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Archive for the ‘Fed Chairman Bernanke’ Category

>News to Cruise and Snooze

>Associated Press reported that White House economic leaders and Senate Republicans are now singing together; according to the AP, “bellowing” actually over AIG bonuses. Remember, this is the same company taxpayers bailed out to the tune of $170 billion. Did we intend to fatten their paychecks or save a nation?
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Politico and the AP: report Bernanke saying recession could end in 2009. The Federal Reserve chairman appeared Sunday in a rare television interview. He could have also said other things, like:
–There is no recession, it’s really a figment of your imagionation foisted on US taxpayers by Obama and Bush.
–The recession will end next week.
–The recession will end when “The Fat Lady Sings.”
–The recession will be over “when it’s over.”
–My private inteligence contact, Yogi Berra, tells me the only recession he know is the “give” in his La-Z-Boy recliner when I put it way back.
–Yogi also says “recession” derives from the word “recede” — like what’s going to happen after the Mississippi floods again when the water goes back into its chanel and out of my basement. Or ” that what happened to Al Gore’s hairline since all this global warning baloney.” Obviously, Al’s worried. What if he’s right and has to give up his palatial home near a waterway, his super large motorhome and the jet airplane?

In this image taken from video and provided by CBS, '60 Minutes' correspondent Scott Pelley, left, interviews Federal Reserve Chairman Ben Bernanke in Dillon, S.C., Saturday, March 7, 2009. The interview, which airs on Sunday, March 15, is Bernanke's first one on one interview since taking office and the first interview with a sitting Federal Reserve Chairman in 20 years. (AP Photo/CBS)– – Or, Bernanke could have said that America’s recession “probably” will end this year if the government succeeds in bolstering the banking system.

Yogi also says not to listen to Bernanke, that he is, without doubt, the worst Federal Reserve chairman since George Steinbrenner . . . or was it Greenman, “you know, that guy they call Greenie on Mike and Mike in the morning” . . . “or Cspan. I don’t know. But for Bernanke, ‘probably’ is probably a safe word because he has trouble parking his car, let alone knowing where to park taxpayer money.”

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>The AIG Insurance Bailout–What A Surprise

>Readers must distinguish the Fed, which is an instrument of the government but technically not part of the government in regulating monetary policy. Distinguish the Fed from Hank Paulson who is President Bush’s Secretary of Treasury. Remember that the Secretary said the government would not bail out the world’s largest insurer, and it didn’t. It appears that was left to the Fed.

The interesting thing about it is this: When you consider who oversees AIG you go back to the State of New York’s Insurance Department. Something to understand about insurance companies–and I don’t care how big they are, whether they’re State Farm Mutual and AIG or some Podunk Mutual in Sorrysville, Alabama, in America they are regulated by state insurance departments. The irony is that despite the fact the Feds have no jurrisdiction over AIG, that they would come in with federal funds to bail them out.

I find this quite extraordinary and there is an awful lot of impropriety in this. Are we getting to the stage in the financial world that the Federal Government must take regulation of insurance away from the states? If so, there’s a legal backlog of thousands of pages of record showing they have no business doing so. This is an old states rights issue and what has happened with this takeover is the precise thing we’re talking about–a takeover of regulation of one insurer. Because you can’t see the Fed just idly sitting there letting AIG do something that is not in keeping with “the Fed’s good judgment” now can you? This whole thing is a mess. It reeks of socialism at its worst. What is this country coming to?

Can you imagine the Federal Government, the new owner of AIG, now being regulated by the State of New York? But that’s precisely what has happened. Or has the Fed placed AIG in the same company as Social Security with all of its stumble-bum decisions? Can a state legally oversee the Federal Government? With AIG, a best case can be made that the state is the only jurisdiction that has the power to do so.

Even a better question: We know AIG didn’t go under because of its superior insight and management ability. When we the people now own the giant insurer with liabilities estimated at more than $450 trillion, what happens to “we the people’s” pocketbooks if this stumbling giant continues to stumble under federal government oversight–which is even more likely now that government has its hands in things?

Who then will bail out the taxpayers who will be called upon to come up with that $450 trillion–assuming, of course, all of AIG’s invested reserves also go curplunk? What we have been doing to less developed nations (LDN) for years and years is coming home to roost. Through companies like MAIN, and Halliburton many LDNs have mortgaged their souls to the devil in the name of U.S. imperialism and the effort to create international empires.

Ecuador is a good example of a poor nation developing oil wells, oil lines, and building power plants, roads and other infrastructure for which their leaders has hocked the soul of every poor citizen. They can never live long enough to pay it back. Third world debt has grown to more than $2.5 trillion, and the cost of servicing it–over $375 billion per year as of 2004. It’s more than all third world spending on health and education and more than twenty times what developing countries receive annually in foreign aid. Over half the people in the world survive on less than two dollars per day, which is roughly the same amount they received in the early 1970s. Meanwhile, the top 1 percent of third world households accounts for 70 to 90 percent of all private financial wealth and real estate ownership in their country; the actual percentage depends on their country (James S. Henry, “Where The Money Went,” Across The Board, March/April 2004, pp42-45. For more information, see henry’s book: The Blood Blood Bankers: Tales from the Global Underground Economy (New York: Four Walls Eight Windows, 2003).

The reason I mention third world countries is because they don’t have money and have become indebted up to their ears. We Americans are quickly following in that pathway. Our country is broke and our leaders don’t know. Isn’t it about time we elected a president and Congress with conservative values?

To my question about who will bail out us taxpayers, the answer is no one. We’re the pocketbook of last resort. Maybe we could call up King Abdullah bin Abdul Aziz Al Saud. He could help, but would want the State of New York in exchange. Or, maybe Hank Paulson, who knows a lot of people in China because he was a good Boy Scout, could talk to Chinese President Hu Jintao. Maybe good old Hu could bail us out. But he would want the State of California.

Good, give them California and New York. Let Hu deal with the Spanish immigrant problem. Good, give them New York. Let King Abdullah deal with the Democrats and the Jews in New York.

In my view, the Feds have no business throwing around taxpayer money to salvage an insurance company. That’s state business. Maybe we would end up there, but where’s the good-sense protocol? If you’re Bernanke you naturally would have had unch with New York Governor David Paterson and NY insurance commissioner Eric A. Dinallo and ironed out an agreement beforehand. Everyone should have been placed on the same page here, and I fear they weren’t.

There will be a lot of political backlash on this Fed move. John McCain was right–we should let AIG fail, and that’s pretty much what the Bush Administration decided to do rather than expose our national assets on a private enterprise like this. Of course, Obama was silent. He doesn’t even know to this day and hour what he would have done because he’s an “empty suit”–a deadhead.

A lot of national leaders must have quizzical looks on their faces this morning. Commerce Committee Chairman Daniel K. Inouye (D-Hawaii) should call for hearings and start questioning the likes of Greenspan and Bernanke. Ask them how they feel this is all going to fall out? At the least, Bernanke has overstepped the bounds of his authority.

And at the most, he has done something that should have called for pre-counseling from others, including the Treasury and the President. How does Bernanke even know the U.S. Treasury has enough money in the bank to pay for this kind of socialistic maneuvering? If we’re halfway broke, who delegated him to completely break the bank?

When we look into what has turned out to become the AIG fiasco, we’ll find the U.S. is on the ropes with money. In fact the U.S. is broke, and our elected officials haven’t yet awakened to that prospect.

It is quite interesting for the Fed to use taxpayer money this massively when they have no accountability. Blog onto this story. Do you believe the Fed should be so powerful, first off; second, doesn’t it seem weird and wrong for a private group like the Fed to be able to tap into your pocketbook and mine whenever they please?

My position is that this is very wrong. In this case, the Fed has stepped way beyond their previously-given mandate. Maybe Congress should look into what the Fed can or cannot do and change something here.

Or maybe not. Can you imagine how badly the Fed would perform–not to say that Alan Greenspan and Ben Bernanke have been angels and highly competent--if we had a political hack making these decisions? Who is to say Bernanke is not beholden to somebody–perhaps many of AIG’s biggest stockholders? If anyone has information on that, sound off, please.

The following fits in nicely with this from Slate:
In for a Pound

By Daniel Politi
Posted Wednesday, Sept. 17, 2008, at 6:42 AM ET

News keeps pouring out of Wall Street and all the papers lead with the Federal Reserve‘s startling decision to lend insurance giant American International Group up to $85 billion in a bailout deal that would give the government control over the company.

The New York Times calls it “the most radical intervention in private business in the central bank’s history.” In exchange for its cash, the government would get a 79.9 percent equity stake in the company. The Washington Post notes that the rescue package “effectively nationalizes one of the central institutions in the crisis that has swept through markets this month.” The Wall Street Journal points out that this is “a historic development, particularly considering that AIG isn’t directly regulated by the federal government.”

The move marked an astounding about-face for the government that had been resisting AIG’s pleas for help over the last few days and earlier chose to let Lehman Bros. fail rather than put forward more taxpayer money. “The main difference between the two situations: AIG is so huge and its operations so intertwined in the financial system that the Fed feared an AIG failure could harm the broader economy,” USA Today summarizes. Or as the WSJ puts it: “This time, the government decided AIG truly was too big to fail.” The Los Angeles Times notes that while Fed officials said the action was due to the fact that AIG insures the assets of millions of Americans, it seems the main reason “was fear that the company’s failure could weaken or destroy nearly a half-trillion dollars’ worth of financial protection that AIG provides Wall Street firms and the biggest companies of Europe and Asia.”

To continue reading, click here.

Daniel Politi writes “Today’s Papers” for Slate. He can be reached at todayspapers@slate.com.

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>Lehman Brothers Is Gone

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The Financial Fish Weren’t Biting Sunday
September 15, 2008
New York–We said it yesterday–no one should chase bad money with good.
That seemed to be the consensus of the financial markets over the weekend, as all the possible suitors for Lehman Brothers’ $60 billion in tangled and messy real estate holdings dropped by the wayside, leaving the large 158-year-old international investment bank filing for a Chpater 11 bankruptcy.

Two thousand New York employees cleaned out their desks and were gone. How do I interpret it? For America as a whole it’s a good and logical end to only part of a very sad story, but it had to happen. Observers believe there will be 110 banks fail during the next nine months. Will yours be one of them?

The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.

Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits. There is talk on the street that Wachovia and Washington Mutual are in deep trouble and now, understandably, they can’t attract new accounts from a very worried public.

The problem with these firms isn’t necessarily the firms themselves, but the loose supervision of banks by the Fed and other regulators. Some of them got into the practice of running what resemble kiting operations and the regulators looked the other way. Kiting is where you take from Peter to pay Paul and that’s illegal.

Reserves are the problem. How much money should a bank have on hand to make a loan? That’s decided by the regulators, so if you want to lay some blame on someone look at the regulators and Congress for failing to insist on tighter regs.

Maybe we, the people, should shake up Congress. Fire all the old ones and insist on new blood in Washington.That’s basically what I’m going to do this fall–vote out the incumbents who have been there way too long. Look at Joe Biden with his 36 years, Ted Kennedy and Orin Hatch with a like number of years. Even John McCain has been there 24 years and now he wants to be president.

From my vantage point, there is only one candidate who fits the “new” description and her name is Sarah Palin who is the vice presidential candidate on the John McCain ticket. She is currently attracting a lot of American attention and as a result has supercharged McCain’s chances.

Back to the banks: Because they could, banks got into the habit of using money from current accounts, especially new ones, to fund questionable loans. Using this method of banking, someday when these banks couldn’t get new business the domino effect took place. That “someday” is now.

The only advice I could offer the average American is to make sure your bank is Federally insured, and that you have no more than $100,000 in each account–the amount the FDIC promises to repay if the bank goes under.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That’s out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.

Bank of America Corp. is buying Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction.

The world’s biggest insurer, American International Group, is also in trouble. It is restructuring, meaning it basically can’t operate as it has in the past and must lay down greater reserves for a rainy day. AIG hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company’s financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor’s office through the weekend to craft a solution that protects policyholders, according to Dinallo’s spokesman David Neustadt.

Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion “to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets.” This consortium has put together $70 billion to lend to troubled banks and to help prop up the system.

The Federal Reserve also chipped in with more “largesse” in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed. Somehow, folks, this action by the Fed doesn’t resemble tightening at all. It’s more of the same, a give-away program right out of the taxpayers’ pockets.

Perhaps they feel we need to smooze and massage these banks so they don’t fail, but to me this is merely extending their day of reckoning and has nothing to do with solving anything. Congress’ oversight committee should immediately call for an investigation and get highly involved. Ben Bernanke is no Alan Greenspan and neither of them knows what they are doing.

Federal Reserve Chairman Bernanke said the discussions had been aimed at identifying “potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses.” This is his way of saying he doesn’t have the answers.

The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.

Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama. But this liberal Democrat forgets that it’s Congress that oversees financial institutions as well, not just the president. Democrats should get a lot of negative press over this one as well.

“Just the psychological impact of this kind of failure is going to be significant,” he said. “It will color people’s feelings about their well-being and the integrity of the financial system.” He’s right and the Democrat-controlled Congress that likes to declare vacations mid-term had better start locking the doors and burning the midnight oil on this one.

Hurrah for the U.S. Treasury!Lehman Brothers’ announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury’s refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

A news report said employees emerging from Lehman’s headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building’s main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: “Are you enjoying watching this? You think this is funny?”

Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

That values Merrill at $29 a share, a 70 percent premium over the brokerage’s Friday closing price of $17.05, but well below what Merrill was worth at its peak in early 2007, when its shares traded above $98.

Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world’s largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

Though even Bank of America isn’t well, strategically, most industry analysts say it’s a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill’s retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

Bank of America’s own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

The meetings that began Friday night were a who’s who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.‘s John Thain.

The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far and could could drop another 15 percent.

The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.

That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.

The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.