David Stockman Presentation: "How Crony Capitalism Corrupts the Free Market"

Archived from the live Mises.tv broadcast (available in 720p on YouTube), this lecture by David Stockman was presented at the Mises Circle in Manhattan: "Central Banking, Deposit Insurance, and Economic Decline."

Peak Confidence in, Peak interventionism by Central Banks

The interventions of the past 4-5 years are really incomparable with anything in the past 70-80 years and the era of modern, fiat based, Central Banking. These John Laws of modern time have had no result to show for their massive amounts of printing except for enormous debt loads on the sovereign balance sheet of their countries.

Yet, it seems that money printing is the cure for many seemingly totally unrelated issues. Indeed, printing money:

• Creates jobs
• Creates economic growth
• Saves currencies
• Saves political unions
• Improves exports
• Put here whatever you like, money printing will do it for you.

To be honest, one must really have a critical mind to be able to see through most of these urban legends perpetrated by mainstream media and parrot journalists for decades. The still, one of these stands out as the most inept statement ever; yet people seem to believe in it, it's the one about printing an unlimited amount of Euros to save the Euro. The fact that the whole world is still buying into the ever increasing amount of lies and non-sense coming out of the mouth of lunatic central bankers is very telling about the overall sentiment of the market.

Moreover, the amount of intervention done in the past few months alone is so gigantic and its scale so much beyond imagination that it is completely unsustainable going forward, even for a short period of time. Yet, in spite of all this, "inflation", defined as the growth of overall money and credit, is not happening in those economies (namely, in the UK, the EU, the US and Japan).

We have reached what I would like to call the peak confidence in, and peak interventionism by, Central Banks from where there's only one way ahead: disappointment and reduction of interventions:

• Bernanke Options to Stimulate Growth Include Open-Ended QE Plan
• Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99%
• Draghi Lured by Fractious EU Leaders to Build Euro 2.0
• Draghi Says Officials Agree on ECB Unlimited Bond-Buying 
• Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival
• Mario Draghi’s Big Moment, Continued - ECB to "do whatever it takes"
• SNB’s Franc Defense Swells Reserves to 71% of GDP
• SNB’s $380 Billion Pile Makes Jordan Wonder

All these plans will come crashing down to the earth, and most of those expecting the Fed doing QE and the ECB buying bonds will be sourly disappointed. I have already been through the reasons before; and the fact that the Central Bankers are talking the markets up without intervening will end up badly for those who believed the lies.

In addition to my previous posts here are quotes from Graham Summers who writes a great newsletter at GainsPainsCapital.com:

Super Mario's Big Bluff

The financial world has entered a new state of mania with the announcement by the ECB that it will engage in "unlimited" bond buying to maintain lower interest rates for trouble EU sovereigns.

As you no doubt know, our firm's forecast was that the ECB would not engage in any large-scale bond purchasing programs.

We maintain this view today regardless of the ECB's announcement. The reason? The ECB stated very clearly that new bond purchases would only be made under strict conditions. Those conditions involve:

1. Applying for a bailout from the EFSF
2. Meeting fiscal budget requirements
3. Implementing major spending cuts and various other austerity measures
4.  

[...] Let's cut through the BS here. The use of the word "conditions" completely negates the word "unlimited." Saying that you'll buying "unlimited" bonds as long as EU sovereigns meet certain "conditions" actually means nothing.
[...] The ECB says it will buy EU sovereign bonds if EU nations apply for bailouts from the EFSF. Spain and Italy (the very countries that need bailouts) are meant to supply 30% of the EFSF's funding.
So this new program involves Spain and Italy bailing themselves out, while simultaneously implementing austerity measures so the ECB will buy their sovereign bonds?!?!

Oh, and by the way, the EFSF only has €65 billion in funding left. That will definitely be enough to bailout Spain and Italy, seeing as Greece has received over €200 billion in bailouts is still imploding.

What's the Fed Going to Do?

Today we turn our attention to the US's Federal Reserve where the whole world expects the Fed to announce QE 3 at its FOMC meeting this Wednesday and Thursday.
There is a small problem of math with this. The Fed currently owns all but just $650 billion of the outstanding 10-30 year Treasuries. At this point, even a $200-300 billion QE program would create serious liquidity problems for the financial system. So scratch that idea off the list.

Of course, the Fed could potentially implement another agency/MBS QE program. But that would be a very political move with the Presidential election so close. This, combined with current food and energy prices, makes it unlikely the Fed would want to do this: too many consequences with too little to gain (stocks are at four year highs).
Indeed, if anything, the Fed is likely to pull a "ECB" move, namely promising something vague that it actually cannot deliver on. Why would the Fed do this? Because, like the ECB, the Fed is running out of bullets. Indeed,  St Louis Fed President James Bullard all but admitted this to the Financial Times:

"I am a little - maybe more than a little bit - worried about the future of central banking," said James Bullard, president of the Federal Reserve Bank of St Louis, in a Financial Times interview at Jackson Hole. "We've constantly felt that there would be light at the end of the tunnel and there'd be an opportunity to normalise but it's not really happening so far."

The biggest worry on display at Jackson Hole was whether these bureaucrats, sitting at the heart of every mature economy, still have the power to influence demand now that interest rates cannot fall much further. Lurking behind many debates was this question: if central bank policies are so effective, why is the global economy not growing faster?

Here's a Fed official, not only openly admitting that Fed policies aren't working, but even calling the future of Central Banking into question. Take note: underlying realities are beginning to be asserted by officials at Central Banks around the globe. They're running out of bullets.

So where does this leave us? Well, it's highly unlikely the Fed will actually implement anything major this week. What we could see is a large, but hollow promise for action, much like the ECB's promise of "unlimited" bond purchases based on certain "conditions" being met (an empty promise if ever there was one).

Finally, see for yourself some quotes from various reports listed above which I have collected over past few weeks.

Bernanke Options to Stimulate Growth Include Open-Ended QE Plan

Federal Reserve Chairman Ben S. Bernanke, who last month defended his unorthodox monetary policies, has a new tool at hand should he seek one to a revive a flagging economy and labor market: open-ended bond buying.
Barclays Plc forecasts the Federal Open Market Committee this week will announce monthly purchases of $50 billion to cut the jobless rate while holding inflation at 2 percent. Economists at Goldman Sachs Group Inc. (GS) and BNP Paribas, responding to last week’s report of slowing job growth, also say they expect an announcement of an open-ended plan on Sept. 13 after a two-day FOMC meeting.
The Fed’s practice of specifying an amount and an end-date for purchases has resulted in abrupt withdrawals of stimulus that later was renewed after the central bank failed to reach its goals. By contrast, an open-ended program would tie purchases to a sustained improvement in the economy, said Michael Gapen, senior U.S. economist at Barclays and a former member of the Fed Board’s Division of Monetary Affairs.
“As a Fed chairman, 2 percent growth isn’t doing it for you, 8 percent unemployment isn’t doing it for you -- they need a faster acceleration,” said Gapen, who is based in New York. “So, the decision is, ‘OK, let’s hit the pedal.”

Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99%

Just six months ago, money market traders expected the Federal Reserve to raise interest rates by the end of 2013. Now, they see borrowing costs staying at record lows for about three more years as the economic outlook worsens.
Bond market measures from overnight index swaps, which indicate no rise in the federal funds rate until mid-2015, to a 62 percent decline in a measure of volatility in government bonds signal that rates will stay near zero for longer. The gap between two- and five-year Treasury yields, which decreases when traders expect benchmark rates to remain subdued, is more than 50 percent narrower than its average since 2008.
Investor expectations for sluggish growth and low inflation remain intact even though the collapse of Lehman Brothers Holdings Inc., which triggered the worst financial crisis since the Great Depression, happened four years ago. While the economy expanded in the second quarter, the unemployment rate remained above 8 percent for the 43rd-straight month in August.
“The problems have been bigger than anticipated and it will take a while to work our way through these issues,” Larry Dyer, a U.S. interest-rate strategist in New York with HSBC Holdings Plc’s securities unit, said in an interview on Sept. 6. “The bond market is pricing in pretty close to a very prolonged period of low growth,” said Dyer, whose firm is one of the 21 primary dealers that trade with the central bank.

 Draghi Lured by Fractious EU Leaders to Build Euro 2.0

The European Union’s 19th crisis summit was winding down when European Central Bank President Mario Draghi made an unusual request. He wanted some alone time with EU President Herman Van Rompuy to thank him for charting the path toward a shock-proof euro zone.
Only later did the significance of the blueprint sketched out at the June summit in Brussels emerge. The commitment to tighter bank supervision, budget coordination and a nebulous “political union” was instrumental in persuading Draghi that governments are putting the currency on a sounder footing, leading to yesterday’s ECB decision to buy bonds to help them get there.

Draghi Says Officials Agree on ECB Unlimited Bond-Buying

European Central Bank President Mario Draghi said policy makers agreed to an unlimited bond- purchase program as they try to regain control of interest rates in the euro area.
The ECB needs to be in a position to ensure the transmission of its rates in all euro-area countries, Draghi said after the ECB held its benchmark rate at a record low of 0.75 percent.
“We will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability,” Draghi said at a press conference in Frankfurt today.
Draghi has staked his credibility on the bond plan, telling lawmakers in Brussels this week that the ECB needs to intervene to wrest back control of rates in a fragmented euro-area economy and save the single currency. Now it’s up to governments such as Spain and Italy to trigger ECB bond purchases by requesting aid from Europe’s rescue fund and signing up to conditions.
“Governments must stand ready to activate” the rescue fund in bond markets when needed “with strict and effective conditionality,” Draghi said.
The ECB reserves the right to terminate bond purchases if governments don’t fulfil their part of the bargain, Draghi said.
Purchases will be fully sterilized, meaning that the overall impact on the money supply will be neutral, he said.

Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival

European Central Bank President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival.
Mounting his strongest case yet for ECB bond purchases, Draghi told lawmakers in a closed-door session at the European Parliament in Brussels yesterday that the bank has lost control of borrowing costs in the 17-nation monetary union. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI yesterday.
“We cannot pursue price stability now with a fragmented euro area because changes in interest rates affect only one country, or two countries at most,” Draghi said. “They have no importance whatsoever in the rest of the euro area.” ECB bond purchases are therefore “a way to comply with our primary mandate,” he said, adding: “Frankly, all this also has to do very much with the continuing existence of the euro.”
The Frankfurt-based ECB referred to the closed-door format of the hearing and did not provide any further comment. Draghi’s comments come two days before the ECB’s Governing Council is due to decide on his bond-buying proposal, expectations for which have already driven down yields in Italy and Spain. In the testimony, Draghi rebuts arguments that bond purchases stretch the central bank’s mandate.
“Do we give up our primary mandate for maintaining price stability?” he said. “It’s exactly the opposite situation.”

Mario Draghi’s Big Moment, Continued

Europe emerges from its summer torpor with untapped disasters in waiting.
On Thursday, attention turns to Mario Draghi, the president of the European Central Bank, and the plans, if any, he will announce to help manage the European Union’s financial crisis. Next, on Sept. 12, Germany’s constitutional court will rule on the legality of the European Stability Mechanism, the euro area’s new permanent bailout fund, and the fiscal pact that curbs government deficits. If either event goes badly, watch out.
In July, Draghi aroused expectations that he has so far been unable to meet when he promised the ECB would do “whatever it takes” to defend the euro system. This was seen as a pledge of unlimited bond buying aimed at lowering the long-term interest rates that Spain, Italy and other distressed sovereign borrowers must pay.

SNB’s Franc Defense Swells Reserves to 71% of GDP

The Swiss central bank’s foreign- currency reserves surged to a record in July as the euro region’s increasing turmoil forced policy makers to step up their defense of the franc ceiling.
Switzerland’s cash pile swelled 11.3 percent in the month to 406.5 billion Swiss francs ($420 billion), the Swiss National Bank said on its website today. That pushed holdings to 71 percent of gross domestic product. Walter Meier, an SNB spokesman in Zurich, said “a large part” of the increase resulted from currency purchases to defend the minimum exchange rate.
SNB President Thomas Jordan has pledged to enforce the franc ceiling of 1.20 per euro “with unlimited purchases of foreign currencies if needed.” The central bank implemented the cap in September to fight deflation and help exporters. Its reserves have soared 44 percent since the end of that month, according to SNB data calculated to International Monetary Fund standards.
“The SNB can keep its pace of interventions for a pretty long time unless there is a massive disruption like the collapse of the euro area,” said Maxime Botteron, an economist at Credit Suisse Group AG (CSGN) in Zurich. “As they increase liquidity through their purchases, the only limiting factor is inflation. However, that is not a concern at the moment."

SNB’s $380 Billion Pile Makes Jordan Wonder

Swiss central bank President Thomas Jordan is wondering how to invest his currency reserves as euros pile up at the bank at a record pace.
“The SNB has the same problem as lots of wealth managers,” said Ursina Kubli, an economist at Bank Sarasin in Zurich. “Safe assets have become very expensive. So for the time being, they prefer cash over investing.”
With Europe’s debt crisis hurting returns on the least risky bonds, the Swiss National Bank is keeping reserves in cash after its policy to cap the franc swelled currency holdings by 50 percent in the four months through June to a record 365 billion francs ($380 billion). Money held at central banks, the International Monetary Fund and the Bank for International Settlements accounted for 72 percent of the gain.
The SNB has been piling up euro holdings to defend the franc ceiling of 1.20 versus the single currency introduced in September 2011. While the central bank previously mainly invested foreign currencies in government bonds of AAA-rated nations, the surge in cash reserves suggests policy makers are finding it more difficult to find the right investments.

Governments and Central Banks in Panic Mode

In case some people were not sure, these below are not signs that everything is fine and that the green shots of 2009 are not producing an impressive massive harvest... quite the opposite.

Euro Central Banks Seen Providing Up to $270 Billion via IMF

(Bloomberg) — 02 Dec 2011 — A European proposal to channel central bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis, two people familiar with the negotiations said.

At a Nov. 29 meeting attended by European Central Bank President Mario Draghi, euro-area finance ministers gave the go- ahead for work on the plan, said the people, who declined to be named because the talks are at an early stage. The need for a new crisis-containment tool emerged as the effort to boost the 440 billion-euro rescue fund to 1 trillion euros fell short.

Swiss Government May Consider Negative Interest Rate Policy 

(Bloomberg) — 01 Dec 2011 — Switzerland’s government said it may consider additional measures including negative interest rates to aid the country’s central bank in its fight against the appreciation of the Swiss franc. [...]

Stocks surge on Central Bank liquidity offering

Nov. 30 (Bloomberg) — The central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding via swap arrangements, the Federal Reserve said, and agreed to make other currencies available as needed.

China said earlier today it will cut the reserve requirement ratio for banks by 0.5 percentage points from Dec. 5, while data on U.S. business activity and the employment and housing markets topped economists’ estimates.

 U.K.’s Cable Urges ‘Unlimited Powers’ for ECB Amid Euro Crisis

Nov. 13 (Bloomberg) — U.K. Business Secretary Vince Cable said the European Central Bank needs unlimited powers to support the euro and the region’s debt-ridden economies.

“If a monetary deal’s going to work, the central bank has to have unlimited powers to intervene to support economies, and indeed banks, to prevent collapse,” Cable said in an interview on BBC television’s “Politics Show” today. “They need to have that clearly at a European level, and that’s one of the issues that hasn’t yet been adequately clarified.”

James Grant 20 Minute Interview on Capital Account

James Grant was interviewed on Capital Account on October the 24th, and he discusses the Euro mess, the ECB, free markets, fiat currencies vs gold and the mess the Fed has created.

It's a very approachable interview and hence very well worth sending to your friends and family if you want to spread the truth, and the sad reality of our current monetary system.

Just Found Another Gem: François Trahan

I had never heard of François Trahan before this interview on Financial Sense Newshour which dates back from the September the 9th, but I only got to listen this week-end.

François Trahan is a very soft spoken yet very sharp and lucid analyst. Even though he doesn't seem to be from any particular school of economics thought, he makes many very good arguments explaining why inflation is bad, how the Fed has become powerless, and how QE2 was a complete failure — and his arguments are not the usual ones you hear on BubbleVision.

Trahan also happens to be a deflationist on the short to mid term, meaning that we have found another of these endangered species.

François Trahan is the author of a recent book titled The Era of Uncertainty: Global Investment Strategies for Inflation, Deflation, and the Middle Ground which I am not very much eager to read.

And here is the link the MP3.

The Fed Starts To Realize It is Powerless

I will less the joy of debating about whether or not QE3 will come in September or not, be sure that it's the only topic the market commentators will discuss as their only strategy is HOPE — hope that Obama will hand them free money, or that the Fed will do so, or both. All the economists and bankers only work like that: free money from government entities...

Anyway, in today's Fed minutes, one sentence caught my eyes:

In contrast, some participants judged that none of the tools available to the Committee would likely do much to promote a faster economic recovery, either because the headwinds that the economy faced would unwind only gradually and that process could not be accelerated with monetary policy or because recent events had significantly lowered the path of potential output. Consequently, these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment.

It's really interesting to see that even the FOMC members are starting to realize that they are powerless in front of this mountain of debt that they helped to create and that they cannot get rid of now.

Fed's Audit Report Reveals $16 Trillions in Secret Loans

Senator Sanders writes:

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression.
[...]
"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

To read the GAO report, click here.


I don't have anything else to add, really.

Why is Deflation Good - Part 2?

This is follow up on the wildly popular post I made about a year ago titled Why is Deflation Good?

Below is a quote from Jim Grant who was interviewed last week by Margaret Brennan on Bloomberg TV.
Margaret Brennan: Bernanke could say "You're not giving us credit for preventing deflation"

Jim Grant: The Fed defines deflation as the Wal-Mart business model, that is: everyday lower and lower prices. Much of the Americans spends most of their week-end seeking out exactly that very peril.


Alleluia! Somebody who understands that falling prices are a sign of progress.

If you haven't seen the interview, please do watch it now: Jim Grant Debunks Bernanke and the Fed on Bloomberg TV.

James Grant and James Turk discuss gold, the Fed and the fiscal situation of the USA

From GoldMoney:

James Grant of Grant's Interest Rate Observer and James Turk of the GoldMoney Foundation discuss the history and mission of the Fed, how mission creep has taken it wildly beyond its initial purpose into the territory of QE, ZIRP and other fiat currency experiments.

They talk about who benefit from zero interest rates and how savers are penalized by this easy money policy. They explain that the US have been off the gold standard since 1913, Bretton Woods being only a shadow of the classical gold standard. In the last 40 years low interest rates have encouraged leverage and speculation, which have reached incredible levels.

They discuss the fiscal profligacy of the US government. A solution to debt levels could still be found if the political will existed. US strengths and positive momentum could still be harnessed to save the dollar if people's eyes could be opened. However they conclude that every paper currency in history has eventually gone to zero.

James and Jim also talk about ZIRP and the absence of the bond vigilantes after over 30 years of bull market in bonds. How traders no longer care about fundamentals, like balance sheets, but rather focus on very short time horizons and the spreads between funding costs and yields. How this situation is unsustainable.

They see gold still as a very under-owned, misunderstood and marginal asset still shunned by institutional investors, with a few notable exceptions which indicate that the tide could be turning. They see a gold standard in the future, although timing is always uncertain.

At the end they talk about the history of US post civil war specie resumption and parallels to a return to the gold standard in the future. Private alternatives and competing currencies are a possibility; if politicians are too slow to provide solutions the market could do it for them.

Embedded video below, and also available on YouTube:

Banks and Governments Entities in a Bidding Fight over Holding Toxic-Assets: Answers That Should Make Contrarians More Confortable

Do you remember the questions that I asked earlier this month, and that were worrying me as a contrarian?

So what is it that worry me so much? It's the fact that governments are the worst "investors" you can think of. They never make a profit, and are 100% wrong when timing the market. Yet, if we were at a major top, it would mean that the US Treasury — and to a lesser extent, the UK government — are actually timing their selling very well. So is it possible that we are actually not at a top, and that yet another higher one is coming? How likely would that scenario be? This is an open question, and I would like to hear your opinion.

Well the answer is completely unbelievable and show just how much the sentiment is playing and fooling everybody during this non-recovery, market bounce. It happens that instead of selling at the top of the market — worrisome for contrarian, as it would invalidate their idea — banks and governments entities are entering a bidding fight over who gets to hold what just two years ago was called toxic-assets as they have become great investments again!

New York Fed Declines AIG’s Offer for Maiden Lane II Mortgage-Bond Assets

American International Group Inc. (AIG), the bailed-out insurer, was rebuffed by the Federal Reserve Bank of New York in its bid to repurchase a portfolio of mortgage- backed securities for $15.7 billion.

The New York Fed will instead sell the assets individually and in blocks, the regulator said yesterday in a statement posted on its website. BlackRock Inc. (BLK), the New York Fed’s investment manager, will issue the first bid list next week, according to the statement.

“We had anticipated we would have the opportunity to buy these assets at a fair price by January 2011 and earn a return on them for the benefit of the U.S. taxpayer,” Mark Herr, a spokesman for New York-based AIG, said in an e-mailed statement. “Now, we must make up for lost time and lost earnings.”

AIG handed the mortgage bonds, known as Maiden Lane II, to the New York Fed in 2008 in exchange for a cash injection that helped save the company from collapse. The insurer, which sold non-U.S. businesses and returned to profit last year, said it was bidding for the securities to boost investment returns.

The New York Fed and the Board of Governors “judged that the public interest in maximizing returns from any sale and promoting financial stability would be better served by an alternate approach,” according to the statement

AIG, which is 92 percent-owned by the U.S. government, made public on March 10 a bid for the pool of mortgage bonds. The U.S. government’s rescue of AIG, initiated in 2008, is valued at $182.3 billion.

Maiden Lane II holds assets that AIG had purchased with collateral turned over by Wall Street banks through securities- lending deals. When the housing market collapsed, AIG couldn’t reimburse banks that wanted their collateral back, prompting the Fed to make about $22.5 billion available to Maiden Lane II to take the assets off the company’s balance sheet.

The value of some of the securities subsequently rebounded and the bonds have paid coupons, reducing the Fed’s investment in the facility. At the same time, AIG has lowered its obligations under the bailout by selling units including non- U.S. life insurers and a consumer lender.

AIG Chief Executive Officer Robert Benmosche, 66, told the New York Times DealBook that the New York Fed’s decision is “a huge problem” for the company. He hasn’t decided whether to bid on some of the Maiden Lane II assets, DealBook reported.

Jonathan Hatcher, an analyst at Jefferies Group Inc. in New York, said the government will be able to attract more investor interest through its plan to sell the assets in pieces.

“That’s a huge block, which there’s a limited number of bidders for,” Hatcher said in a phone interview. “If they’re going to break it up into much more digestible-size pieces, I think theoretically they should get the best execution.”

Credit Suisse Group AG (CSGN), Morgan Stanley and Barclays Plc (BARC) are each seeking groups of investors to make bids, people with knowledge of the discussions said last week.

The securities, backed by so-called subprime, Alt-A and other home loans, had a face value of about $39 billion when turned over to the Fed. The figure is now about $31 billion, after homeowners defaulted, moved or refinanced, according to AIG’s disclosures.

“We have been told that someone else was putting together a bid,” Benmosche said in an interview with the Financial Times this month. “I think we can offer a little more, but the price we offered is about it. Until I see a competing bid, I’d have to wait and see.”

Fed to Release Discount Window Borrowing Details During Crisis Today

While I do not expect any big surprises or even the slightest market reaction for this sort of "non-event", it's good to see that the pressure on the Fed is leading to some results. Hopefully, next time, they won't be able to delay things for 3 years before having to release the information.

March 31 (Bloomberg) -- For most of its 98-year history, the Federal Reserve has operated with all the transparency and enthusiasm for change of the Vatican. Now the ultra-secretive Fed is starting to change its ways, if somewhat grudgingly. Some of the new openness, such as Chairman Ben S. Bernanke’s plan for quarterly press briefings, is the central bank’s idea. Much of it comes under duress.

Today, the Fed is set to disclose which banks borrowed from its discount window during the darkest moments of the 2008-09 financial crisis. This unprecedented view of the emergency loans the Fed extended to hundreds of banks is the result of a March 21 Supreme Court decision that left intact lower court rulings ordering disclosure in lawsuits filed by Bloomberg LP, the owner of this magazine, and News Corp.’s Fox News Network. Still, the Fed won’t disclose the collateral it accepted, which would reveal the risks it took. Future discount window borrowings will be made public, though only after a two-year delay, thanks to the new Dodd-Frank financial reform law.
[...]
The discount window is the Fed’s oldest lending channel and traditionally its most secretive. Banks have been free to use it without publicly revealing the fact since the Fed’s 1913 birth. Loan demand varies, depending on market conditions and seasonal factors.

In January 2007, before the financial crisis erupted, banks owed the Fed just $1.3 billion for discount-window loans. By October 2008 borrowings peaked at $111 billion. One bank, Chicago-based Park National, owed the Fed $345 million before regulators shut it down in October 2009, according to data gleaned from a Freedom of Information Act request. The most recent data, for March 23, show banks owing just $13 million.
[...]
Banks traditionally have been reluctant to use the window, fearing that savvy investors could tell by following clues in Fed loan data and market activity. In 2003 the Fed said banks would no longer have to show an inability to raise private funds to tap the discount window, hoping to end the stigma. But when the initial wave of distress swept the financial industry in 2007, banks still shied away. “We had no luck in encouraging banks to use the window,” says Donald Kohn, a Fed vice chairman at the time.

During the worst of the financial crisis, banks paid extra to borrow to avoid the discount window’s taint by participating in a new Fed program, the Term Auction Facility. That allowed them to bypass the window and still get emergency money by bidding for it in group auctions. At its March 2009 peak, TAF provided banks with $493 billion in short-term credit--more than four times the highest volume of discount window lending, which occurred five months earlier.
[...]

Bloomberg Wins Again Against the Fed — The Supreme Court Gives 5 Days to Release the Records

We have been following this on this blog during the past 2 years, and I am happy to see that justice has won. It doesn't happen often, so we must celebrate.

Nothing much to add to the two following Bloomberg stories.

March 21 (Bloomberg) -- The Federal Reserve will disclose details of emergency loans it made to banks in 2008, after the U.S. Supreme Court rejected an industry appeal that aimed to shield the records from public view.

The justices today left intact a court order that gives the Fed five days to release the records, sought by Bloomberg News’s parent company, Bloomberg LP. The Clearing House Association LLC, a group of the nation’s largest commercial banks, had asked the Supreme Court to intervene.

“The board will fully comply with the court’s decision and is preparing to make the information available,” said David Skidmore, a spokesman for the Fed.

The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window.
[...]
Under the trial judge’s order, the Fed must reveal 231 pages of documents related to borrowers in April and May 2008, along with loan amounts. News Corp.’s Fox News is pressing a bid for 6,186 pages of similar information on loans made from August 2007 to November 2008.

The records were originally requested under the Freedom of Information Act, which allows citizens access to government papers, by the late Bloomberg News reporter Mark Pittman.
[...]
Bloomberg initially requested similar information for aid recipients under three other Fed emergency programs. The central bank released details for those facilities and others in December, after Congress required disclosure through the Dodd- Frank law.

The legislation didn’t apply retroactively to the discount window lending program, which provides short-term funding to financial institutions. Discount window loans made after July 21, 2010, must be released following a two-year lag.
[...]

March 22 (Bloomberg) -- A Supreme Court order that forces unprecedented disclosures from the Federal Reserve ended a two- year legal battle that helped shape the public’s perceptions of the U.S. central bank.

The high court yesterday let stand a lower-court ruling compelling the Fed to reveal the names of banks that borrowed money at the so-called discount window during the credit crisis. The records were requested by Bloomberg LP, the parent company of Bloomberg News. In July, Congress passed the Dodd-Frank law, which mandated the release of other Fed bailout details.

Fed Chairman Ben S. Bernanke “now must finally understand that this money doesn’t belong to the Federal Reserve, it belongs to the American people and the American people have a right to know how their taxpayer dollars are being put at risk,” said Senator Bernard Sanders, a Vermont Independent who wrote Fed transparency provisions in Dodd-Frank.
[...]
The high court’s order means the Fed will have to reveal an unprecedented level of detail about its discount window lending during the financial crisis -- including borrowers’ names and amounts. Officials are preparing to comply, said David Skidmore, a spokesman for the central bank. He declined to elaborate.
[...]
Paul, who has called for abolishing the central bank, signed up more than 300 co-sponsors for a 2009 bill requiring a Fed audit. The measure passed the House before being dropped by the Senate. It was quite a difference from similar proposals in the 1970s that attracted little attention, he said.

“The Bloomberg lawsuit had a lot to do with the cultural change,” Paul said. “Bloomberg has credibility that politicians don’t have.”
[...]
Bloomberg LP sued for the records after the late Bloomberg News reporter Mark Pittman requested them under the Freedom of Information Act. The media company won at district and appellate courts.

The Fed declined to appeal the case to the Supreme Court; the Clearing House Association LLC, a group of the largest U.S. commercial banks, asked the high court to intervene.

Under the trial judge’s order, which the Supreme Court refused to reconsider, the Fed must reveal 231 pages of documents related to discount window borrowers in April and May 2008, along with loan amounts. After Bloomberg filed suit, News Corp.’s Fox News Network LLC requested similar records over a longer period of time and also filed suit. It stands to receive 6,186 pages of documents on loans made from August 2007 to November 2008.

The Fed must be forced to divulge such information, said Mark Williams, executive-in-residence at the Boston University School of Management and a former Fed bank examiner.

“The Fed has to be held to higher accountability,” Williams said. “It takes lawsuits like this to do that.”

We Have Now Reached The Perfect Set-Up for Banking Meltdown 2.0

While mark-to-market has still not been reinstated for banks, it looks like these financial institutions are planning to empty the few little real cash they have in their coffers, in order to buy back shares and pay dividends, and all this with the blessing of the Government and the Fed.

In addition, the Treasury now believes is the right time to start selling the toxic assets — it's weird for me to believe that they might have the timing right, something's fishy here...

Again, all red flags are now raised, as they after day, confidence in the bubble economy and false recovery is getting higher and higher, and getting wider and wider acceptance.

Here's a lit of what is currently happening, in just about a week:

• Banks have been authorised by the Fed to buy back shares and pay dividends, emptying the little actual cash they are currently holding, against the mountain of toxic mortgages and other debt instruments, and overpriced equities.
• The Treasury Department is planning to sell $10 billion worth of their Fannie and Freddie paper, per month. These toxic debt will most certainly end up on banks balance sheets again.
• Citigroup is putting lipstick on the pig by giving a $0.01 dividend, and doing a reverse stock split in order to move the share price from $3 to $30.
• The Fed has been forced by the Supreme Court to reveal the information about the emergency lending it conducted, hopefully unmasking the most insolvent institutions by doing so — I'll write another post about this.
• Existing Home Sales in U.S. Slump — Prices Drop to Lowest Since April 2002
• Total housing starts were sharply down (-22.5%) from the revised January and barely up from the all time record low in April 2009.

As a side note, it's laughable that people are putting so much trust in the stress tests coming out of the Fed, given the track record of these ignorants and the lack of market-to-market.

March 18 (Bloomberg) -- The Federal Reserve cleared some of the 19 largest U.S. banks to increase dividends, buy back shares or repay government aid after “significant improvement” in their capital and the economy.

The banks, including firms such as Goldman Sachs Group Inc. (GS) and JPMorgan Chase (JPM), have increased common equity by more than $300 billion from the final quarter of 2008 through the end of 2010, the Fed said in a paper released today in Washington on its most recent review of bank capital.

“Overall, both the quantity and quality of capital at many large bank holding companies have improved since the financial crisis,” the Fed said. “The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks’ long-term access to capital.”
[...]
“This is the strongest signal yet that the economy is starting to return to normal,” said Jaret Seiberg, a financial policy analyst for MF Global’s Washington Research Group. “Banks are going to be significantly raising their dividends and engaging in share buybacks in a way that recognizes their return from much more dire financial straits.”

The Fed’s stress tests are part of a move toward higher standards for capital and risk management mandated by U.S. legislators and international regulatory accords. The Fed wants to ensure bank boards make capital-payout decisions while weighing a full range of risks and their capital needs for at least two years.

San Francisco-based Wells Fargo, the nation’s largest home lender, authorized the repurchase of 200 million shares and a special dividend of 7 cents a share, which will raise the first- quarter payout to 12 cents. JPMorgan said it will boost its quarterly dividend to 25 cents a share from 5 cents and authorized a $15-billion stock repurchase.
[...]
The central bank also said that approval of plans would only apply to 2011. Capital distributions in 2012 will be subjected to a future supervisory review.

“In reality, bank holding companies would be expected to reduce distributions under adverse conditions,” the Fed said.

The dividend increases were one of the most carefully screened payouts in U.S. regulatory history, with more than 100 Fed staff working on the analysis. The central bank’s involvement in decisions normally reserved for boards shows how far the Dodd-Frank Act has pushed regulators into corporate governance.

Central bank supervisors asked the banks to test the performance of their loans, securities, and earnings against at least three economic scenarios. Banks devised baseline and adverse scenarios, and Fed supervisors provided a separate adverse scenario involving another recession with unemployment exceeding 11 percent.

“Overall, both the quantity and quality of capital at many large bank holding companies have improved since the financial crisis,” the Fed release said. The 19 companies’ Tier 1 common ratio rose to 9.4 percent in the fourth quarter of 2010 from 5.4 percent two years earlier, the Fed said.
[...]
“The Federal Reserve does not intend to disclose any firm- specific results,” from the test, the report said.

March 19 (Bloomberg) -- U.S. bank investors may be rewarded with an extra $22 billion annually after government tests showed the industry has regained enough strength to boost dividends and share buybacks.

JPMorgan Chase, Wells Fargo and Goldman Sachs Group Inc. were among six lenders that disclosed more than $16.2 billion in share buybacks and $5.4 billion of annualized dividend increases yesterday, according to data compiled by Bloomberg. The banks made their announcements after learning they passed a Federal Reserve review of their financial health.

“This is a real signal by the Federal Reserve to tell the world that the U.S. banking system is back,” said Gerard Cassidy, an analyst at RBC Capital Markets. “We are going to see, in our view, over the next three years, a dramatic increase in the dividends.”

March 21 (Bloomberg) -- Citigroup Inc., the U.S. bank that received the largest taxpayer bailout, said it would reinstate a dividend at 1 cent per share in the second quarter after a planned 1-for-10 reverse split of its common stock.

Citigroup [...] will exchange 1 new share for every 10 of common stock after the close of trading on May 6, the New York-based bank said today in a statement.

“It puts some make-up on the black eye they have,” said David Knutson, a credit analyst with Legal & General Investment Management, which oversees about $85 million of Citigroup bonds. “They’re doing it for the same reason why people put up billboards on the sides of highway. It’s advertising, it’s marketing.”

21 March (Bloomberg) -- The U.S. Treasury Department plans to wind down its $142 billion portfolio of mortgage bonds guaranteed by Fannie Mae and Freddie Mac by selling as much as $10 billion per month.

Sales will start this month and be subject to market conditions, the department said today in a statement. When combined with principal repayments currently ranging between $3 billion and $5 billion a month, the sales may eliminate the portfolio in about one year, the Treasury said.
[...]
The sales will have a limited effect on the $5.2 trillion market for agency mortgage bonds, Anish Lohokare, an analyst New York at BNP Paribas, said in an e-mail.

That’s because fewer homeowners have been refinancing loans from the Fed’s pool of mortgage-backed securities, limiting the amount of debt returning to public markets, Lohokare said. The pace at which the Fed’s holdings are being paid down has declined to about $12 billion a month from as much $32 billion last year after home-loan rates rose, he said.

The Fed held about $944 billion of Fannie Mae, Freddie Mac and Ginnie Mae-backed mortgage securities as of March 16, according to central bank data.
[...]

Jim Grant Interview On Bloomberg TV

This is a great interview of Jim Grant, explaining the federal reserve system, the issues they are creating, and the dangers it is bringing in a very clear and instructive manner.

Still more dissent at the Fed Reserve: Governor Kevin Warsh Resigns

While Ben Bernanke is self-congratulating his actions and his (disastrous) results, dissent is growing bigger and bigger at the Fed: a couple months ago, Hoenig said Bernanke's plan is a bargain with the Devil, last week Fisher said he won't support further QE and yesterday, Kevin Warsh resigned.

Feb. 10 (Bloomberg) -- Federal Reserve Governor Kevin Warsh, who was one of Chairman Ben S. Bernanke’s closest financial-crisis advisers before becoming the only governor to question the expansion of record monetary stimulus in November, resigned after five years at the central bank.

Warsh, 40, a former investment banker who was the youngest- ever Fed governor when then-President George W. Bush appointed him in 2006, will leave “on or around March 31,” he said in a letter today to President Barack Obama that was released by the Fed in Washington.

His departure may give Bernanke a stronger hand to complete or potentially expand $600 billion in Treasury purchases through June. At the same time, Bernanke loses a link to Wall Street executives and Republican politicians as he carries out Congress’s overhaul of financial regulation and faces criticism from a political party that in the midterm election gained control of the U.S. House.

“You lose a forceful internal advocate for ending QE and trying to renormalize policy quicker,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007, referring to the stimulus program known as quantitative easing.
[...]
Warsh’s term would have run through January 2018; most Fed governors don’t serve out their full terms. His resignation opens a second vacancy on the seven-member Board of Governors and leaves Elizabeth Duke, a former community banker, as the only governor not appointed or reappointed by Obama.
[...]
“I am honored to have served at a time of great consequence,” Warsh, who never dissented from a Federal Open Market Committee decision, said in his resignation letter. Bernanke said in a statement that Warsh’s “intimate knowledge of financial markets and institutions proved invaluable during the recent crisis.”

Warsh is still on good terms with Bernanke and is leaving because he sees it as the right time with an improving economy and not because of a policy dispute, said another person familiar with the matter who spoke on condition of anonymity. He’s likely to return to the private sector.
[...]
Warsh staked out an anti-inflation stance on monetary policy in September 2009, when he published a Wall Street Journal op-ed and gave a speech saying the Fed may need to raise interest rates with “greater force” than it has in the past. In June, he said any decision to expand the $2.3 trillion balance sheet must be subject to “strict scrutiny.”

On Nov. 8, he said in an op-ed and speech that the Fed’s Treasury buying “poses nontrivial risks” even after he voted to support the stimulus. He hasn’t publicly discussed his views on the purchases since November and backed the policy at the Fed’s subsequent meetings in December and January.

“When non-traditional tools are needed to loosen policy and markets are functioning more or less normally -- even with output and employment below trend -- the risk-reward ratio for policy action is decidedly less favorable,” Warsh said in the speech in New York. “As a result, we cannot and should not be as aggressive as conventional policy rules -- cultivated in more benign environments -- might judge appropriate.”
[...]
Warsh in 2002 married Jane Lauder, an heir to her grandmother Estee Lauder’s cosmetics fortune, making him wealthier than the rest of the Fed governors combined. His wife is the global president and general manager of Estee Lauder Cos.’ Origins and Ojon brands and is on the company’s board of directors.

Fed's Fisher Says He Won't Support Further QE

It looks like more and more dissent is coming from inside the Federal Reserve System, as Dallas Fed President, Richard Fisher says he won't support further asset purchases. This is encouraging.

(Bloomberg) Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said he isn’t inclined to support further quantitative easing after the central bank completes its purchase of $600 billion in Treasuries in June.

“You can never say never, but I cannot imagine a convincing argument for further quantitative easing after this round, given what is developing now in the economy,” the 61- year-old regional bank chief said today on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays.

Fisher said he regards the Fed’s asset-purchase plan as a “fait accompli” and that he wouldn’t have supported it if he had a vote last year. Before the Fed’s most recent meeting in January, the Dallas president criticized the second round of large-scale purchases, saying it may be “the wrong medicine” for the U.S. economy.
[...]

Fed and ECB: More lies, deception and illegal actions

So now, after all the speeches from Greenspan and Bernanke saying that they cannot spot asset bubbles, it seems like there's a proof of them blatantly lying — via CalculatedRisk:

From then Atlanta Fed President Jack Guynn:
[T]there is the housing situation, which we talked about for a long time yesterday afternoon. As I’ve been reporting for several meetings, some of our markets, especially those in coastal areas of South Florida and the Florida panhandle, are experiencing a level of building activity and price increases that are clearly, in my view, unsustainable. Nearly every major Florida city now has experienced increases in the double-digit range, and some, like Miami, Palm Beach, Sarasota, and West Palm, have been reporting increases in housing prices on a year-over-year basis of between 25 and 30 percent. While our discussion yesterday did not seem to indicate a consensus on a national housing bubble, based on past experience I’m reasonably comfortable characterizing the housing feeding frenzy in some of our markets as being a bubble or a near bubble.

For example, the number of major projects planned or under construction in Miami now totals 114, most of which are high-rise developments. That includes 61,000 condo units—eight times the number that were built in the last decade—and a total of 100,000 new parking spaces. I know we don’t have any process for introducing exhibits into the record, but I’d like to pass Dave Stockton this pictorial of the new projects in Miami, so that he can continue to worry a little bit along with me. [Laughter]

My supervision and regulation staff thinks this is an accident waiting to happen in our area. And while the local market excesses probably do not represent systemic national risk, the shakeouts could have serious regional consequences. My bank supervision staff points out that housing-related credit risks to our bank lenders are not so much from defaults on permanent mortgage financing that we talked about yesterday, but rather from lending for land acquisition, development, and construction. The ugly picture we have seen before—and that they think we may very likely see again before long—goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them saleable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it’s because of where I sit, but I am less comforted than some of my colleagues about the housing situation.

CHAIRMAN GREENSPAN. Let’s take a break for coffee.

Nice dismissal from Greenspan. But he cannot say he didn't know or he didn't see it.

But the ECB is even worse than the Fed, since the ECB Allows Irish Central Bank to Counterfeit 51 Billion Euros (Mish):

Ireland central bank counterfeited 51 billion Euros out of thin air. The amount is not backed by government bonds. Nor was it a loan from the ECB or anyone else. The money is counterfeit in every sense of the word.

Please consider the facts as depicted in Central Bank steps up its cash support to Irish banks financed by institution printing own money.

The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money.

The figures also provide the latest evidence that responsibility for funding Ireland's broken banks is being pushed increasingly back on to Irish taxpayers. The loans are recorded by the Irish Central Bank under the heading "other assets".

A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.

Yellen Says Fed's Printing Money to Create 3 Million jobs

Note: I was about to write a long post about Yellen, then I realized Mish already has written about it, so I'll redirect you to his post and then I'm adding some more statements of mine.

Obviously, what bothers me is making statements like this one which cannot be verified in any way. How do you know whether any job created is thanks to the help of some crazy lunatics printing money?

Second of all, even if all this were true, let's suppose that handing away trillions of dollars to banks actually did create 3 million jobs. Let's do the math: ($2.3 trillion / 3 million ) = $767,000.

So basically, every job they think they would be creating costs about $767,000. Would that be worth it? Crazy Lunatics at Work think it is.

Jan. 8 (Bloomberg) -- The Federal Reserve’s two rounds of asset purchases totaling $2.3 trillion will have helped boost private payrolls by about 3 million jobs through 2012, said Fed Vice Chairman Janet Yellen.

Policy makers’ November decision to start a second round of purchases of $600 billion in Treasuries “is intended to support economic recovery from an exceptionally deep recession,” the 64-year-old central banker said in a speech today in Denver. “I believe it will be effective in fostering maximum employment and price stability.”

Yellen gave the most detailed accounting yet of the benefits the central bank sees from its stimulus, adding her voice to a defense of the policy by Chairman Ben S. Bernanke and other officials. Republican lawmakers and officials in China, Germany and Brazil have criticized the purchases, saying they threaten to weaken the dollar and stoke asset-price bubbles.

Yellen, appearing at the Allied Social Science Associations annual meeting, dismissed concerns that the purchases will ignite inflation, saying weak labor demand will be helpful in “mitigating the risk” and the Fed can “tighten policy when needed” by increasing the interest rate it pays on excess bank reserves.

She added that the Fed’s moves won’t hinder growth overseas, are having “only moderate effects on the foreign exchange value of the dollar,” and do not appear to be triggering “significant excesses or imbalances in the United States.”

The central bank bought $1.7 trillion of mortgage debt and Treasuries through March 2010 as it sought to pull the U.S. out of a recession. On Nov. 3, the Federal Open Market Committee decided to buy $600 billion of Treasuries through June in a policy known as QE2 for a second round of quantitative easing.

In her assessment of the economic impact of the purchases, Yellen cited a paper by four Fed economists that relied on the central bank’s main economic forecast model, known as FRB/US.

The simulation assumed the latest round of purchases is completed in a year, and that an elevated level of holdings is maintained for two years before being “unwound linearly over the following five years.”

It concludes that private employment is currently 1.8 million higher than it would be without the purchases, and will get an additional boost of 1.2 million by 2012.

“Moreover, the simulations suggest that inflation is currently a percentage point higher than would have been the case if the FOMC had never initiated any securities purchases, implying that, in the absence of such purchases, the economy would now be close to deflation,” Yellen said.

The economy has lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era.

A Labor Department report yesterday showed that employers added 103,000 jobs in December, fewer than the median projection for a gain of 150,000 in a Bloomberg News survey of economists. The unemployment rate fell to 9.4 percent from 9.8 percent, in part because discouraged workers stopped looking for jobs.

At the same time, inflation is below the long-run rate of 1.6 percent to 2 percent that Fed officials regard as consistent with price stability. An inflation gauge tied to consumer spending excluding food and energy rose 0.8 percent from a year earlier in November.

Minutes of the Fed’s most recent meeting in December showed that some officials aren’t willing to scale back their plans to purchase $600 billion in Treasuries through June, even with an improving economic outlook.
[...]
“We recognize that the FOMC must withdraw monetary stimulus once the recovery has taken hold and the economy is improving at a healthy pace,” she said. “The committee remains unwaveringly committed to price stability.”

Goldman Sachs Hires N.Y. Fed’s Lubke

Again, nothing surprising here. Just a quick post to emphasize on the fact that nothing has changed on Wall Street or Main Street and that the revolving door between Goldman Sachs and the US Government is very much open and actively used.

More examples can be found in the second half of the report.

Dec. 15 (Bloomberg) -- Theo Lubke, who headed the Federal Reserve Bank of New York’s efforts to reform the private derivatives market, joined Goldman Sachs Group Inc. to help Wall Street’s most profitable firm navigate the looming overhaul of financial regulations.

Lubke, 44, started this month as chief regulatory reform officer in Goldman Sachs’ securities division, according to a memo obtained by Bloomberg News. The newly-created role will allow Lubke to “work closely with divisional and firm-wide leadership to implement regulatory reform legislation,” the memo said.

Goldman Sachs is hiring Lubke five months after Congress mandated the regulation of the $583 trillion over-the-counter derivatives market, which complicated efforts to resolve the financial crisis. The reforms threaten to cut profits at dealers because they will make swaps prices known to the public. Lubke’s new firm employs a former New York Fed president and has an ex- Fed board chairman as a director. The current president of the New York Fed, William Dudley, also worked there.

“It’s a pattern,” said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who has written about Wall Street’s history. “It’s troublesome stuff and there needs to be some regulation so people don’t do it and undermine public policy.”

Michael DuVally, a spokesman for Goldman Sachs who confirmed the contents of the memo, declined to comment.
[...]
Lubke is the latest regulator to be hired by Wall Street’s most profitable securities firm. Bankers who worked at Goldman Sachs have also become regulators.

“That street goes both ways,” said Geisst, author of books including “The Last Partnerships: Inside the Great Wall Street Money Dynasties” (McGraw-Hill, 2001). “They go from Goldman to the Fed and they go from the Fed to Goldman, and that’s the important part of it.”

Other firms also have ties to the central bank and the government. Last week, Citigroup Inc., the biggest bailout recipient among U.S. banks during the financial crisis, hired former White House Budget Director Peter Orszag to be vice chairman of its investment-banking division.

Dudley, a former partner at Goldman Sachs and its chief U.S. economist for a decade, joined the New York Fed in 2007 and then succeeded Geithner as the central bank’s president in 2009. E. Gerald Corrigan, who headed the New York Fed from 1985 to 1993, joined Goldman Sachs in 1994, where he went on to be co- chair of its global risk-management committee and co-chair of global compliance and control.
[...]
Stephen Friedman, a former chairman of Goldman Sachs’ board, quit as chairman of the New York Fed’s board of directors in May 2009 to avoid the appearance of a conflict of interest over his ties to the investment bank. Friedman, who served as Goldman Sachs’s co-chairman with Robert Rubin from 1990 to 1992 before Rubin became Treasury Secretary, remains a Goldman Sachs board member.

Geithner, who was named Treasury Secretary in January 2009, hired former Goldman Sachs lobbyist Mark Patterson as his chief of staff. Patterson recused himself for two years from any issues that relate specifically to the bank, which he left in April 2008.

Fed says they will keeping on printing, irrelevant of the economy

The Fed has been created to print money. Bernanke has been spending is entire life studying that fine art of printing money, and has dedicated his life on how to print as effectively and massively as possible. Our beloved Nobel laureate, Paul Krugman still keeps on blogging and writing op-eds in the NYT about how much more we need to print and how disappointing Bernanke's printing capabilities are.

Given these facts, one should be surprised to hear the Fed state that they will keep on printing, no matter happens: Bernanke will always find a good reason to print.

Dec. 15 (Bloomberg) -- Federal Reserve policy makers indicated that signs of economic strength won’t deter them from pumping money into the financial system so long as unemployment remains elevated.

The Federal Open Market Committee said yesterday after its final meeting of 2010 that growth is “insufficient to bring down unemployment” and inflation has “continued to trend lower.” U.S. central bankers affirmed a plan to buy $600 billion of bonds through June and renewed their pledge for an “extended period” of low interest rates.
[...]
The Fed statement should “guide market participants to focusing on the unemployment rate as the relevant measure for whether the economy is picking up fast enough,” said Dean Maki, chief U.S. economist at Barclays Capital in New York. “The economic data have clearly been improving and the Fed could have sounded much more upbeat than it did.”
[...]
Republican lawmakers, including Indiana Representative Mike Pence and Tennessee Senator Bob Corker, want to jettison the half of the Fed’s legislative mandate that focuses on maximum employment so as to concentrate on stable prices alone. Texas Representative Ron Paul, author of the book “End the Fed,” is set to chair a subcommittee that oversees the Fed next year.

Hopefully, they will succeed in reigning in the Fed.

With the greater political pressure, “there’s going to be a lot more noise and controversy around the Fed’s policies,” said Julia Coronado, chief economist for North America at BNP Paribas in New York.

“This is Chairman Bernanke’s Volcker moment, when he may have to engage in policies that are unpopular but what he thinks he needs to do for the good of the economy,” she said. Paul Volcker, Fed chairman from 1979 to 1987, increased interest rates to as high as 20 percent to tame an annual inflation rate approaching 15 percent.

Julia Coronado is a fool. Bernanke is no Volcker, and keeping the interest rates at 0% doesn't require ny courage from a Central Banker. The opposite only is true.