Posted on 12/22/2016 9:46:00 PM PST by Trump_vs_Evil_Witch
For years, alternative economic analysts have been warning that the “miraculous” rise in U.S. stock markets has been the symptom of wider central bank intervention and that this will result in dire future consequences. We have heard endless lies and rationalizations as to why this could not be so, and why the U.S. “recovery” is real. At the beginning of 2016, the former head of the Dallas branch of the Federal Reserve crushed all the skeptics and vindicated our position in an interview with CNBC where he stated
(Excerpt) Read more at zerohedge.com ...
Stop posting idiotic errors and I’ll have no reason to correct them.
“That market of more than $500,000,000,000,000 in derivatives was concentrated mainly in member banks of the Federal Reserve, the so-called investment banks. We know them, for example, Goldman-Sachs, Citibank, Bank of America, etc.”
Well not exactly....actually investment banks were outside of the Federal Reserve System until after the collapse of Bear Stearns in 2008- the fallout from Bear Stearns convinced regulators that investment banks posed a threat to commercial banks and couldn’t be left unregulated without risking the entire banking system. Prior to this only deposit-taking banks as opposed to investor financed banks belonged to the Fed system.
“Over 500 TRILLION in derivatives. That’s ‘Trillion’ with a ‘T’.”
From what I recall this raw number is a bit misleading, although the actual number of dollars involved was still huge. IIRC some of the derivatives in effect cancelled each other. The real exposure problem lay in the world of Credit Default Swaps, a type of insurance policy.
“The Federal Reserve member investment banks can click on a computer and create funds in their bank holding account at Zero % interest via policy of the Federal Reserve. “
The closest thing that I know that resembles this is the Fed purchasing bonds from member banks, exchanging dollars for debt instruments. And it’s the Fed’s trading desk that initiates these trades rather than the member banks. The Fed does this to free up bank assets for new loans rather than letting banks sit on their established loans. For contrast if a member bank needs to borrow money from the Fed they have to pay the overnight discount rate.
> “actually investment banks were outside of the Federal Reserve System until after the collapse of Bear Stearns in 2008”
No. The above is not true. After the repeal of Glass-Steagall, many investment banks started blending with commercial banks and vice versa. For example, Bank of America, JP Morgan.
What you are talking about is the DIRECT LENDING from the Federal Reserve to investment banks who had in many cases become blended with commercial banks.
When you buy a bank, you become a bank.
When you blend with a bank, you become a bank.
Bank holding companies are banks. For example, Capital One. Capital One started in financial services and bought several banks and thrifts. Today it represents itself as a bank but technically it is a bank holding company. Some of the thrifts it acquired represented themselves as ‘banks’. The distinction became blurred. The repeal of Glass-Steagall caused the divisions of regulation to be reconfigured and confused.
When the financial crisis came, there wasn’t time for the Federal Reserve to quibble about who was who, about jurisdictions and regulation coverage, about distinctions. The only thing that mattered was an involvement in mortgages. If there was involvement, then the Fed flushed out newly created funds starting in March 2008. TARP was a sideshow that didn’t get action until September 2008.
Goldman was one of the heaviest users of the Federal Reserve Liquidity Program. In March 2008, Goldman used a total of $589 BILLION from the Federal Reserve to prop up Mortgage Backed Securities and Counterparty risk of Goldman’s more than $30 TRILLION in its derivatives holdings.
Goldman and other investment banks got out of TARP as quickly as they could because of the smell of their multi-million dollar bonuses while taking taxpayer money.
They blew a horn via the media that they had ‘repaid’ the TARP money with interest when in fact they found it easier to take money from the Fed liquidity programs in the billions and billions; 589 BILLION for Goldman!
The NET exposure to derivatives for the big ‘banks’ was in the tens of TRILLIONS. For example, Bank of America had an exposure of 50 TRILLION.
Yes!
Most, but not necessarily all, derivatives transactions a bank has with an individual counterparty are typically subject to a legally enforceable netting agreement.....
As a result, a bank’s NCCE to a particular counterparty equals the sum of the credit exposures across all netting sets with that counterparty. A bank’s NCCE across all counterparties equals the sum of its NCCE to each of its counterparties. NCCE is the primary metric used by the OCC to evaluate credit risk in bank derivatives activities. NCCE for insured U.S. commercial banks and saving associations decreased $49.7 billion (11.2 percent) to $395.0 billion in the fourth quarter of 2015 (see figure 3) [page9]
Changes in notional amounts are generally reasonable reflections of business activity and can provide insight into potential revenue and operational issues. However, the notional amount of derivative contracts does not provide a useful measure of market or credit risks.
The notional amount of derivative contracts held by insured U.S. commercial banks and savings associations in the third quarter fell by $11.1 trillion (5.8 percent) to $181.0 trillion from the previous quarter, because of a $9.4 trillion decline in interest rate notionals. A $5.3 trillion decline in swaps contracts (4.7 percent) to $107.4 trillion drove the decline in interest rate notionals. Notional derivatives have fallen in each of the past five quarters, and by $68.8 trillion (27.5 percent) since peaking at $249.7 trillion in the second quarter of 2011. [page 17]
https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/dq415.pdf
The CRA is alive and well with Fannie and Freddie and all the mortgage backed BS. Yellen is a socialist ECON type into Keynesian Econ as opposed to a thorough Econ policy of both micro and macro theory. All macro ever was is national income accounting.
“Without repealing Glass-Steagall, there would have been no legal basis for all of what followed and the financial collapse would never have occurred.”
That’s conjecture. I am sure the Democrats would have found a way, but that’s conjecture too. The facts are what I said. And of all the things you can complain about regarding the Fed they had nothing to do with this issue.
Fed had nothing to do with the financial collapse?
You're sh*ttin me! You can't be serious! And you spent your Xmas eve writing this joke, eh?
Some plebes are ignorant and need to L-E-A-R-N (no reference to Pelham).
As an FR Public Service to such plebes, I hereby submit the following teachable summary (copied to Pelham only because of below reference to Brooksley Born):
* Greenspan had a remarkable pre-history in the mid-1980s as a de-facto lobbyist for Charles Keating, the crooked financier responsible for the biggest fraud in the history of the S & L industry. Greenspan was then a consultant and in that capacity helped enlist the so-called Keating Five – the five top politicians most heavily implicated in helping the Keating scam (they were all senators – Alan Cranston, Dennis DeConcini, John Glenn, John McCain and Donald W. Riegle, Jr.).
* Greenspan opposed attempts by Brooksley Born, chair of the Commodities Futures Trading Commission, to crack down on fraud. Greenspan allegedly told Born that there was no need for a law against fraud. Greenspan was such a true believer in the efficient markets hypothesis that he apparently genuinely believed that market action alone would quickly prove an effective prophylactic against fraud. Black comments: “Greenspan, with the rabid support of the Rubin wing of the Clinton administration, along with Republican Chairman of the Senate Banking Committee Phil Gramm, crushed Born’s effort to regulate credit default swaps (CDS). The plutocrats and their political allies deliberately created what’s known as a regulatory black hole – a place where elite criminals could commit their crimes under the cover of perpetual night.”
* Greenspan refused to send examiners into banks to check out reports that their books were full of so-called liars’ loans. In the event such loans all but wiped out the U.S. banking system, and proved particularly toxic for Bank of America BAC +0.27% and Citigroup C +0.83% but also resulted in huge losses at Wells Fargo WFC +0.38% , J P Morgan Chase, and, via derivatives, American International Group.
Black’s conclusion is devastating: “Alan Greenspan had no excuse for assuming fraud out of existence, and his exceptionally immoral position on fraud and regulation proved catastrophic to America and much of the world.”
While many will consider the word "immoral" is going too far, another word Black uses elsewhere seems to fit: wacky. It is fair to say that Greenspan emerges as probably the biggest – and most dangerous – fool in American financial history.
You are concentrating on tree leaves and not roots.
Mortgage backed securities, bundling of prime and subprime debt, the exotic derivatives based on the are all things that happened to keep the Rube Goldberg machine moving.
As I’ve said repeatedly NONE of that would have come into existence without Washington forcing banks to loan money to those who traditionally would have been denied the mortgage.
You need to get the full picture and stop posting like you know what you are talking about because you are short on the full analysis.
Greenspan was instrumental in all the efforts along with Gramm and others to dissolve regulatory firewalls to encourage financial ‘competition’. The Forbes report above makes that clear, very clear. The PBS documentary with Brooksley Born referenced above also makes it painfully clear that Greenspan, Summers and others set the ball in motion in the latter Clinton years (1999 passage of repeal of Glass-Steagall).
The CRA and the like were merely tag-along sideshows, they were not prime drivers.
The prime driving force was greed in selling those mortgage bonds and the sale of those bonds were made possible by the foundation laid and structures built by Greenspan and Gramm.
Exactly.
This set off a frenzy of subprime and Alt-A mortgage origination, in which–as incredible as it seems–Fannie and Freddie were competing with Wall Street and one another for low-quality loans. Even when they were not the purchasers, the GSEs were Wall Street’s biggest customers, often buying the AAA tranches of subprime and Alt-A pools that Wall Street put together. By 2007 they held $227 billion (one in six loans) in these nonprime pools, and approximately $1.6 trillion in low-quality loans altogether.
From 2005 through 2007, the GSEs purchased over $1 trillion in subprime and Alt-A loans, driving up the housing bubble and driving down mortgage quality. During these years, HUD’s regulations required that 55% of all GSE purchases be affordable, including 25% made to low- and very low-income borrowers. Housing bubbles are nothing new. We and other countries have had them before. The reason that the most recent bubble created a worldwide financial crisis is that it was inflated with low-quality loans required by government mandate. The fact that the same government must now come to the rescue is no reason for gratitude.
“You need to get the full picture and stop posting like you know what you are talking about because you are short on the full analysis.”
Right back at you.
You strike me as one of those guys who are totally, completely focused on the Federal Reserve as the boogie man responsible for all evil. Not that I am a fan of the Fed, but I don’t blame it for everything.
You remind me of the old phrase “if all you have is a hammer everything looks like a nail”.
I’ve given you the same answer to your replies a few times now. No need to repeat myself.
I engaged a discussion with others mentioning a line from the screenwriter for ‘The Big Short’ which is based on a true story, and I followed it with mentions of Glass-Steagall as the root cause.
You interjected with the absurd statement that the Federal Reserve had nothing to do with the financial collapse. I gave you qualified reputable sources, references, and a link to show that Greenspan was right in the middle of setting the conditions for the financial collapse.
You didn’t thank me nor did you ask questions nor bothered to say you learned something new. Instead, you put a chip on your shoulder.
Move on now, you don’t have anything else except insults.
No, I certainly didn’t “thank you” for disseminating “information” that is based on opinion and a movie.
Nor did I insult you. I called your statement absurd. Not that I want to waste time on you, since you obviously don’t wish to learn the facts about what you’ve been blathering about.
The Forbes article I linked to you is not a ‘movie’.
Are you reading impaired?
By not reading the clear evidence of Fed involvement in the financial collapse, you insult everyone’s time.
Here it is again:
There is no question that the Federal Reserve played a significant role in the financial collapse. It is a FACT.
As for blaming homeowners and homebuyers for refinancing at 2% or 1.5%, they know that an army of unscrupulous ‘mortgage brokers’ were dispatched to sign up anybody they could find and committing all manner of fraud along the way.
If the Federal Reserve had not been involved, those homeowners and homebuyers would never have been lied to, tempted and duped.
Want to fund your kid’s college? Want to start a business? Want to remodel and expand your home for a growing family? Sign up today! And don’t worry, you can refi later or sell for a higher price!
This garbage was hatched on Wall St. with the Federal Reserve funding it.
Spend a little effort on the chronology of the event. It started when Bill Clinton expanded the Affordable Housing Act in 1996, and the banking regulators told banks that they would not approve M&A activity unless the banks played ball.
Everything after that was building the Rube Goldberg machine to keep the Merry Go Round spinning. You are concentrating on one of the horses on the ride.
You can blame Wall Street for finding a way to make oodles of money from the stupid position they found themselves placed in, but to put the blame on them for starting it is just plain wrong. Everything that the banks did was not only approved of by the regulators, it was encouraged.
But you won’t bother. Your mind is made up and don’t want to be confused by the facts.
By the way, did you bothered to read the top of the article you linked? Here it is:
“Eamonn Fingleton , CONTRIBUTOR
A sharp eye on media bias, official propaganda, and globaloney.
Opinions expressed by Forbes Contributors are their own.”
Opinion. Not fact.
> “banking regulators told banks that they would not approve M&A activity unless the banks played ball”
What specific M&A activity are you referring to? It wasn’t between commercial banks. What was it. Name one example.
Yeah, I read it but it doesn’t matter because everything in it is factual.
For example, Greenspan was involved in the Keating 5 scandal.
I also saw the video interview of Brooksley Born where she named Greenspan directly. She’s not a liar because there are meeting minutes where Greenspan is quoted using his tortured logic that free market forces would curtail the expected abuses. Only such forces were outweighed by greed which is documented in the TRUE NON-FICTION written by Michael Lewis.
Everything written in that Forbes piece is backed up by documented fact. The writer even goes so far as to say that the label ‘immoral’ placed on Greenspan by others is a stretch and that the proper label is ‘wacky’, making Greenspan the most dangerous fool of that time.
The Fed needs reform bigtime. It needs checks and balances. Greenspan played along with Congress and Wall St. to screw a generation of Americans. Whether or not he intended makes no difference. It must not be allowed to happen again and it won’t be with the plans the Trump Administration has in store for it.
There’s a well-known road of good intentions leading straight to Hell. Greenspan and the Fed walked down it with Congress and Wall St. The Fed was involved in it, they were part of it. They had the power to say no. They didn’t.
“There is no question that the Federal Reserve played a significant role in the financial collapse. It is a FACT.”
Not really. There isn’t any evidence of Fed responsibility in the Forbes article.
What there is, is evidence of Greenspan’s enthusiastic support of the bi-partisan efforts in Congress during the late Clinton administration to radically deregulate the financial industry under the crackpot libertarian idea that “markets will regulate themselves”.
Greenspan didn’t have the power to prohibit Brooksley Born and the CFTC from regulating credit default swaps. Congress did, and Born resigned when they passed the Commodities Futures Modernization Act that kept OTC derivatives unregulated.
Greenspan certainly encouraged some of the worst impulses of Congress and was one of the fools who couldn’t spot the biggest bubble of his lifetime. But the Fed’s role in the bubble was pretty much limited to keeping interest rates extremely low post 9-11, which had large investors hunting for yield and is one very big reason that they were interested in purchasing high yield subprime mortgages.
It was Nixon, not the Fed, who ended the dollar’s linkage to gold. Politicians, not central bankers, resent the constraints that a gold standard imposes. The Fed was created and functioned just fine during the years that we had a gold standard. It didn’t lobby for an end to Bretton Woods.
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