Posted on 03/30/2008 3:55:36 AM PDT by TigerLikesRooster
Shake-up gives Fed a boost
Last Updated: 2:02am BST 30/03/2008
AMBROSE EVANS-PRITCHARD SOPHIE BRODIE
THE US government will tomorrow unveil a radical overhaul of financial regulation that would give the Federal Reserve greater powers to oversee market stability.
The proposals are part of a wider effort to simplify labyrinthine US regulation, consolidate regulators and make the market more competitive. The review began last year, but has become increasingly critical as the Fed struggled to restore confidence in markets shattered by the credit crunch and bail-out of Bear Stearns.
advertisement While the plans would allow the Fed to scrutinise more closely the activities of Wall Street banks and intervene where an institution threatened the entire system, they would not curb practices linked to the credit crunch, such as packaging risky sub-prime mortgages into highly-rated securities.
The Securities and Exchange Commission, the main financial market regulator, could also see its powers reduced. Under the proposals, the SEC would be merged with the Communities Futures Trading Commission, which regulates exchange-traded oil, currency and commodity futures.
Stock exchanges would be given greater freedom to regulate themselves and approval for new products could be streamlined.
According to a draft of the proposals, Hank Paulson, Treasury Secretary, will say: "I am not suggesting that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years. I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible."
The US Congress would have to approve most of the proposals and Democratic leaders are expected to say they do not go far enough.
Meanwhile, fears are mounting of a serious recession in Japan as Asian banks, pension funds and insurers are poised to liquidate up to $300bn (£150bn) of yen "carry trade" positions.
The Japanese have been pulling back from world markets since the credit crunch began last summer. The yen has risen 24pc against the dollar, a staggering move for a major currency.
This flight to safety has been a major cause of stock market slides and currency stress in countries as diverse as Iceland, Turkey and Romania. Japan is still the world's biggest creditor by far, with net foreign assets of $3 trillion.
Now experts at Barclays Capital warn that there may be a second tsunami. Chinese, Indian, other East Asian institutions and pension funds have borrowed heavily in Tokyo at rock-bottom interest rates, using the money to buy US Treasury bonds.
Japan has been struggling for months to fend off a recession after a crash in housing sales last year, largely caused by stricter building laws. Industrial output fell 2pc in January and the Tankan business confidence index has reached a four-year low.
Ping!
It’s hard to believe very much in this story when they mistate the name of the Commodities Futures Trading Association. They have Communities Futures — an interesting concept? I wonder how Detroit would trade?
Cheers!
Another story about the future Department of Homeland Finance. Brought to you by the same folks who brought you the Department of Homeland Security.
When socialism came to America, it was called “compassionate conservatism” and was wrapped in a GOP election banner.
I'm starting to see some articles that say we're about done with the treasury-bond mania. I myself think they'll be the safe haven for at least another two rate cuts, then they'll be a good long-term short (via ETFs) for the IRA.
We know how the stock market will react: a nice pop tomorrow on this latest bogus news, and a week from now we'll be a couple of percent lower than we are today.
Friday was the fifth down day in a row for the S&P. That last time it was down five days in a row was 1990. Nobody in charge wants to let that go to six or seven or more as that will become a big story.
I saw an interview of the japanese minister responsible for cleaning up after the real estate crises in Japan in the early 90’s that led to a decade long recession. He said the problem then has many similiarities to the current real estate led financial problems in the US. He said the recession in Japan wouldn’t have lasted so long if the japanese had done a better job of getting out in front of the rolling financial collapses. He also said that one of the solutions to the problem at the time was to push the yen artificially lower than the dollar—so as to boost japanese trade. He also said that the yen should now go down to 70-80 yen to the dollar—as that was about the right valuation. (He said at the time that his opinion was a minority one.)This interview was about a month ago before the bear stearns blow up and the current carry trade changes.
imho the US Fed is getting more aggressive about confronting systemic risk. as well the japanese yen will rise to 70-80 yen per dollar.
The trouble is that they have been playing it so long and it has become transparent to many these days. Their shelf life is a lot shorter than it used to.
You are probably right.
What are you talking about? It is down 3 days in a row...W,T,F...was up on Monday and Tuesday. As for your other claims, those are bogus too. Was down 6 days in a row from Dec. 27 - Jan. 4th this year....gees man, grab a chart before you make such easily contradicted claims.
http://stockcharts.com/h-sc/ui?s=%24spx
Much obliged, and my apologies. I had heard it wrong on TV. The correct shocker is that the S&P has not been down five _months_ in a row since June-October of 1990.
It came close in 2002 when second wave of the dot-com bubble collapsed — five months out of six.
That also removes the basis for my assertion that we will probably be up on Monday.
No. The FED cause this disaster by holding interest rates too low for too long to overheat the economy in the first place. Not all of us could retire as multi-millionaires on the equity in our houses, not without making a Ben Franklin worth less than the paper it is printed on, which Greenspan and Bernanke are in the process of doing.
Seems some gaps in the logic. Agreement that fed overheated the economy, but not cooled? Now, I rather base my retirement security on some REAL estate properties, than trusting my money to shysters for piece of paper and uncertainty.
I welcome some inflation, makes my mortgage cheaper and value of my house to go up.
I see smarter way to invest in say, retirement/vacation property, sell the primary residence at retirement and move into the vacation house, while getting payments from the primary residence.
“. He also said that one of the solutions to the problem at the time was to push the yen artificially lower than the dollar”
Bernanke made the same point in a speech in 1999. The weakening dollar fits his prescription for dealing with deflation.
“Didn’t Feds cause this housing “disaster” by raising interest rates to “cool overheating economy”??? “
Loosening of credit standards, junking the Glass-Steagall Act, packaging mortgages into securities, divorcing loan creation from the owning of mortgages, record low interest rates, ARMs given to unqualified borrowers, appraisal fraud, lending fraud, liar loans, rating agencies not accounting for risk. The housing bubble grew for a host of reasons and was going to collapse if for no other reason than that it couldn’t grow forever.
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