Audit the Fed Hearing Tomorrow! Your help needed now!

September 24, 2009 · Posted in Politics · Comment

From John Tate, President of Campaign for Liberty:

September 24, 2009

Dear Friend of Liberty,

This Friday, the House Financial Services Committee will meet at 9 am eastern to hold a hearing on Congressman Paul’s Audit the Fed bill, HR 1207.

We have come a long way in this historic effort, but your action is needed now more than ever.

Click here to find the names of the representatives on the Financial Services Committee and to get their contact information.  Even if they do not represent your district, be sure to call as many of them as you can anyway, as their work on the Committee greatly impacts every one of us.

Urge them to pass the Audit the Fed bill to the floor on its own merits and not as part of an overall package that would strengthen the Federal Reserve and further damage our economy.  Transparency in our monetary system is too important to be smothered in yet another Washington regulatory bill.

If your representative is not on the Committee, please contact him as well and tell him you want to know what the Fed has done with your money.  Demand a standalone vote on Audit the Fed and that he cosponsor HR 1207 if he has not yet done so.

The hearing will be streamed live on the Committee’s website.

This hearing would not have taken place if not for all of your hard work in calling, writing, faxing, and petitioning Congress to support HR 1207 and S 604, its Senate companion.

It’s incredible to see all the support we have amassed in this historic effort, but if we want to achieve a complete victory, we must now push harder than ever and turn the heat up!

Your call could have a critical impact on your representative’s decision. Contact them immediately!

In Liberty,

John Tate
President

Tags: audit the fed, federal reserve bank

Federal Reserve Continues to Push on a String

August 17, 2009 · Posted in General Economics · 1 Comment

The AP noted today that With credit tight, Fed extends consumer loan plan:

With banks limiting the availability of auto, student and other consumer loans, the Federal Reserve said Monday it would extend a program intended to help spur more lending at low rates.

The program is set up to provide up to $1 trillion in low-cost financing to investors to buy securities backed by consumer and commercial loans. But private economists said the program, Term Asset-Backed Securities Loan Facility, or TALF, has so far provided little benefit for consumers and businesses still struggling to get credit.

The program, originally set to expire at the end of the year, has two parts.

The part aimed at boosting consumer and business lending is being extended through March. The part geared toward boosting new commercial real estate lending will run through June, because of the extra time typically needed to complete such deals. Delinquency rates on such loans have soared as companies have downsized or closed their doors, the Fed has said.

TALF was created in March, part of the efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and fight the recession. Under the program, the Fed allows for low-rate financing for investors to buy securities backed by credit card debt, auto loans, student loans and loans to small businesses. The market for such loans essentially froze up last fall with the eruption of the worst financial crisis since the Great Depression.

The program has the potential to generate up to $1 trillion in lending, according to the government. But participation has been scant: As of Aug. 12, the value of loans outstanding stood at just $29.6 billion.

To get an idea of how successful the Fed’s program to bring back consumer lending has been, please consider the latest update on consumer credit:

In June 2009 total consumer credit volume dropped to $2.48 trillion. It fell by $17.2 billion (0.7%) from May 2009 and a total of $110.5 billion (4.3%) since its peak in December 2008; an ongoing corollary of deflation, overall contraction, and ending consumerism.

It is important to understand what is so misguided about these ideas. We hear it again and again, how the Fed will continue to push for more credit, borrowing, lending, consumption, etc. Rarely ever do we hear the question asked “Do people want any more debt?”. The simple answer: No. People are sick and tired of debt. The Fed can try as much as it wants, it won’t be able to force lending. When people have had enough they have had enough.

Since this causality is not intuitive for everyone to understand, Robert Prechter came up with a neat example that explains the concept a little better, I already posted it before:

Jaguar Inflation

I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject so let’s try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing it with tax money. To everyone’s delight , it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores and buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory – ironically now made fact – the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline , so many of the Jaguars rust away to worthlessness. The number of Jaguars – at best – returns to the level it was before the program began.

The same thing can happen with credit.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit production plants all over the country, called Federal Reserve Banks. To everyone’s delight , the banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so it lowers the price to 1 percent. People return to the banks and buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory – ironically now made fact – the economy will recede. People are working three days a week just to pay the interest on their debt so the banks can keep offering more credit. If credit stops moving the economy will stop. So they start giving credit away at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if they’re free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts , so many bonds deteriorate away to worthlessness. The value of credit – at best – returns to the level it was before the program began.

This is exactly the situation we have in the US. People took on way more credit than they could ever pay off. They have over borrowed, over spent, over consumed. The contraction we see now is the deflationary payback for years of unprecedented profligacy. When people have had enough of something, they’ve had enough. Jaguars? Anyone?

Tags: consumer credit, credit, federal reserve bank, talf

AIG – A Ponzi Scheme, Endorsed and Bailed Out by Uncle Sam

July 31, 2009 · Posted in Interventionism · Comment

AIG, of which, since the “rescue”, 80% is now owned by the Federal Reserve Bank, is a bloated, confusing, procrastinating, monstrous, liabilities-shifting, allegations-denying, catchphrase-uttering apparatus whose cracks are leaking left and right:

The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows.

Over time, the weaknesses could mean trouble for A.I.G.’s policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if there is any doubt that they can cover their claims. But in A.I.G.’s case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers.

In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.

My comment: This sounds a lot like the early assurances that “sub-prime” was a well contained issue that will have no spill over effects to other sectors, right Mr. Bernanke? It was obviously clear to everyone that these statements from the insurance regulators were complete and utter nonsense, right?

But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.

More ominously, many of A.I.G.’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella.

Echoing state regulators’ statements, the company said the interdependency of its businesses posed no problem and strongly disputed that any units had obligations they could not pay.

“There is absolutely no concern about the capital in these companies,” said Rob Schimek, the chief financial officer of A.I.G.’s property and casualty insurance business. The company authorized him to speak about these issues.

My comment: If there was absolutely no concern, then why does Mr. Schimek have to assure us so vehemently? What he really means is of course “There are serious, really serious, concerns about the capital in these companies but I am hoping we can hide it for as long as I am still in charge”.

Nothing is wrong with spreading risks to other companies, a practice known as reinsurance, when it is carried out with unrelated, solvent companies. It can also be acceptable in small amounts between related companies. But A.I.G.’s companies have reinsured each other to such a large extent, experts say, that now billions of dollars worth of risks may have ended up at related companies that lack the means to cover them.

“An organization like this one relies on constant, ever-growing premium volume, so it can cover and pay for the deficits,” said W. O. Myrick, a retired chief insurance examiner for Louisiana. If A.I.G.’s incoming premiums shrink, he warned, “the whole thing’s going to collapse in on itself.”

My comment: … also known as a “Ponzi scheme”.

Mr. Myrick has not fully examined all the A.I.G. subsidiaries but said his own recent review of many state filings raised serious concerns, particularly about the use of reinsurance to “bounce things around inside the holding company group.”

“That is a method used by holding companies to falsify the liabilities,” he said.

A.I.G.’s premiums have, in fact, been declining in important lines. Its ratings have fallen, and customers tend to steer clear of lower-rated insurers. To woo them back, A.I.G. has in some cases lowered its prices, competitors say. A.I.G. executives insist they would rather lose a customer than drive down prices dangerously.

A.I.G. has also pledged a share of its life insurance premiums to the Fed, to pay back about $8 billion. Details have not been provided, but consumer advocates say it is not clear how the life companies will pay future claims if their premiums are diverted.

“Eventually, there’s going to be a battle between the policyholders and the feds,” said Thomas D. Gober, a former insurance examiner who now has his own forensic accounting firm that specializes in insurance fraud. “The Fed is going to say, ‘We want our money back,’ but the law says, ‘Policyholders come first.’ It’s going to be ugly.”

Mr. Gober is a consultant for a lawsuit on behalf of A.I.G. policyholders, filed in California Superior Court in Los Angeles. The lawsuit seeks a court order requiring all A.I.G. subsidiaries doing business in California to put enough money to cover their obligations into a secure account controlled by the state treasurer.

The goal is to keep money from being moved out of California or used to finance A.I.G.’s other activities, said Maria C. Severson, a lawyer for the plaintiffs. The lawsuit also seeks to bar A.I.G. companies from soliciting new business without full disclosure of their financial condition.

The condition of A.I.G.’s individual companies is hard to see in the parent company’s filings with the Securities and Exchange Commission. Those filings simply tally all the individual subsidiaries’ financial information.

The companies’ weaknesses emerge in their filings with state insurance regulators — particularly when several are reviewed together. But that appears not to happen often, because there are so many. A.I.G. has more than 4,000 units in more than 100 countries.

Responsibility for A.I.G.’s 71 American insurance companies is spread among 19 state insurance commissions, which do not conduct examinations simultaneously.

As a result, Mr. Myrick said, a conglomerate like A.I.G. “can keep moving assets around to clean up one company” at a time, when examiners were looking. He said that it would take a coordinated, multistate examination of all the insurance companies to catch this.

Mr. Schimek, speaking for the insurance companies, said that in 2005, a team of examiners had at least considered A.I.G.’s property and casualty businesses as a group.

“It was a thorough examination,” he said. “I have absolutely no concern about the integrity of the financial information that’s been filed under my watch.”

My comment: Translation: “I am absolutely and 100% concerned about the integrity of the financial information filed under my watch.”

State regulators confirmed that they believed the A.I.G. subsidiaries under their authority were solvent. Mike Moriarty, deputy insurance superintendent for New York State, said that while A.I.G. subsidiaries did not report all their reinsured obligations on their balances sheets, state regulators could “follow the trail of liabilities” and make sure they did not get lost in the holding company.

Obligations “can’t be hidden from state insurance regulators,” Mr. Moriarty said.

One A.I.G. subsidiary, the National Union Fire Insurance Company of Pittsburgh, shows what can happen by heavily relying on affiliates. Its most recent regulatory filing in Pennsylvania said it had more than enough money to pay its obligations.

But at the end of 2008, more than a third of National Union’s portfolio was invested in the stock of other A.I.G. companies, which are not publicly traded. National Union might not be able to sell all of these shares, and it is not clear what it could get for them. Many states bar insurers from investing that heavily in related companies.

Meanwhile, National Union has $42.1 billion in obligations looming off its balance sheet. These have been transferred to 56 other A.I.G. companies, through reinsurance. National Union will have to pay any of these claims and then collect from its relatives.

But it is not clear that the affiliates could pay promptly. National Union’s biggest reinsurance partner is American Home Assurance, an A.I.G. subsidiary that has taken $23.1 billion of obligations off National Union’s hands. In a New York filing, American Home reports total assets of $26.3 billion, but part of that consists of assets that cannot be used to pay claims, like furniture. It too includes a number of investments in other A.I.G. companies.

My comment: This is, by and large, one of those cascading dependencies that I was talking about in Inflation & Deflation Revisited:

The US economy has been at the center of a worldwide network of such cascading credit relationships. Central banks loaned fiat money to fractional reserve banks, those would pass it on to financial institutions which would make it available as wholesale mortgages, individual mortgage banks would take those on and make loans to homebuyers. Insurance companies would insure one or the other loan in the chain and again consider the insurance policy as good as money, using it as collateral to obtain … more credit.

Everyone insures everyone and everyone thinks everything is fine. In the meantime the money has been squandered and it will come back to haunt everyone once everyone wants to see real cash.

In addition, American Home has “unconditionally” guaranteed the obligations of 16 other A.I.G. subsidiaries, bringing the total it might have to pay to $140.6 billion.

Normally, when an insurance company weakens, regulators in its home state will first measure its capital. They may demand a weak company rebuild its capital, and if it fails, eventually bar it from selling new policies.

Like New York regulators, Pennsylvania regulators say they do not see a problem. “The insurance companies remain strong and are probably the most valuable assets within the A.I.G. structure,” said Joel Ario, Pennsylvania’s insurance commissioner. “To the best we know it, we think the companies are sound.”

My comment: Haha, well put, commissioner! Such a statement requires no further comment.

But policyholder advocates said they feared state regulators were deferring to the wishes of the Fed and Treasury, to use the insurance operations to pay back the taxpayers.

“The insurance commissioners, for whatever reason, are letting them do this,” Mr. Myrick said. “I’d be jumping out of my shoes.”

Taxpayers won’t see their money back. Why would they?? The very purpose of corporate bailouts is to rip him off! It is what we already realized months ago: Sinking Money Down a Hole.

The government should have let AIG go bankrupt right then and there. Now the Fed is stuck with a huge non-performing asset that will be worth a tiny fraction of what they paid. Who knows, most likely the obligations to policy holders will be worth much more than what was acquired, in which case the value of assets held is less than zero. The oh so “independent” Fed just needs to assure us one thing: Don’t you dare come to the taxpayer and have the Treasury reimburse you for the losses you will suffer and probably have already suffered from this hideous acquisition of AIG!

Tags: aig, bailouts, federal reserve balance sheet, federal reserve bank

Audit the Fed – 75% in Favor – Time to Push Senate Bill

July 30, 2009 · Posted in Monetary Economics · 1 Comment

According to a recent Rasmussen poll, 75% support efforts to Audit the Fed:

So much for the ongoing secrecy of the nation’s independent central banking system. A new Rasmussen Reports national telephone survey finds that 75% of Americans favor auditing the Federal Reserve and making the results available to the public.

Just nine percent (9%) of adults think that’s a bad idea and oppose it. Fifteen percent (15%) aren’t sure.
Over half the members of the House now support a bill giving the Government Accounting Office, Congress’ investigative agency, the authorization to audit the books of the Federal Reserve Board.

This is great momentum. People aren’t buying Bernanke’s nonsense. But then, why should they? He has been consistently wrong on everything he said:

The new, opposite video is a compilation of the 2005–2007 prognostications of Federal Reserve Chairman Ben Bernanke. In it, Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right.

Could their differences in economic understanding have anything to do with this remarkable dichotomy? I have transcribed most of the video, and offer my own comments interspersed with it.

July 2005

INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?

BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.

This is not only wrong in hindsight; it’s a complete misunderstanding of the issue. Bernanke said that the housing boom was fine because it was supported by, among other things, growth in jobs, incomes, and in the economy in general. But that very growth itself was supported by the housing boom! For example, most of the job growth was in the housing sector. Witness Bernanke’s amazing levitating economy: its housing sector is held up by economic growth, which is held up by its housing sector. And it’s just as ridiculous that he denied the existence of a housing bubble by pointing to low mortgage rates. The low rates were a chief cause of the housing bubble, and were a direct result of his actions as Federal Reserve chairman.

July 2005

INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, “Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.” Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?

BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.

As Peter Schiff pointed out in his speech “Why the Meltdown Should Have Surprised No One,” while it is true that up until the housing crash, house prices hadn’t gone down on a nationwide basis, it’s also true that they had never risen so precipitously before either. Bernanke’s argument is akin to getting someone drunk for the first time, putting them in a car, and then saying, “He’ll be fine; he’s never been in a car accident before.”

That interview continued:

INTERVIEWER: So would you agree with Alan Greenspan’s comments recently that we’ve got some areas of that country that are seeing froth, not necessarily a national situation, but certainly froth in some areas?

BERNANKE: You can see some types of speculation: investors turning over condos quickly. Those sorts of things you see in some local areas. I’m hopeful — I’m confident, in fact, that the bank regulators will pay close attention to the kinds of loans that are being made, and make sure that underwriting is done right. But I do think this is mostly a localized problem, and not something that’s going to affect the national economy.

Bernanke’s Fed itself created the false signals that led to vast disruptions in the housing market. Speculators try to see through those disruptions and anticipate how prices will change as valuation mistakes are corrected in order to profit from them. In fact, their speculation is part of the correction process. If their speculation is on the mark, it speeds up the price-correction process. If it’s wrong, then the consequences are on their heads. Speculation is nothing but high-uncertainty entrepreneurship; and entrepreneurship is how optimal prices are found and markets clear. It was the Fed under Bernanke himself, and his predecessor Alan Greenspan, that created the price disruption and high uncertainty that made speculation profitable in the first place.

November 2006

BERNANKE: This scenario envisions that consumer spending, supported by rising incomes and the recent decline in energy prices, will continue to grow near its trend rate and that the drag on the economy from the [inaudible] housing sector will gradually diminish. The motor vehicles sector may already be showing signs of strengthening. After having cut production significantly in recent months, in response to the rise in inventory of unsold vehicles, automakers appear to have boosted the assembly rate a bit in November, and they have scheduled further increases for December. The effects of the housing correction on real economic activity are likely to persist into next year, as I’ve already noted. But the rate of decline in home construction should slow as the inventory of unsold new homes is gradually worked down.

Here we have the Keynesian fallacy (which I have written about here) that consumer spending, in and of itself, creates general increases in wealth. And note the irony in Bernanke applauding the boost in automotive production: the products accumulated during that boost turned out just to be more malinvestment to be liquidated or bailed out when Chrysler and GM collapsed.

February 2007

BERNANKE: We expect moderate growth going forward. We believe that if the housing sector begins to stabilize, and if some of the inventory corrections still going on in manufacturing begin to be completed, that there’s a reasonable possibility that we’ll see some strengthening in the economy sometime during the middle of the new year.

Our assessment is that there’s not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.

For Bernanke, healthy lending is the same thing as “a lot of lending.” This dovetails with his statement in the first interview, hailing low mortgage rates as a self-evidently good thing. He has no conception of an equilibrium interest rate determined by society’s average time preference, so bubbles will always surprise him. For more on this calamitous gap in Bernanke’s understanding, see “Manipulating the Interest Rate: a Recipe for Disaster” by Thorsten Polleit.

July 2007

BERNANKE: The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.

Strengthening in 2008? Perhaps the biggest confirmation ever of Rockwell’s Law: always believe the opposite of what government officials tell you.

Bernanke’s own words, in light of how the crisis developed, are a testament to much more than his own personal failings as a forecaster and policy maker. They demonstrate the complete inadequacy of mainstream macroeconomics in its present state, devoid as it is of the essential insights of the Austrian School. They also reveal the folly of the very idea of giving a single man and his institution the power to centrally plan the most important price in the economy: the rate of interest. Make no mistake: the present economic crisis was brought on by central planning. It is unsettling to think that the fellow in the new video who so badly misread an economy on the brink is arguably the most powerful central planner in the world.

But even the most powerful and sequestered bureaucrat is not completely invulnerable. The Federal Reserve Transparency Act and the End the Fed movement have ruffled the Fed’s feathers enough that Bernanke actually felt the need to address the public in a “townhall forum” to be broadcast on the News Hour. According to NPR,

after the forum was over, a Fed employee passed out souvenirs, an unintended metaphor perhaps for what some fear Bernanke’s aggressive policies may eventually do to the currency: shredded cash.

The Fed employee, who apparently suffers from a defective sense of irony, was even recorded saying, “Here, you want money?” and, “Here’s some free shred folks, thanks for coming by, we appreciate it,”

No, no, thank you and your boss, Mr. Fed employee. Within the space of days, we’ve been provided, courtesy of the Fed itself, with footage that perfectly distills the complete failure of Fed forecasting and planning, and audio that encapsulates splendidly the only thing that the Fed actually accomplishes: the destruction of money.

Everyone can do their part to put an end to this shenanigans: Support the Audit the Fed Bill in the House of Reperesentatives.

But now it’s also time to Push the corresponding Senate bill, S604. Without it, all efforts in the House are futile. Momentum is building, the Senators will listen if their offices are flooded with faxes and calls:

Start your phone tree to call the committee to support the bill.
http://banking.senate.gov…?
Link to bill info:
http://thomas.loc.gov/cgi…

# Denotes on Banking Committee!
~ Denotes up for reelection!

Graph of S604 by 95687-for-rp:
http://spreadsheets.googl…

SPONSOR: SANDERS, BERNARD (I – VT) 202 224 – 5141

CO-SPONSORS

Sen DeMint, Jim [SC] – 6/11/2009
Sen Vitter, David [LA] – 6/16/2009
Sen Crapo, Mike [ID] – 6/25/2009
Sen Isakson, Johnny [GA] – 7/8/2009
Sen Chambliss, Saxby [GA] – 7/8/2009
Sen Brownback, Sam [KS] – 7/8/2009
Sen Inhofe, James M. [OK] – 7/9/2009
Sen Burr, Richard [NC] – 7/9/2009
Sen Feingold, Russell D. [WI] – 7/15/2009
Sen Lincoln, Blanche L. [AR] – 7/15/2009
Sen McCain, John [AZ] – 7/15/2009
Sen Bennett, Robert F. [UT] – 7/15/2009
Sen Barrasso, John [WY] – 7/15/2009
Sen Harkin, Tom [IA] – 7/20/2009
Sen Hutchison, Kay Bailey [TX] – 7/20/2009
Sen Cornyn, John [TX] – 7/20/2009
Sen Coburn, Tom [OK] – 7/20/2009
Sen Hatch, Orrin G. [UT] – 7/24/2009
Sen Graham, Lindsey [SC] – 7/24/2009
Sen Cardin, Benjamin L. [MD] – 7/28/2009

SENATOR – position on S604

#Akaka, Daniel K (D-HI)202-224-6361fax:202-224-2126 – neutral
Alexander, Lamar (R – TN) 202 224-4944 – neutral
Baucus, Max (D – MT) 202 224-2651 – neutral
~#Bayh, Evan (D – IN) 202 224-5623 fax: 202-228-1377
Begich, Mark (D – AK) 202 224-3004 – unknown
~#Bennet,Michael (D – CO)202-224-5852fax:202-228-5036
Bingaman, Jeff (D – M) 202 224-5521- neutral
~Bond, Christopher S.(R – MO) 202 224-5721-neutral
~Boxer, Barbara (D – CA) 202-224-3553
#Brown, Sherrod (D-OH)202-224-2315fax:202-228-6321 – neutral
~#Bunning, Jim(R-KY)202-224-4343fax:202-228-1373 – supportive
~Burris, Roland W (D – IL) 202 224-2854 – neutral
Byrd, Robert C.(D – WV) 202 224-3954 – neutral
Cantwell, Maria (D – WA) 202 224-3441 – neutral
Carper, Thomas R (D – DE) 202 224-2441 – unknown
Casey, Robert P. Jr (D – PA) 202 224-6324 – neutral
Cochran, Thad(R – MS) 202 224-5054 – unknown
Collins, Susan M.(R – ME) 202 224-2523 – neutral
Conrad, Kent (D – ND) 202 224-2043 – unknown
#Corker, Bob (R-TN)202-224-3344 fax: 202-228-0566 – neutral
~#Dodd, Chris J(D-CT)Chairman202-224-2823f:202-224-1083
~Dorgan, Byron L (D – ND) 202 224-2551
Durbin, Richard J (D – IL) 202 224-2152
Ensign, John (R – NV) 202 224-6244
Enzi, Michael B (R – WY) 202 224-3424
Feinstein, Dianne (D – CA) 202 224-3841
Franken, Al (D-MN) 202-224-5641
Gillibrand, Kirsten E (D – NY) 202 224-4451
~Grassley, Chuck (R – IA) 202 224-3744
~Gregg, Judd (R – NH) 202 224-3324
Hagan, Kay R (D – NC) 202 224-6342
~Inouye, Daniel K (D – HI) 202 224-3934
#Johanns, Mike (R – NE) 202 224-4224 fax: 202-228-0436
#Johnson, Tim (D-SD) 202 224-5842 fax: 202-228-5765
Kaufman, Edward E (D-DE) 202 224-5042
Kennedy, Edward M (D-MA) 202 224-4543
Kerry, John F (D-MA) 202 224-2742
Klobuchar, Amy (D-MN) 202 224-3244
#Kohl,Herb (D-WI) 202 224-5653 fax: 202-224-9787
Kyl, Jon (R – AZ) 202 224-4521
Landrieu, Mary L 202 224-5824
Lautenberg, Frank R (D – NJ) 202 224-3224
~Leahy, Patrick J (D – VT) 202 224-4242
Levin, Carl (D – MI) 202 224-6221
Lieberman, Joseph I (ID – CT) 202 224-4041
~Lincoln, Blanche L (D – AR) 202 224-4843
Lugar, Richard G (R – IN) 202 224-4814
~#Martinez, Mel (R-FL) 202224-3041 f:202-228-5171
~McCain, John (R – AZ) 202 224-2235
McCaskill, Claire (D – MO) 202 224-6154
McConnell, Mitch (R – KY) 202 224-2541
#Menendez, Robert (D-NJ) 202-224-4744 fax: 202-228-2197
#Merkley, Jeff (D – OR) 202 224-3753 fax: 202-228-3997
~Mikulski, Barbara A (D – MD) 202 224-4654
~Murkowski, Lisa (R – AK) 202 224-6665
~Murray, Patty (D – WA) 202 224-2621
Nelson, Ben (D – NE) 202 224-6551
Nelson, Bill (D – FL) 202 224-5274
Pryor, Mark L (D – AR) 202 224-2353
#Reed, Jack (D – RI) 202 224-4642 fax: 202-224-4680
~Reid, Harry (D – NV) 202 224-3542
Risch, James E. (R – ID) 202 224-2752
Roberts, Pat (R – KS) 202 224-4774
Rockefeller, John D IV (D – WV) 202 224-6472
~#Schumer, Charles E (D-NY) 202 224-6542 fax: 202-228-3027
Sessions, Jeff (R – AL) 202 224-4124
Shaheen, Jeanne (D – NH) 202 224-2841
~#Shelby, Richard C(R-AL)Ranking Member202 224-5744fax: 202-224-3416
Snowe, Olympia J (R – ME) 202 224-5344
~Specter, Arlen (D – PA) 202 224-4254
Stabenow, Debbie (D – MI) 202 224-4822
#Tester, Jon (D-MT) 202 224-2644 fax: 202-224-8594 t
~Thune, John (R – SD) 202 224-2321
Udall, Mark (D – CO) 202 224-5941
Udall, Tom (D – NM) 202 224-6621
~Voinovich, George V (R – OH) 202 224-3353
#Warner, Mark R (D – VA) 202 224-2023 fax: 202-224-6295
Webb, Jim (D – VA) 202 224-4024
Whitehouse, Sheldon (D – RI) 202 224-2921
Wicker, Roger F (R – MS) 202 224-6253
~Wyden, Ron (D – OR) 202 224-5244

{My script was as follows:
Hi, How are you. My name is: … from city, state. I’m calling Senator … to urge him/her to support S 604 Federal Reserve Sunshine Act of 2009.
Remember to stay polite above all else. You’ll get more bees with honey than vinegar. Plus, a friendly face to face meeting goes a long ways. Act just like a professional lobbyist would. Our mission is to sell S604.}

Post from Liberty_Mike with complete addresses
http://www.dailypaul.com/…

Updated with the fax numbers thanks to Qwerk
Updated with election cycle thanks to cactus1010

Tags: audit the fed, federal reserve bank, hr1207, s604

Bernanke on Excess Reserves and Broad Money Measures

July 25, 2009 · Posted in Monetary Economics · Comment

I agree (believe it of not) with a few statements that Bernanke made in the recent hearing.

In this statement I agree that the Fed has made available lots of reserves, but the banks are not loaning those out:

And in this one I agree with the fact that, even though base money supply has exploded, broader money measures are not necessarily growing rapidly:

Ron Paul is very adamant about the issue of inflation. But what he is talking about is monetary inflation, not total inflation. In doing so he is missing the point. The problem with the current Fed policies is not that they will be sparking another inflation. The problem is that they slow down and prolong the current correctional period, the deflation that is going on right now.

Tags: ben bernanke, federal reserve bank

Federal Reserve Officials Lost in Mindless Blather

July 10, 2009 · Posted in Monetary Economics · Comment

Grilled by Ron Paul, Kohn warns Congress on meddling in Fed’s affairs:

The Federal Reserve on Thursday launched a robust defense of its independence and warned that efforts in Congress to put monetary policy under political sway would hurt the economy.

Fed Vice Chairman Donald Kohn said opening up some of the U.S. central bank’s most sensitive decisions to political scrutiny could result in higher long-term interest rates and hurt the United States’ credit rating.

Testifying before a congressional panel, Kohn sought to beat back a proposed bill that would open the U.S. central bank’s policy decisions to audits by a federal watchdog agency. More than half of the members of the U.S. House of Representatives have signed as co-sponsors of the measure.

“Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation,” Kohn told a House subcommittee.

Kohn’s testimony comes as Congress debates President Barack Obama’s plan for regulatory reform, which envisions the Fed taking on an expanded role monitoring risks across the entire financial system to help ward off future financial crises.

The proposal has boosted calls for greater accountability at the central bank, which already faces heavy scrutiny from lawmakers troubled by its role in bailing out Wall Street.

Kohn said the administration’s plan would not greatly expand the Fed’s power, and said it would work hand-in-glove with monetary policy, not compromise it as some critics contend.

BACKLASH

Fed officials have had to endure rigorous congressional grillings over their aggressive actions to restore financial calm. Their e-mails have been subpoenaed, recalling past episodes when the central bank came under attack and was forced to yield to the political will.

The proposed bill, put forward by Representative Ron Paul, a Texas Republican and long-standing Fed foe, would expose decisions on monetary policy and emergency lending to audits by the Government Accountability Office.

The GAO is currently prohibited from auditing these areas. Kohn said removing this exclusion would be highly detrimental and could lead investors to worry that politics — not economics — would guide the Fed’s decisions.

“The Federal Reserve strongly believes that removing the statutory limits on GAO audits of monetary policy matters would be contrary to the public interest by tending to undermine the independence and efficacy of monetary policy,” Kohn said.

He also said it could “cast a chill” on monetary policy deliberations by making officials nervous that ideas they discuss behind closed doors could become public.

Paul denied his bill was about Fed independence. “We are not looking to the Congress to run monetary policy. We just want to know what’s going on, and why,” he told Kohn.

However, the bill would remove a provision of law that exempts Fed monetary policy decisions, transactions with other central banks and discussions between Fed officials from GAO audits.

Political attacks on the Fed are not new. Representative Henry Gonzalez pushed hard in the 1990s to force the central bank to publish transcripts of its policy meetings after he exposed that the meetings had been discretely recorded.

Paul’s bill has 250 co-sponsors, including 78 Democrats. But it has not been promoted by the Democratic majority leadership in the House, where it has yet to face even a committee-level vote.

If it were to emerge from the House, to become law it would also need to clear the Senate, where support may be scant.

AAA DANGER

Kohn warned that congressional meddling in the Fed’s affairs could threaten the United States’ AAA credit rating and drive up interest rates.

“History provides numerous examples of non-independent central banks being forced to finance large government budget deficits,” he said. “Such episodes invariably lead to high inflation.”

Some investors are already worried the Fed could begin to “monetize” the debt, and Kohn and St. Louis Federal Reserve Bank President James Bullard said with debt skyrocketing, the Fed’s independence had to be fiercely protected.

“Any kind of hint that you are trying to take away Fed independence could be very counterproductive at this point in time,” Bullard told Bloomberg television.

The Fed cut overnight interest rates almost to zero in December and has pledged to buy up to $1.75 trillion of longer-dated government debt to try to end the worst U.S. recession in decades.

Two other Fed policy-makers also spoke publicly on Thursday.

Minneapolis Federal Reserve Bank President Gary Stern said recovery was “close at hand,” [ID:nNYS005219] and Fed Governor Elizabeth Duke agreed, though she urged banks to do more to get credit flowing.

“Economic conditions are stabilizing or, where they are still deteriorating, appear to be doing so more slowly,” she said.

Kohn is seriously trying to tell the people that they are better off if they don’t know what he is doing behind closed doors. Ron Paul is not asking for Congress to run the Fed, he is asking that the representatives of the people know what an institution that has bee chartered by the public trust is doing. It is curious that Fed officials are so reluctant when it comes to opening up their books about relevant data, and letting the people know what is going on.

If this kind of independence was so great, then why don’t we make all government institutions independent of everyone?

Here is Ron Paul grilling Kohn:

Tags: audit the fed, federal reserve bank

Audit the Fed – Breaking News

July 6, 2009 · Posted in Politics · Comment

A message from John Tate with C4L:

Dear Friend of Liberty,

Earlier today, the first shot in our battle to pass Audit the Fed through the U.S. Senate was fired on the Senate floor by Senator Jim DeMint of South Carolina.

Senator DeMint, who has a well-deserved reputation for taking the battle to the other side in the Senate, once again proved why he is such a valuable ally in our fight to bring transparency and accountability to the Federal Reserve.

A little while ago, the Senate voted to pass HR 2918, the Legislative Branch Appropriations Act. This $3 billion bill contains, among many other things, provisions for GAO audits on certain agencies.

Seizing on a chance to take quick action to bring Audit the Fed up for a vote, and with the GAO provisions in mind, Senator DeMint attached the full text of S 604, the Senate version of Ron Paul’s Audit the Fed bill, to HR 2918 as Senate Amendment 1367 before it was considered for final passage.

However, Senate Democrats refused to even allow a vote on the amendment! That’s right. The internationalist, Fed-loving elite in the Senate used a parliamentary tactic to shut down DeMint’s amendment.

After Senator DeMint brought Audit the Fed to the floor, Senator Ben Nelson of Nebraska raised a “point of order” to prevent a vote, claiming that the amendment violated Senate Rule 16 by “legislating” on an appropriations bill. The Senate president agreed, and the amendment was shot down.

Senator DeMint did not back down, though, and directly challenged Senate leadership by pointing out the other GAO audits contained in the bill. As Senator DeMint listed them off, the Senate president was forced to agree with Senator DeMint that each one he described, all of which would be left in for final passage, also violated Senate Rule 16.

Which tells us at least one thing: the problem wasn’t with “legislating” on the bill or violating Senate Rules (which is commonly done). Shooting down the amendment was about preventing a thorough audit of the Federal Reserve for the first time in its history!

Senate leadership is hoping this issue will just fade away so they can get on to what they deem to be more “important” business, like dictating what kind of healthcare plan you and I can carry or passing destructive Cap-and-Tax legislation.

But the American people deserve answers on what the Fed has done with trillions of our tax dollars and what they are committing us and future generations to as part of their secret deals with foreign central banks and governments.

The leadership decided today to turn their backs on transparency, but our fight is just beginning.

As Senator DeMint made clear on the floor, the Audit the Fed bill has wide bipartisan support. He rightly warned the Senate that even if they delay today, they WILL have to deal with the issue on the floor.

It is up to you and me to back up Senator DeMint’s words by making sure the momentum continues to build and the bill comes up for a final vote.

The rejection of the Audit amendment is just the first battle in our war. Now is the time to really put the pressure on the U.S. Senate to Audit the Fed!

Senator DeMint fired the opening salvo and showcased the hypocrisy of the Senate for allowing other GAO audits to be included in the bill while refusing to even allow a vote on Fed transparency.

Again, we’re just getting started. Senator DeMint will keep fighting to pass Audit the Fed on its own or as an amendment, and we need to continue putting pressure on our senators to do everything in their power to achieve a floor vote!

Click here to sign our online petition. And visit our Audit the Fed action page for contact information to call, write, and fax your senators and urge them to support S 604 and to push for a final vote.

Together, we will finish this fight to Audit the Fed!

In Liberty,

John Tate

President

Here is Jim DeMint in the Senate:

Tags: audit the fed, demint, federal reserve bank

Ben Bernanke – Nothing but a Miserable Failure

June 29, 2009 · Posted in Politics · Comment

Watch Mish blast Bernanke as he lists his ten “qualifications”:

Ten Qualifications

1) Bernanke is either a liar or has a memory problem. I believe the former. Either way, there is a problem when a Fed chairman cannot recall a conversation with another Fed governor over something as critical as the Bank of America/Merrill Lynch merger. See Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl” for my take.

2) Bernanke claims to be a student of the great depression yet amazingly concludes the cause was misguided Fed policy after the stock market crash. This is nonsense. The cause of the great depression and the cause of the current depression (yes we are in a depression), is the massive expansion of credit and debt fostered by the Fed itself. Bernanke is no student of history, he is a dunce.

3) Bernanke has on many occasions promised transparency. This is an outright lie. There is no transparency and Bloomberg has filed freedom of information lawsuits requesting information that should have been disclosed. Moreover, Congress had to subpoena the Fed in regards to the Bank of America / Merrill Lynch shotgun wedding which is how we know about Bernanke’s selective memory loss. What else is Bernanke hiding?

4) Bernanke is creative. Some might think creativity is a positive attribute. It is, for a design engineer. Unfortunately creativity is not a good attribute for a Fed chairman. This whole mess was sponsored by the Fed when Greenspan got creative with interest rate policy. Bernanke is light-years more creative than Greenspan as witnessed by an amazing array of Fed lending facilities and the ballooning of the Fed’s balance sheet swapped for garbage collateral. The unintended consequences of Bernanke’s extraordinary actions are coming down the road. We do not even know what those consequences are. However, we do know that the Fed has no exit policy, and will come up with one by the seat of Bernanke’s pants on the fly. Given there is no need for the Fed at all, the last thing we need is for a creative Fed.

5) Bernanke supports policies of theft. Proof of this is easy to establish. Bernanke favors a policy of 2% inflation, and inflation is theft. How so? Inflation benefits those with first access to money: governments, banks, and the wealthy. Government benefits when property taxes rise more than wages, banks benefit by borrowing money into existence, and the already wealthy benefit by being next in line for access to cheap money. By the time those low on the totem pole have access to cheap money, asset prices are already through the moon. Moreover, those with enough common sense to avoid the bubbles, get nothing for their money sitting in the bank. The middle class has been ravished by inflation, and Bernanke supports that inflation.

Please note that Bernanke cannot even follow his own mandate. Where was Bernanke when property and commodity prices were soaring? The answer is he was ignoring them. Thus we see the one sided nature of Bernanke’s policies. He let home prices soar, and now that they are crashing looks to support them. By the way, this is not just Bernanke, this is a symptom of central bankers in general.

6) Bernanke cannot dissent. As a member of the Greenspan Fed, Bernanke went along with everything Greenspan did. It is clear Greenspan failed. Thus it is clear that Bernanke failed by supporting Greenspan’s policies.

7) Bernanke supports policies of outright fraud. Fractional reserve lending is a fraud. Please consider Murray N. Rothbard and the Case for a 100 Percent Gold Dollar in which Rothbard condemned fractional reserve banking as a violation of contract. “In my view, issuing promises to pay on demand in excess of the amount of the goods on hand is simply fraud, and should be so considered by the legal system. For this means that a bank issues “fake” warehouse receipts — warehouse receipts, for example, for ounces of gold that do not actually exist in the vaults. This is legalized counterfeiting; this is the creation of money without the necessity of production, to compete for resources against those who have produced. In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy….”

8) Bernanke could not spot the housing bubble. Amazingly Bernanke thought the housing bubble was “well contained” right before it exploded in his face. Of course there is another possibility: Bernanke is a liar and knew it was not contained but did not want to say so.

9) Bernanke has no idea where interest rates should be. Of course no one else does either. But Bernanke thinks he does. The result is overshooting interest rate policy in both directions, just as Greenspan did. This is the Fed Uncertainty Principle Corollary Number One in action: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

10) Bernanke is a power grabbing hack. This is the Fed Uncertainty Principle Corollary Number Two in action: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Summary:

Bernanke is a disingenuous liar with a memory problem. He is also an economic dunce who does not understand the cause of great depression nor could he spot a housing/credit bubble visible to nearly every blogger in the country. However, like his mentor Greenspan, Bernanke believes that every problem can be cured by throwing money at it. Finally, he is a creative, political power grabbing hack who gives memorable speeches about throwing money out of helicopters.

I have to hand it to Caroline. That is indeed a unique set of qualifications.

Bernanke’s four-year term ends in February, let us hope he is gone. Better yet, it’s time to Audit the Fed Then End It!

As I pointed out before, Ben Bernanke is consistently wrong on virtually everything he says:

Let’s see what Bernanke had to say about 1 year ago in April 2008 …

Mr. Bernanke, testifying before the Joint Economic Committee on Capitol Hill, said the economic situation had weakened since the Fed last reported at the end of January but that it could revive later in 2008 because of the $150 billion spending and tax cut package enacted this year.

There is one thing you can trust Bernanke with – the fact that he is wrong, always and everywhere…In one year from now, when condidtions are worse than now, what do you think he will tell us then? Is anybody still listening to this guy? If so … why?

And here’s Bernanke in May 2007:

All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.

And I may point out that Bernanke needs to be tried as a criminal:

For all I know, this means that Paulson all but admitted to performing securities fraud, at the behest of Ben Bernanke. Bank of America shareholders have a clear case here. It’s time to let the indictments begin…

Mr. Bernanke, you need to step down, get ready to be tried in court, stop trying micromanage the economy, and above all Shut the Hell Up.

Meanwhile, Congress needs to Audit the Fed, expose it, and the get rid of it once and for all.

Tags: audit the fed, ben bernanke, federal reserve bank

The Federal Reserve’s Power Grab – The Insanity Knows no Boundaries

June 24, 2009 · Posted in Interventionism · Comment

Statements from President Obama and the people around him reaffirm a sad fact. They have not learned a single thing. The New York Times writes Behind the Scenes, Fed Chief Advocates Bigger Role:

WASHINGTON — During the debate over financial regulation, the Federal Reserve chairman, Ben S. Bernanke, has been surprisingly quiet.

But behind the scenes, he has been a forceful proponent of giving the Fed more power, both defending his management of the economic crisis and arguing that more authority would help the agency act more decisively to reduce the chances of a recurrence, according to interviews with lawmakers and officials from the Fed, the Treasury and the White House.

I may point out, as I have again and again, that credit expansion and the consumption business cycle were created by none less than the central bank, the Federal Reserve Bank, and the fractional reserve banks under its oversight. Giving the Fed more power will accomplish the opposite of reducing the chance of a recurrence. We need more regulation, not more decrees from a government institution, or an institution that only exists by means of government granted monopoly. More regulation can only be attained through the market place.

Despite criticism by some lawmakers that the Fed failed to anticipate the problems that led to the crisis, Mr. Bernanke has told associates that such critics fail to recognize the extraordinary actions taken by the central bank over the last year.

What the Fed has done over the last year was to get involved in corporate bailouts and an attempt to force lending. How are corporate bailouts a good thing? All they accomplish is to slow down and prolong the correction. What has the lending to banks accomplished? Are banks lending more now than 1 year ago? No, as a matter of fact credit is visibly imploding across the board. And in fact they shouldn’t be making any more loans. Bernanke still hasn’t been able to grasp the fact that lending can’t be forced. He has the wrong objective and on top of that he hasn’t attained it. How can one be any more out of touch with reality? The reality is: People are sick and tired of debt. What has Bernanke done to facilitate a swift liquidation of debt? Nothing.

Mr. Bernanke believes the Fed’s actions have played a major role in averting a possible second Great Depression, according to government officials who know his thinking. Those steps, the Fed chairman has told these people, demonstrate that the agency is up to the larger task assigned to it by the Obama administration.

Of course Bernanke is clueless about The Great Depression. The Fed has imitated virtually everything from the Great Depression playbook.

Mr. Bernanke has one important champion — President Obama. On Tuesday, the president reinforced his preference for an enlarged role for the Fed in a news conference at the White House.

The administration’s proposals for a regulatory overhaul are built around the idea “that there’s got to be somebody who is responsible not just for monitoring the health of individual institutions, but somebody who’s monitoring the systemic risks of the system as a whole,” Mr. Obama said. “And we believe that the Fed has the most technical expertise and the best track record in terms of doing that.”

And Mr. Obama: Would you mind telling us to whom the Fed is accountable? Congress is not allowed to audit their most fundamental operations. I am hoping you are aware of the fact that paragraph 714 of US Code 31 rules out any meaningful audit. I fear that you do not support Ron Paul’s Audit the Fed bill. Could you tell us if you are at least going to sign this transparency act before you give this secret institution any more powers? Who owns the Fed? Who is it accountable to? Right, the very banks it is supposed to oversee and who own member stock that pays 6 percent divident per year. You can read it up right here on the Fed’s own website. At the beginning of the same paragraph where this relationship is explained it says the Fed is not owned by anyone. Which one is it now? But then, is any one of those two options better than the other? If the Fed is not owned by anyone then it is accountable to nobody which is actually worse. If this kind of independence was so good, why don’t we make the military unaccountable to anyone as well. Heck, why don’t we abolish accountability of any government institution to anybody alltogether? What a misguided debate!

He said that while the Fed was not blameless, it was not fair to single it out for failing to avert the crisis.

“I think that the Fed probably performed better than most other regulators prior to the crisis taking place, but I think they’d be the first to acknowledge that in dealing with systemic risk and anticipating systemic risk, they didn’t do everything that needed to be done,” Mr. Obama said.

Unfortunately no, when you are instrumental to creating a crisis it is not permissible to claim that you “performed” in any way before it. In fact you didn’t perform at all if the objective of said performance was to avoid a crisis. As a matter of fact, you have done the exact opposite of “performing well”, you have “failed miserably”. That President Obama would utter such a baseless and false statement is simply deplorable.

The president and Mr. Bernanke do not, however, see eye-to-eye over whether to create a Consumer Financial Protection Agency, part of which would be carved out of the Fed’s existing jurisdiction over mortgages and credit cards.

Breaking ranks with the administration, Mr. Bernanke is expected to tell Congress that the Fed would prefer to keep the responsibility for consumer lending. He is also expected to promise a stronger emphasis on consumer debt issues in the future.

Mr. Bernanke’s surrogate in the debate has been the Treasury secretary, Timothy F. Geithner, who in Congressional testimony, speeches and interviews has praised the Federal Reserve’s performance.

(Mr. Geithner’s views may also have reflected his pedigree. He joined the administration after serving five years as president of the New York Federal Reserve, where he worked closely with Mr. Bernanke.)

I don’t think there is a more clueless person in this administration than Tim Geithner. That he would support Bernanke is only to be expected. That he himself admitted that the Fed kept rates too low for too long is probably just another statement that he has forgotten about, did not quite think through, and/or has no particular context for in his limited and low level mindset on economic theory.

Mr. Bernanke has been reluctant to get involved in the political debate, but has argued to associates and lawmakers that the often-mentioned alternative of a council supervising the largest firms would not be nimble or accountable enough.

And Mr. Bernanke: Would you mind telling us to whom the Fed is … darn, I am beginning to repeat myself.

He also has said that the plan is not a radical departure from the Fed’s current role. The Fed is already the umbrella supervisor of virtually all of Wall Street’s largest institutions, and the Obama plan would add only a handful of new companies to the Fed’s oversight list. The Fed so far has not specified which companies it would add to its purview, but once it decides, it is expected to make the list public.

One simple question: How well has the Fed done in overseeing the nation’s banking system as a whole over the past 10 year? Who is to believe that adding to its purview is a decision that a creature with more than one brain cell can possibly support.

The biggest impact, government officials said, is not in the number of institutions the Fed regulates, but in how it regulates them. It will have to go beyond measuring the financial safety of institutions to examining their connections to other firms and markets, and the dangers those connections could pose.

By possibly requiring the largest institutions to hold more capital against losses or to reduce the amount of debt they carry, for example, the Fed could make firms less profitable and less competitive with their smaller rivals. That in turn could prompt some of the largest institutions to decide to shrink, either by borrowing and lending less, or selling off units.

… how about a fair and free market in banking? You know, that thing where the ones who serve the consumers best prevail, and those who don’t, go out of business. That thing where irresponsible lending is punished. That thing where any bank that does not hold close to 100% reserves against their checking deposits, goes out of business. You know, all the things that the history of money has taught us, things that these clowns in office are obviously completely oblivious to.

If we were so concerned about big institutions with monopoly positions then why did the government by law create the hugest behemoth of all of them and give them exclusive privilege to print fiat money. Why does the President praise this institution so much? Does insanity have any boundaries?

Fed officials said they expected that new capital requirements would be tailored to the risks and strengths of each bank.

They and top administration officials disagree that the Fed’s new authority amounts to overseeing “too big to fail” banks. Under the plan, the government would have explicit authority to seize any faltering institution that was judged an unacceptable risk to the overall financial system. As a result, the government would not have to guarantee creditors 100 cents on the dollar — and “too big to fail” would no longer be the default policy.

That breaks from the practice of last year, when creditors to the American International Group, Fannie Mae and Freddie Mac were repaid in full because Mr. Bernanke and Henry M. Paulson Jr., then the Treasury secretary, did not think the government had the legal authority to shut down nonbank institutions, or to choose which loans to repay in full and which to discount.

I have a very simple solution to this: How the government AND the Fed once and for all stop all corporate bailouts? They are harmful and slow down any potential recovery. They hurt the productive and reward the unproductive. Why not put an end to this circus?

Mr. Bernanke has also told people that he finds it illogical that some lawmakers are citing the Fed’s failure years ago to curtail deceptive or abusive subprime loans as the reason for their objections to the administration’s plan.

This is not the criticism of the Fed. It is the fact that it is a substantially flawed institution, that it has brought about the worst crises in economic history, that we simply don’t need a Fed. These are the issues that Bernanke has to answer to, not some superficial criticisms of its regulatory activities.

In recent months, a series of new regulations issued by the Fed on mortgages and credit card policies issued under Mr. Bernanke have generally been applauded by consumer groups and some lawmakers, although Congress recently passed a law, which President Obama signed, to add some features. The new law requires banks and card companies to give 45 days’ notice before a change in interest rates and prohibits them from raising rates on existing balances unless a card holder falls 60 days behind on minimum payments.

Some critics have raised other concerns — that the Fed is stretching itself too thin, or compromising the political independence that is essential for setting monetary policy.

“The plan does give more power to the Fed and just complicates its job and therefore raises questions about its ultimate mission,” said John B. Taylor, a professor of economics at Stanford and a Treasury under secretary in the Bush administration. His book, “The Road Ahead for the Fed,” (Hoover Institution Press) is being published this week. “If the Fed goes further off its course and doesn’t focus on what it did in the 1980s and 1990s, it will have less control over inflation. It will lose its independence. It will have to become more political.”

Vincent R. Reinhart, a resident scholar at the American Enterprise Institute and former director of the Fed’s division of monetary affairs, said that policy makers needed to be concerned about mission creep.

“The main problem in becoming the systemic risk regulator is that it can be a very diffuse responsibility,” Mr. Reinhart said. “Should the Federal Reserve have been monitoring Enron and Long Term Capital Management and the Hunt brothers when they were involved in silver market manipulation?”

He added: “What is the ideal governor of the Fed supposed to be, someone who understands monetary policy, systemic risk, bank regulation, consumer affairs and Congressional relations? You are reaching the point where the agency is being spread pretty thin.”

Mr. Bernanke’s views, which have evolved as the financial crisis has unfolded, contrast markedly with those of his predecessor. Alan Greenspan, who said last year in his book “The Age of Turbulence” that the idea of the Fed as a systemwide regulator was “mission impossible.”

Of course it is impossible. And we will see it sooner or later. Who knows what problems a new and more powerful Fed will manage to create again down the road. But whatever it is, at some point we will be back to square one, debating how this could have happened, and debating how much more powers to grant to it in order to avert the problems that it itself has brought about.

Tags: ben bernanke, federal reserve bank

Geithner Admits – Austrian Economists Were Right All Along

May 13, 2009 · Posted in Monetary Economics · Comment

Tim Geithner confirms what Austrian School economists have been blowing the whistle about all along:

Mr. Geithner: “But I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful.”

Mr. Rose: “It was too easy.”

Mr. Geithner: “It was too easy, yes. In some ways less so here in the United States, but it was true globally. Real interest rates were very low for a long period of time.”

Mr. Rose: “Now, that’s an observation. The mistake was that monetary policy was not by the Fed, was not . . .”

Mr. Geithner: “Globally is what matters.”

Mr. Rose: “By central bankers around the world.”

Mr. Geithner: “Remember as the Fed started — the Fed started tightening earlier, but our long rates in the United States started to come down — even were coming down even as the Fed was tightening over that period of time, and partly because monetary policy around the world was too loose, and that kind of overwhelmed the efforts of the Fed to initially tighten. Now, but you know, we all bear a responsibility for that. I’m not trying to put it on the world.”

And I fully concur with this conclusion that follows in this WSJ article:

The Washington crowd has tried to place all of the blame for the panic on bankers, the better to absolve themselves. But as Mr. Geithner notes, Fed policy flooded the world with dollars that created a boom in asset prices and inspired the credit mania. Bankers made mistakes, but in part they were responding rationally to the subsidy for credit created by central bankers.

Another former Treasury official just confirmed the same:

The Fed helped to trigger the current financial crisis by keeping rates too low for too long, Taylor said.

“Low interest rates led to the acceleration of the housing boom,” he said. “The boom then resulted in the bust, with delinquencies, foreclosures and toxic assets on the balance sheet of financial institutions in the United States and other countries.”

Taylor said that though policy makers were well intended, they were mistaken in trying to “fine-tune” the economy after about a quarter of a century during which long and deep recessions had been avoided.

For more details see Credit Expansion Policy … always a good read for anyone who wants to understand the root cause of the financial crisis. Back in October 07 I concluded that article with:

As long as the central banks keep pursuing this policy, there is no need to be surprised when the next credit crunch occurs. Neither is there any need to be surprised about the fact that all countermeasures taken by the government will turn out to be utter failures that will accomplish nothing but aggravate the crisis. For if the cause of the problem has been too much government intervention, then more government intervention will only add to it.

Tags: credit expansion, credit expansion policy, federal reserve bank, tim geithner

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