." Not to mention banker direct deposit arrangements. Oh, and game over Puerto Rico: "Over the past ten years, the [New York Fed] Alliance has trained more than 400 [Puerto Rican] high school teachers in economics and financial literacy."

"With respect to financial market infrastructures, the Federal Reserve is working with a broad range of private-sector participants, including dealers, clearing banks and tri-party repo investors to dramatically reduce the structural instability of the tri-party repo system." - Oh, so it is structurally unstable. All this, and many more remarks of the "I say X, but really mean Y" variety in the attached speech.

An impressively comprehensive presentation by Bill Dudley before the Center for Economic Policy Studies Symposium earlier, discusses, and ties in, all the key concepts Zero Hedge has been discussing over the past several months, among these the tri-party repo system, bank runs (what and why), collateral, moral hazard, maturity mismatch, unsecured markets, Primary Dealer Credit Facility, Commercial Paper Funding Facility, and liquidity. In fact, at some points in the speech we get the feeling Mr. Dudley is indirectly refuting some of Zero Hedge's recent allegations vis-a-vis the Fed's actions and regulatory oversight. The presentation is largely devoid of bias except for some of the proposals on how to avoid future systemic meltdowns, which of course are moral hazard prevention lite and philosophy heavy. Not a lite piece of reading, yet recommended for all who want a grasp of the big picture from the Fed's perspective.

Following on previous posts by Janet Tavakoli and Dylan Ratigan, which both reference the need to uncover how and why it is that AIG counterparties received such generous taxpayer funded bailout terms, it is critical to present the letter penned by California Congressman Darrell Issa to New York Fed President Bill Dudley, demanding much more information on the Fed's decision regarding AIG. Issa's quote that "behind closed doors and with no approval from Congress, the FRBNY may have added an additional $13 billion of debt on the backs of taxpayers. These allegations, if true, amount to nothing less than a backdoor bailout of AIG’s creditors, including Goldman Sachs, Merrill Lynch, Société Générale and Deutsche Bank" leaves many open questions as to the true motives of the NY Fed and the Federal Reserve system overall.

"The Federal Reserve is taking on some interest-rate risk in terms of its balance sheet. The excess reserves have an overnight maturity. These liabilities are being used to purchase longer-term assets. In principle, if short-term interest rates were to move up very sharply, the cost of funding could eventually exceed the return on the Fed’s assets. The bigger our balance sheet, the greater the amount of interest-rate risk we are assuming."

The following is a speech "A Preliminary Assessment Of The TALF" presented by NY Fed President William Dudley to a SIFMA PPIP summit today. Overall, not too exciting, but Bill is either being disingenuous, patronizing or flat out stupid with this line of thought: