The Fed Fights Half the Battle (NYT Editorial Board says Fed is "captive" of Banks!)

New York Times ^ | December 27, 2014 | NY Times Editorial Board

[Seizethecarp]

Stock prices were slumping in early December, for good reasons, including global economic weakness. But they have surged ever since the Fed stated its intention not to raise rates in the near term.

The challenge for the Fed is to hold rates low without inflating bubbles. The way to do so is to control speculation through stepped-up regulation of banks and other financial institutions. Instead, the Fed has been inclined to ease up on regulation.

On Dec. 19, it delayed a core provision of the Volcker Rule, a part of the 2010 Dodd-Frank financial reform law that bans speculative trading by federally backed banks. Under the rule, banks were supposed to sell their investments in private equity funds and hedge funds by July 2015. They will now have until mid-2017, and possibly until 2022, to do so. The rationale for the delay is that closing out their bets sooner might force them to take potentially destabilizing losses. It is simply not credible that banks need seven to 12 years to unwind their bets. The delay is yet another example of regulators who are captive to the banks they are supposed to oversee.

[Seizethecarp]

"The delay is yet another example of regulators who are captive to the banks they are supposed to oversee."

I regard this as pretty shocking language to see the NY Times Editorial Board accusing the Federal Reserve Board led by an appointee of a Democratic president of being captive of the banks they are supposed to be regulating!

IMO, the NY Times Editorial Board appears to be signaling the Obama Admin. and the Hillary Campaign that they are lining up with Elizabeth Warren and the Tea Party faction of the GOP in congress that have been going after the Crony Wall Street Banksters who gutted Dodd-Frank at the last minute!

[Seizethecarp]

Ping to the Seizethecarp list for what I regard as a pretty shocking accusation leveled against the Fed by the NY Times Editorial Board!

One financial writer this weekend said that Banks may have put US taxpayers on the hook for $1trillion in oil derivatives caused by the sudden fall in oil and the ruble!

“Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives”

http://econintersect.com/b2evolution/blog2.php/2014/12/28/russian-roulette-taxpayers-could-be-on-the-hook-for-trillions-in-oil-derivatives

“The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.”

[Fungi]

Nonsense. One worthless entity, the new york slime, portrays itself as the savior of the common man against an entity that has never been audited, an entity no one even knows who the owners are, nor if they pay taxes on their profit; an entity that hides behind a false banner of the “Fed” even though they are not a federal agency, but a private bank, accountable to no one. Nice gig if you can get it. Lucky you “Fed,” you bastards, and your useful lapdogs, the new york slime. The “Federal Reserve”—which is not federal nor reserve, nor is the slime a paragon of truth, but disinformation—“all the news that fits.”

[LucyT]

"...shocking accusation leveled against the Fed by the NY Times Editorial Board!

One financial writer this weekend said that Banks may have put US taxpayers on the hook for $1trillion in oil derivatives caused by the sudden fall in oil and the ruble! “Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives”

http://econintersect.com/b2evolution/blog2.php/2014/12/28/russian-roulette-taxpayers-could-be-on-the-hook-for-trillions-in-oil-derivatives

“The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.”

Thanks, Seizethecarp.

[SunkenCiv]

Thanks Seizethecarp. Here's the real agenda:

...the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.

[SunkenCiv]

/bingo

[zeestephen]

I read the link in this Comment and find it difficult to believe.

If I understand correctly, Bank of America and other major banks are taking FDIC insured deposits and investing them in oil derivatives?

Such derivatives would have to be marked-to-market each night, in other words, their value would now be dropping almost every day, and that loss would be reflected on the bank's balance sheet each day.

Yet, no major banks are currently insolvent, or on FDIC life support, or even on anybody’s watch list.

Either I don't understand, or the information in the link is wrong.

[nathanbedford]

Let's see…

The leftists at the New York Times want the Fed to hold interest rates low but the same leftists fear "inflating bubbles" which they fear will be caused by the Fed holding interest rates low. What to do?

The New York Times wants the Fed to play Keynesian whack-a-mole: smite "speculation." (For those of us not up on New York Times Speak, "speculation" is the act of investing in something New York Times does not approve of, "investing" is the act of betting on that which the New York Times does approve of). How to do that?

Regulate. The New York Times failed to mention that which is now the threat, "bubbles," will have been caused by low interest rates, which were established by the very same Fed in accordance with the behest of the New York Times to "foster full employment and ensure price stability." (The reader will note that "full employment" is nowhere to be found even in the fraudulent statistics generated by the federal government). Those bubbles apparently will appear in the stock market as a result of the Fed keeping interest rates low, but the New York Times fails to mention that such bubbles might well be caused by the trillion dollars dumped by the Fed into a system which works like a plumbing stoppage to go no farther than to the banks who loan it to the stock market.

What sort of regulation will whack this mole? Evidently, the New York Times wants the Fed to regulate banks and financial institutions to prohibit them from "speculating" and to require them to decouple their losses from federal guarantees.

Please note that this is a reasonable goal. The problem is every goal from the beginning of this game of whack-a-mole from full employment and price stability to avoiding bubbles have been "reasonable." The problem is also that every solution generates the next problem. What to do now?

We must revert to the time-tested solution of the left, find the right socialist who will get socialism right this time. As Seizethecarp so perceptively points out, this editorial is to lay the groundwork for an, Elizabeth Warren candidacy. If we put the right regulators in place, if we elect Elizabeth Warren, we can whack the right mole at the right time to get the right result and no unintended consequences. How does the game of whack-a-mole end?

It never does. That is why there is never any end to government regulation, that is why the socialist appetite is never satiated, that is why socialism is never at fault, that is why the left endlessly whores after the next Messiah.

[ripley]

Is it incorrect to believe that socialists love the free flow of money when they’re controlling it and hate the creation of wealth through legitimate enterprises when they can’t tax it to death?

Just asking.

[jacquej]

,

[Jim Noble]

they are lining up with Elizabeth Warren and the Tea Party faction of the GOP in congress that have been going after the Crony Wall Street Banksters who gutted Dodd-Frank at the last minute!

This may be true, in a sense.

The People of the United States granted the legislative powers to coin money and regulate the value thereof; and to borrow money on the credit of the United States; to a Congress.

Said Congress did this for 124 years, and how it was to be done was (except slavery) the most contentious issue in many elections.

After 124 years, Congress surrendered its powers (actually, OUR powers we granted to them) to the Federal Reserve (I will leave out what the Fed actually is). The Fed exercised these powers alone for 58 years, but once they were relieved from the burden of foreign gold exchanges in 1971, they in turn started surrendering these money-creating and regulating powers to some of their close friends and business associates, who are often referred to as "Wall Street" (inaccurate) or as "money center banks" (closer).

Anyway, the powers to coin money and regulate the value thereof, and to borrow money on the credit of the United States, remain central to the well-being of our people. And, after 100 years of control by unelected and invulnerable forces, things are not entirely well.

Palin/Warren 2016!

[Seizethecarp]

IMO, there is significance of this NY Times Editorial Board denunciation of the Fed as being captured by the Wall Street banks for Sheriff Arpaio’s (hopefully) upcoming “Universe Shattering” revelations regarding Barry’s criminal usurpation of the presidency...as follows:

Only the threat of a bipartisan two-thirds impeachment vote in the Senate to remove Barry can force Barry to resign a la Nixon and an impending financial collapse brought on by financial mismanagement by Barry’s Fed appointee, Yellen in combination with all the other gross government incompetence on display throughout 2014 putting the election of a 2016 Democratic presidential candidate at risk (Hillary or not) may be sufficient to drive a bipartisan move to oust Barry from office...

...but only IF the African Americans can be persuaded that
Barry has betrayed them and is a fraud so they won’t hold it against the Democrats too much for turning out Barry. I think there are a LOT of black who already hate Barry for failing to delivery on ANY promises and they stayed home during the 2014 election!

[Mase]

Any repeal (piecemeal or otherwise), or delay, of the disaster that is Dodd-Frank is welcome news.

[Seizethecarp]

“Such derivatives would have to be marked-to-market each night, in other words, their value would now be dropping almost every day, and that loss would be reflected on the bank’s balance sheet each day.”

IIRC, the Banksters got the mark-to-market rule tossed first thing during the Oct. 2008 crisis! I am a retired CPA and I really cringed when that happened, but the entire world banking system would have been instantly insolvent if they hadn’t waived that magic wand at the time.

These oil derivatives are held so-called off-balance sheet accounts that only show up and get moved over to FDIC taxpayer liabilities when the “too big to fail” banks are in danger of taking the whole world financial system and all the retirement savings of the politicians and their billionaire backers down!...like maybe about NOW?

[Seizethecarp]

While as a whole Dodd-Frank is a disaster, the Volcker Rule was widely supported by many in the Tea Party and by good government activists on the left and right for the exact reasons pointed out by the NY Times Editorial Board. I say that as a retired former CPA and Certified Fraud Examiner.

The Volker Rule was designed to prevent wholesale fraud and thanks to lobbying by Obama at the last minute it got re-written by Citigroup lobbyists! The Fed then doubled down on what happened in Congress, apparently!

So in my opinion the repeal of the Volcker Rule is a disaster, even if it happened to be included a bait to get conservatives to vote for the rest of the stinking pile of Dodd-Frank!

[Seizethecarp]

Here is a Huffpo story updated 12/15/14 on this matter showing the bipartisan support against crony Banksterism:

“Elizabeth Warren, David Vitter Make Last-Minute Press Against Reid On ‘Wall Street Giveaway’”

http://www.huffingtonpost.com/2014/12/12/elizabeth-warren-david-vitter-wall-street_n_6317098.html

“Wall Street has been working behind the scenes to open another loophole so they could gamble with taxpayer money and get bailed out when their risky bets threaten to blow up our financial system,” said Warren. “This giveaway that was drafted by Citigroup lobbyists has no place in a critical government funding bill.”

“Before Congress starts handing out Christmas presents to the megabanks and Wall Street, we should vote on this bipartisan amendment,” Vitter said. “We need to remove these risky derivatives that aren’t even necessary for normal banking purposes and would only make future taxpayer funded bailouts more likely.”

[zeestephen]

OK - I have no factual basis to challenge what’s written here or your comments.

But, if major banks are long oil, and are holding $1 trillion of oil derivatives, a lot of people would know about it.

For instance, the dozens of companies that took the opposite side of those derivative trades all know that the banks must be in severe trouble at this point, and that the hedges they purchased from the banks might be worthless.

And, if any of these derivative contracts were handled by brokers or dealers, those companies would be making margin calls on the banks.

And, if there any disgruntled employees at these various banks or brokerages or oil producing companies, they would be singing loudly to the financial press or government agencies.

And, if there are any ethically challenged employees at these banks or brokerages or oil producing companies, they would be massively shorting the stocks of the banks, which is not currently apparent in the market.

This should be a radioactive issue that leaves bright glowing fingerprints all over the economy, but I don’t see any evidence that is happening.

[Seizethecarp]

“And, if there are any ethically challenged employees at these banks or brokerages or oil producing companies, they would be massively shorting the stocks of the banks, which is not currently apparent in the market.”

The bank stocks plunged in mid-October and again in mid-December, “for good reason” as stated by the NY Times editorial until the liabilities that looked like the Banks were going to have to absorb were suddenly going to land on the taxpayers when the language written by Citigroup was passed repealing the Volker Rule part of Dodd-Frank...the only GOOD part of the bill!

So the banks WERE being massively shorted up until December 15 and then the shorts got killed and there was a sort-covering RALLYE!...

Check out this great year-end article by one of my favorite analysts to see how the whole world has piled into one side of the boat (the US S&P 500) based Fed interest Rate suppression and dollar expectations relative to other stock markets:

http://seekingalpha.com/article/2777905-the-global-defenders?ifp=0

[Seizethecarp]

Meant to ping my list to this article which illustrates what the NY Times Ed. Board is talking about when they say that the stock market was falling in the US until mid-December “with good reason” until the US Fed intervened. Foreign stock markets weren’t so lucky with their central banks sending opposite signals!

Check out this great year-end article by one of my favorite analysts to see how the whole world has piled into one side of the boat (the US S&P 500) based Fed interest Rate suppression and dollar expectations relative to other stock markets:

http://seekingalpha.com/article/2777905-the-global-defenders?ifp=0

[Mase]

The Volcker rule would have done nothing to prevent the 2008 financial meltdown. Regulators will never be able to see how much banks are interconnected, and how their investments are intertwined, in a way that allows them to reduce risk as promised.

Do you honestly believe that government regulators will be able to differentiate between market making and speculation by the banks so they can equitably enforce the laws? Can regulators consistently identify what's speculative vs. what's legitimate banking activity? Will regulators have enough data to make the correct decision about which trades were appropriate and which are illegal? Sorry, this just places more power in the hands of useless government bureaucrats, who are increasingly anti-capitalists, and know little about economics -- especially money and banking. This "rule" is great if you desire more government shakedowns of the banks.