What do you think...are changes needed?

TMT


Analysis: Fed under fire as public anger mounts
By TOM RAUM, Associated Press Writer Tom Raum, Associated Press
Writer

WASHINGTON – Suddenly the Federal Reserve is everybody's punching bag.

Strip the Fed of its bank regulation powers, some in Congress are
demanding. Get probing audits of its behind-the-scenes operations,
others say.

The chairman of the Federal Reserve Board is always fair game for
criticism and second-guessing, usually over interest rate actions. But
this year the criticism is much broader as Congress responds to
widespread public anger that the Fed bailed out Wall Street but not
ordinary Americans, and with unemployment in double digits.

Former Fed chairman William McChesney Martin Jr. famously said that
the central bank's job was to yank away the punchbowl just when
everybody is starting to party. And while Fed Chairman Ben Bernanke
has signalled the Fed will keep interest rates low for now, a round of
higher rates inevitably will come.

The Fed finds itself both the punchbowl keeper and the punching bag.
Imagine the outcry when it does begin to crank up rates — perhaps just
ahead of next year's midterm elections.

Fireworks seem likely at Senate confirmation hearings early next month
on President Barack Obama's nomination of Bernanke to a second four-
year term as chairman.

Many economists and Fed watchers say congressional efforts to rein in
the Fed's powers could interfere with the central bank's ability to
help guide the fragile economy to recovery.

The Fed's very independence and its unique ability among U.S.
institutions to create money out of thin air enabled it to act quickly
to stabilize the nation's financial system after it froze up last
September after the bankruptcy of the Lehman Brothers investment
house, Fed backers say.

"It might have been the Fed's finest moment when it had to jump into
the market," said David M. Jones, a former Fed economist and president
of DMJ Advisors, a Denver-based consulting firm. "We still have to
wait to see how effective the Fed is in its exit strategy and whether
it can keep inflation in check. But this badgering by Congress, even
if there is populist sentiment, is inappropriate."

The Fed's aggressive intervention also set the stage for the current
criticism. Many lawmakers question whether the Fed's money machine has
mainly benefited financial markets and not the broader economy.
Lamakers are also peeved that the central bank acted without
congressional involvement when it brokered the 2008 sale of failed
investment bank Bear Stearns and engineered the rescue of insurer
American International Group.

Bernanke, first appointed by President George W. Bush, has worked
closely with both Treasury Secretary Timothy Geithner and Bush
Treasury Secretary Henry Paulson in confronting the worst financial
crisis in decades. Geithner also has gotten his share of congressional
wrath, mainly for his administering of the $700 billion bank bailout
fund.

"In the past, the Federal Reserve was held in very high esteem," said
Rep. Ron Paul, R-Texas, a libertarian who ran a quixotic third-party
presidential campaign in 2008. Now, it's "the source of our problem,"
suggests Paul, author of the bestseller "End the Fed."++

Usually an outlier, Paul suddenly has found an army of at least 307
House colleagues and 30 senators marching behind his legislation to
subject the Fed to intense scrutiny by Congress' Government
Accountability Office. The House Financial Services Committee endorsed
Paul's approach 43-26 last week over objections from its chairman,
Rep. Barney Frank, D-Mass.

The bill would authorize Congress to audit not only the Fed's lending
programs but its basic decisions to set monetary policy by raising or
lowering interest rates. Paul has been introducing a version every
year since the early 1980s, but this is the first time it has garnered
any serious attention.

Senate Banking Committee Chairman Chris Dodd, D-Conn., who will
preside over Bernanke's confirmation hearings, has proposed
legislation that would strip the Fed of its bank-regulation authority
and give the Senate a role in selecting the 12 regional Federal
Reserve bank presidents.

Dodd says his measure would return the Fed to its core mission of
setting monetary policy, claiming it proved itself "an abysmal
failure" by not cracking down on risky lending practices that led to
the financial meltdown.

Dodd is in an extremely tight battle for re-election, even though he
has served in Congress for 35 years.

"I don't think it ever hurts to have a member of Congress stand up and
denounce the Fed. There is a lot of anger out there, and this is
basically a therapeutic gesture," said Ross Baker, a political
scientist at Rutgers University.

Still, Baker said, it probably isn't wise to tamper with the formula
that makes the Fed "very much an anomaly in American government. It's
independent, it has to be. You don't want the Fed to be under the
control of the president. And it kind of sits out there — not in the
executive branch, not in the legislative branch, not in the judicial
branch. Sort of its own little element in the separation-of-powers
constellation."

While the Fed is subject to some congressional oversight, its
decisions don't have to be ratified by the president or Congress. Fed
officials are not paid with money appropriated by Congress.

Should Bernanke be worried?

"Not only should be worried, he's clearly ratcheted up his game in
terms of his communications with Congress," said Norman Ornstein, a
senior fellow at the American Enterprise Institute.

Ornstein said the Fed bashing this time is different from before, with
"a broader base of support. And it's coming from people who in the
past would not have hit the Fed. There's a lot of populist anger out
there — on the left, in the center and on the right. And politicians
are responsive to that."

___

EDITOR'S NOTE: Tom Raum covers economics and politics for The
Associated Press.

On Sun, 22 Nov 2009 07:55:03 -0800 (PST), Too_Many_Tools
wrote:

What do you think...are changes needed?

TMT
snip
------------------
It is well to remember that the FRB is *NOT* an agency of the
Federal Government, but a private corporation, albeit one with
considerable governmental involvement [much of it one way], but
one which is currently exempt from any meaningful oversight or
auditing, despite their enormous socio-economic power and huge
amounts of taxpayer money they control.

It has been repeatedly demonstrated that the same agency *CANNOT*
be both advocate and regulator with any degree of success in both
roles. Examples include not only the FRB but also the FAA and
the FDA.

Another problem is the age and "tradition" of the FRB.
It appears that agencies/organizations, like people, have a
limited useful working lifespan, and the FED is now well into
their dotage [established 1913]. The world and the global
economy has fundamentally changed [one example is the creation of
650+ trillion dollars of derivatives] but the FRB appears
determined to remain in their glory days of the 1940s and 1950s
when they were exempted from GAO audit, and they operationally
ran the economy of the "free world" [which was the only one that
counted].
http://en.wikipedia.org/wiki/Federal_Reserve_Act

The general rule is the publics' business must be conducted in
public... As Justice Brandeis observed "sunlight is the best
disinfectant."

Its long past time for the FRB to make an appointment with the
tanning salon.

"F. George McDuffee" wrote in message
...
On Sun, 22 Nov 2009 07:55:03 -0800 (PST), Too_Many_Tools
wrote:

What do you think...are changes needed?

TMT
snip
------------------
It is well to remember that the FRB is *NOT* an agency of the
Federal Government, but a private corporation, albeit one with
considerable governmental involvement [much of it one way], but
one which is currently exempt from any meaningful oversight or
auditing, despite their enormous socio-economic power and huge
amounts of taxpayer money they control.

It has been repeatedly demonstrated that the same agency *CANNOT*
be both advocate and regulator with any degree of success in both
roles. Examples include not only the FRB but also the FAA and
the FDA.

Another problem is the age and "tradition" of the FRB.
It appears that agencies/organizations, like people, have a
limited useful working lifespan, and the FED is now well into
their dotage [established 1913]. The world and the global
economy has fundamentally changed [one example is the creation of
650+ trillion dollars of derivatives] but the FRB appears
determined to remain in their glory days of the 1940s and 1950s
when they were exempted from GAO audit, and they operationally
ran the economy of the "free world" [which was the only one that
counted].
http://en.wikipedia.org/wiki/Federal_Reserve_Act

The general rule is the publics' business must be conducted in
public... As Justice Brandeis observed "sunlight is the best
disinfectant."

Its long past time for the FRB to make an appointment with the
tanning salon.

And what is it that you propose, George? The Fed was created because
political "oversight" turned the US economy, and our currency, into a
political ping-pong ball. The wealthy financial institutions basically ran
our economy as their private fiefdom, for the sole purpose of enriching
themselves. To put it in the hands of Congress has proven to be the
equivalent of putting it in the hands of Wall Street bankers.

We've been through this argument since the days of Thomas Jefferson --
particularly since Andrew Jackson -- and the result of politicizing the
national banks was a consistent string of disasters.

The current Fed is an imperfect institution that was considered to be the
least of several possible evils. I think it still is. Do you have a better
idea?

--
Ed Huntress

On Sun, 22 Nov 2009 12:12:01 -0500, "Ed Huntress"
wrote:
snip
The current Fed is an imperfect institution that was considered to be the
least of several possible evils. I think it still is. Do you have a better
idea?
snip
==============
The problem appears to be that the circumstances and conditions
under which the FRB was created and later developed have so
greatly changed that is rapidly becoming obsolete.

It also appears to have been "captured" by the institutions it
was intended to regulate, i.e. the megabanks, and the FRB refuses
to use its regulatory authority in many critical cases. One of
the more egregious is their current failure to use their existing
regulatory authority to increase margin requirements to 100%
[i.e. no borrowed money] for stock purchases, and by extension,
bonds, and commodity futures purchases. Indeed, given the multi
year supply of housing and commercial real estate now existing,
it would appear logical for the FRB to ban lending for "spec"
housing/real estate developments for the next several years.

At the very least, the FRB should not be allowed to operate in
total secrecy with unstated objectives and motives.

"F. George McDuffee" wrote in message
...
On Sun, 22 Nov 2009 12:12:01 -0500, "Ed Huntress"
wrote:
snip
The current Fed is an imperfect institution that was considered to be the
least of several possible evils. I think it still is. Do you have a better
idea?
snip
==============
The problem appears to be that the circumstances and conditions
under which the FRB was created and later developed have so
greatly changed that is rapidly becoming obsolete.

If it is, George, that still leaves unanswered the question of what we would
replace it with. The semi-autonomy of the FRB is its strength -- the thing
that has made our currency the most desired in the world. Despite all of the
saber-rattling, neither China nor the EU can do anything about it. That's
because they've screwed up their *own* currencies so often, and for so long,
that they can't build any trust in them.

And despite the current crisis, caused by the lack of regulation, they still
keep our currency from collapsing in even severe recessions, such as this
one. If we were on the yuan right now, with our currency pegged to someone
*else's* currency, and with no free market for currency exchange (like the
situation with China), what would have happened? We'd need a wheelbarrow
full of remnimbi to buy a loaf of bread. Nobody would trust it, since it was
under political control by a country that's shown no sense of responsibility
to the world's banking system -- except to keep it healthy enough for them
to rip it off.


It also appears to have been "captured" by the institutions it
was intended to regulate, i.e. the megabanks, and the FRB refuses
to use its regulatory authority in many critical cases.

They can't make sudden changes. They have to be gradual, or see the above.

One of
the more egregious is their current failure to use their existing
regulatory authority to increase margin requirements to 100%
[i.e. no borrowed money] for stock purchases, and by extension,
bonds, and commodity futures purchases.

Kiss of death. You'd lock up the stock market like a vault.

Indeed, given the multi
year supply of housing and commercial real estate now existing,
it would appear logical for the FRB to ban lending for "spec"
housing/real estate developments for the next several years.

Great. You'd lock up the housing market like a vault. You'd kill
construction completely, and start another round of dominoes falling like
there's no tomorrow.


At the very least, the FRB should not be allowed to operate in
total secrecy with unstated objectives and motives.

It's weird, it's annoying, it's even angering, but secrecy is how they keep
the game rolling along. If everything was transparent, arbitrage would
become our national sport, until the large financial institutions had
completely beggared us all.

There is a lot to this argument but the big thing is that the entire world
economy is highly dependent upon an enormous and complex system of
international credit. Who do you want to see in charge? Politicians?
Financial institutions themselves?

Be careful what you wish for. We're between a rock and a hard place, but the
alternatives are to watch the whole system collapse, along with our jobs,
all investment, currency stability, and the rest of what makes the world go
'round.

--
Ed Huntress

On Nov 22, 11:12*am, "Ed Huntress" wrote:
"F. George McDuffee" wrote in messagenews:9bqig5tds92tc0ke42284o7ddvkvv6vn8b@4ax .com...





On Sun, 22 Nov 2009 07:55:03 -0800 (PST), Too_Many_Tools
wrote:

What do you think...are changes needed?

TMT
snip
------------------
It is well to remember that the FRB is *NOT* an agency of the
Federal Government, but a private corporation, albeit one with
considerable governmental involvement [much of it one way], but
one which is currently exempt from any meaningful oversight or
auditing, despite their enormous socio-economic power and huge
amounts of taxpayer money they control.

It has been repeatedly demonstrated that the same agency *CANNOT*
be both advocate and regulator with any degree of success in both
roles. *Examples include not only the FRB but also the FAA and
the FDA.

Another problem is the age and "tradition" of the FRB.
It appears that agencies/organizations, like people, have a
limited useful working lifespan, and the FED is now well into
their dotage [established 1913]. *The world and the global
economy has fundamentally changed [one example is the creation of
650+ trillion dollars of derivatives] but the FRB appears
determined to remain in their glory days of the 1940s and 1950s
when they were exempted from GAO audit, and they operationally
ran the economy of the "free world" [which was the only one that
counted].
http://en.wikipedia.org/wiki/Federal_Reserve_Act

The general rule is the publics' business must be conducted in
public... *As Justice Brandeis observed "sunlight is the best
disinfectant."

Its long past time for the FRB to make an appointment with the
tanning salon.

And what is it that you propose, George? The Fed was created because
political "oversight" turned the US economy, and our currency, into a
political ping-pong ball. The wealthy financial institutions basically ran
our economy as their private fiefdom, for the sole purpose of enriching
themselves. To put it in the hands of Congress has proven to be the
equivalent of putting it in the hands of Wall Street bankers.

We've been through this argument since the days of Thomas Jefferson -- *
particularly since Andrew Jackson -- and the result of politicizing the
national banks was a consistent string of disasters.

The current Fed is an imperfect institution that was considered to be the
least of several possible evils. I think it still is. Do you have a better
idea?

--
Ed Huntress- Hide quoted text -

- Show quoted text -

Very good points from both of you...thanks,

These and others are why I posted the article here...and not
elsewhere. ;)

TMT

On Nov 22, 1:51*pm, F. George McDuffee gmcduf...@mcduffee-
associates.us wrote:
On Sun, 22 Nov 2009 12:12:01 -0500, "Ed wrote:

snipThe current Fed is an imperfect institution that was considered to be the
least of several possible evils. I think it still is. Do you have a better
idea?

snip
==============
The problem appears to be that the circumstances and conditions
under which the FRB was created and later developed have so
greatly changed that is rapidly becoming obsolete. *

It also appears to have been *"captured" by the institutions it
was intended to regulate, i.e. the megabanks, and the FRB refuses
to use its regulatory authority in many critical cases. *One of
the more egregious is their current failure to use their existing
regulatory authority to increase margin requirements to 100%
[i.e. no borrowed money] for stock purchases, and by extension,
bonds, and commodity futures purchases. *Indeed, given the multi
year supply of housing and commercial real estate now existing,
it would appear logical for the FRB to ban lending for "spec"
housing/real estate developments for the next several years.

At the very least, the FRB should not be allowed to operate in
total secrecy with unstated objectives and motives.

In my opinion, changing margin requirements is the #1 change needed.

The easiest and the quickest...and the one change that they will fight
tooth and claw to prevent from happening.

TMT