Wall Street Journal Lashes Out At "Our Political Central Bankers"

While the concept of 'independence' among the unelected central bank cognoscenti is as cute as the tooth fairy or santa claus, it is nevertheless defended by those on high as sacrosanct to our very democracy. That is until The Wall Street Journal's editorial board finally had enough of Fed officials joining the 'resistance' against financial reform...

Via WSJ,

Janet Yellen didn’t run for President, but you wouldn’t know it from her policy démarche Friday at the Federal Reserve’s annual Jackson Hole retreat. The Fed Chair unleashed a defense of post-crisis financial regulation that shows how political the world’s central bankers have become.

“Already, for some, memories of this experience may be fading—memories of just how costly the financial crisis was and of why certain steps were taken in response,” Ms. Yellen said.

 

She added that regulatory changes “should be modest” and retain the superstructure built under Dodd-Frank.

Ms. Yellen’s comments followed a blunter recent warning from Fed Vice Chair Stanley Fischer, who told the Financial Times that “one can understand the political dynamics of this thing, but one cannot understand why grown, intelligent people” would “reach the conclusion that” you should “get rid of all the things you have put in place in the last 10 years.” Thank you, Senator Warren, er, Fischer.

***

This is extraordinary. Fed officials are launching a political campaign to retain their vast discretionary control over the American financial system. The brazenness of the effort shows how far afield central bankers have roamed from their traditional remit of monetary policy, which Ms. Yellen barely mentioned. You’d think she’d focus on that duty given that the Fed faces a watershed as soon as next month as it decides whether to begin rolling back the $4.5 trillion balance sheet it has amassed since the 2008 financial panic.

The size and scope of that balance sheet is itself a political intrusion because the Fed’s bond purchases are a form of credit allocation. The purchase of mortgage securities favors housing, while the Fed’s focus on long-duration bonds has been a deliberate attempt to push investors into riskier assets.

These decisions haven’t done much for the real economy, which has grown at a historically slow pace since the recession ended in June 2009. But the Fed has succeeded in lifting some asset prices, and no one knows what will happen to those prices once the Fed begins unwinding its portfolio. Perhaps it will all unfold without a hitch, but some very smart people aren’t as sanguine.

As for the stability of the financial system, Ms. Yellen and Mr. Fischer are at pains to assure us that, due to their efforts, all is well. “Banks are safer,” she says, thanks to capital and liquidity mandates and the wisdom of financial regulators. Oh, and “credit is available on good terms.”

But Ms. Yellen wasn’t nearly as optimistic about lending in the later Obama years. She often fretted that tight credit conditions were limiting growth, and the facts bear out that concern. Bank lending in the current expansion has trailed that of seven previous recoveries, and lending for small business has been especially slow. None of this is cause for Fed triumphalism.

Banks are safer, but they should be after eight years of modest expansion. The real test of financial stability comes in times of economic stress, when interest rates rise or investors get nervous and rush to safer assets. The system has already had one liquidity panic, in October 2014, when the yield on U.S. Treasurys moved some 40-basis points in a day.

You have to ignore history to believe that regulators are suddenly so wise that they know the current regulatory regime will prevent the next crisis. The Fed misjudged the economy in the mid-2000s and kept feeding easy credit that produced the housing bubble. Fed officials Ben Bernanke and Tim Geithner then underestimated the financial risks in early 2008 when the stresses were already apparent.

That’s one reason to support a financial regime with high levels of capital to defend against potential losses but with less regulatory micro-managing. This is the trade-off that House Financial Services Chairman Jeb Hensarling has proposed, which contrasts with the lower capital and lower regulatory barriers that the Trump Administration seems to prefer.

This is the debate we should be having, but the Fed wants Americans to believe that Dodd-Frank is gospel and the only alternative is to return to pre-crisis policies. The irony is that Ms. Yellen is thus associating the Fed with the post-crisis status quo that has been splendid for Goldman Sachs and giant banks that have gained market share and can afford higher regulatory costs.

Ms. Yellen did concede that “there may be benefits to simplifying aspects of the Volcker rule” that limits propriety trading, which is the least she can do since the rule as written is more than 950 pages of text and explanation. But until she runs for public office, she and the Fed ought to stick to executing regulatory policy rather than trying to dictate it.

Ms. Yellen’s term as Fed chair expires early next year, and her Jackson Hole foray is a signal to President Trump about what he can expect if he reappoints her.

The Fed needs a leader who won’t bend to political pressure. But it also needs a leader who understands the limits of the Fed’s political role.

Comments

ET (not verified) Wed, 08/30/2017 - 11:45 Permalink

Physical Gold and Silver will protect you from the abuses of central bankers.

A bird in the hand is worth two in the bush.

Keep your wealth close to you.

bjax ET (not verified) Wed, 08/30/2017 - 12:07 Permalink

I would agree, but I have been waiting since 2009, and I am not getting any younger. Just sold all my big bars this week. I don't need to tell you where it's gone. Of course sold at a loss, especially having paid 20% tax on buying it. Keeping my coins and gold, the rest is in the dreaded BTC :) which has thankfully bought back all my loses in just 7 months. And yes the powe may go off, and yes the world may end, but then again, it may not.

In reply to by ET (not verified)

The Cooler King (not verified) ET (not verified) Wed, 08/30/2017 - 12:21 Permalink

"The price suppression makes the acquisition of Physical Gold and Silver easier, in time for the reckoning" 'Timing' hasn't been an issue for several years now... If you buy your silver from a LCS, they just adjust the premium. Essentially, it's been $20 bucks an ounce (with premium), for several years now anytime it gets down to around $15 or under on the paper quotes... Last, (& only time it's been there was around December 2016 & that was short lived). Maybe it's not like that if you buy online, but who the hell wants to buy online? Walk into a LCS, pay cash, and you aren't required to pay sales tax.

In reply to by ET (not verified)

Honey-Badger (not verified) sincerely_yours Wed, 08/30/2017 - 13:03 Permalink

The plan all along is to destroy the US Dollar and along with that will be the wealth extraction machine called the Federal Reserve. But BIS and the IMF and all the other institutions will remain and build the one world currency on the ashes of the US dollar.Never forget who you enemies are and never let your anger at one entity blind you from the big picture.

In reply to by sincerely_yours

Macavity Honey-Badger (not verified) Wed, 08/30/2017 - 14:24 Permalink

Precisely. IMF is dangerous, printing money without a sovereign nation. Nix nix.

A one world currency is pure bankster evil: it cannot be re-evaluated against anything else when money printing goes awry. USD looks to be nearly there--print, print, print those zeros and ones and buy up the whole world. All other currencies in history have exploded or disappeared.

In reply to by Honey-Badger (not verified)

Iskiab aliens is here Wed, 08/30/2017 - 15:12 Permalink

Yup, the article says WSJ but I'd bet that someone fed them the article for this spin piece. It's very little information and a lot of opinion, either the writer is corrupt and did a spin piece for a think tank or they're incompetent.

Banks asked for deregulation before in the 90s and look at what happened. Regulations aside, there won't be true price discovery until the government tells banks we won't ever bail you out again. Otherwise they'll always take dumb risks because they get the profit and all the risk if with the government.

In reply to by aliens is here

LawsofPhysics Wed, 08/30/2017 - 11:49 Permalink

Yes, the bankers and financiers have not been intermediaries for a long, long time... bankers and financiers (aided by their political PUPPETS) now give themselves FREE MONEY (ZIRP), and in some cases PAY themselves to take free money (NIRP) so they can continue to TRANSFER OWNERSHIP fo everything to THEMSELVES without any REAL WORK or REAL RISK!!!!!!!! 3% GDP, 4.5 % unemplopyment and the FFR is STILL LESS THAN 1%?!?!?!? End the Federal Reserve's charter for fuck's sake, the debt is fucking fruadulent!!!! "Full Faith and Credit"

order66 Wed, 08/30/2017 - 11:47 Permalink

CB's simply cannot lose control of markets at this point - especially stocks. The entire thing collapses if they do. That's why the SNB steps in all the time and doesn't even care about subtlety (ie: yesterday's 6000 contract $730 million plus instant trade at the market).

ejmoosa order66 Wed, 08/30/2017 - 12:32 Permalink

The CBs are the market.  They are also shareholders and bondholders. They are everything everywhere.But they are not good for US profitability.Corporate profit growth  after taxes has been a mere 3.82% a year for the last ten years.My data, which goes all the way back to 1980, shows this new era of low profit growth is unprecedented. 

In reply to by order66

itstippy ejmoosa Wed, 08/30/2017 - 13:19 Permalink

With consumer incomes DOWN over the past ten years, why is there any corporate profit growth at all?1) Zero interest rate environment.  Free capital to work with.2) Bogus "non-GAAP" accounting shows profits when none really exist.3) Corporations taking market share from Mom & Pop businesses on Main Street.4) Consumers taking on yet more debt to buy corporations' products.5) Labor arbitrage (offshoring), automation, and product degradation bring corporate costs down and profits up.6) Defferred maintenance on plants and equipment.7) Slashed Research & Development programs.8) Eliminated employee health insurance & pension programs.9) Forced Municipalities to give huge tax breaks to attract new or retain existing corporate facilities.10) All other corporate chicanery, legal or illegal.NONE of this indicates a growing overall economy.  The continued corporatization of America is not leading to an increased standard of living for the citizens, yet all fiscal and monetery policy at the Federal level is tailored to benefit the corporate structure.  I wonder why that is?  It's as if the government represents the corporations, instead of the people.  Perhaps Mitt Romney was correct, and corporations are people too?

In reply to by ejmoosa

LoneStarHog Wed, 08/30/2017 - 11:54 Permalink

NOTE: I contacted Texas VFW Headquarters and they ensured me that ONE HUNDRED PERCENT of donations go to assisting the veterans. There are NO ‘administrative fees’, ‘expenses’, etc… If you can assist, please do. Please copy and distribute to your e-mail lists. Salute! LoneStarHog (Hog)VFW Life Member —————————————————————————————– With the recent catastrophic events from Hurricane Harvey along the Texas coastal bend we have over 26,000+ VFW & Auxiliary members and their families that have been seriously affected. Many are living without power or have been displaced and are in shelters miles from their homes. The Texas VFW Foundation has established and funded a “Disaster Assistance” program to assist the VFW/Auxiliary members in the affected areas. We also have tens of thousands more veterans that are not members of the VFW/Auxiliary that have also suffered and we are committed to assisting them as well. Due to the overwhelming destruction in a heavily populated area spanning over 500 miles and the sheer number of veterans affected, those funds will soon be expended. We need your help. Any donation you, your family, friends, community, Post or District can make will be needed and used specifically for VFW/Auxiliary members and veterans in the affected area who have been seriously affected. You can make your tax deductible donation at http://www.texasvfw.org or via mail to Texas VFW Foundation – PO Box 14468 – Austin, Texas 78761 Attn: Disaster Assistance. Your donations are needed and will most definitely be used to help those veterans who need it the most in this time of great need. Thank you in advance for your generous donation of any amount and please share this email with those who you know who would like to assist Texas veterans and their families in their time of need.Texas VFW Foundation PO Box 14468 Austin, Texas 78761 foundation@texasvfw.org

wow thats crazy Wed, 08/30/2017 - 11:56 Permalink

"The Fed needs a leader who won’t bend to political pressure. But it also needs a leader who understands the limits of the Fed’s political role"

Fuck off name one person in congress

Soph Wed, 08/30/2017 - 11:59 Permalink

Dodd-Frank isn't worth the paper it's written on. It does nothing whatsoever to prevent the next big crisis or roll back the complete dominance of the banking cartels in the US.What SHOULD happen is a return to Glass-Steagall, in its entirety. It will never happen though as such a move would benefit the common man at the cost of the financier class.Yellen can yammer on all she wants, her commentary is devoid of reality. Trump will do what is in Goldman Sachs (et al) best interest...period.

bjax Wed, 08/30/2017 - 12:03 Permalink

Are you trying to tell me that bankers have more power than ... governments !! Surely not, that can't be, when did it happen, where was I *!??

mjcarr51 (not verified) Wed, 08/30/2017 - 12:04 Permalink

Not a fan of the recent Fed policies, but she's right. At least the Fed doesn't get campaign contributions and doesn't have to deal with lobbiests. Give these crooked fucks in Washington enough money and all the banks will be leveraged up to their balls and we'll have another 2008.