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HomeIs the Federal Reserve Readying a Stealth Tightening of Monetary Policy?
Posted by Larry Doyle on September 22nd, 2009 4:11 PM |
The Federal Reserve impacts the economy by raising and lowering the Federal Funds Rate. With the Fed Funds rate currently at a range of 0-.25%, the Federal Reserve has no more ammo to positively impact the economy, right? No! Readers of Sense on Cents are fully aware of the other measures the Fed, in conjunction with the Treasury, has utilized to inject money into the economy, including:
1. quantitative easing in which the Fed has purchased U.S. Treasury and mortgage-backed bonds
2. backstopped money market funds (FYI . . this program ended last Friday)
3. providing federal guarantees for banks to issue debt
4. facilities to assist in the issuance of securitized assets (TALF)
Collectively, these programs have achieved an effective negative Fed Funds Rate. This development is not only historic but very daunting for the economy and market. When and how will the Federal Reserve and Treasury begin to exit some of these programs, and take some liquidity out of the system without spooking the markets? In the process, the Federal Reserve will begin a de facto tightening of the monetary policy even if it does not immediately begin to raise the Fed Funds Rate.
This tightening process may be in its formative stages. How do we know? Bloomberg reports, Fed Said to Start Talks With Dealers on Using Reverse Repos:
The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the financial system the last two years, according to people with knowledge of the discussions.
Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.
Given the amount of liquidity the Fed has pumped into the economy over the last year, these reverse repurchase agreements would have to be of huge size and for a longer tenor in order to truly make an impact.
What would be the impact of sizable reverse repurchase agreements? I would make the following assessments based upon my feeling that the market would perceive these agreements as a tightening of Fed policy:
1. the yield curve would flatten, meaning short term rates would raise relative to long term rates (revisit your Algebra II chapter on slope)
2. the U.S. dollar would strengthen as the market perceives this move an indication that the Fed is closer to raising the actual Fed Funds Rate than it was previously.
3. the markets, both equities and bonds, would very likely sell off in a reversal of the price action of the last six months. Both our equity and bond markets have been supported by the cheap funding provided by the Fed. This phenomena led to the dollar carry trade which I highlighted a week ago in writing, “Dollar Carry Trade Drives Global Equity Markets.”
The dollar is getting hammered again today and that fact is supporting our markets, both equity and bonds. Watch the US Dollar Index as it is clearly the best indicator as to the Fed’s intentions and market direction. If and when you see the dollar start to improve (currently quoted at 76.13), then look for stocks and bonds to weaken.
LD
Is the Wall Street Cop, FINRA, Ready to Talk?
Posted by Larry Doyle on September 22nd, 2009 9:00 AM |
Pressure does funny things to people.
Is the pressure boiling inside the pot of the Wall Street “cop” known as FINRA getting ready to blow? A Bloomberg report indicates the steam is rising inside FINRA. I am not surprised that FINRA is feeling real pressure at this point in time. FINRA should be sweating. Why? Try the following:
>> Lawsuits Trying for Transparency at FINRA (September 21, 2009)
>> Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff (September 15, 2009)
>> An Open Letter to the Board of FINRA Regarding Auction-Rate Securities (July 27, 2009)
>> U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s (May 29, 2009)
Bloomberg reports this morning, FINRA Board Said to Debate Releasing Report on Madoff, Stanford:
The U.S. brokerage regulator’s board is debating whether to release an internal report of its examinations of firms run by Bernard Madoff and R. Allen Stanford, according to people familiar with the matter.
Why should there even be a debate? Why isn’t it standard operating procedure that a financial self-regulatory organization such as FINRA would be mandated to provide total transparency of all its business dealings? Where FINRA has failed, transparency will serve as the leverage to compel them to improve their policies and procedures. If current policies and procedures and past failures are exposed in the process, so be it. History has always shown that coverups only make bad situations worse.
I am heartened that FINRA board member Charles Bowsher, a man of real integrity, seems to be pushing FINRA to release information. Bloomberg asserts:
Bowsher, the committee’s chairman, is adamant the document be released, according to one person. He didn’t return a phone call seeking comment.
Finra spokeswoman Nancy Condon said the board formed the committee to review the examination program “in light of the Madoff and Stanford cases.” A draft was shared with the board, which will decide whether to release it, she said yesterday. She declined to comment on whether any board members oppose making the document public.
Finra, funded by Wall Street firms and overseen by the SEC, inspects and write rules for more than 5,000 U.S. brokerages. The board includes 10 representatives of the financial industry along with former regulators and academics.
Recall that to this point, FINRA has never willingly released information on its internal investment or oversight activities over and above what has been published in its annual reports. FINRA spokespersons, Herb Perone and Nancy Condon, have always maintained FINRA has released more information in its reports than it is required. If in fact that is true, then clearly FINRA’s overseer, the SEC, needs to increase those requirements.
The simple fact is, given the historic times in which we live any self-respecting financial regulator should be obligated to provide full and total transparency across all its initiatives. While FINRA may be embarrassed – if not worse – in the process, FINRA must provide this transparency if we are ever to regain confidence in our markets and our regulators.
Why else may FINRA want to talk? In a current lawsuit brought by Standard Investment vs. FINRA, the judge assigned to hear the case is none other than our friend of the American public, Jed Rakoff. Yes, the same Jed Rakoff who recently undressed the SEC’s contrived $33 million fine levied on Bank of America and stated the fine, “does not comport with the most elementary notions of justice and morality.”
Yes, indeed, pressure does funny things to people!!
LD
Lawsuits Trying for Transparency at FINRA
Posted by Larry Doyle on September 21st, 2009 2:55 PM |
Will the American public receive real transparency from the financial regulatory community? We will learn a lot more over the next 6 weeks.
Bloomberg News has filed a Freedom of Information request compelling the Federal Reserve to release information on loans it made to a wide array of banks. The Fed is currently appealing a judge’s order requiring the release of this information. The judge is expected to rule on the Fed’s appeal by month end. Sense on Cents will be monitoring this situation closely.
A second situation which has received less public notice but is no less important revolves around two lawsuits filed by a Washington D. C. law firm, Cuneo, Gilbert and LaDuca against FINRA (Financial Industry Regulatory Authority). High five to BA for bringing this story to my attention. The Corporate Crime Reporter highlighted these suits the other day and writes:
They say sunlight is the best disinfectant.
If so, then Jonathan Cuneo is on a campaign to disinfect FINRA.
Cuneo and his law firm – Cuneo Gilbert & LaDuca – have three lawsuits pending against the Financial Industry Regulatory Authority (FINRA).
In each, FINRA is being represented by F. Joseph Warin of Gibson Dunn & Crutcher.
“FINRA is the largest private regulator for all securities firms doing business in the United States, yet it is run like a secret society,” Cuneo told Corporate Crime Reporter. “The organization claims to promote transparency in the financial industry, while simultaneously fighting a battle to hide very basic information from its members and the public. Our lawsuits challenge this secrecy and aim to bring accountability to this organization.”
Two of the lawsuits – Benchmark Financial Services v. FINRA and Standard Investment v. FINRA – allege that FINRA member firms are due more than the $35,000 they received as part of the 2007 merger between National Association of Securities Dealers (NASD) and the regulatory arm of the New York Stock Exchange – a merger that resulted in the creation of FINRA.
At the time of the merger negotiations, NASD told its members that because it was a non-profit, the most it could pay each firm was $35,000.
But in March 2007, the Internal Revenue Service (IRS) issued a private letter ruling which indicated that in fact NASD could pay a lot more than $35,000.
How much more is a secret.
Earlier this month, the Second Circuit Court of Appeals ruled that amount of money the IRS said NASD could pay each firm was confidential.
The NASD told its members at the time of the merger negotiations that the source of the $35,000 “was projected future savings resulting from anticipated efficiencies of the consolidated entity.”
“This was false,” the Benchmark lawsuit declares. “The true source of the funds was an over $1 billion fund that constituted a portion of NASD’s member’s equity, a pool of cash that had been amassed largely as a result of the development and sale of the NASDAQ stock trading system.”
“The misrepresentation was designed to deceive members into believing that they should accept the amount offered lest they upset the NASD’s projections of future efficiencies and cause difficulties for the consolidated entity going forward. Defendants knew that if they told members the truth – that they would be paid $35,000 each (or a total of $175 million) out of their own equity fund of more than $1 billion – they risked a wide-open evaluation demand scenario that would have delayed, invited more scrutiny concerning – and potentially even threatened – the whole transaction.”
The Benchmark lawsuit alleges that one motivation for the merger was to secure higher executive compensation for officers.
Mary Schapiro is currently the chair of the Securities and Exchange Commission (SEC).
Before leaving to the SEC, Schapiro was CEO of NASD, then FINRA.
In 2006, before the merger, Schapiro’s compensation was $1.9 million.
In 2007, as head of the newly created FINRA, her compensation jumped to $3 million.
“The amounts of total executive compensation are eye-popping by any measure, but are especially staggering for a non-profit institution,” the lawsuit alleges. (more…)
G-20 Preview: Prisoner’s Dilemma Revisited
Posted by Larry Doyle on September 21st, 2009 9:12 AM |
Should we expect any surprises emanating from the G-20 conference at the end of this week in Pittsburgh? Don’t count on it. The fact of the matter is the bulk of the work at these conferences is done beforehand, and the conference itself is more pomp and photo ops than anything else.
Getting the G-7 to agree on a wide array of economic issues is tough enough. To think the G-20 will not only fully agree on the importance of the underlying issues facing our global economy BUT then also implement the necessary changes is not likely. If this group of nations had the necessary degree of conviction and cooperation, perhaps we would not find ourselves in the current economic morass.
What are the main topics and initiatives the G-20 is already working on pre-conference? The Wall Street Journal provides a preview in writing, Nations Ready Big Changes to Global Economic Policy. Allow me to highlight and comment on the major initiatives.
1. Need for increased savings rate in United States.
This is occurring, but can and will it be sustained past the point of paying down our short term debt? Can the ‘wizards in Washington’ ever address our long term federal deficit? I am not optimistic. The inability to address our long term fiscal deficit is a pox on both sides of the aisle. In an attempt to make progress on it . . . hello higher taxes!!
2. Need for increased consumption in China.
We have not yet seen a real inclination by the Chinese to consume more. As many low income wage earners in China fight for a better life, I think this hope is a long range target rather than a near term reality.
3. Need for Europeans to invest more in their business infrastructure.
I am less optimistic on this than I am on the Chinese inititiative. Why These investment dollars would likely come at the expense of supporting social programs which are the very fabric of the European culture.
4. Europeans are pushing for substantive reforms on banker compensation.
The Wall Street lobby is already hard at work to maintain control of this issue. I have very mixed feelings on this topic. Ultimately, I believe the misalignment of risk and reward on Wall Street is nothing more than a failure of corporate governance. Until the boards of our largest banks embrace the need to change that fabric, I think compensation reform will be shallow.
5. The U.S. regulators are pushing for major banks to hold more capital to protect against systemic risk.
This is all well and good, but if the increased capital is not also correlated with the use of the capital then the systemic risk will not be alleviated. Our friends in Washington should invite Paul Volcker into this discussion and embrace his ideas to have Wall Street exit its hedge fund-like activities inside our major banks.
6. China continues to pursue an increased influence by developing nations within the IMF.
You can feel the impact of this shift already with the greenback declining in value.
MAJOR CHALLENGE: Make no mistake, our international brethren strongly believe the core of our current economic crisis resides here in the United States. That core encompasses the regulatory failings on Wall Street. Without real transparency on that front, Wall Street will continue to work diligently to maintain its ‘business as usual’ mantra which it believes is in its own self-interest.
Speaking of self-interest, that is the base principle in which economic institutions tend to act. With no real enforcement to change behaviors (and the G-20 has never had real teeth on the enforcement front), the economic leaders of the countries will ‘smile for the camera’ but then return home to continue pursuing their self-interests and remain prisoners to each other. That pursuit of self-interest is the very essence of “The Prisoner’s Dilemma” which I highlighted last January.
LD
Related Sense on Cents Commentary:
Increasing Chinese Protectionsim: A Real ‘Prisoner’s Dilemma’ (June 23, 2009)
No Quarter Radio’s Sense on Cents with Larry Doyle, Sunday Evening at 8PM
Posted by Larry Doyle on September 19th, 2009 6:09 PM |
UPDATE: This episode of NQR’s Sense on Cents with Larry Doyle has concluded. You can listen to a recording of the episode in its entirety by clicking the play button on the audio player provided below. Once the audio begins, you can advance or rewind to any portion of the episode by clicking at any point along the play bar.
***********************
Please join me this Sunday evening for NQR’s Sense on Cents with Larry Doyle as we dig deeper and work harder in navigating the economic landscape.
What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.
There is no shortage of topics that deserve real attention, including:
> developments within our bank deposit insurance (FDIC)
> the upcoming G-20 conference in Pittsburgh
> what is happening to our dollar? will it recover?
> Wall Street compensation practices
> market performance . . . what is it telling us?
> what is happening with ‘credit?’ Is it loosening or getting worse?
> unemployment trends
> economic data, especially in regard to housing
> the federal deficit
> the SEC
> can we afford health care reform . . . can we not afford health care reform?
. . . and much more. My special guest this week is YOU, the readers and supporters of Sense on Cents. What is on YOUR mind? I look forward to the show and thank you in advance for your support.
As a reminder, all of my radio shows are archived and can be listened to right here at Sense on Cents by clicking on the No Quarter Radio tab located under the page header. (FYI, I keep an audio player of my most recent episode in the right sidebar). In addition, all No Quarter Radio programming is available as a free podcast on iTunes. From the iTunes Store, type “NQR podcasts” in the search window.
Many thanks to Larry Johnson and the rest of the team at No QuarterUSA blog for providing such a vibrant media vehicle as No Quarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
LD
September 19, 2009: Month to Date Review of the Markets
Posted by Larry Doyle on September 19th, 2009 6:46 AM |
The market trends remain very much in place. Assets across virtually every market segment continue to rise in value. Are we supposed to merely “close our eyes” and be thankful? Never. Market participants and investors should always want to know what is driving the markets and, more importantly, the economy. On that note, let’s read the market ‘tea leaves’ in terms of the month to date performance. I will offer commentary as I see it and together we can continue to ‘navigate the economic landscape.’
Equities
DJIA: 9820, +3.4%
Nasdaq: 2133, +6.2%
S&P 500: 1068, +4.7%
MSCI Emerging Mkt Index: 919, +7.8%
DJ Global ex U.S.: 196.5, +5.8%
Commentary: equities on average added another 2% positive returns to their monthly performance. Markets had nary a pullback during the week. While positive price action is nice to see for investors, the fact that there is not a ‘backing and filling’ process in the price action is troubling. The backing and filling process is an indication of good two-way flow in which new buyers are replacing sellers exiting the market. Additionally, that price action serves as a foundation for the market. A market in which prices move higher in a virtual straight line has not developed the support base. This chart highlights the price action for the last two months. One can see that the September price action has been a straight line, adding 500 points to the DJIA. Markets typically do not track in that fashion. That said, the market is the market.
Bonds/Interest Rates
2yr Treasury: 1.00%, an increase of 2 basis points or .02%
10yr Treasury: 3.47%, an increase of 6 basis points
COY (High Yield ETF): 6.35, +4.9%
FMY (Mortgage ETF): 17.53, +.69%
ITE (Government ETF): 57.38, -.7%
NXR (Municipal ETF): 14.74, +4.6%
Commentary: government bonds gave a little bit of ground this week, but still maintain an overall firm tone. We do have large monthly auctions (2yr, 5yr, 7yr) next week so Wall Street would like to back the market off in an attempt to buy the auctions a little cheaper. The price action in the U.S. Treasury market still strikes me that there is a growing camp that believes we will experience asset deflation. That phenomena would support bonds, but I do not see how it could possibly support equities. This debate is not receiving as much attention as 6 months ago . . . but it should!
The riskier parts of the bond market generally treaded water this week. That fact is a positive, in light of the positive trends in equities. Typically, if equities are trending higher, then bonds would head lower due to concerns of higher inflation. The fact that bonds in general are firm plays into the point I highlighted above.
The conundrum between the equity markets and bond markets continues.
U.S. Dollar
$/Yen: 91.38 vs 93.11 at August month end
Euro/Dollar: 1.4702 vs 1.4338 at August month end
U.S. Dollar Index: 76.45 vs 78.14
Commentary: the dollar strengthened by approximately 1% vs the Japanese yen this week, but overall continued its decline vs the Euro and other major currencies. The greenback closed lower by approximately .5% on the week and is now down 2.2% for the month.
The silence from Washington on the dollar weakness remains deafening. The Fed’s charge is ‘price stability’ and to ‘grow the economy.’ The Fed has clearly failed to achieve its goals and is now faced with pursuing a weak dollar policy to promote inflation. This seeming necessity is a very dangerous game. Why? Other countries may similarly look to devalue their currency in order to support their exports. I am hearing this concern coming from Japan and we see that as the Yen weakened vs. the greenback this week.
If we do get some dollar strength, look for a selloff in our equity markets as clearly a large number of funds have entered into the dollar carry trade in which they have sold dollars and used the proceeds to buy global equities.
I feel compelled to repeat my statement from last week. This ‘positive carry’ trade is nothing more than implementing leverage. Do not confuse leverage with brains when a market is rising because as I said the other day, leverage is death when that bull becomes a bear. As I think of market developments, I am convinced that this ultimate unwind of leverage trades currently being implemented is Jeff Gundlach’s reasoning for being bullish on the dollar. How will this work? Investors will look to exit their risk based investments (emerging market stocks and the like) and buy back the dollars which they have borrowed. In the process, the dollar may rally significantly. The timing of this unwind is the critical question.
Commodities
Oil: $71.85/barrel vs $69.93 at August month end
Gold: $1008.5/oz. vs $952.4 at August month end
DJ-UBS Commodity Index: 127.5 vs 125.73 at August month end
Commentary: gold largely marched in place this week. There was an announcement that the IMF may look to sell upwards of $13 billion of its gold reserves. The fact that the gold market took that news without selling off is fairly impressive. It is likely an indication that global central banks would like the gold as they look to diversify away from the U.S. dollar.
Commodities overall did have a decent week and the Commodity Index is now up approximately 1.5% on the month. Given the strength in equities, commodities have actually been a recent laggard. The Baltic Dry Index continues to run in place. I view that as reason for concern. How can global equities in general and commodities specifically continue to increase in value if the major indicator of global trade, that being the BDI (Baltic Dry Index), is not trending higher?
Summary/Conclusion
Economic data seem to indicate hints of strength, but the data comes with major qualifications. For example, the perceived strength in retail sales was largely driven by the ‘pull demand forward’ benefit of the Cash for Clunkers program. Housing starts were positive, but it was focused on multi-family units while the much larger component within this data — that being single family units — actually declined. Unemployment claims declined, but unemployment actually increased in 27 states.
The overriding fact remains that the ‘Uncle Sam economy’ is continuing to adapt to the very changed nature of our underlying market and economic dynamics. That dynamic in which the securitization of assets remains a distant memory will force credit to remain tight. Consumers need to adapt accordingly.
The markets are discounting a more robust economic recovery than I see on our horizon. That said, ‘the market is the market.’
Thanks for your support. If you like what you see here, please subscribe via e-mail, Twitter, Facebook, or an RSS feed.
Thoughts, comments, questions always appreciated.
Have a great day and weekend.
LD
Money Market Funds Losing Uncle Sam’s Support…Today!!
Posted by Larry Doyle on September 18th, 2009 3:34 PM |
Our equity and bond markets reflect lessened risks and increased economic recovery, right? Well, investors in money market funds are taking on significantly greater risk today, whether they know it or not. How so? Today is the day that Uncle Sam is ending his federal backstop for money market funds. What does this mean? On a going forward basis, money market funds may very well ‘break the buck.’
Traditionally, the money market industry has prided itself on its ability to market these funds as being the effective equivalent of bank deposits. Bank deposits, however, are federally insured up to 250k. Money market funds were presumed to have such safe investments that they would always maintain a $1.00 NAV (net asset value). That ‘sales pitch’ worked for a long time until a year ago when Lehman failed. A number of funds holding short term debt issued by Lehman, as well as other questionable assets, were poised to ‘break the buck.’ Hank Paulson and Ben Bernanke realized they needed to step in to stem this flow of money so they implemented a federal backstop of these money market funds. That backstop ends . . . today!! As such, whether investors appreciate it or not, they now have significantly more risk in these funds.
This story is receiving very little focus in the midst of all else that is going on along our economic landscape. That said, it bears real attention. The Wall Street Journal provides a cursory overview today in writing, Treasury Winds Down Money-Fund Backstop:
Now that the panic that flowed through financial markets last year has eased, the U.S. Treasury Department is making way for an usual rescue program set up to protect money-market funds to expire Friday.
U.S. officials established the Guarantee Program for Money Market Funds one year ago, during the height of the financial crisis, in the wake of the failure of Lehman Brothers Holdings Inc.
But now that an economic recovery might be taking hold, the government is allowing the program to wind down.
“As the risk of catastrophic failure of the financial system has receded, the need for some of the emergency programs put in place during the most acute phase of the crisis has receded as well,” Treasury Secretary Timothy Geithner said in a statement.
Secretary Geithner may be premature because although markets have recovered, a number of sectors of our overall economy remain severely stressed. The investment assets correlated with these sectors are no longer deemed as safe as once thought.
While the panic on Wall Street has obviously passed, investors in money market funds should not blindly accept that these funds will maintain a $1.00 NAV going forward. The fact is, many of these funds do have investments in a variety of short term instruments that have declined in value.
While the SEC has recently implemented rules in an attempt to insure that money funds will have sufficient liquidity for investors, those rules do not guarantee that funds can’t or won’t break the buck.
I strongly encourage investors in money market funds to check with their brokers or financial planners to review the nature of the underlying assets in their money market funds. I would particularly look out for investments in any type of auction-rate securities.
In addition to this caution, I would also strongly encourage investors in municipal money market funds NOT to invest in funds which have investments in the newly designed municipal auction-rate security known as x-Tender or Windows.
In the Brave New World of the Uncle Sam economy, ‘Buyer Beware!’
LD
Related Sense on Cents Commentary:
No Time for Complacency on Insurance and Money Fund Exposures (July 29, 2009)
Municipal Money Market Funds: Caveat Emptor (June 29, 2009)
The Buck Is Beginning to Break (June 25, 2009)
FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance
Posted by Larry Doyle on September 18th, 2009 12:27 PM |
It was only a matter of time before both the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC) would walk over to the U.S. Treasury and ask for a ‘bigger allowance.’ That time has come, despite what some officials may say. High five to MC for bringing the FHA story to my attention.
The Wall Street Journal highlights the FHA’s predicament in writing, FHA Tightens Credit Standards, Sees No Bailout:
The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.
The agency, a growing source of funds for first-time home buyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17% of FHA borrowers were at least one payment behind or in foreclosure, compared with 13% for all loans, according to the Mortgage Bankers Association.
Rising defaults mean the FHA’s reserves may sink below the 2% mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.
Please recall that FHA-insured loans require only a 3% down payment. In writing a previous blog post focused on the FHA, a well informed reader shared with us that builders will often offer rebates which effectively cover that down payment. What is the result? Homeowners purchasing properties with no money down, otherwise known as ‘no skin in the game.’ This practice was prevalent throughout the irresponsible stage of sub-prime lending. Make no mistake, plenty of this is continuing today with the support and backstop of Uncle Sam . . . all in hopes of filling that growing hole in the housing dike.
The FHA will certainly need more capital unless and until mortgage delinquencies, defaults, and foreclosures stabilize and decline. None other than Wells Fargo CEO John Stumpf shared the other day that he does not see a slowing on those fronts.
In regards to the FDIC, the insurance fund has exhausted the bulk of the initial $50 billion which it had prior to bank failures starting in 2008. The costs of these failures have far exceeded that $50 billion figure. How so? Some very large profile failures were brokered to stronger hands with FDIC support but without the FDIC having to make an initial outlay of funds.
The WSJ highlights the current dire straits of the FDIC in writing, FDIC Mulls Borrowing from Treasury:
Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.
“We are carefully considering all options” including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.
Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said.
Individually, the FHA and FDIC stories are both significant. However, in the midst of bailouts of other institutions (large banks, Freddie and Fannie, AIG, GM, and Chrysler), the funds likely to be injected into these entities are treated as merely adding another leaf to Mom’s dining room table for Thanksgiving dinner.
Is the American public grateful for the undisciplined and greedy lending practices that have crippled the FHA and FDIC? Perhaps I should rephrase that question: are these institutions grateful for the American public putting their taxpayer dollars on the line?
LD
SEC Advisor Highlights Wall Street-Washington Incest
Posted by Larry Doyle on September 22nd, 2009 12:19 PM |
I have always held Bloomberg reporter Jonathan Weil in very high regard. I now regularly look for commentary by Bloomberg’s Susan Antilla, as well. Why? Ms. Antilla pursues truth and transparency in her writing and pulls no punches in the process.
This morning, Ms. Antilla calls for the SEC’s enforcement division to be rolled into the Department of Justice. She writes What the SEC Might Look Like If It Did Its Job:
Make no mistake, the ineffectiveness of the SEC is not merely reflected in its dismal performance on the Madoff fiasco. For a long time, the money from Wall Street has purchased cover in the halls of Washington. That cover is primarily in Congress with the resulting pressure applied on those within the SEC. Antilla engaged Barbara Roper for further details and highlights:
Ms. Roper’s use of the term “deference” is translated in financial layman’s terms as “incest.”
What does one do in any incestuous relationship? Keep the perpetrators as far away from the victims as possible. How would that be accomplished? Move the enforcement of financial rules and regulations outside of the purview of the SEC. Antilla nails it and writes:
Antilla further highlights the disparate treatment accorded the Wall Street power brokers relative to the ordinary American investor. Antilla writes:
Susan Antilla is to be commended for exposing the Wall Street-Washington incest at its core. I salute her. Where are the rest of her media colleagues? The interests of the American public will only be prioritized when our elected officials in Washington crawl out of the pockets of those on Wall Street.
LD
Related Sense on Cents Commentary:
Future Financial Regulation: Not a Question of Sufficiency but of Transparency and Integrity (May 18, 2009)
Tags: Barbar Roper comments on Wall Street relationship with Washington, Barbara Roper comments on deference paid by Washington to Wall Street ll, Barbara Roper comments on SEC IG Kotz's report, Barbara Roper of Consumer Federation of America, Barbara Roper of SEC Investor Advisory Committee, effectiveness or ineffectiveness of SEC and SEC enforcement, future of the SEC, how to break up Washington Wall Street incestuous relationship, Peter Henning calls for SEC enforcement to be part of DOJ, Peter Henning of Wayne State Law School comments on SEC, SEC hot line helped Wall Street but not investors, SEC OCIE hot line, SEC relationship with Wall Street, should enforcement division of SEC be placed into DOJ, should the SEC be broken up, Susan Antilla of Bloomberg, What the SEC Might Look Like if it Did its Job
Posted in General, SEC, Wall Street, Washington D.C. | 3 Comments »