Finally, Bernanke Tells Us How He Really Feels …

From Bloomberg Tuesday afternoon:

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.

The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.

AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.

Full Text: Ben Bernanke Testimony on Economy and Federal Budget, March 3

(Source: Board of Governors of the Federal Reserve System)

As Prepared for Delivery

Chairman Conrad, Senator Gregg, and members of the Committee, I am pleased to be here today to offer my views on current economic and financial conditions, the federal budget, and related issues.

Recent Financial and Economic Developments and the Policy Responses
Over the past 18 months, the global economy has experienced a period of extraordinary turbulence. The collapse of a global credit boom, triggered by the end of housing booms in the United States and other countries and the associated problems in mortgage markets, has led to a deterioration of asset values and credit conditions and taken a heavy toll on business and consumer confidence.

Read more

Full Text: Fed Chairman Bernanke Testimony to Senate Banking Committee – Feb. 24 – Monetary Policy Report to Congress

(Source: Board of Governors of the Federal Reserve)

Chairman Dodd, Senator Shelby, and members of the Committee, I appreciate the opportunity to discuss monetary policy and the economic situation and to present the Federal Reserve’s Monetary Policy Report to the Congress.

Recent Economic and Financial Developments and the Policy Responses
As you are aware, the U.S. economy is undergoing a severe contraction.  Employment has fallen steeply since last autumn, and the unemployment rate has moved up to 7.6 percent.  The deteriorating job market, considerable losses of equity and housing wealth, and tight lending conditions have weighed down consumer sentiment and spending.

Read more

Full Text: Joint Statement on Banking System from Treasury, Federal Reserve, Other Government Regulators

Joint Statement by the Treasury, FDIC, OCC, OTS and the Federal Reserve

Washington, DC– The U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board today issued the following joint statement:

Read more

Federal Reserve’s Emergency Actions Need Exit Strategy or Economy Suffers More

You should read this story out on the Reuters wire today regarding the $1.3 Trillion the U.S. Federal Reserve has thrown at the financial markets over the last year. It’s lede:

NEW YORK (Reuters) – When U.S. central bankers eventually move to wean markets off the emergency support put in place to rescue the economy, they will face the difficult and delicate task of timing it right.

If they wait too long, they risk sky-high inflation or another asset bubble. If they move too fast, they risk undermining any incipient economic recovery.

Even against the current backdrop of a miserable economic outlook and the specter of deflation, a growing number of voices are warning that the Federal Reserve needs a clear and credible exit strategy for its unprecedented policies.

You may also want to refer to this post regarding the emergency support actions the Fed has taken recently.

If the Fed doesn’t get this right we may be in store for a longer recession, hyper-inflation or the collapse of yet another economic bubble.

Text: Statement by Federal Reserve Board of Governors on Cutting Federal Funds Rate to Near ‘0′

(Source: Board of Governors, Federal Reserve System, December 16)

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. 

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined.  Financial markets remain quite strained and credit conditions tight.  Overall, the outlook for economic activity has weakened further. Read more

Wednesday Evening Update – Terror in India, Plot in U.S., More Economic News

Terrorism

• Dozens reported dead in Mumbai attacks – New York Times
• Mumbai rocked by deadly shootings - BBC

• Little known group claims responsibility for Mumbai attacks – Associated Press
• Report of terror threat on NY subways – New York Times
• New York Warns of Al-qaeda attack – Reuters

MySpace Trial

• MO mom convicted in MySpace trial – Washington Post
• Jury delivers mixed verdict in MySpace bullying trial – Los Angeles Times

Economic News

• Obama names Volcker to head panel on economy – Bloomberg
• The $800 billion pick-me-up for consumer credit – Motley Fool
• Fed risks ’spitting in the wind’ - Bloomberg

Uhhh, Where Does This Money Come From?

I just finished reading this story.  It outlines actions taken today by the U.S. Federal Reserve and was headlined, “Fed throws fresh lifeline to stressed households.”

In a nutshell, here’s what the Fed did today:

1. Announced it will buy $100 billion in debt now owned by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
2. Said it will buy up to $500 billion in mortgage securites from Fannie, Freddie and Ginnie Mae.
3. Began a $200 billion program to support consumer finance including things like auto and education loans.

This sounds like another $700 billion bailout, only it’s $800 billion.  I also didn’t read that anyone voted on this or that there is any oversight.  I obviously need to have a better understanding of just how much the Fed can do, but this is sort of scary.  Isn’t the Fed the public’s bank – the bank for banks?  Aren’t respectable banks supposed to have standards?

We’ve got many problems in this country and one of them is that we’ve become a debtor society.  We’re addicted to credit.  Many people spend beyond their means and now the Fed is going to own a big chunk of this debt.  What are the potential unintended consequences of this much money on the line?

Better yet, when do the financial wizards who dreamed up collateralized debt obligations and mortgage backed securities – which led to the credit default swaps – start to pay?

Text: Joint Statement – Treasury, Fed, FDIC on Citigroup Bailout

(Source: U.S. Department of the Treasury)

November 24, 2008

Joint Statement by Treasury, Federal Reserve and the FDIC on Citigroup

Washington, DC–

The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital. Read more

Cat bounces Monday – Dies again today – What’s in store for tomorrow?

DOWn over 700

• Dow loses 8% over recession fears – CNBC
• U.S. stocks plunge most since 1987 – Bloomberg
• Dow declines 733; S&P 9% - Wall Street Journal
• Plunge in stocks Highlights ailing economy – New York Times
• Most of Monday’s gain is erased – New York Times
• Wall Street plummets – Reuters

One Year DJIA Chart

Bernanke, Other News & Analysis

• Economic activity weak across U.S.: Beige Book – Reuters
• Bernanke says U.S. economy faces big threat – Reuters
• Fed considers more cuts – Wall Street Journal
• Bernanke says bailout will need time to work – New York Times
• Video Link: Bernanke’s Address Courtesy of CNBC

Greenspan: Why History is not Written Contemporaneously

Today the New York Times has what I would call the definitive mainstream media piece (so-far) regarding just what 19 years of Alan Greenspan meant as head of the Federal Reserve. You can read it here.

One cannot place the blame for today’s out-of-control financial system on person or one institution. Greenspan’s still unyielding scorn for government regulation of the financial sector and markets does invite debate. There is a conversation and ensuing action that needs to take place over such issues as transparency and governance – and what role the federal government will take. Today’s mess also invites another look at the rules which were loosened under Presidents Bill Clinton and George W. Bush affecting what businesses should be engaged in lending, securities, and insurance. Under the old system where banks lent, insurers insured and brokers made markets I don’t think we would be dealing with problems which may cost the “little people,” taxpayers, trillions.

Another point worth debating is human nature. Just last week, at a speech at Georgetown University, Greenspan concluded:

Wealth creation requires people to take risks, and thus we cannot be sure our actions to enhance our material wellbeing will succeed. But the greater our ability to trust in the people with whom we trade, that is, the more enhanced their reputation, the greater the accumulation of wealth. In a market system based on trust, reputation has a significant economic value. I am therefore distressed at how far we have let concerns for reputation slip in recent years.

Reputation and the trust it fosters have always appeared to me to be the core attributes required of competitive markets. Laws at best can prescribe only a small fraction of the day-by-day activities in the marketplace. When trust is lost, a nation’s ability to transact business is palpably undermined. In the marketplace, uncertainties created by not always truthful counterparties raise credit risk and thereby increase real interest rates and weaker economies.

During the past year, lack of trust in the validity of accounting records of banks and other financial institutions in the context of inadequate capital led to a massive hesitancy in lending to them. The result has been a freezing up of credit.

As I noted in my opening remarks, trust will eventually reemerge as investors dip hesitantly back into the marketplace. From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later. In either event, human nature being what it is, revival will come. It always has in this society governed by that remarkable document we call the Constitution of the United States.

What I would say to Greenspan is that humanity is broken by nature. Take a look at history and the things people still do to one another on a daily basis all over the world. The bad actors are a minority, but common sense regulation protects the rest of us from the minority of bad actors who are apparently able to take a whole loosely or unregulated system down. When Greenspan speaks of trust as foundational to the marketplace, I can’t help but think: “Trust but verify.” If there is weak regulation, and there are billions or trillions of dollars at stake who other than the government can guarantee the “validity of accounting records of banks and other financial institutions …?”

Americans should hope that the next president is willing to take back the control Wall Street has had over federal financial and economic policy since at least the Clinton Administration. It might even be nice to have a Treasury Secretary who is not an alum of Goldman Sachs.

Everyone hailed Greenspan as “The Oracle” when his low interest rates inflated the value of the housing market and helped create the boom of the nineties and early 2000s. Now those same interest rates and his relentless fight against regulation are being derided. At some point, years from now, we’ll know the true legacy of Alan Greenspan’s Federal Reserve.

Click Here for Text of Greenspan’s Speech at Georgetown

News Roundup – U.S. Economy Continues to Tank, AIG, Stock Market, WaMu, Who’s Next?

Market Drops 450 more points today despite Bridge Loan to Nowhere

O.k – before I roll out the clips, one bit of personal opinion. Two questions. If the Fed’s $85 billion infusion of our money into AIG also means that “we” the taxpayers own 80 percent of the insurer, when can I expect my shares? Second, how many conservative, wild west, 100% free marketers are breathing a sigh of relief tonight that the government is saving one of their sacred institutions? Hypocrites. Is it time to let the market take out the trash in the financial markets? Only if we reasonably regulate to ensure we’re not here again in 15 or 20 years. Isn’t it just great how the so-called ‘Country First’ patriots of the Republican Party have presided over the darkest days for the U.S. economy since the 1920s and 30s …

• Worst crisis since ’30s with no end in sight – Wall Street Journal

• Bailout fails to stem global stock slump – New York Times
• Regulators try to change rules to match need – New York Times
• Morgan Stanley considers merger with Wachovia – New York Times
• Washington Mutual puts itself up for auction – New York Times
• Abroad, bailout seen as free market detour – New York Times
• Banks rush to do deals as Wall Street crisis deepens – Reuters
• Wall Street crisis refocuses U.S. election – Reuters
• Lloyds pulls HBOS chestnuts out of fire for 12 Bn Pounds – The Guardian
• Fear stalks banks – Times of London
• UK unemployment rises to 9 year high – Times of London
• After bailouts, Fed asks Treasury for money – Washington Post
• Russia moves to bolster its banking sector – Washington Post

Tuesday a.m. – Ohio Windstorm Storm Updates & Wall Street Woes

Storm Links

Click Here for Latest Windstorm News from Dayton, West Cent. Ohio from The Dayton Daily News

Dayton Power & Light Consumer Information

American Electric Power – Ohio

Columbus Dispatch home page – storm coverage

NE Ohio updates from Cleveland Plain Dealer

Other News

Officials try to stem crisis; Fed to meet – New York Times

Shares drop in Europe and Asia – New York Times

Race for cash at A.I.G. – New York Times

Wall Street posts first loss since 2001 – New York Times

Galveston: Searchers fear more grim discoveries – Houston Chronicle

Bank turmoil slams Asian indexes – Wall Street Journal

Fed’s mettle will continue to be tested – Wall Street Journal

Op-Ed: Why Obama’s Health Plan is Better – Wall Street Journal

Government struggles to control crisis – Washington Post