Tag Archives: Federal Reserve

Senate Votes on Financial Regulation Amendments

12 Wednesday May 2010

Posted by in bailout, Congress, Democrats, economy, financial reform, financial regulation, lobbyists, McCain, Politics, Progressives, too big to fail, Wall Street

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Any time anything passes in the Senate by a vote of 96–0 I’m suspicious. Those numbers are usually reserved for meaningless proclamations declaring ‘National Be Kind to Puppies and Kitties Day.’ But such a vote took place yesterday on Sen. Bernie Sanders’ amendment to audit the Federal Reserve.

Sanders’ original amendment would have required the Fed to submit to regular audits, but the watered-down version passed yesterday is for a one-time audit with a specific scope and time frame. This only adds to my suspicion that the newer version is more than likely toothless:

“A Fed spokeswoman declined to comment on the Senate action, but Fed leaders, who previously have objected to broader efforts to review monetary policy, have not opposed the most recent version of Sanders’s proposal.”

A more accurate gauge of where the Senate stands on REAL financial reform can be found in other amendments taken up yesterday, like the one proposed by David Vitter which called for the stronger provisions contained in Sanders’ original proposal. It was voted down 62 to 37 with only 6 Democrats voting “Yea”—Cantwell, Dorgan, Feingold, Lincoln, Webb, and Wyden.

Another amendment, proposed by Sen. McCain, called for a time frame for winding down and eventually ending the government’s conservatorship of Fannie Mae and Freddie Mac. That failed by a vote of 56 to 43 with only 2 Democrats–Bayh and Feingold–voting “Yea.” An alternative to the McCain amendment, proposed by Chris Dodd, called for “the Secretary of the Treasury to conduct a study on ending the conservatorship of Fannie Mae and Freddie Mac.” That passed by a margin of 63–36. Russ Feingold (I detect a pattern here) was the lone Democrat voting “Nay.”

Credit where credit is due, Sen. Shelby is right on the money (so to speak):

“Freddie Mac and Fannie Mae were at the heart of the financial crisis,” Shelby said Tuesday. “How we can have basic regulatory reform, financial reform, if we’re not going to include Fannie Mae and Freddie Mac?”

Also set for a vote this week is Sen. Lincoln’s amendment which would place strong restrictions on derivative trading. Needless to say, Wall Street is going all out to kill this:

“…the five [largest] banks together have mustered more than 130 registered lobbyists, including 40 former Senate staff members and one retired senator, Trent Lott. The list includes former staff members for the Senate majority and minority leaders, the chairmen and ranking members of the banking and finance committees, and more than 15 other senators. In the first quarter, the banks spent $6.1 million on lobbying.”

Why are the banksters fighting so hard to stop it? Follow the money:

“The change could cost the industry a lot of money. Banks reported $22.6 billion in derivatives revenue in 2009..”

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The Short-Lived “New Era of Openness”

01 Saturday May 2010

Posted by in economy, financial reform, Obama, Politics

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January 21, 2009:

“On his first full day in office, President Barack Obama signed an executive order and two presidential memoranda heralding what he called a “new era of openness.”…President Obama said that “every agency and department should know that this administration stands on the side not of those who seek to withhold information, but those who seek to make it known.”

April 30, 2010:

“The Senate is getting ready to kick its financial reform debate into high gear next week when they start voting on amendments on all kinds of issues from both parties.

Obama administration officials have declined to weigh in on any specific amendments, with one exception: a move by Sen. Bernie Sanders (I., Vt.) to give the government more power to audit certain operations at the Federal Reserve. Fed and administration officials have signaled they would fight to stop it at all costs.”

So I guess the definition of an “era” is now about 15 months.

Houston, We Have Bi-Partisanship…

29 Thursday Apr 2010

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…at least on the need to audit the Fed:

“As unusual a coalition as can be crafted in the Senate plans to fight for an amendment to the Wall Street reform bill that would open the Federal Reserve to a serious audit by the Government Accountability Office. Sponsored by Sen. Bernie Sanders (I-Vt.), the language is modeled after an amendment that passed the House, sponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas).

Sanders is joined by four Republicans of varying politics: John McCain (Ariz.), Jim DeMint (S.C.), David Vitter (La.) and Sam Brownback (Kan.). If Democrats in the Senate back the measure, it would have at least 63 votes…The chairman of the Judiciary Committee, Sen. Pat Leahy (D-Vt.), is also a cosponsor, as is Sen. Russ Feingold (D-Wisc.).”

A letter by Sen. Sanders reads, in part:

“The American people have a right to know who received over $2 Trillion in financial assistance from the Federal Reserve.

Since the beginning of the financial crisis, the Federal Reserve has provided over $2 trillion in taxpayer-backed loans and other financial assistance to some of the largest financial institutions and corporations in the world. Unfortunately, the Fed is still refusing to tell the American people or the Congress who received most of this assistance, how much they received or what they are doing with this money. This money does not belong to the Federal Reserve, it belongs to the American people, and the American people have a right to know where their taxpayer dollars are going.

[…]

While the Senate financial reform bill attempts to address the lack of transparency at the Fed, as currently drafted, much of the information regarding the details of who received this financial assistance could be kept secret forever.

As long as the Federal Reserve is allowed to keep the information on their loans secret, we may never know the true financial condition of the banking system. The lack of transparency at the Fed could lead to an even bigger crisis in the future.

[…]

For nearly nine decades, the GAO has a proven track record of conducting objective, fact-based, nonpartisan, non-ideological, fair, and balanced audits. Through these audits, the GAO helped save the American taxpayers $50 billion last year alone by rooting out waste, fraud, and abuse in the federal government.

Let’s not equate independence with secrecy. We cannot let the Fed operate in secrecy any longer. There is simply too much money at stake.”

Hear, hear.

Banksters Up To Their Old Tricks

09 Friday Apr 2010

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Wall Street is up to its old tricks again, juggling the books to make their levels of debt appear lower at the end of the quarter which….drum roll please….increases their bonuses:

“Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, Bank of America and Citigroup are the big names among 18 banks revealed by data from the Federal Reserve Bank of New York to be hiding their risk levels in the past five quarters by lowering the amount of leverage on the balance sheet before making it available to the public, The Wall Street Journal reported.

…There is nothing illegal about the practice, though it means that much of the time investors can have little idea of the risks the any bank is really taking.”

…“You want your leverage to look better at quarter-end than it actually was during the quarter, to suggest that you’re taking less risk,” William Tanona, a former Goldman analyst and current head of U.S. financials research at Collins Stewart, told The Journal.

Some things never change.

Too Big To Fail is Too Big–Break ‘Em Up

30 Tuesday Mar 2010

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The chorus of those calling for breaking up the big banks is growing larger and louder by the day. Senator Ted Kaufman (D-DE) in a speech on the floor of the Senate last Friday:

“These mega-banks are too big to manage, too big to regulate, too big to fail and too interconnected to resolve when the next crisis hits.  We must break up these banks and separate again those commercial banking activities that are guaranteed by the government from those investment banking activities that are speculative and reflect greater risk.”

Richard Fisher, President of the Federal Reserve Bank of Dallas, March 3:

“A truly effective restructuring of our regulatory regime will have to neutralize what I consider to be the greatest threat to our financial system’s stability—the so-called too-big-to-fail, or TBTF, banks. In the past two decades, the biggest banks have grown significantly bigger. In 1990, the 10 largest U.S. banks had almost 25 percent of the industry’s assets. Their share grew to 44 percent in 2000 and almost 60 percent in 2009.

…Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size—more manageable for both the executives of these institutions and their regulatory supervisors.”

Senator Kaufman and Mr. Fisher are just the latest additions to the list that includes former Fed chairman Paul Volcker, Nobel prize-winning economist Joseph Stiglitz, FDIC head Sheila Bair, Sen. Cantwell, and Sen. McCain, among many others. Unfortunately, two names not on the list are Treasury Secretary Geithner and Chairman of the Senate Banking Committee, Chris Dodd.

And as if on cue, Citigroup gives us a prime example of why these financial behemoths need to be dissolved, and have what was once the “boring” business of commercial banking–taking deposits and making loans–separated from the risky business in which the banksters love to engage (with OPM of course) and why Wall Street cannot be left to its own devices:

“It appears that the pain of the recession is not deep enough to teach Citigroup Inc. what it needs to learn. The bank..is now readying a new unregulated insurance credit derivative, the CLX…The company is heading back into familiar territory where they’re putting taxpayer money into play on another risky bet. Simply put the instrument will enable it to gamble on future events by issuing complex financial instruments which attempt to quantify risk. This is very similar to the original business that Citigroup was heavily involved with that precipitated their fall from glory.”

Leopards and banksters never change their spots.

Treasury Department “Vigorously Opposed” To Fed Audit

09 Tuesday Mar 2010

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What is this man hiding?

“The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday.”

And how’s this for openness, transparency, and accountability?

“Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.”

Alan Grayson isn’t buying it:

“Rep. Grayson said he finds Treasury’s opposition to the audit troubling. “There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street,” said Grayson.”

I’ll go one step further. The president is among those who have sold out to Wall Street, in my opinion.

Another Kabuki Dance on Consumer Financial Protection Agency

07 Sunday Mar 2010

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If there’s anything transparent in this administration of “openness and transparency” it’s the way the well-rehearsed and often-repeated three-act Kabuki theater plays out their alleged attempts at any major reform on any particular issue. It’s as easy to see through as a pane of glass and as easy to see coming as a freight train. Here’s how it goes, again and again:

Act I.  The president professes to want (but doesn’t actually want) real reform on a given issue. The House passes a bill containing real reform. The Senate at first seems to embrace it, but then claims ‘woe is us, we can’t pass it without Republican votes.’

Act II. The legislation is watered-down in search of bi-partisan support that the administration and the Senate leadership knows they aren’t going to get in spite of the watering-down.

Act III. What started out as “reform” becomes so weakened as to be of no real affect. Thus, the original goal of the president and his former colleagues and current accomplices in the Senate is achieved–give the appearance of doing something while actually doing nothing.

The latest example is on the creation of the Consumer Financial Protection Agency. In July of last year:

“The Obama administration…proposed legislation for a financial oversight agency designed to protect consumers and investors from unscrupulous deals…The White House sent Congress a 152-page draft bill to create the Consumer Financial Protection Agency, which it says would offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

“Consumer protection will have an independent seat at the table in our financial regulatory system,” Treasury Secretary Timothy F. Geithner said.”

At the time, Senate Banking Committee chairman Chris Dodd “called the administration’s bill a “bold and aggressive plan” to defend against a future financial crisis.”

In December the House passed a sweeping financial reform bill which contained an independent consumer protection agency.

Fast forward to Thursday of last week:

“Creating a powerful and independent consumer agency, which is strongly opposed by the financial industry and Republicans, has been the major roadblock in drafting a bill that could pass in the Senate…Dodd has been searching for months for a bipartisan compromise, a move made more urgent after a Republican, Scott Brown, won the special Massachusetts Senate election in January, giving the GOP enough votes to block any Democratic legislation. After negotiations with Sen. Richard C. Shelby (R-Ala.) reached an impasse, Dodd began working with Sen. Bob Corker (R-Tenn.).

The “compromise” reached by Dodd and Corker would take away the independence of the agency and instead making it an arm of the Federal Reserve. This despite the fact that Dodd himself said 4 months ago that Fed’s record on consumer protection was an “abysmal failure,” and more recently, “criticized the Fed’s previous inaction as a main reason for creating such an entity, noting that the central bank took 14 years before enacting rules in 2008 to protect consumers from unscrupulous mortgage lending.”

And where does the Obama administration come down? It appears to be the usual fence-straddling:

“Treasury Secretary Timothy F. Geithner and Valerie Jarrett, a senior White House advisor, met Wednesday with representatives from consumer, labor and other organizations that support a strong, stand-alone consumer agency and told them that “strengthening consumer protections remains a central objective of our financial reform efforts,” according to an administration official.

Although Geithner and Jarrett said they would not accept a bill unless it included a consumer agency with “real independence,” they did not specifically rule out housing it in the Fed or another agency.”

But appearances can be deceiving. With a little reading between the lines one can see what the administration really wants. Geithner is the former president of the New York Fed, Valerie Jarrett is a former member of the board of directors of the Chicago Fed. It seems to be too much of a coincidence that these were the two administration representatives to the negotiations. I would surmise that the president wants the agency in the Fed.

Why? It follows the script–giving the appearance of doing something–creating a consumer protection agency, while actually doing nothing–putting the agency inside the Fed, whose track record on enforcing any kind of regulation is, to use Sen. Dodd’s word, abysmal.

Mission accomplished. The peasants are appeased and the corporate masters are not angered. The campaign contributions continue to flow, and business as usual continues.

Washington’s Got a Secret—And They Intend to Keep It

14 Sunday Feb 2010

Posted by in Congress, economy, Financial Crisis, George W. Bush, Justice Department, Obama, Politics, Wall Street

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Gretchen Morgenson in yesterday’s New York Times on the lack of action on financial reform from our alleged representatives in the District of Columbia

“As Washington spins its wheels on financial reform, it’s becoming painfully clear that the problem of entities that are too interconnected or “too politically powerful to fail” is also too hard for our policy makers to tackle.”

What Ms. Morgenson calls Washington “spinning its wheels,” is more appropriately named the “appease the peasants” circus. That time-honored D.C. tradition of giving the appearance of doing something while actually, and intentionally, doing nothing. And it’s not that it’s “too hard to tackle,” they have a financial interest in not tackling it.

“As taxpayers, we obviously can’t rely on lawmakers to address the risks we face from the ever-expanding corporate safety net thrown under teetering behemoths. But because we are footing the bills for these rescues — and will do so again if more crises occur — don’t you agree that we should know what these implied federal guarantees will cost us?…If the government won’t reduce the size of the safety net, and it has shown no appetite for doing so, it should at least tell us the price tag.”

To the contrary, “the government”—and not just the Capitol Hill gang but those who give lip service to openness and transparency at the other end of Pennsylvania Avenue—is doing everything in its power to keep us from seeing that “price tag” as well as who received what.

“The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.

The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc.”

The Obama Justice Department cites the need for secrecy “confidentiality:”

“Confidentiality is essential to the success of the board’s statutory mission to maintain the health of the nation’s financial system and conduct monetary policy,” Assistant U.S. Attorney General Tony West and Fed lawyer Richard Ashton wrote in a legal brief to the appeals court.”

Never mind this:

“The lawsuit, brought under the U.S. Freedom of Information Act, came as President Barack Obama criticized the previous administration’s handling of the $700 billion Troubled Asset Relief Program passed by Congress in October 2008. Obama has said funds were spent by the administration of former President George W. Bush with little accountability or transparency.”

Hypocrisy you can believe in.

“It’s a Great Time To Be a Banker”

09 Tuesday Feb 2010

Posted by in economy, Financial Crisis, Wall Street

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The latest scheme to make the Wall Street fat cats even fatter (with our money, of course), courtesy of their friends at the Federal Reserve:

“During the financial crisis, it [the Fed]  bought hundreds of billions of dollars of real-estate loans and securities from banks to reduce mortgage rates and ease the pressure on bank balance sheets.  This, in turn, pumped hundreds of billions of new dollars into the economy, which has helped the banks–and bankers–to make a killing over the past year.

The banks are, however, lending to the federal government [the current 30-year T-bill rate is about 4.5%] which needs to fund record deficits by borrowing more than $1 trillion a year.  Banks are also collecting interest–currently 0.25% a year–on the $1 trillion or so of “excess reserves” that they aren’t lending to anyone.”

…The idea behind giving the banks cheap money was that the banks would lend it to consumers and businesses.  Unfortunately, that hasn’t happened: Since the start of the crisis, bank lending has fallen off a cliff.

(“Excess reserves” are the amount above the percentage of their assets that banks are required to keep at the Federal Reserve.)

“The Fed’s exit plan will call for increasing this interest rate, to encourage the banks to keep more money in excess reserves instead of lending it into the economy and thus expanding the money supply.

It’s a great time to be a banker.”

…Of course, in the process of increasing interest paid on reserves, the Fed will be paying banks even more not to lend.  In the process, it will be giving banks yet another way to take nearly free money from the taxpayer and give it back to the government at a higher rate–and then pocket the difference.

Kudos to the Senate for confirming Ben Bernanke to another 4-year term as chairman of the Fed. Wall Street is very appreciative, as I’m sure will be reflected in future (ahem) “campaign contributions.”