Category Archives: Federal Reserve

Saudis Deploy the Oil Price Weapon Against Syria, Iran, Russia, and the US

Asian stock markets continued to fall today, propelled at least in part by the adverse reaction to the Saudi announcement yesterday that they would let oil prices fall to $80 a barrel. And further reports indicate that the Saudis intend to keep oil prices low enough to force a realignment of prices not just among various grades of crude, but also for intermediate and long-term substitutes.

It is critical to remember that the Saudis have no compunction about imposing costs on other nations to maximize the value of their oil resource long term and hence the power they derive from it. Their oil price cut looks to be a strategic masterstroke.

AIG Bailout Trial Bombshell II: Fed and Treasury Cornered AIG’s Board into Taking a Legally-Dubious Bailout

As we said in our companion post today on the AIG bailout trial, former AIG CEO Hank Greenberg may have a case after all. Mind you, we are not fans of Greenberg. But far too much of what happened during the crisis has been swept under the rug, in the interest of preserving the officialdom-flattering story that the way the bailouts were handled was necessary, or at least reasonable, and any errors were good faith mistakes, resulting from the enormity of the deluge.

Needless to say, the picture that emerges from the Greenberg camp, as presented in the “Corrected Plaintiff’s Proposed Findings of Fact,” filed in Federal Court on August 22, is radically different. I strongly urge readers, particularly those with transaction experience, to read the document, attached at the end, in full. It makes a surprisingly credible and detailed case that AIG’s board was muscled into a rescue that was punitive, when that was neither necessary nor warranted. And the tactics used to corner the board were remarkably heavy-handed.

AIG Bailout Trial Bombshell I: Paulson Rejected Chinese Offer to Invest “More Than the Total Amount of Money Required”

Hank Greenberg may have a case after all.

AIG Bailout Trial and Whoppers, Um, Crisis Revisionist History

If nothing else, the legal slugfest over whether the US government did former AIG CEO Hank Greenberg a dirty by imposing tough terms on the failed insurer and giving the kid gloves treatment to the teetering-on-the-brink banks who were certain to be engulfed by an AIG collapse will be highly entertaining. Ben Bernanke, Hank Greenberg, and Timothy Geithner are all scheduled to go on the stand next week, to be grilled by America’s top trial lawyer, David Boies.

Bill Black: Fed Failure – A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Regulators

Yves here. In this post, Bill Black does the yeoman’s work of stepping through one revelation in Fed whistleblower Carmen Segarra’s tapes from some of her discussions with more senior colleagues at the New York Fed. A critical section involves how Fed officials became aware of the fact that Goldman had slipped language into an already-closed transaction with the Spanish bank Santander that indicated that the Fed had been informed of the deal and had not objected, neither of which was the case. The staffers tried to rouse themselves to challenge Goldman on this misrepresentation, and lost their nerve.

But as bad as letting Goldman roll the Fed on the matter of non-existant non-objections is concerned, Black stresses the much more serious underlying failure: Goldman had created the impression that the Fed was kosher with Goldman helping Santander fool European bank regulators by pretending it was more solvent than it was. The effort to game banking regulations is an even bigger deal than the effort to pretend the Fed was all on board. Black blasts the clearly captured New York Fed “relationship manager” Mikel Silva in gratifying detail.

The New Normal of Monetary Policy

Yves here. This post describes the “new normal” of the role bank reserves play in hitting short-term policy rate targets in the US. The author ends on a cheery note about how the abnormal-looking situation we have, in particular super-low interest rates, could persist for a very long time. The author contends that the way one reacts to these new procedures and their results will reflect your monetary aesthetics, as in your beliefs about the way central bank balance sheets and reserves should look. However, given the way that negative short-term real interest rates are stoking financial speculation at the expense of real economy investment (a trend that was already well underway even before the crisis containment program turbo-charged it), one can hardly see a continuation of the new normal of low growth and redistribution to top earners as a positive development.

Fed Whistleblower Carmen Segarra, Snowden, and the Closing of the Journalistic Mind

The financial press has been awash with coverage of This American Life’s broadcast of key section of 46 hours of tapes made in secret by former New York Fed bank examiner Carmen Segarra. The broadcast and related reporting at ProPublica show how utterly craven the central bank was when it came to matters Goldman.

Now you might say, isn’t this media firestorm a great thing? It’s roused Elizabeth Warren and Sherrod Brown to demand hearing. The Fed has been toadying up to Wall Street for years. Shouldn’t we be pleased that the problem is finally being taken seriously?

Actually, no.

Ilargi: The Fed Kills Emerging Markets For Profit

The Fed-induced emerging markets party is bound to come to an end. How bad will the hangover be?

Wolf Richter: Fed – Forget “Escape Velocity,” Not Gonna Happen, Ever

As Wolf points out, despite stock touts’ talk of “escape velocity” and other confidence-fairy boosterism, the Fed has been quietly making more and more negative assessments of the economic outlook.

Philip Pilkington: Krugman Still Wrong on Monetary Theory (Loanable Funds Edition)

Krugman is still pushing the discredited loanable funds model, the basis of failed Fed stimulus policies. Does Krugman really not get it or is he defending Bernanke and his loyal successor Yellen?

The Fed Fails, Um, Does Irony

The Fed routinely makes decisions and pursues policies which result in it achieving the opposite of its stated goals and forecasted outcomes.

The Nigerians are Upping Their Game

Nigerian scammers have discovered helicopter money.

J.D. Alt: Bank Dollars & Sovereign Spending

Why do so many people—including the authors of most economics textbooks—believe the U.S. banking system creates the U.S. dollars we earn and spend and pay our taxes with?

Publish or Be Damned – Or Why Central Banks Need to Say More About The Path of Their Policy Rates

In the wake of the crisis, forward guidance has become a prominent tool of monetary policy. This column argues that central banks should go a step further, communicating to the public the internal policy debate that goes into monetary policy formation – especially regarding uncertainty. Since policy is determined contingent on a range of possible outcomes, forward guidance would become more effective by explicitly communicating how policy would respond along this uncertain path.