Free Republic

Forget this last post, the Federal Reserve has stepped in and settled the debate that was brewing between the White House & Congress. Basically, the student loan companies need someone to buy some loans so they can have enough reserve cash to offer more loans in the future. Due to high default rates, high inflation rates, and overall low student loan return rates, no investors are showing up for the normal bond auctions. Part of this, of course, is due to an over-correction by Congress during the financial boom period of 2004 to 2006. By the time legislation had passed...

Crude oil prices and the value of the dollar have been marching in different directions for months. But that may shift if the Federal Reserve signals on Wednesday that its rate-cutting campaign has come to a close. One factor that has sent the dollar down and oil up recently has been the Federal Reserve's months-long round of rate cuts. In an attempt to stimulate the ailing U.S. economy, the central bank has cut rates by three percentage points since September. But the rate cuts are also inflationary, weakening the dollar and sending oil prices higher. "The weak dollar is a...

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.� -Thomas Jefferson The Founding Fathers put Congress in control of the the U.S. monetary system. In 1913 Congress relinquished this awesome power and gave it to a private cartel with the passage of the Federal Reserve Act. For almost 100 years, Federal Reserve policy has swindled Americans...

NEW YORK (CNNMoney.com) -- Some members of the Federal Reserve are worried about the possibility of a "severe and protracted downturn" in the U.S. economy, according to the minutes of the central bank's latest minutes released Tuesday. The minutes show that some Fed policymakers are concerned that the problems in the "housing sector had deepened and that considerable uncertainty surrounded the outlook for housing." The Fed cut its key federal funds rate by three-quarters of a point at the March 18 meeting, its sixth rate cut since September. The Fed has been cutting rates in an effort to keep the...

Added: April 07, 2008 Recessions are part of capitalism. They happen every so often. WeÂ’ve had two in the last super-prosperous 25 years. And it looks like weÂ’re entering a third one after FridayÂ’s jobs-loss report. The unemployment rate went up to 5.1 percent, which is still a low number in historical terms. But the March labor report showed a loss of 80,000 payroll jobs, while payrolls in the prior two months were downwardly revised by 67,000. Non-farm payrolls have fallen for three straight months after peaking last December. Private-sector jobs have dropped four consecutive months. This is a big...

Those blindsided by the recent financial meltdown are now loudly blaming the free market for its failure to police its own excesses, and are calling for greater regulation to prevent future disasters. But for those who clearly observed the problems developing (in high definition slow motion) the blame can be directed squarely at the policies of the Greenspan/Bernanke Federal Reserve. As has been the case countless times in history, the free market will now pay the price for government incompetence.In Senate hearings this week, all parties involved completely ignored the Fed's own culpability in igniting the speculative fever. It's as...

“Explain the logic of this? The Bank of Bernanke takes $29 billion in Bear's toxic real estate debts, but lets Bear Stearns' skyscraper go to JPMorgan for a song? Why didn't the Fed take control of Bear's one real asset and rent it out to JPMorgan with the proceeds going back into federal coffers?”…American taxpayers are potentially on the hook for $29 billion…yes, $29 billion… “$66 billion. That is the record amount of money Wall Street's top five firms…paid out in compensation and bonuses last year to their 186,000 employees…” “At Merrill Lynch, they paid out $15.9 billion in compensation...

WASHINGTON (AP) - Big Wall Street investment companies are borrowing a bit more from the Federal Reserve's emergency lending window. The Federal Reserve reports that those firms averaged $38.1 billion in daily borrowing over the past week from the new lending program. That compared with $32.9 billion in the previous week and $13.4 billion in the first week the lending facility opened.

Why Rescues Don't Work By Paul Tustain "...Just like natural organisms, the financial system must have death to evolve into a better form..." NOW THAT HE'S wearing some sort of do-good government hat, even Hank Paulson is not thinking straight.Regulate in New York and finance goes to Toronto. Regulate in London, it goes to Frankfurt or Paris - and since Toronto, Frankfurt and Paris are run by the same nervous bureaucrat-types, we can reckon soon enough that the entire financial markets will be hosted out of Singapore and Shanghai.There they will accept the risks as well as the rewards,...

Yesterday (March 31st), Treasury Secretary Hank Paulson announced the laying of the government's foundation stone for the next big financial bubble, heralding an era of hyperinflation and probable further runs on the U.S. dollar. Of course, like most politics, there is usually a 'good' reason and a 'real' reason for actions. Today's announcement was no exception. In today's case, the 'good' reason was the effective 'policing' of the financial, derivative, insurance and mortgage markets. Some cynics could be excused for thinking that the so-called 'restructuring' and massive increase in the powers of the Federal Reserve Board were like locking the...

The US administration Monday proposed a broad overhaul of financial market regulation in an effort to restore confidence in a system reeling from the subprime mortgage mayhem. The announcement comes as the US regulatory system is blamed for failing to prevent rampant excesses in mortgage lending that set off what is now seen as the worst financial crisis in decades. "Government has a responsibility to make sure our financial system is regulated effectively. And in this area, we can do a better job," Treasury Secretary Henry Paulson said in unveiling the plan. Although the plan was announced amid a crisis...

When This Week assembled a round-table of four liberals versus one conservative yesterday, I kvetched. Maybe I should have cheered. ABC's idea of balance looks good compared to that of CBS. This morning's Early Show segment on the Bush admin's plan, to be announced later this morning, to regulate the financial industry was essentially conservative-free. OK, to be absolutely accurate, there was a brief clip of Treasury Secretary Paulson saying the plan would protect the Fed's balance sheet and US taxpayers. But in her set-up piece, CBS's Kimberly Dozier emphasized the negative: "critics say it's win-win for banks, not the...

Treasury Secretary Henry Paulson's proposed sweep of financial regulation would emphasize more control at the federal level, at the expense of state oversight, and consolidate an alphabet soup of existing agencies. It is an idea that has been kicking around for a while, and one that is bound to provoke heated debate on Capitol Hill and among the various banking and market oversight agencies, which are already tripping over each others' turf. It is also bound to please some circles of Wall Street because the plan, while strengthening the Federal Reserve's role over certain aspects of the markets, like risk...

How is Money Created? By Mike Hewitt The Federal Reserve Bank of Chicago used to publish a pamphlet entitled Modern Money Mechanics, which explains M1, M2, and M3. It is a truly fascinating read. That pamphlet is no longer in print, and the Chicago Fed has no plans to re-issue it. However, electronic copies are available (see link).In it, the process by which the Fed creates money "out of thin air" is detailed. Consider the opening paragraph:"Money is such a routine part of everyday living that its existence and acceptance ordinarily are taken for granted. A user may sense...

The Bush administration is finalizing details of a plan to rescue thousands of homeowners at risk of foreclosure, by helping them refinance into more affordable mortgages backed by public funds, government officials said. The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth due to plummeting prices, an issue at the heart of the nation's housing crisis. Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.

WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system. The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.

In the past two weeks, the Federal Reserve, long the guardian of the nation's banks, has redefined its role to also become protector and overseer of Wall Street. With its March 14 decision to make a special loan to Bear Stearns and a decision two days later to become an emergency lender to all of the major investment firms, the central bank abandoned 75 years of precedent under which it offered direct backing only to traditional banks. Inside the Fed and out, there is a realization that those moves amounted to crossing the Rubicon, setting the stage for deeper involvement...

The prevailing force-fed sentiment is that the US financial sector has bottomed out, the worst is over, the mechanisms for remedy are here, and time to get back in the water for profound bargains again. Let me rebutt! The financial sector is merely taking a breather in a long death march after the great bond bust and horrific unwind of reckless mortgage creation. Monoline bond insurers are nowhere near properly capitalized to handle upcoming substantial losses, nor are banks with loss reserves. Hundreds of billion$ in overvalued and soon-to-be hit mortgage bonds still have yet to occur. And besides, the...

As the subprime saga has unfolded in recent months, it has packed a powerful – and somewhat unexpected – ­globalisation punch. For while subprime loans are rooted in the heart of the US, the credit risk from mortgage-backed securities based on such loans has been scattered all over the world – and losses have ­consequently cropped up in institutions ranging from Australia to Norway. Now, however, the globalisation issue is moving to the so-called “agency” sector of the mortgage market – or mortgage securities underwritten by Fannie Mae and Freddie Mac. In recent years, this type of agency debt has...

The US is sending in the ­cavalry to fight the crisis in the credit and housing markets – unleashing government-sponsored enterprises to buy and hold mortgage-backed securities (MBS) for which there is little private demand. The move marks a new stage in the policy response to the credit crisis, in which the US government is increasingly deploying all the tools at its disposal – short of an outright public purchase of mortgage securities – to prevent a full-blown credit crunch. It also marks an expansion of what Michael Feroli, an economist at JPMorgan, calls the “socialisation of housing finance” in...

The Bank of England is poised to take revolutionary action to find a “resolution” to the problems faced by British banks unable to sell or refinance portfolios of mortgage-backed debt, Mervyn King, the governor, signalled on Wednesday. Mr King also suggested that the Bank was becoming more open to interest rate cuts. His comments came as Hank Paulson, US Treasury secretary, offered strong support for the Federal Reserve’s handling of the Bear Stearns crisis. Mr Paulson said it would be necessary to examine the regulatory implications of providing emergency finance to investment banks, but stopped short of calling for permanent...

Central banks' efforts to ease strains in the money markets are failing to stop financial institutions from hoarding cash, stoking fears that the recent respite in equity markets may not signal the end of the credit crisis. Banks' borrowing costs - a sign of their willingness to lend to each other - in the US, eurozone and the UK rose again even after the Federal Reserve's unprecedented activity in lending to retail and investment banks against weaker than usual collateral and similar action in Europe. The continued friction in the money markets came even as stock markets were showing new...

I have really learned to like Ben Bernanke. He’s the man. And his interest-rate cuts are vastly more effective than the so-called economic-stimulus rebate plan coming out of Congress and the White House. Why do I say this? Simple. I just got my latest adjustable-rate mortgage statement from the bank. When I originally refinanced this loan, it was 5.75 percent. And last summer my ARM soared to 8.25 percent. But guess what? Through February it has round-tripped all the way back to 6 percent. So I’m now saving $2,000 a month, or $24,000 a year, because Gentle Ben has slashed...

JPMorgan Chase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations. The sweetened offer is intended to win over stockholders who vowed to fight the original fire-sale deal, struck only a week ago at the behest of the Federal Reserve and Treasury Department. Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share — a figure that represented a...

Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that's the clearly stated view of current Fed Chairman Ben Bernanke. The worldwide economic downturn called the Great Depression, which persisted from 1929 until about 1939, was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment, and acute deflation in virtually every country...

TOKYO -- He was known as "Mr. Yen." As Japan's deputy minister of finance for international affairs in the late 1990s, Eisuke Sakakibara had a stomach-turning insider's view of an economic meltdown. With Japan's economy crushed by the collapse of a financial bubble, he became the champion of the low-yen policy. By intervening in currency markets to depress the yen's value, the aim was to help marquee exporters like Sony Corp. and Toyota Motor Corp. lower the cost of their goods abroad and generate more sales, thereby kick-starting a recovery.

Dysfunctional capital markets, frantic central banks, stressed-out consumers, fear and uncertainty -- all these are alarming echoes of the global economic cataclysm of the 1930s. Which raises the inevitable question: Could another Great Depression be lurking over the horizon?

NEW YORK (AP) - Treasurys staged a massive rally Wednesday, as fears about continuing fallout from the credit crisis prompted investors to seek safe assets ahead of a long holiday weekend. There were positive developments in the U.S. mortgage industry Wednesday as well as the afterglow of a sizable Federal Reserve rate cut the day before. But those encouraging developments were overshadowed by worries that other banks could be in dire straits following the near-collapse of Bear Stearns Cos. Inc. and its stunning $2-a-share takeover by JP Morgan Chase & Co. There remain troubling signs of weakness at some foreign...

NEW YORK (Reuters) - Bear Stearns Cos (BSC.N: Quote, Profile, Research) shareholders may be hoping that another suitor will emerge to challenge JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), but perhaps their best hope of getting a higher price is prying a few extra dollars from JPMorgan itself, analysts said. By getting enough shareholders to commit to vote against the deal, they may be able to get JPMorgan to budge. "There is a time element to this. All the other firms are in there, trying to swoop up Bear employees and customers.... If I were JPMorgan, I'd pay an...

One of the biggest stories in recent weeks and months has been the crisis facing the banking and the financial systems. The first rumblings in the mainstream press began last summer, when news of the housing bubble appeared. Yes, news of the rise in housing prices was well known long before that; but only after many areas of the country had flat sales did it occur to most people that the prices were the result of a bubble, and not of their own financial genius. With the peak in housing prices, and the slowdown in house sales, it was interesting...

Since reducing the interest rate over and over again did not solve America’s woes, the Federal Reserve had to try something else: On Tuesday of this week, the Fed announced a new plan that would inject $200 billion into the struggling banking system. Wall Street loved it and the market experienced its best rally since 2003. And what was the purpose of this injection of paper money? To state it simply, due to years of high-risk mortgages and other faulty loans, American banks are in trouble because of defaulted loans. Some have even estimated that the reserves held in our...

NEW YORK (Reuters) - Financial firms face a "new world order" after a weekend fire sale of Bear Stearns and the Federal Reserve's first emergency weekend meeting since 1979, research firm CreditSights said in a report on Monday. More industry consolidation and acquisitions may follow after JPMorgan Chase & Co (JPM.N) on Sunday said it was buying Bear Stearns (BSC.N) for $236 million, or $2 a share, a deep discount from the $30 price on Friday and record share price of about $172 last year. "Last evening the Bear Stearns situation reached a crescendo, as JPMorgan agreed to acquire the...

NEW YORK - JPMorgan Chase said Sunday it will acquire rival Bear Stearns in a deal valued at $236.2 million, a stunning collapse for one of the world's largest and most venerable investment banks. JPMorgan Chase & Co. said the $2 a share, all-stock deal has received the required approvals from the federal government and the Federal Reserve. Bear Stearns shares close Friday at $30 a share. The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. At...

Bob Brinker is reporting on the air now (his Sunday evening radio program) that JPMorgan is working a deal to buy Bear Stearns, and hopes to announce before the market opens, Monday morning. He says they are valuing Bear Stearns at about $2.2 billion. This works out to over $18/share. Bear Stearns opened Friday at $57 and closed down at $30. Brinker's referencing the Wall Street Journal for this. The Wall Street Journal Online has the following article: Bear Stearns Closes in on Deal To Sell Itself to J.P. Morgan By Dennis K. Berman, Susanne Craig and Kate Kelly Word...

In a rare appeal to Main Street, the head of Federal Reserve Bank of Boston is telling subprime borrowers how to save their homes in an opinion piece distributed to 139 community newspapers across New England. The 668-word piece, by Eric Rosengren, the president of Boston's Fed, reads less like an opinion piece and more like a public service announcement. The article seeks to prevent some subprime borrowers from entering foreclosure by impressing upon them the urgency of contacting a lender to renegotiate their mortgage with their current loan company, or with one of five lenders participating in a regional...

This week, as the financial sector began to give way under the unbearable weight of bad mortgage debt, the Federal Reserve stepped in to save the day. At least that’s what it says in the script. In a surprise move, the Federal Reserve announced its intention to swap $200 billion of treasury debt for $200 billion of potentially worthless mortgage-backed securities. The Fed may have been partially spurred to take the step as a result of the rapid collapse of Carlyle Capital Corp. a publicly traded private equity firm that is a subsidiary of the Carlyle Group. The Dutch firm...

The US Federal Reserve has taken the boldest action since the 1930s, accepting $200bn of housing debt as collateral to prevent an implosion of the mortgage finance industry and head off a full-blown economic crisis. governors on Monday night. It followed the melt-down of the US chartered agencies -- Fannie Mae, Freddie Mac, and other lenders -- which together guarantee 60pc of the entire US home loan market "The market was starting to question the solvency of bodies that stand at the top of the credit pile. These agencies together wrap or insure $6 trillion of mortgages. They cannot be...

NEW YORK - Wall Street rebounded sharply Tuesday after the Federal Reserve and other central banks said they will pump $200 billion into the financial markets to help ease the strain from the credit crisis. The Dow Jones industrials surged about 150 points. The program is part of a worldwide effort to help struggling banks and mortgage providers. The Fed — acting in concert with the European Central Bank, the Bank of Canada and the Swiss National Bank — agreed to loan investment banks money in exchange for debt that includes slumping mortgage-backed securities. The Fed's latest move was seen...

[WARNING: CONTAINS VULGARITY] The feigned cluelessness in Paul Krugman's Sunday New York Times column ("The Face-Slap Theory") about the meltdown in finance is a good index of the cringing mendacity now emanating from those in service to the centers of power. I doubt an editor, or the publisher, Mr. Sulzberger, had to whisper in his ear to soft-pedal the situation. I don't even believe anything like his job depends on it. Krugman's glossing-over the truth is just social cowardice. He doesn't want to be called out dissing fellow members of his club. Krugman avers to the Federal Reserve's two previous...

There is almost too much news going on in the financial world to even begin to try to analyze and discuss these days. I was watching financial cable news this weekend on Fox, who are usually cheerleaders for the market, and the mood is extremely pessimistic. I was amazed. So rather than comment on the 10 ongoing crisis at the moment, I've been thinking about some specific terms that should be defined... words we will soon hear a lot in the future. What's a systemic margin call? What is a cascading cross-default and why should you care? Margin Call So,...

WASHINGTON - The Federal Reserve on Wednesday cut a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. It signaled that further rate cuts were possible. Last week, the Fed announced a surprise three-quarter-point cut which drove the funds rate down to 3.5 percent. It was the largest reduction in this rate in more than two decades and the first change in the funds rate between meetings since the immediate aftermath of the September 2001 terrorist attacks. Federal Reserve Chairman Ben Bernanke and his colleagues held an emergency...

AMERICA, the ailing superpower, has fresh evidence about its feet of clay, with the credit crisis supplanting Iraq as the latest malaise of the presidential election season. The US Federal Reserve has cut the federal fund rate by 75 basis points to 3.5 per cent, the biggest cut in 25 years, while President GeorgeW. Bush has combined with the US Congress to approve an urgent $150 billion package to boost spending and combat the loss of consumer confidence. Consider the dismal story of the Bush presidency. After the 9/11 attack, the folly of the Iraq war, the tribulations of the...

Excerpt - When the Federal Reserve surprised markets with a 0.75 percentage-point cut in the federal-funds target Tuesday morning, the thinking was that concerns about a U.S. recession had so fully enveloped the markets that just about anything could happen. Sure, the thinking went, the Fed was in danger of looking like it had responded to market action rather than an economic report, but if markets were reacting to economic reports, well, it’s all the same in this world these days. However. The revelation that Societe Generale is taking a $7 billion write-down due to the activities of one rogue...

KENNER, La. — Ron Paul, a Republican presidential contender and Texas congressman, said Monday that the Federal Reserve is to blame for the country’s weakening economy. Paul highlighted his economic remedies — abolishing the federal income tax and returning to the gold standard, among them — on a three-city tour of Louisiana. The libertarian-minded Paul was the only candidate to visit Louisiana on the eve of the state’s Republican caucuses Tuesday. The caucuses are an intermediary step in picking a favorite candidate. A presidential primary will take place on Feb. 9 and a state convention will convene on Feb. 16....

After watching a tsunami of sell-offs in the overseas markets, Fed chair Ben Bernanke acted rapidly this morning to quell a big downturn on Wall Street. The Fed lowered the interest rate by 0.75, taking the rate from 4.25% to 3.5%, hoping that will convince investors to stay in the market: The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, cut a key interest rate by three-quarters of a percentage point on Tuesday, the biggest one-day move by the central bank in recent memory. The Fed said it was cutting the federal funds...

WASHINGTON - The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, cut a key interest rate by three-quarters of a percentage point on Tuesday. The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent. The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory.

Just thought you would like to see a project. Merle Hazard is a friend of mine, and he got the great Arthur Laffer to help him with this video. Merle and I hope you enjoy it. It was picked as Runner-Up for song of the year in the Economist.

On Wednesday, the Federal Reserve announced plans to lend $40 billion to banks. By my count, it’s the fourth high-profile attempt to rescue the financial system since things started falling apart about five months ago. snip... In August, the Fed tried again to do what it did in 1998, and at first it seemed to work. But then the crisis of confidence came back, worse than ever. snip... First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to...

NEW YORK (MarketWatch) -- U.S. stocks spiked higher Wednesday, with the Dow industrials up nearly 150 points, after the Federal Reserve and four other central banks moved to improve liquidity in the banking system and encourage short-term lending. The Fed is coordinating its actions, designed to add $40 billion in liquidity, with the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank. See full story. 'The main problem in credit markets has not been that rates are too high, but that financial institutions have been unwilling to lend.' — Alan Skrainka, Edward Jones...

On Aug. 9, 2007, and the days immediately following, financial markets in much of the world seized up. Virtually overnight the seemingly insatiable desire for financial risk came to an abrupt halt as the price of risk unexpectedly surged. Interest rates on a wide range of asset classes, especially interbank lending, asset-backed commercial paper and junk bonds, rose sharply relative to riskless U.S. Treasury securities. Over the past five years, risk had become increasingly underpriced as market euphoria, fostered by an unprecedented global growth rate, gained cumulative traction. The crisis was thus an accident waiting to happen. If it had...