Federal Reserve on The Huffington Post

Bank of America TARP Repayment Premature, Analyst Says

2009-12-04T19:13:29Z

A leading bank analyst says the regulators who allowed Bank of America to repay its $45 billion in government bailout funds made a big mistake because the bank may well need that money soon to withstand the next wave of bad loans, the withdrawal of federal subsidies, and the possible reevaluation of assets.

Wall Street celebrated the bank's liberation from onerous conditions that accompanied the bailout funds; government officials crowed that taxpayers made a profit on the deal; the media marveled at the banking sector's swift recovery.

But Christopher Whalen, a bank analyst at Institutional Risk Analytics, says Bank of America's loans continue to sour. Defaults more than tripled from the first quarter to the third; loans more than 90 days delinquent and those so late they're no longer accruing interest have shot up 15 percent, according to an analysis of banking data.

That's because, despite signs of recovery at the macro level, it takes time for homeowners to become delinquent on their mortgages and credit cards after a job loss.

To pay taxpayers back, the firm says it will use about $26 billion in excess cash "at precisely the time when the [Federal Reserve] is withdrawing many forms of subsidies for the largest banks", notes Whalen's IRA Advisory Service report. That cash could be used to guard against future losses.

"If you want a very tangible example of why the Fed should be taken out of the business of bank supervision, it is precisely the TARP repayment by [Bank of America]," Whalen writes. The Fed supervises Bank of America because it is a bank-holding company. While other regulators supervise units of the firm, the Fed is responsible for the entire corporation. The bank can't repay taxpayers without the Fed's permission.

Whalen argues that bank regulators should force the firm to raise capital now and keep it until the middle of next year when Bank of America's losses are more clear.

"Apparently allowing outgoing CEO Ken Lewis to take a victory lap via TARP repayment is more important to the Fed than ensuring the safety and soundness of [Bank of America]," Whalen writes.

Reached late Friday, a company spokesman said the firm typically doesn't comment on analyst reports.

Whalen notes that large banks may experience higher losses next year from sour loans. In a research note this week, analysts at Goldman Sachs said they expect the unemployment rate to hit 10.75 percent by early 2011, a 0.75 percent increase from the current rate.

It's not just worsening loans, though, that has Whalen concerned. He also points to optimistic real estate valuations on Wall Street, noting that prices have been "greatly helped" by the Federal Reserve. The Fed has purchased some $850 billion worth of mortgage-backed securities since last year.

"Simply put, the Fed has forcibly revalued toxic waste" through its purchases, Whalen said. The true value of the loans on the bank's books are in question.

The Fed is "betting on concluding the bank rescue...in the next year or so," he writes. But the assumption "may not be fully supported by reality on the ground."

Sen. Bernie Sanders: Where Was the Fed?

2009-12-04T11:48:29Z

The American people overwhelmingly voted last year for a change in our
national priorities to put the interests of ordinary people ahead of the
greed of Wall Street and the wealthy few. What the American people did not
bargain for was another four years for one of the key
architects of the Bush economy.

Fed Chairman Ben Bernanke, in charge of the central bank since 2006, could
have demanded that Wall Street provide adequate credit to small and
medium-sized businesses to create decent-paying jobs in a productive economy,
but he did not.

He could have insisted that large bailed-out banks end the usurious
practice of charging interest rates of 30
percent or more on credit cards, but he did not. He
could have broken up too-big-to-fail financial institutions that took Federal
Reserve assistance, but he did not.

He could have revealed which banks took more than $2
trillion in taxpayer-backed secret loans, but he did not.

The American people want a new direction on Wall Street and at the
Fed. They do not want as chairman someone who has been part of the
problem and who has been responsible for many of the enormous difficulties that
we are now experiencing. It’s time for a change at the Fed.

We need a new chairman. We need somebody who is going to pay attention to
small- and medium-sized business, somebody who is going to do everything he or
she can to grow our economy and create decent paying jobs, somebody who is
going to protect consumers against outrageously high interest rates on their
credit cards, and somebody who is going to stand up for ordinary people.

I
am going to do my best to see that Mr. Bernanke’s nomination is defeated.

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Federal Reserve Chairmen Never Learn: Calculated Risk

2009-12-04T08:18:06Z

In his 2001 testimony, Fed Chairman Alan Greenspan testified before the House Committee on the Budget, and while offering his usual cautions and caveats, Greenspan talked of surpluses for the foreseeable future.

Cenk Uygur: Hell No on Bernanke!

2009-12-03T17:34:28Z

I had large misgivings about Ben Bernanke before his hearings began. He's given credit for steering our economy to safe shores after we hit an enormous economic iceberg. First, I would argue we are nowhere near safe shores. Second, why are we rehiring the guy who steered the Titanic into the iceberg in the first place?

But despite all of that, I wasn't dead set against him. He does have Republicans and Democrats who believe in him. He obviously has the confidence of President Obama (though, so does Geithner and Summers, so that might not tell you much). He is an expert on the Great Depression. The problem is he was at least partly responsible for creating the situation that called for his expertise. His knowledge in handling depressions might not be so handy if he hadn't gotten us into one.

So, I was not predisposed to support him but I was not dead set against him, either. Until now.

He just said in his hearings that he would get more money by going after Social Security and Medicare. When Sen. Reed suggested that we could also get the money by taxing some of the richest people in America (some of whom got rich causing the economic crash in the first place), all of sudden he demurred. He says that's not his place to say if we should ever raise taxes. But apparently it is his place to encourage going after your retirement money. So, taxing the rich is never under consideration, going after the retirement money of the middle class is his first option. Sorry to be blunt, but fuck that.

He even has the nerve to quote famous bank robber Willie Sutton by saying that he would go after Social Security and Medicare because "that's where the money is." Well, give him points for honesty. He plans on robbing more of your money to give to his Wall Street friends - because that's where the money is. As if they haven't taken enough of our money.

First of all, this shows that it was not a coincidence that George W. Bush selected him as the head of the Fed. He has a bipartisan reputation in Washington. But going after these programs shows you his inclination is unmistakably Republican. Screw the middle class first and protect the rich at all costs. But more importantly, it's a matter of perspective. From his perspective, he doesn't consider raising taxes of the wealthiest people in the country, or even more pertinent the taxes on financial transactions, as even a remote possibility. His perspective is to protect Wall Street, not you. He views you as the bank that they withdraw from.

On top of all this, he refuses to disclose where the Fed distributes its money and says we shouldn't audit the Fed to find out where they send trillions of our dollars to. Is this a joke? This guy is going to have enormous power to distribute our currency and unlike Congress he doesn't even have to account for the money. And we're going to hand over the keys to the economy to a guy with this perspective? Hell no! We'd be crazy to agree to this.

Is Ben Bernanke the change we voted for? How can anyone believe that? What is the matter with Obama? Picking the same guy as Bush, and the same exact guy who was at the helm when the economy crashed, is definitely not change we can believe in. Ben Bernanke is the definition of the status quo. He is part and parcel of the Washington and Wall Street establishment that caused our economic problems in the first place. Why the hell would we put this guy back in charge?

Watch TYT on You Tube

Bernanke Channels Willie Sutton In Assault On Social Security: 'That's Where The Money Is'

2009-12-03T14:27:23Z

Ben Bernanke has overseen the greatest expansion of the Federal Reserve's balance sheet in its history, pouring trillions of dollars into Wall Street firms at roughly zero interest rates.

His generosity, however, has a limit.

In testimony before the Senate Banking Committee today, where he's seeking re-appointment as the Fed's chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered.

Citing legendary bank robber Willie Sutton, Bernanke said of the retirement and health care funds that are the legacy of the New Deal: "That's where the money is."

Sen. Bob Bennett (R-Utah) sympathized with Bernanke, saying that, because of entitlement spending, "you're going to be looking at a situation where the Congress will be unable to provide any kind of fiscal discipline because of the mandatory spending. That puts an enormous burden on your plate."

"Well, Senator, I was about to address entitlements," Bernanke replied. "I think you can't tackle the problem in the medium term without doing something about getting entitlements under control and reducing the costs, particularly of health care."

Bernanke reminded Congress that it has the power to repeal Social Security and Medicare.

"It's only mandatory until Congress says it's not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation," said Bernanke.

But there are several other obvious options that could make the situation sustainable -- including a transaction tax on Wall Street speculation or a slight tax hike on the wealthiest Americans.

Bernanke talks as if increasing taxes on the wealthy simply isn't an option.

Sen. Jack Reed (D-R.I.) followed Bennett and pointed out that "there's only really two ways you can deflect this deficit, and that's either by cutting expenditures or raising income taxes or other forms of taxes."

Reed asked him if he could think of other ways, but Bernanke returned to entitlement money as the way to balance the budget.

"Willie Sutton robbed banks because that's where the money is, as he put it," Bernanke said. "The money in this case is in entitlements."

There's also money at the very top of the income ladder. Reed asked if Congress would be wise to tax some of it. Full of suggestions when it came to cutting entitlements, Bernanke was suddenly overtaken by a bout of policy modesty.

"Would you take taxes off the table?" Reed asked.

"Those decisions are up to Congress," Bernanke said.

"Well, your predecessor signaled very strongly that the tax cuts in 2000 were appropriate," Reed reminded him.

"I have not done that. I've done my best to leave that authority where it belongs, with the Congress," Bernanke said, just moments after telling Congress to cut entitlement spending.

Sen. Bernie Sanders, an independent from Vermont who has placed a hold on Bernanke's nomination, was apoplectic when HuffPost told him Bernanke was pushing for cuts in entitlement spending. "Bernanke wants to cut entitlement spending? Well, that confirms everything I'm saying," Sanders fumed.

"The CEOs and top people on Wall Street make huge bonuses, and what? We're going to cut back on Social Security and Medicare? That's what we're going to do?"

Bernanke worked to assure the committee he had nothing against old people. "I'm not in any way advocating unfair treatment of the elderly, who have worked all their lives and certainly deserve our support and help, but if there are ways to restructure or strengthen these programs that reduce costs, I think that's extraordinarily important for us to try to achieve," he said.

Bernanke allies in the Senate are working to see he gets his way. Senate Budget Committee Chairman Kent Conrad (D-N.D.) has been pushing hard for the creation of an independent commission that could cut entitlement spending. He has met recently, he said Thursday, with Senate Majority Leader Harry Reid (D-Nev.) and Treasury Secretary Tim Geithner, reiterating his threat to block Senate legislation if the commission isn't created.

"We're on a course that's just unsustainable," Conrad said, but put emphasis on Medicare rather than Social Security.

While the debate about entitlement spending is often masked with high-minded talk about fiscally-responsible policy solutions, it is little more than a struggle between competing classes for scarce resources.

Sanders said he sees it for what it is. "That's the solution? To cut back on the middle class and the elderly? That only adds fuel to the fire," he said. "Look, let's be clear. The middle class in America today is collapsing. Within the confines of the Beltway, we don't talk about that too much. But that is the reality. It's not just unemployment or underemployment. People are working longer hours for lower wages. People are unable to send their kids to college. People are losing their homes. People's jobs are going to China. That is the reality."

David Segal: Bernanke Must Answer for Dark of Night Change in Bank Regs

2009-12-03T13:53:39Z

Co-authored with Rhode Island State Rep. Peter Wasylyk

Just as would a credit card company itself, the Federal Reserve has buried a key pocket-pinching regulatory change in the fine print. In its regulations issued last month, the Fed did Americans a huge disservice, doing away with consumers' potential right of recovery of past and future overdraft charges -- which will total nearly $37.5 billion in 2009 alone. As the Senate considers Ben Bernanke's re-nomination to the Fed's chairmanship, senators must call him to task for this cynical maneuvering.

For years, advocates have strived to develop a legal theory that would allow consumers to recoup these fees and prevent banks from charging them in the future. They've asserted that the banks have engaged in deceptive trade practices, breach of good faith, and the like, but have generally found roadblocks along these avenues, in the form of preemptive federal regulations.

But a new legal theory has showed promise: Attorneys and some regulators argue that overdraft fees amount to a credit feature. It's a loan, after all: An overdraft entails a bank providing a consumer with money, which must then be paid back, with penalty. The Truth In Lending Act (TILA) requires that lenders clearly and conspicuously disclose the terms and conditions of the loans they offer to borrowers, whereas consumers typically aren't even given notice prior to a bank charging them overdraft fees. Attorneys from across the nation (including Peter Wasylyk, coauthor of this piece) filed a class action suit in federal court in Rhode Island against Citizens Bank on August 18 on the TILA theory, and the argument has caught people's attention -- so much so that the Federal Reserve saw fit to acknowledge it in new regulations which it promulgated last month.

The Official Staff Commentary on overdrafts adopted by the Board of Governors of the Federal Reserve on November 12 -- to which the courts must give deference when deciding relevant cases -- notes that "Some consumer advocates ... argued that overdraft services should be subject to TILA." The Fed then "clarifies" matters, asserting that TILA protections never did, and never will, apply to overdraft charges: "the addition of an overdraft service to an accepted access device does not constitute the addition of a credit feature under Regulation Z [pursuant to TILA]."

As Congress strives to improve protections from overdraft fees -- Senate Banking Chairman Chris Dodd (D-Conn) has proposed tough new legislation -- and as consumer advocates get closer than ever to the recovery of tens of billions of dollars in overdraft charges, the Fed has bent over backwards to protect the banks from accountability to the very public which has generously provided them with a $700 billion bailout.

Congress can rectify the situation by making clear that TILA protections do, in fact, apply to overdraft fees -- and by shaming Bernanke for adopting these predatory regulations in defiance of the will of Congress and the public.

Senator To Fed Chair Bernanke: 'You Are The Definition Of Moral Hazard'

2009-12-03T12:53:37Z

This report has been updated

A few hours after Federal Reserve Chairman Ben Bernanke began a spirited defense of his much-maligned tenure leading the nation's central bank, a Republican Senator reached across the aisle to join one of the chamber's more liberal members in declaring his intention to delay Bernanke's likely confirmation.

Sen. Jim Bunning, of Kentucky, told video journalist Mike Stark that he will place a "hold" on the Bernanke's confirmation, joining Bernie Sanders, of Vermont, an Independent who caucuses with Democrats. The video was first posted on the left-leaning blog FireDogLake.

Bunning added that he and Sanders won't be the only ones to pull this procedural delaying tactic. However, unless they get 39 others to join them in opposing Bernanke, he'll likely be confirmed. It'll just take Senate Majority Leader Harry Reid (D-Nev.) a bit more time, as he'll have to round up 60 votes to bypass the "hold."

***

Federal Reserve Chairman Ben Bernanke was scolded Thursday by a group of senators who let the country's top economic official know how angry they are with what they perceive as his multiple failures both before and after the financial markets crashed.

Lead among them was Jim Bunning, a Republican from Kentucky.

The only senator to vote against Bernanke's confirmation four years ago, Bunning ripped into the Fed chair for handing out "cheap money to [his] masters on Wall Street"; referring to him as "the definition of moral hazard"; and stating flatly that it was either "incompetence or a desire to secretly funnel more money to a few select firms" that led Bernanke to not pressure then-New York Fed President Timothy Geithner to demand concessions from AIG's counterparties during the government's massive bailout last fall.

Bunning's prepared remarks are below.

Statement of Senator Jim Bunning as Prepared for Delivery
Banking, Housing, and Urban Affairs Committee
Hearing on the Nomination of Ben Bernanke
December 3, 2009

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.

The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.

On consumer protection, the Greenspan policy was don't do it. You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.

Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.

Chairman Greenspan's attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.

On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.

The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed's bailouts last year and on all the toxic waste you have bought.

And Chairman Greenspan sold the Fed's independence to Wall Street through the so-called "Greenspan Put". Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can't even get loans for their everyday needs.

Now, I want to read you a quote: "I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled."

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I'm going to ask that the full question and answer be included in today's hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. That sounds to me like you intend to keep propping up the banks for as long as they want.

Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank's offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed's failures, and there is no better time than now.

Bernanke Confirmation Hearing LIVE, Follow The Latest Updates On Twitter (VIDEO)

2009-12-03T10:08:00Z

Today on Capitol Hill, Fed chairman Ben Bernanke faces what are sure to be some tough questions from lawmakers as they weigh his chances to be confirmed for a second term.

We've got a clip of the live hearing, and we'll be monitoring the latest updates and conversation on Twitter.

WATCH:

Visit msnbc.com for breaking news, world news, and news about the economy

And check out the Twitter conversation below:

Bernanke Confirmation Hearing: Latest Updates

2009-12-03T09:51:04Z

WASHINGTON — Senators took aim Thursday at Federal Reserve Chairman Ben Bernanke, linking him to rising unemployment, regulatory lapses that led to the financial crisis and the corporate bailouts that followed.

And some warned that the Fed's record-low interest rates could feed a new speculative bubble.

Dylan Ratigan: Americans Don't Have Jobs, Will Ben Keep His?

2009-12-03T06:47:22Z

You want to do something about jobs? Well, considering a different Fed Chairman might be a good place to start.

Nothing would more clearly display the inability of our leaders to deal with the disastrous state of our economy than easily reconfirming Ben Bernanke for another round at the Fed on the same day that they hold a "job summit" in a harebrained attempt to try to figure out how to create jobs in this country.

So far in his tenure, Chairman Bernanke has already told us that housing prices won't go down, the subprime market will be "contained", unemployment won't get to 10% and that instead of regulation, those responsible Wall Streeters who used credit derivative swaps could just be trusted to use them "properly". Of course, he thinks this performance should be rewarded with more power and utter secrecy.

If the definition of insanity is doing the same thing over and over again and expecting different results, does that make Bernanke crazy for still basing our nation's economic policies on his terrible predictions? Does it make Congress crazy for reconfirming him? Or does it make us crazy for voting these people into office??

Defenders like to point out what a fantastic job Chairman Bernanke has done "rescuing" our economy from supposed CERTAIN DOOM, utilizing his formidable expertise on the Great Depression as his guidance (or cover) for providing an infinite supply of money to our most culpable banks with no strings attached. Dropping the future wealth of America from the sky is a pretty easy way to put out almost any economic fire, but in this case our superstar fireman also happens to be one of the primary arsonists.

So what does Bernanke's failure to be a proper steward of our nation's banks have to with jobs?

Unlike any other business, banks and insurance companies are the only companies that do business with the wealth of others. Banks are also the only business granted a list of special privileges and responsibilities. This was done to encourage banks to take the savings of others and lend it out to American businesses and individuals, with the goal of helping grow new ideas and businesses that serve the current and future needs of society and, in the process, create jobs that help fulfill those needs.

But our banks haven't been serving the interests of the broader economy for quite some time.

Instead of being incentivized by the government to lend money to all the innovators, investors and workers in this country, our banks are either hoarding cash, playing the spread between low interest government loans and higher yields or just flat-out gambling through the giant and ongoing insurance fraud that is the derivatives market.

The Federal Reserve and other government programs are literally pouring a potential $23.7 trillion of taxpayer money into bucket with a giant hole in the bottom and wondering why there are no jobs.

Would you work if you could steal money without consequences? Would you do the hard work of lending money to the small businesses of America if you could just make more gambling it in swap markets of New York and never have to worry about the losses?

This economic model is not geared towards jobs. This is not capitalism. This is not American. This is a crime.

So when the very same government proclaims today at a so-called "jobs summit" that, by golly, they really want to try and come up with some ideas to help you get a job, tell them a good place to start would be to deal with the recent job performance of one of our economy's chief arsonists.

Questions For Ben Bernanke's Senate Hearing

2009-12-02T22:40:43Z

The Senate Banking Committee will be chatting with Ben Bernanke this Thursday to vote on his reappointment.

Demand that the Committee ask the following questions for our esteemed Esteemed Chairman (and contact your own Senators also and demand that they find out the answers to the following questions). If you are a Senate aide, please get these questions to your Senator.

Federal Reserve-Sponsored Commercials Coming To Movie Theaters

2009-12-02T16:29:46Z

The Federal Reserve announced it is sponsoring 45-second advertisements in movie theaters with tips to help shoppers avoid unnecessary credit card charges and fees.

Dean Baker: Fed Transparency Should Precede Bernanke Confirmation

2009-12-02T12:59:34Z

The following is a joint piece by Dean Baker, the co-director of the progressive Center for Economic and Policy Research, and Mark Calabria, the director of financial regulations studies at the libertarian Cato Institute.

Congress will soon consider whether Ben Bernanke merits another term as Chairman of the Federal Reserve. It is fair to say that no single individual played a larger role in responding to the recent financial crisis. The Fed has directly lent more than $2 trillion to financial and non-financial institutions in the last two years. It has guaranteed trillions more. It is also fair to say that few individuals and institutions played as large a role in the economy leading up to the crisis than Ben Bernanke and the Federal Reserve.

However, at the moment Congress lacks the independent and objective analysis needed to fully assess Bernanke's performance and therefore to make an informed judgment as to whether he deserves re-appointment. For this reason, Congress should put off a vote on Bernanke's nomination until there has been a full audit of the Fed's actions preceding and during the crisis.

Before considering Bernanke's role in containing the financial crisis, Congress should, via the Government Accountability Office (GAO), investigate the role of Fed policy in allowing the housing bubble to grow. This is not just an effort at playing the blame game; an objective assessment of this policy will also be helpful in avoiding future bubbles.

It is often noted that Mr. Bernanke's research on the Great Depression makes him well prepared to run the Fed in this period of crisis. Unfortunately, Mr. Bernanke's research apparently did not tell him the obvious: that allowing an $8 trillion housing bubble to grow unchecked would lead to an economic disaster like what we are now experiencing. He and his colleagues at the Federal Reserve Board either could not see, or did not care about, this huge bubble. As a result, Ben Bernanke has been running around for much of the last year and a half telling us about his knowledge of the Great Depression.

It is worth quickly explaining why a collapsed housing bubble leads to a recession, since the policy people responsible for this disaster have done so much to try to obscure the obvious. In the years prior to its collapse, the bubble was driving the economy. Bubble-inflated house prices created an unprecedented housing boom. Residential construction peaked at more than 6.0 percentage points of GDP in 2005.

The $8 trillion in bubble housing wealth led to a consumption boom also. This is the well known housing wealth effect that holds that one dollar of additional bubble wealth will cause annual consumption to increase by 5-7 cents. The implication was that an $8 trillion bubble would push annual consumption up by between $400 billion and $560 billion.

When the bubble collapsed, residential construction fell through the floor as builders suddenly realized that we had an enormous housing glut. The drop in annual construction was more than 3 percentage points of GDP, or more than $500 billion. At the same time, when the bubble driven housing wealth disappeared, we lost close to $500 billion in annual consumption.

Further losses in demand associated with the bursting of a bubble in non-residential real estate, added to the problem pushing the total drop in annual demand to more than $1 trillion. This was an entirely predictable outcome of the collapse of a housing bubble.

The simple reality is that there is nothing in the Fed's bag of tricks that allows it to easily replace over $1 trillion in annual demand. In short, the bubble guaranteed the economic disaster that we are now experiencing: end of story.

Those who are opposed to a full audit of the Fed's conduct often contend that this sort of audit counters an international consensus towards central banks that are independent of legislatures. While the extent of this consensus is questionable, it worth noting that Iceland was often held up as a model by those who shared in this consensus because of its independent central bank and its strong record on inflation targeting.

Examining the Fed's decision-making during the crisis can also inform Congress, and the public, not only on the appropriateness of Bernanke's actions, but also on the Fed's framework for distinguishing between liquidity and solvency problems. The public has been given the impression that such institutions as Citibank and Bank of America are worth more as on-going concerns than if they were liquidated as insolvent banks. To better understand the nature of financial crises, GAO should analyze the Fed's framework for evaluating market liquidity and bank insolvency.

Bernanke has argued that an audit of Federal Reserve activities would undermine the independence of the Fed and unhinge inflation expectations. Nothing could be further from the truth. Subjecting the Fed's decision-making on monetary policy to objective and independent analysis could improve inflationary expectations by increasing the public's understanding of the conduct of monetary policy.

Congress and the White House already have ample opportunity, both in regular hearings and in private meetings, to influence the Federal Reserve as to monetary policy. It would not be unfair to characterize Bernanke as an active member of both the Obama and the Bush Administrations. A GAO audit will, if anything, reduce political pressures by exposing such pressures to the light of day, as well as the influence of the financial industry on Fed policy.

As Bernanke can continue to serve indefinitely as Chairman after his term expires in January 2010, there is no urgency in his nomination. Congress has ample time to consider an audit of the Fed before weighing the merits of his confirmation.

Bernanke's Confirmation Hearing: Questions Senators Should Ask The Fed Chairman

2009-12-02T12:13:08Z

Erik Sean Nelson: Overdraft This!

2009-12-02T11:22:53Z

"Overdraft Fee" is such a harmless sounding name. Focus groups must have reacted negatively to the bank's second choice, "Kick You While Your Down Fee." I really hate overdraft fees. The Fed has made banks allow you to opt out of them, but my family has received calls from banks telling me it's foolish to opt out. Really? Congress is trying to further regulate the banks' ability to charge them. An overdraft fee is essentially a short-term loan. If you bounce a $1 Slurpee the bank can charge you $35 (which is essentially an interest charge). Because your bank account is now negative and you can't do any banking until you pay it back, the length of that loan is usually one day. At first glance that looks like an interest rate of 3,500% (unconscionable but still incorrect). Because we are used to seeing loans in terms of Annual Percentage Rate, we have to multiply 3,500 by 365 days. Now you can clearly see that your bank is kind enough to loan you the $1 to buy that Slurpee at 1,277,500% interest. Don't you love unregulated capitalism?

Remember, dear readers, that you can be sent to jail if you loan money to your friend at a rate higher than 18%. That's right. An individual can't charge more than their state's usury limit, however if you are a business then you can charge much more (from my credit card's 27% to the Slurpee's 1 million percent). If you bought a $100,000 house at a million percent, it would take you 2 billion years to pay it off. But don't worry you'll have the last laugh, because the Sun is going to foreclose on you before the bank gets the last penny... which makes you laugh at those stupid banks.

Why are things a crime for the normal citizen, but daily routine for the Big Guys? In life it seems that doing something that is "small scale immoral" gets you in trouble, while doing something that is unfathomably immoral is legal. Kill one person and you get life in prison. Kill 1 million people and it's called War. War, we're told, is a legal and "necessary evil." Yeah well, killing my rich mother-in-law is what I call a "necessary evil" too but I don't see the "I Need A Ferrari Defense" going over too well with the judge.

Here's another example of business vs. individual: Say you loan a friend a book but he keeps forgetting to give it back. You then break into his house and take it home. Don't plan any vacations because you are going to jail. However if you are late in paying the bank for your car then they'll come to your house and repossess it. Why do the banks always win? It's almost as if there is someone who is always there to change the rules and bail them out.

Lastly, what can happen to you if you make an illegal copy of a CD? The FBI can charge you criminally. But when Walmart makes a copy of Mountain Dew and calls it "Mountain Lightning," that's called "corporate business smarts." Let's see if Wachovia will sue me if I try opening a bank called "Wackjovia." Oh, they'll bankrupt me into eternity. But it would be fun to have Citibank sue me because I chose to open a Schittibank. In fact, all the banks would end up suing me because they each take singular pride in being the sch*ttiest.

Federal Reserve Debates A Bubble-Popping Strategy

2009-12-02T08:19:02Z

Amidst calls to bring greater transparency to the Federal Reserve, the central bank's leaders are torn over one key issue: can the Fed pop financial bubbles before they become dangerous?

As the much-criticized chairman Ben Bernanke faces a confirmation hearing in Congress on Thursday, the Wall Street Journal reports that the Federal Reserve is now looking to take a more proactive stance toward asset bubbles.

Of course, the Fed has long come under fire for missing -- or outright empowering -- the housing bubble and the credit crisis. In the WSJ's words, the Fed is currently "groping for alternatives" to its failed strategy.

According to minutes released from its closed door meeting last week, the Fed openly admitted that its officials are worried that record-low interest rates "could lead to excessive risk-taking in financial markets." For many, this admission was a long time coming.

In the near term, the Federal Reserve may already have more than a few candidates for the next financial bubble. Gold hit a record high on Tuesday; a hedge fund run by billionaire John Paulson owns more gold than many large countries. And many have pointed to the possibility of an a property bubble in Asia.

Here's the WSJ:

"..the question of whether and how to tackle bubbles before they burst is becoming a growing concern amid fears of new bubbles developing in commodities markets and in emerging economies. Gold prices are up more than 50% in a year's time. China's Shanghai Composite stock index is up more than 75% this year. Stocks in Brazil are up even more. Oil prices have rebounded. They remain far below last year's peaks but a return to those highs could fuel inflation in goods and services more directly than tech stocks or housing did."

But the explicit admission that the Fed can identify and should combat financial bubbles is, as Barry Ritholtz points out, a severe change of course for Bernanke. Ritholtz speculates that Bernanke is trying to distance himself from the low-interest, hands off legacy of Alan Greenspan:

Bernanke made his Fed bones, so to speak, back in 1999, when he presented a paper to Fed officials at their annual Jackson Hole meeting, arguing against the Fed popping bubbles. His argument? The Fed should focus on controlling inflation, not trying to manage the cycle of booms and busts.

That argument resonated with Easy Al.

Under Alan Greenspan, the Fed accomplished neither goal. The various Greenspan era bubbles such as tech-stocks, credit, oil and commodities boom, and of course, housing all ran their course unabated, with no interference from the Fed. Inflation -- much higher from 1999 to 2007 than CPI falsely reports -- also ran wild."

While Fed critics push to audit the central bank and kill the renomination of Bernanke, Henry Blodget argues that the next bubbles are already upon us. Blodget suggests the Fed should learn from the tenure of former chairman Paul Volcker, who raised interest rates in the early 1980s during a time of economic unease. As for our current regime Blodget says:

"Today, we are led by men like Ben Bernanke and Tim Geithner. Men who are so afraid of the consequences of making people pay for their profligacy and stupidity that they have restarted the debt bubble (free money and bailouts for Wall Street, FHA, cash for clunkers) and made Too Big To Fail a national policy."

Read the entire WSJ story here.

Financial Reform Approved By House Banking Panel

2009-12-02T08:04:22Z

WASHINGTON — House Democrats cleared a crucial hurdle Wednesday in their drive to expand the government's power over Wall Street even as black lawmakers warned that they would use their votes as leverage to secure more economic aid to African-American communities.

The House Financial Services Committee voted to slap new restraints on big Wall Street institutions and to demand greater openness from the nation's central bank, the Federal Reserve, setting the stage for final passage next week on a broader and sweeping piece of regulatory legislation.

Corker Unsure Whether Bernanke Has Votes For Confirmation

2009-12-01T16:47:08Z

Will Ben Bernanke have a second term chairing the Federal Reserve? Sen. Bob Corker (R-Tenn.), a chairman on the banking committee holding the hearing on Bernanke's nomination, has his doubts. The Hill reports:

[Corker] said he wasn't sure yet whether the chairman had the votes on the Banking committee or in the Senate as a whole.

"I don't know where that sits," Corker told reporters when asked if Bernanke would have the votes to get a second term, adding he wasn't sure whether Bernanke would have the votes in the 23-member Senate Banking Committee, either.

The top Republican on the banking committee, Sen. Richard Shelby (R-Ala.) refused to say how he planned to vote, though he did say that the Fed has "utterly failed" in its regulatory role.

Sen. Bernie Sanders (I-Vermont) was less tight-lipped. "I absolutely will not vote for Mr. Bernanke," the Vermont senator said on ABC's "This Week." "He's part of the problem. If he's the smartest guy in the world, why didn't he do anything to prevent us from sinking into this disaster that Wall Street caused and which he was a part of? No, I will not vote for Bernanke to stay on as chairman."

Fed Needs To 'Start Giving A Red Hot Damn About The American Public,' Says Sen. Whitehouse

2009-12-01T16:29:46Z

Two days before Ben Bernanke's confirmation hearing, most Democrats on the Senate Banking Committee are withholding judgment, waiting to hear directly from the chairman of the Federal Reserve.

Given the depth of the ongoing economic crisis, the hearing promises to be a lively one, as senators plan to take out their constituents' anger on the monetary policy chief. Bernanke will likely have a difficult time explaining why the Fed wants to keep bank lending to a minimum while the lack of bank lending is exacerbating the unemployment crisis. At a meeting of the Federal Open Market Committee earlier in November, Fed officials expressed concern that banks might start lending again.

The Fed is required by law to keep inflation low and to maximize employment. But, according to Sen. Sheldon Whitehouse (D-R.I.), the Fed only seems interested in performing one of those tasks. High unemployment keeps wages down. Wage growth is seen by the Fed as a sign of inflation and something that should be kept down.

Before voting to confirm Bernanke, Whitehouse told HuffPost he wants to hear "[t]hat they're willing to take their eyes off an exclusive gaze on the welfare of Wall Street and start giving a red hot damn about the American public."

Sen. Tim Johnson (D-S.D.) -- a a favorite of Wall Street -- told HuffPost that he has decided to vote to confirm Bernanke, but Sens. Charles Schumer (D-N.Y.), Tom Carper (D-Del.) and Mark Warner (D-Va.) all said they'd wait until hearing from Bernanke. Committee Chairman Chris Dodd (D-Conn.) said earlier that he's inclined to support Bernanke but that his confirmation is not a "foregone conclusion."

Sen. Bernie Sanders (I-Vt.), who caucuses with Democrats, said that he will oppose Bernanke's nomination. Sanders and other critics have been unimpressed by Bernanke, who failed to foresee the housing bubble's collapse and who has withheld information about its lending practices from Congress.

Rep. Ron Paul (R-Texas) and Rep. Alan Grayson (D-Fla.), who led a successful effort recently to move House legislation to audit the Fed, have asked Dodd to postpone the vote until Bernanke turns over information relevant to assessing his performance.

The Fed has lost much of its luster in the Senate; the recent financial reform proposal from Dodd strips it of much of its regulatory power, which it largely elected not to use over the past decade.

Bernanke, however, won't need much Democratic support. Nominated by President Bush before being re-nominated by Obama, Bernanke has won the backing of Sen. Mike Johanns (R-Neb.) and Judd Gregg (R-N.H.). Many Republicans look to Gregg for leadership on economic issues. (He was briefly tapped to be Obama's Commerce Secretary, before withdrawing his name.)

Sen. Bob Corker (R-Tenn.), however, said today he was unsure whether Bernanke would have the votes on the floor or to get out of committee.

The committee's top-ranking Republican, Richard Shelby (R-Ala.), wasn't excited about voting for Bernanke. "I used to be a big defender of the Fed, but I think the Fed has utterly failed as a regulator," he said. Asked if he'd support him, he said, "We'll see."

The GOP praise of Bernanke, insofar as it goes, skips the cause of the crisis and focuses on his reaction to it. "He was a dynamic force at a difficult time for the country," Johanns said.

Fed critics are concerned, however, about Bernanke's response to the crisis. Despite turning on the monetary spigot full blast to prevent the collapse of the financial industry, banks have tightened lending practices, contributing to rising unemployment.

"Bank credit declined in September and in the first half of October," the minutes of the recent Fed meeting report. "[B]ank lending standards and terms tightened further and demand continued to decline, on net, for most types of loans in the third quarter... The pace of decline in total loans at large banks continued to exceed that at smaller banks... Bank loans continued to contract sharply in all categories."

At a speech two weeks ago, Bernanke said that "some important headwinds -- in particular, constrained bank lending and a weak job market -- will likely prevent the expansion from being as robust as we would hope."

But "constrained bank lending" is just what some Fed leaders want, according to meeting minutes.

The Fed is mandated by law to maximize employment, but focuses on inflation -- and "expected inflation" -- at the expense of job creation. At its most recent meeting, board members bluntly stated that they feared banks might increase lending, which they worried could lead to inflation.

Board members expressed concern "that banks might seek to reduce appreciably their excess reserves as the economy improves by purchasing securities or by easing credit standards and expanding their lending substantially. Such a development, if not offset by Federal Reserve actions, could give additional impetus to spending and, potentially, to actual and expected inflation." That summary was spotted by Naked Capitalism and is included in a summary of the minutes of the most recent meeting. The bank keeps secret the actual transcript. Likewise, because of Fed secrecy, it's unknown which or how many members voiced such concerns.

Suffering high unemployment in order to keep inflation low cuts against the Fed's legal mandate. Or, to put it more bluntly, it is illegal.

"The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates," reads the relevant statute.

The tight lending policies, meanwhile, are hurting small businesses far more than large firms, which are benefiting from the lower wages and expanded pool of job seekers.

From the minutes: "Participants noted that the dichotomy between significant easing of conditions in capital markets and continuing tight conditions in the banking sector implied that financing conditions differed for large and small firms. Large firms with access to debt and equity markets for financing had relatively little difficulty in obtaining credit and in many cases also had high levels of retained earnings with which to fund their operations and investment. In contrast, smaller firms, which tend to be more dependent on commercial banks for financing, reportedly faced substantial constraints in their access to credit. Limited credit availability, along with weak aggregate demand, was viewed as likely to restrain hiring at small businesses, which are normally a source of employment growth in recoveries."

Jeff Muskus contributed to this report

Federal Reserve's Lessons From AIG: How To Fix The Central Bank

2009-12-01T11:10:34Z

The Federal Reserve made one unambiguous mistake: It kept interest rates too low for too long after the 2001 recession, in the forlorn belief that Wall Street money hounds would exercise restraint instead of getting drunk on cheap money and heading to the casino. The Fed also could have spotted the housing bubble sooner than it did and acted more quickly to deflate it. And once the financial system was in full meltdown in 2008, the Fed arguably could have done a better job managing the collateral damage.

Federal Reserve Testing Strategy To Exit Mortgage-Backed Securities Program

2009-12-01T10:32:58Z

The Federal Reserve said Monday that it would begin testing its strategy to shrink its trillion-dollar portfolio of mortgage-backed securities and eventually unwind its biggest program to prop up financial markets.

Georges Ugeux: Why Ben Bernanke Should Not be Confirmed, and the Fed Should Keep its Autonomy

2009-12-01T10:05:30Z

The debate about the Federal Reserve hides an issue of leadership and management that needs to be tackled.

With the approval of Sen. Ron Paul and amendments requiring increased Congressional oversight of the Federal Reserve System, we run the risk of destroying a key element of the monetary policy of the country and its influence around the world. Only Members of Congress believe that they might actually do a better job than the Fed. They seem to relish the relative impunity for their absence of leadership and their own inability to protect the United States from a catastrophic scenario.

Not everybody forgot that it took $150 billion in "bribes" to Republican and Democrat leadership to get the TARP $750 billion Act voted by the House. The inability of Congress to agree on anything has paralyzed the country. While Congress was arguing, the Federal Reserve avoided a collapse of the financial system. Let's keep the score straight. In the match between Congress and The Federal Reserve, it is clearly 0-1.

However, Ben Bernanke, for all his courage, failed to see the iceberg in front of him: in 2007 he said "the impact of the problems in the subprime markets seems likely to be contained". He denied the fact that the country was in recession waiting for the National Economic Bureau to acknowledge the recession. One year after it started. But what is more worrisome, is that in front of a $ 1,700 billion refinancing risk for commercial real estate, consumer confidence tanking and 10% unemployment, he believes that we will cut unemployment in half within two years. Responding to criticisms from foreign governments and central banks regarding financial markets, Federal Reserve Chairman Ben Bernanke said Monday, that the issue of asset market bubbles remains one of the biggest challenges facing policy makers, though he added that he does not see anything in the U.S. markets right now that concerns him.

One of the casualties of this crisis is the capacity of economists to read the signs and launch warning signals. While Ben Bernanke understands economics and numbers, he lacks the great capacity of Alan Greenspan and Paul Volcker: the ability to read the indicators and have instincts that will allow him to prevent a further crisis.

He has lost the confidence of the American people. President Obama was right to confirm him in the middle of the crisis. This was not the time to change the captain of a sinking ship. But the man is in denial: he believes in numbers, and does not see that 2010 will be dangerous to navigate. And the resonance of his recent statement to the Economic Club is a frightening reminder that he did not see the tsunami approaching.

How can we trust that he will be able to anticipate future adversities? Should the country's current "crisis manager" become the next Fed President? I think not.

It seems to me that we need someone with not only a great intellect, but someone with sensitivity to the evolution of the market, as well as the foresight to predict what will rock the ship in the coming months and years.

We cannot afford to employ a captain who did not see the approaching iceberg and who lost the confidence of his crew to protect the ship from the next one.

Ben Bernanke Confirmation Targeted By Progressives With 'Stop Bailout Ben'

2009-12-01T09:29:39Z

Federal Reserve Chairman Ben Bernanke is up for confirmation this Thursday for a second four-year term. Despite rising public anger at the Fed over the secretive bailouts, the Senate Banking Committee is widely expected to approve President Obama's choice.

But Chairman Chris Dodd (D-Conn.) says it's "not necessarily" a foregone conclusion. Now, a group of progressives are trying to make it a real fight.

The Progressive Change Campaign Committee has launched a petition at StopBailoutBen.com, urging senators to vote against Bernanke. In an email to supporters, they highlight a conversation between the Fed chairman and Rep. Alan Grayson (D-Fla.) in which Bernanke said "I don't know" which foreign banks got half-a-trillion U.S. dollars in exchange for foreign currency.

The full letter:

Pop quiz.

You are a U.S. senator deciding this Thursday whether to confirm Ben Bernanke for another 4-year term as Chair of the Federal Reserve.

The Federal Reserve recently gave over a trillion dollars in new bailouts to various banks, and Bernanke refuses to say who got the money. He actively opposes attempts by Congress to audit his books.

What do you do?

If you think senators should vote "no" on Bernanke if he refuses to say where trillions of dollars went, click here to sign our petition. Then, tell your friends.

Here's a fascinating exchange that happened recently between Chairman Bernanke and Rep. Alan Grayson (D-FL) about some of these unaccounted-for loans:

GRAYSON: So who got the money?

BERNANKE: Financial institutions in Europe and other countries.

GRAYSON: Which ones?

BERNANKE: I don't know.

GRAYSON: Half-a-trillion dollars and you don't know who got the money?

In total, over a trillion dollars are unaccounted for. Reps. Grayson and Ron Paul (R-TX) propose an audit of the Federal Reserve, but Bernanke opposes it.

Click here to tell senators to say "no" to Bernanke if he continues to say "no" to transparency. Then, tell your friends.

Sen. Bernie Sanders (I-VT) said on Sunday that Bernanke is "part of the problem" facing our economy and that he will vote "no."

But many senators are on the fence. Sen. Chris Dodd (D-CT), the head of the Senate Banking Committee, called the Federal Reserve an "abysmal failure" but said he was "waiting to see how members react" before deciding how to vote.

This week, senators need to hear from us. Click here to sign our petition. Then, tell your friends.

Thanks for being a bold progressive,