How the Fed is creating a new feudalism

Conn Corroll
The Washington Examiner
3/16/2013

Over a decade ago in 2001, the Federal Reserve planted the seeds of the 2008 financial crisis by lowering its target for the federal funds rate from 6.25 percent to 1.75 percent. Since this interest rate is a benchmark number used throughout financial markets, many first-time homebuyers were able to enter the housing market thanks in part to both new looser lending standards and the record-low teaser mortgage rates banks were offering.

The Fed then lowered the rate even further in 2002 and again in 2003, when it reached just 1 percent and stayed there for more than a year. These easy money policies may have helped temporarily decrease unemployment and drive homeownership rates to record highs, but they also created a real estate bubble. When that bubble popped in 2008, it precipitated the biggest recession since the Great Depression more than 80 years ago.

But surely, the Federal Reserve has since learned its lesson, right? It would never try to lower unemployment by implementing easy money policies that would create another asset bubble. Would it?

In fact, the Federal Reserve has learned nothing. It is again implementing loose money policies, this time through quantitative easing, and it is again creating artificial asset inflation. Worse, this time the Fed’s distortionary policies are primarily benefiting the wealthiest Americans while making a nation of serfs out of young families who are just trying to get their start…

The article continues at The Washington Examiner.

Related: JPMorgan’s Follies, for All to See

 BE afraid.

That’s the takeaway for both investors and taxpayers in the 307-page Senate report detailing last year’s $6.2 billion trading fiasco at JPMorgan Chase. The financial system, thanks to dissembling traders and bumbling regulators, is at greater risk than you know.

After bailing out the nation’s banking system in 2008, taxpayers and investors have been assured that such a crisis will not happen again. The Dodd-Frank legislation was supposed to make our system safe from the kinds of reckless banking activities that brought the economy to its knees.

The Senate report disproves this premise with vigor…

…One can only wonder: if JPMorgan Chase traders think nothing of misrepresenting the value of their trades to minimize losses, what are the financial world’s lesser players up to?

Unfortunately, that is not something investors are likely to learn until it is too late and a wrong-way bet blows up an institution’s balance sheet…

…the true value in this Senate investigation is its spotlight on the ability of bank executives to hide hundreds of millions of dollars in losses and yet survive internal valuation reviews. This “shows how imprecise, undisciplined, and open to manipulation the current process is for valuing credit derivatives,” the report said.

JPMorgan, don’t forget, is the largest derivatives dealer in the world. Trillions of dollars in such instruments sit on its and other big banks’ balance sheets. The ease with which the bank hid losses and fiddled with valuations should be a major concern to investors…

Read the whole thing.

 

Also, To Reassure Investors, Fed Stresses It Will Not End Stimulus

 

From earlier this month, Holder: Banks May Be Too Large to Prosecute

…“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them,” Mr. Holder told lawmakers. Prosecutors, he said, must confront the problem that “if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.”…

 

 

Comments are closed.