Government intervention in the mortgage and housing industry was and still is, an egregious error in judgement.
During the 2000s housing boom, the govt advocated – and subsidized the housing market. Fine intentions – particularly for the lower to middle income folks to own a house and grab a piece of the pie. But it didn’t quite work out as planned.
Uncle Sam jaw boned – and then mandated Freddie and Fannie as well as banks to hit loan targets – turning a blind eye to relaxed loan standards – shoddy mtg processing and dodgy securitizations. The Fed also did its part by lowering interest rates – all to tease folks to borrow way more money then they should or were qualified – all the while our politicians touting and taking credit for the housing boom.
Bankers concocted scheme after scheme to keep mortgages pumping out of the shop – packaging loans into CDO’s and other oblique investment structures and selling them to far off lands such as Iceland. Along with the mortgage brokers, bankers got filthy rich doing exactly what govt demanded of them. But hey, people who never dreamed of owning a house owned not only a house, a big overpriced house! Happy days. Everybody was happy….
Then the shit hit the fan and It became a nightmare for those who lost their homes – but for bankers, it was business as usual. Well, maybe a 20% hit to bonuses in 2009.
Now as painful as the below story is, do I feel that Mrs black should have her loan forgiven or modified?
No, absolutely not. Fact remains that she made an egregious error and had no business owning that home.
What’s horrible is that the govt, along with her loan officer, made her believe she could and should…
Why is nobody in jail?
The Govt can’t prosecute those responsible for doing what they were told to do.
Just google Eric Holder.
“Rebecca Black abandoned her dream house on Hazelwood Road in Memphis, Tennessee, in 2010, Today she rents an apartment about the size of her old living room and works for the same $12 an hour she’s earned for years.
Thomas F. Marano makes more money in a single morning than Black does all year. Marano once led the team at Bear Stearns Cos. that bought Black’s mortgage in 2005 and thousands of other subprime loans to sell to investors.
In the aftermath of the longest economic downturn since the Great Depression, only one of them kept winning. The biggest lenders are doing better than ever while those with the least, many of them black borrowers, are struggling the most. One dividing line for this widening gap is the dotted one where millions of home buyers signed their names to loans they couldn’t repay. With the dream of home ownership snatched away, they and their communities may never be the same.
Four million U.S. homeowners have lost their homes to foreclosure since June 2009, when the 19-month U.S. recession ended, according to RealtyTrac Inc. Few places have felt the pain more than Rebecca Black’s hometown of Memphis. In the residential blocks around Elvis Presley’s home, Graceland, 30 percent of the houses are empty or visibly in need of repair, compared with 22 percent in 2009, according to the Center for Community Building and Neighborhood Action at the University of Memphis.
“You see rows and rows of single-family homes that have been abandoned, not just in the so-called ghetto but everywhere in the city,” says Memphis Mayor A C Wharton Jr. “Home ownership was beginning to catch on with people who never dreamed of it. Just when they got their hands on the ladder to pull themselves up, it turned out they bought more house than they could afford and some had interest rates they didn’t know they’d agreed to pay. And it was over.”
Memphis had the highest concentration of subprime mortgages among the 20 biggest U.S. cities in June, based on data from the National Association of Realtors. Subprime loans have higher interest rates and were given to borrowers with bad or no credit.
Lenders were 3½ times more likely to steer blacks to high- interest mortgages than whites with comparable credit scores, according to a Center for Responsible Lending study of 27 million loans originated from 2004 to 2008. In Memphis, where 63 percent of the 652,000 residents are black, officials say their city was targeted for such predatory lending — a practice that Marano says his company didn’t engage in.
“Bear Stearns had rigorous compliance policies in place to prevent predatory lending and unfair mortgage practices,” Marano says in an e-mail.
Marano, 51, whose fellow 1983 Columbia University graduate was a transfer student named Barack Obama, left Bear Stearns in 2008, the year it became burdened by defaulting subprime loans and collapsed. He now works as chief executive officer of a mortgage company called Residential Capital LLC, or ResCap, which filed for bankruptcy protection in May. Marano received $8 million in compensation last year, an 8 percent raise from 2010.
Black, a 64-year-old Army veteran who works feeding, bathing and dressing a man crippled by Lou Gehrig’s disease, made about $24,000 in 2011, the same amount listed on her 2005 mortgage application.
The earnings gap between the richest Americans and the rest of the country grew to its widest point in more than four decades last year, based on U.S. Census Bureau data. The 1.2 million households whose incomes ranked them in the top 1 percent saw their pay rise 5.5 percent last year, while incomes fell 1.7 percent for the 96 million households in the bottom 80 percent — those that made less than about $100,000 a year.
The fates of Black and Marano show how the 7.2 percent expansion of the U.S. economy over the last 3½ years has mostly been an economic recovery for the already well-off. Hard times still plague neighborhoods such as Hazelwood Road in southwest Memphis, where Black bought the three-bedroom brick house for $61,750 in May 2005.
Nine of the 15 parcels on Black’s side of the street have houses that sit empty, have been bulldozed flat or have been overtaken by vegetation growing as thick as a wall. Five of them were abandoned after the recession ended, public records show.
“This used to be a pretty neighborhood,” Black says.
Marano is a defendant in “five or six” securities lawsuits, says Joel C. Haims, a partner with Morrison & Foerster LLP in New York who does represent him.
Home values have fallen by half in Memphis’s Frayser neighborhood, where Steve Lockwood checks out rehab candidates in his pickup truck. On Sunny View Drive, in the northernmost part of town, 10 houses in a row sit empty, their yards a mess of weeds.
Lockwood, 63, is executive director of the Frayser Community Development Corp., a non-profit group that has renovated nearly 100 abandoned homes in the last decade.
“I’m proud of what my people do and what we’ve accomplished because we’ve accomplished a lot,” Lockwood says. “But we’re getting our a–es kicked. We’re winning a lot of battles but we’re losing the war.”
Predatory lending contributes to the suffering, says Phyllis G. Betts, founding director of the Center for Community Building and Neighborhood Action at the University of Memphis.
In May, Memphis and Shelby County settled a predatory lending complaint they’d filed against Wells Fargo & Co. (WFC), with the bank pledging $7.5 million to help borrowers with down payments and home renovations. The San Francisco-based lender admitted no wrongdoing, and says it strictly prohibits discrimination based on race, age or other demographic factors.
After reaching the settlement, Wells Fargo, the biggest U.S. mortgage lender, set a record in the third quarter of 2012 with $4.9 billion in net income. Over the last four quarters, its profit was greater than that of Walt Disney Co., McDonald’s Corp. and Boeing Co. combined.
Since January 2009, Wells Fargo has forgiven more than $5.5 billion of mortgage principal for customers facing financial hardship, says Vickee J. Adams, the bank’s vice president for external communications.
“We are committed to putting people in homes and helping them stay there,” Adams says.
Predatory lending has been devastating to the black middle class, says Webb A. Brewer, an attorney with Brewer & Barlow Plc in Memphis who helped represent the city in its Wells Fargo lawsuit. “It’s not hyperbole to say that this is one of the biggest civil rights issues of our time.”
In 2007, two years into paying her mortgage, Black says her $502 monthly bill went up. She says she thought she’d gotten a fixed-rate loan and complained to Marcus L. Gibbs, her mortgage broker.
Gibbs, in an interview, says he remembers it was difficult to get Black a loan because she paid everything in cash and didn’t have a credit history. Her loan documents say she signed a variable-rate mortgage. Black paid $13,519.63 in fees, the documents say.
“I thought it was a fair loan,” Gibbs says. “I didn’t trick her or anything. I wouldn’t do that.”
BayRock Mortgage Corp., a now-defunct Alpharetta, Georgia- based mortgage wholesaler, bought the loan from Gibbs’ company, according to BayRock’s founder and CEO, William M. Medley Jr. In turn, Bayrock sold it to a Bear Stearns subsidiary, EMC Mortgage Corp., Medley said.
Marano’s team at Bear Stearns put Black’s mortgage into a security called BSABS 2005-HE8, according to a person with direct knowledge of the transaction who asked not to be named because of pending litigation. Bear Stearns sold the security to Hamburg-based HSH Nordbank AG, according to court documents. In a legal complaint, HSH Nordbank says it lost “a minimum of $42 million” on that security and others from Bear Stearns.
In a separate complaint, mortgage insurer Ambac Assurance Corp. says Bear Stearns “deliberately and secretly” abandoned loan-quality standards to churn out securities it could sell to investors. The investment bank’s conduct enabled Marano and his colleagues to receive “stratospheric compensation,” most of which was paid in cash, the complaint says. Marano, who is not a defendant in the case, declined to comment on it and other pending litigation.
By the end of 2007, Black was struggling to keep up with her bills. First she cut out trips to the movies, then the family’s occasional dinners at the China Inn buffet. She drove without car insurance. Then one of her clients died and she was out of work. It bothered her to be unemployed, she says. She felt purposeless. She went on food stamps and fell behind on the mortgage. All she could afford to fix for dinner were chicken necks and beans, she says.
Black found work again. EMC Mortgage, the Bear Stearns subsidiary, sent her letters demanding she catch up on her payments. As it was, she and the boys didn’t have money to go anywhere, she says. It was work and school and come home. Her monthly payments rose to $650. Almost everything she earned she spent on food and the mortgage, she says.
In March 2008, JPMorgan Chase & Co. (JPM) bought Bear Stearns in a deal brokered by the Federal Reserve Bank of New York. Soon after, Marano joined ResCap. In 2009, his first full year at the helm, he was paid $5.6 million while ResCap lost $7.3 billion.
“I was chosen to lead ResCap because of my depth of knowledge of the mortgage industry and my more than 25 years of experience in mortgage-backed securities,” Marano said in an e- mail. “I believe that given the challenges and complexities associated with ResCap I have had a significant positive impact on the business and obtained the best result possible for all interested parties.”
In April 2010, Black says she got a letter from EMC, which had become part of JPMorgan Chase in the Bear Stearns deal, saying that the mortgage company was going to foreclose.
” I was scared the sheriff was going to come and put a lock on the door and put me out,” she says. That was an embarrassment she couldn’t bear, she says. “We got out in a hurry.”
“I was scared the sheriff was going to come and put a lo
Among the possessions Black says she left behind were two items she wishes she’d taken — a lamp and a chair given to her by a late older sister who took her in after her father died when she was a teenager. She had no room for them in her new apartment and no money to rent a storage space.
Black filed for Chapter 7 bankruptcy. Her $60,000 debt to EMC Mortgage was discharged.
EMC never foreclosed (because if they did they would have to realize the loss on the loan). The house is still in Black’s name. According to public records, she owes $1,529.35 in city and county taxes for 2011 and 2012 and $615.06 for city workers to board up the house and mow the grass after a neighbor complained of snakes.
New York-based JPMorgan Chase set a record with $5.7 billion of net income in the third quarter of 2012.
Black’s possessions might still be in the boarded-up house, she says. “In what condition, I don’t know,” she says.
The rent for Black’s one-bedroom apartment is $475 a month including utilities.
“For the rest of my days I want to stay right where I am,” Black says.
“Our company’s process for preparing foreclosure affidavits was flawed,” Marano told a congressional committee in November 2010, a little more than a year before the settlement. “There were affidavits signed outside the immediate physical presence of a notary and without direct personal knowledge of the information in the affidavit. These flaws are entirely unacceptable to me.” He vowed to correct the problems.
ResCap “has been diligent in modifying loans whenever possible, having completed more than 820,000 default workouts for borrowers since 2008, which represent more than 30 percent of loans serviced during my tenure,” Marano says in an e-mail.
In 2010, the year Black abandoned her dream home to the tall weeds, Oldpike Associates, the New Jersey-based company that lists Marano and his children as members, built a 6,000- square-foot, 4½-bathroom house on 10 acres in Park City, Utah, according to public records. It sits on the top of a hill, surrounded by pine, aspen and oak, at the end of a winding driveway lined by boulders.
Park City, which advertises the “greatest snow on earth” and hosted events of the 2002 Winter Olympics, is perhaps best known to non-skiers as the site of the Sundance Film Festival.
The Summit County tax assessor values the home at $1.69 million.
On Hazelwood Road, the house two doors down from Rebecca Black’s old place sold for $3,000 in February 2011, public records show — a 95 percent reduction from what Black paid for hers in 2005.
That was before the bloodshed.
On the night of March 30, police say Calvin DeWayne Jefferson, commonly known as Mack Kane, was behind the wheel of a white pickup truck when two men approached him on Hazelwood Road. One or both of them shot Jefferson, police say. As he died, the truck kept rolling, according to a resident, Katie Greer. It flattened a section of chain-link fence across the street from Black’s old house.
It’s impossible to draw a straight line from the community’s decline to Jefferson’s death, says Kioni Logan, who grew up in the neighborhood and says she knew Cal, as she calls him, for more than a decade. It would be equally wrong to conclude there’s no connection at all, she says.
Police haven’t announced any suspects and haven’t called the killing gang-related. Still, Logan says she believes gangsters played a role.
“Gangs take over empty houses,” she says. “They do whatever they want.”
Greer says Jefferson’s killers fled into the woods along a path in the grass between the house with gang graffiti and the house where she’s lived for 13 years.
“It’s really depressing,” Greer says, looking out her storm door, hands folded at her chin. “I try to stay prayed-up and sometimes that doesn’t even work.”
In the front yard of her old house, Rebecca Black searches for her favorites, the droopy yellow flowers called Angel’s trumpets. She has to high-step through overgrown grass, and when she finds them there are no blossoms, just green stalks choked by weeds.
To contact the reporter on this story: Bob Ivry in New York firstname.lastname@example.org.
“Whoever controls the volume of money in our country is absolute master of all industry and commerce…and when you realize that the entire system is very easily controlled, one way or another, by few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – President James Garfield, 2 weeks before his assassination.
Banks across the globe are all kneeling bedside praying to their God (the Hewlett Packard IP280) that Mr. Ben Bernanke sparks up the HP again to prints a few dollars more . (Apparently 2.7 Trillion federal notes wasn’t enough to spark “demand”). The Fed is hell bent on creating inflation – this will soon be the official policy. http://www.theatlantic.com/business/archive/2012/05/a-rebellion-at-the-federal-reserve/256601/
I just don’t trust these guys pulling levers and manipulating the money supply, manipulating asset prices creating bubbles and debasing the currency. They don’t often (or ever) get it right. Greenspan, Bernanke etc. all missed the 2007-8 meltdown, the savings and loan crisis, the great depression (remember – the Fed was pulling its levers back then too..)
Ultimately all they ever do is hit Ctrl+P over and over and over again making what little savings my mom has to live on disappear slowly and surely. The only way out of our debt is via inflation.
Printing fiat currency to create fiat growth.
When does it stop? There is no restraint – across the globe the policy response is always the same-
Deflation: Ctrl + P.
Recession: Ctrl + P.
Credit crisis: Ctrl + P
An earthquake: Ctrl + P.
Unemployment: Ctrl + P.
10 trillion has been printed since 08. It’s a race to debase.
“The price for credit shouldn’t be controlled. It results in cheap credit but for only those with special access”
Cheap credit is available via capital markets for large corporations. Small companies reliant on direct bank loans and lines of credit suffer as seen in 08 when their bank lines were pulled while the banks were provided free loans from the Fed.
Banks love QE and other Fed programs (who wouldn’t like free money?) Too big to fail insolvent banks – magically, back to business as usual.
The Fed has printed nearly 3 trillion since 2008 – all going to the banks who deposit these funds back to the Fed to earn 25 basis points. Check your savings account lately? Bet your ass your not earning 25 bps…
The Feds mandate is price stability – however since the start of the Fed, prices have increased at the consumer level by 2,241%!
We need to limit the ability of the central banks to manipulate the supply of money by pegging the dollar to Gold or even a basket of commodities.
“Between 1880 and 1914, the period when the United States was on the “classical gold standard,” inflation averaged only 0.1 percent per year.”
History shows that basing money on gold (thus limiting the ability for politicians from manipulating the money supply) results in less inflation, reduces the frequency of bank crises and still promotes growth.
“in the gold exchange standard years of 1948 to 1972 the world averaged annual per- capita growth of 2.8 percent, higher than the recent gold-free era.”
When money is backed by gold it’s impossible, or at least more difficult, for governments to manipulate and inflate.
A recent Bank of England paper suggests “gold stabilizes banks: The incidence of banking crises in the non-gold-standard period is higher than the incidence in the two gold periods.”
The paper went on to say
“Markets and countries enjoyed relative stability in gold- standard years, and capital in those years flowed to worthy growth-generating projects.”
Govt intervention manipulates rates and money and missalocates capital (see real estate bubble).
“The main sacrifice in gold regimes that the authors identify is that governments lose authority to micromanage economies. But given governments’ records, that may not be such a bad thing…”
For the past 40 years or so most schools have excluded the gold standard from the classroom while focusing on the Keynes theory of Economics. How many of us took economics class is about stimulus, deficit spending and manipulating money. My professor in college acted like he was reading from a play book and the assumptions were all true – but they are not. Economics is not an exact science and there are far too many variable involved for a few suits in a marble building to attempt to manipulate.
Robert Wenzel’s turn. Just released in the Economic Policy Journal are his own prepared remarks from his address to the New York Fed.
My Speech Delivered at the New York Federal Reserve Bank
Thank you very much for inviting me to speak here at the New York Federal Reserve Bank.
Intellectual discourse is, of course, extraordinarily valuable in reaching truth. In this sense, I welcome the opportunity to discuss my views on the economy and monetary policy and how they may differ with those of you here at the Fed.
That said, I suspect my views are so different from those of you here today that my comments will be a complete failure in convincing you to do what I believe should be done, which is to close down the entire Federal Reserve System
My views, I suspect, differ from beginning to end. From the proper methodology to be used in the science of economics, to the manner in which the macro-economy functions, to the role of the Federal Reserve, and to the accomplishments of the Federal Reserve, I stand here confused as to how you see the world so differently than I do.
I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality.
Please allow me to begin with methodology, I hold the view developed by such great economic thinkers as Ludwig von Mises, Friedrich Hayek and Murray Rothbard that there are no constants in the science of economics similar to those in the physical sciences.
In the science of physics, we know that ice freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed..
There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.
And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist. It is as if one were to assume a constant relationship existed between interest rates here and in Russia and throughout the world, and create equations based on this belief and then attempt to trade based on these equations. That was tried and the result was the blow up of the fund Long Term Capital Management, a blow up that resulted in high level meetings in this very building.
It is as if traders assumed a given default rate was constant for subprime mortgage paper and traded on that belief. Only to see it blow up in their faces, as it did, again, with intense meetings being held in this very building.
Yet, the equations, assuming constants, continue to be published in papers throughout the Fed system. I scratch my head.
I also find curious the general belief in the Keynesian model of the economy that somehow results in the belief that demand drives the economy, rather than production. I look out at the world and see iPhones, iPads, microwave ovens, flat screen televisions, which suggest to me that it is production that boosts an economy. Without production of these things and millions of other items, where would we be? Yet, the Keynesians in this room will reply, “But you need demand to buy these products.” And I will reply, “Do you not believe in supply and demand? Do you not believe that products once made will adjust to a market clearing price?”
Further, I will argue that the price of the factors of production will adjust to prices at the consumer level and that thus the markets at all levels will clear. Again do you believe in supply and demand or not?
I scratch my head that somehow most of you on some academic level believe in the theory of supply and demand and how market setting prices result, but yet you deny them in your macro thinking about the economy.
You will argue with me that prices are sticky on the downside, especially labor prices and therefore that you must pump money to get the economy going. And, I will look on in amazement as your fellow Keynesian brethren in the government create an environment of sticky non-downward bending wages.
The economist Robert Murphy reports that President Herbert Hoover continually pressured businessmen to not lower wages.
He quoted Hoover in a speech delivered to a group of businessmen:
In this country there has been a concerted and determined effort on the part of government and business… to prevent any reduction in wages.
He then reports that FDR actually outdid Hoover by seeking to “raise wages rates rather than merely put a floor under them.”
I ask you, with presidents actively conducting policies that attempt to defy supply and demand and prop up wages, are you really surprised that wages were sticky downward during the Great Depression?
In present day America, the government focus has changed a bit. In the new focus, the government attempts much more to prop up the unemployed by extended payments for not working. Is it really a surprise that unemployment is so high when you pay people not to work.? The 2010 Nobel Prize was awarded to economists for their studies which showed that, and I quote from the Noble press release announcing the award:
One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.
Don’t you think it would make more sense to stop these policies which are a direct factor in causing unemployment, than to add to the mess and devalue the currency by printing more money?
I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost “demand”. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%.
I also must scratch my head at the view that the Federal Reserve should maintain a stable price level. What is wrong with having falling prices across the economy, like we now have in the computer sector, the flat screen television sector and the cell phone sector? Why, I ask, do you want stable prices? And, oh by the way, how’s that stable price thing going for you here at the Fed?
Since the start of the Fed, prices have increased at the consumer level by 2,241% . that’s not me misspeaking, I will repeat, since the start of the Fed, prices have increased at the consumer level by 2,241%.
So you then might tell me that stable prices are only a secondary goal of the Federal Reserve and that your real goal is to prevent serious declines in the economy but, since the start of the Fed, there have been 18 recessions including the Great Depression and the most recent Great Recession. These downturns have resulted in stock market crashes, tens of millions of unemployed and untold business bankruptcies.
I scratch my head and wonder how you think the Fed is any type of success when all this has occurred.
I am especially confused, since Austrian business cycle theory (ABCT), developed by Mises, Hayek and Rothbard, has warned about all these things. According to ABCT, it is central bank money printing that causes the business cycle and, again you here at the Fed have certainly done that by increasing the money supply. Can you imagine the distortions in the economy caused by the Fed by this massive money printing?
According to ABCT, if you print money those sectors where the money goes will boom, stop printing and those sectors will crash. Fed printing tends to find its way to Wall Street and other capital goods sectors first, thus it is no surprise to Austrian school economists that the crashes are most dramatic in these sectors, such as the stock market and real estate sectors. The economist Murray Rothbard in his book America’s Great Depression  went into painstaking detail outlining how the changes in money supply growth resulted in the Great Depression.
On a more personal level, as the recent crisis was developing here, I warned throughout the summer of 2008 of the impending crisis. On July 11, 2008 atEconomicPolicyJournal.com, I wrote:
SUPER ALERT: Dramatic Slowdown In Money Supply Growth
After growing at near double digit rates for months, money growth has slowed dramatically. Annualized money growth over the last 3 months is only 5.2%. Over the last two months, there has been zero growth in the M2NSA money measure.
This is something that must be watched carefully. If such a dramatic slowdown continues, a severe recession is inevitable.
We have never seen such a dramatic change in money supply growth from a double digit climb to 5% growth. Does Bernanke have any clue as to what the hell he is doing?
On July 20, 2008, I wrote :
I have previously noted that over the last two months money supply has been collapsing. M2NSA has gone from double digit growth to nearly zero growth .
A review of the credit situation appears worse. According to recent Fed data, for the 13 weeks ended June 25, bank credit (securities and loans) contracted at an annual rate of 7.9%.
There has been a minor blip up since June 25 in both credit growth and M2NSA, but the growth rates remain extremely slow.
If a dramatic turnaround in these numbers doesn’t happen within the next few weeks, we are going to have to warn of a possible Great Depression style downturn.
Yet, just weeks before these warnings from me, Chairman Bernanke, while the money supply growth was crashing, had a decidedly much more optimistic outlook, In a speech on June 9, 2008, At the Federal Reserve Bank of Boston’s 53rd Annual Economic Conference , he said:
I would like to provide a brief update on the outlook for the economy and policy, beginning with the prospects for growth. Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly. Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so. Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.
I believe the Great Recession that followed is still fresh enough in our minds so it is not necessary to recount in detail as to whose forecast, mine or the chairman’s, was more accurate.
I am also confused by many other policy making steps here at the Federal Reserve. There have been more changes in monetary policy direction during the Bernanke era then at any other time in the modern era of the Fed. Not under Arthur Burns, not under G. William Miller, not under Paul Volcker, not under Alan Greenspan have there been so many dramatically shifting Fed monetary policy moves. Under Chairman Bernanke there have been significant changes in direction of the money supply growth FIVE different times. Thus, for me, I am not at all surprised at the current stop and go economy. The current erratic monetary policy makes it exceedingly difficult for businessmen to make any long term plans. Indeed, in my own Daily Alert on the economy  I find it extremely difficult to give long term advice, when in short periods I have seen three month annualized M2 money growth go from near 20% to near zero, and then in another period see it go from 25% to 6% . 
I am also confused by many of the monetary programs instituted by Chairman Bernanke. For example, Operation Twist.
This is not the first time an Operation Twist was tried. an Operation Twist was tried in 1961, at the start of the Kennedy Administration  A paper  was written by three Federal Reserve economists in 2004 that, in part, examined the 1960’s Operation Twist
Their conclusion (My bold):
A second well-known historical episode involving the attempted manipulation of the term structure was so-called Operation Twist. Launched in early 1961 by the incoming Kennedy Administration, Operation Twist was intended to raise short-term rates (thereby promoting capital inflows and supporting the dollar) while lowering, or at least not raising, long-term rates. (Modigliani and Sutch 1966)…. The two main actions of Operation Twist were the use of Federal Reserve open market operations and Treasury debt management operations..Operation Twist is widely viewed today as having been a failure, largely due to classic work by Modigliani and Sutch….
However, Modigliani and Sutch also noted that Operation Twist was a relatively small operation, and, indeed, that over a slightly longer period the maturity of outstanding government debt rose significantly, rather than falling…Thus, Operation Twist does not seem to provide strong evidence in either direction as to the possible effects of changes in the composition of the central bank’s balance sheet….
We believe that our findings go some way to refuting the strong hypothesis that nonstandard policy actions, including quantitative easing and targeted asset purchases, cannot be successful in a modern industrial economy. However, the effects of such policies remain quantitatively quite uncertain.
One of the authors of this 2004 paper was Federal Reserve Chairman Bernanke. Thus, I have to ask, what the hell is Chairman Bernanke doing implementing such a program, since it is his paper that states it was a failure according to Modigliani, and his paper implies that a larger test would be required to determine true performance.
I ask, is the Chairman using the United States economy as a lab with Americans as the lab rats to test his intellectual curiosity about such things as Operation Twist?
Further, I am very confused by the response of Chairman Bernanke to questioning by Congressman Ron Paul. To a seemingly near off the cuff question by Congressman Paul on Federal Reserve money provided to the Watergate burglars, Chairman Bernanke contacted the Inspector General’s Office of the Federal Reserve and requested an investigation . Yet, the congressman has regularly asked about the gold certificates held by the Federal Reserve  and whether the gold at Fort Knox backing up the certificates will be audited. Yet there have been no requests by the Chairman to the Treasury for an audit of the gold.This I find very odd. The Chairman calls for a major investigation of what can only be an historical point of interest but fails to seek out any confirmation on a point that would be of vital interest to many present day Americans.
In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children.  Yet, America’s gold is off limits to seemingly everyone and has never been properly audited. Doesn’t that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?
In conclusion, it is my belief that from start to finish the Fed is a failure. I believe faulty methodology is used, I believe that the justification for the Fed, to bring price and economic stability, has never been a success. I repeat, prices since the start of the Fed have climbed by 2,241% and there have been over the same period 18 recessions. No one seems to care at the Fed about the gold supposedly backing up the gold certificates on the Fed balance sheet. The emperor has no clothes. Austrian Business cycle theorists are regularly ignored by the Fed, yet they have the best records with regard to spotting overall downturns, and further they specifically recognized the developing housing bubble. Let it not be forgotten that in 2004, two economists here at the New York Fed wrote a paper  denying there was a housing bubble. I responded to the paper  and wrote:
The faulty analysis by [these] Federal Reserve economists… may go down in financial history as the greatest forecasting error since Irving Fisher declared in 1929, just prior to the stock market crash, that stocks prices looked to be at a permanently high plateau.
Data released just yesterday, now show housing prices have crashed to 2002 levels. 
I will now give you more warnings about the economy.
The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out.
Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat.
Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats.
Dec. 12 (Bloomberg) — European banks turning to their governments to raise required capital could trigger a downward spiral of declining sovereign-debt prices and further losses for the lenders.
The European banks faced with dwindling profits and unable to tap capital markets may be forced to seek government help. About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, countries struggling to convince the world they can pay their debts.
“If governments put money in their banks, their sovereign debt will suffer, exacerbating their problems,” said Karel Lannoo, “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.
It’s an incestuous sixty nine with Govts lending to their banks while the banks are lending to their Govts simultaneously. This is fine and dandy (some may say enjoyable) as long as it lasts. Party’s over when someone goes bust and the other is left to clean up the mess.
I think a lot of folks in this country have entirely too much trust is our policy makers. Unfortunately, the unwashed masses hold their elected (bought off) officials in such blind revelry that these polititians can nearly get away with seemingly anything they wish – as long as it is spun correctly. It is my opinion that our politicians will never make the correct decision if it is a tough decision – regardless if it is in the countries best long term interest.
I wish we were all able to discern the ideals of leadership with the actions of criminals. Regardless of what we wish, our governments rarely if ever do the right thing or fight for the common man.
The below is a little strong, but if we keep down the path were on, folks will think more and more like this guy.
“bureaucracies almost inevitably deteriorate into vehicles for the perpetuation of tyranny driven by the very worst of all stewards; elitist minorities with delusions of godhood.
Government is not nor has it ever been a foregone conclusion. Government is not concrete. It is not tangible. It is not the foundation of society. Instead, government is an abstraction; a fantastic dream of collectivist paternity in the face of individual hardship. Those who fear to wander the world on their own courage, strength, and merit, seek to elevate and empower “decision makers” to provide the comfort of limited liability. Through this process, governments are created out of thin air. All governmental authority is, thus, granted to those in positions of leadership.
To put it simply, there is no power over us but that which we give away, and no freedom lost, that cannot be regained.”
Until this reality is understood, consecutive generations of human beings will be left to wonder astonished at the endless atrocities of governments they thought they could trust. The truth is, no government, no matter how seemingly noble, deserves our full faith. All governments must be treated like storehouses of aging dynamite; with extreme vigilance, care, and suspicion, because, it is in the very nature of centralized power to sink towards destabilization and disaster.”
“If one is free to walk about the streets, keep a job, have a drink, and settle in front of his television for hours on end, then what is there to be worried about? If he is not directly affected by the ill notions of men in far off banks and capitols, then why care at all? If the pain of government criminality only strikes people from “other” cultures, or other walks of life, why be concerned? For those who actually suffer from this brand of idiocy, I can only relate the unwarranted role that our government has assumed within our society and hope that they begin to realize how extraordinarily unsafe they really are. The injustices visited upon the few are invariably visited upon the many in time, especially where a rogue government resides.
The kind of intrusion by government allowed by the American people today is utterly astounding.
The Government Is A Body Elected By The People, Therefore They Are One And The Same
The only practical explanation I can think of for someone to actually believe this argument is overmedication. Despite what we’re all taught in middle school, our government as it exists today and has for many decades does not represent the will of the people. Two dominant political parties with cosmetic differences in rhetoric but nearly identical legislative platforms and voting records is not an expression of a legitimately free republic. The system revolves around corporate ideologies of globalization, not elections. Its beneficiaries are a limited and powerful fringe of society, not the masses. It is a rigged game. A fake battle between two gladiators owned by the same Caesar. To say that the people and the government are one-in-the-same is a gross error in judgment.
Governments over time become tools for control rather than defense, its directives lean towards self preservation, not the preservation of the public. That is to say, the government and those who directly benefit from its manipulation set policies that ensure their own safety, and no one else’s.
After researching and acknowledging the course our government has taken, the question then arises; what is the ultimate end result? Barring multiple miracles of a complete economic turnaround, full third party inclusion in our political structure, the deconstruction of the Federal Reserve, the decentralization of financial influence, the reintroduction of Constitutional insulation degraded since 2001, and the complete pullback of troops involved in ongoing wars in the Middle East, there can be only one outcome: total conflict.
We did not create this division. The American people did not ask to be targeted. Though we certainly have not done enough to fend off the numerous attacks upon our general liberties, the root of the problem still lay within the core of our government, the puppet leaders who abuse it, and the corporate elitists who use it as a staging ground for personal agendas. We have become two separate groups that cannot and will not be reconciled. The government is openly admitting this through legislation like the National Defense Authorization Act. Its time we did the same.
When two forces diametrically opposed exist upon the same ground at the same time with the same force of will, war erupts. A war of philosophies, a war of dissent, and sometimes, a war of weapons. As unsettling as that might sound, we must take solace in the fact that we at least fight for what is honest. If every American must conform to the twisted path our government has chosen, or be branded an ‘enemy combatant”, then may we all become domestic threats in our own backyard.”
Print print print and print all of our problems away. Everybody wants Europe to print and buy sovereign debt (quantitative easing) – except Germany
Hows about a credible plan for growth instead of the same old tune – Capital is miss-allocated via shit loans, bank/Govt insolvency – but no default, no de-leveraging but more more printing and more bail outs…
“What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world’s policy makers are increasingly wrecking the prospects for long-term economic growth. The world’s standard of living (what we can consume for the work we do) is intimately tied to its productivity (what we can produce for the work we do). That productivity requires our scarce savings to be allocated to productive physical capital, and to productive human capital (primarily education).”
Nietzsche famously said “What does not kill me makes me stronger.” The corollary is “What constantly rescues me makes me weaker.” The world will only stop looking for bailouts when policy makers stop handing them out.”
Market expectation of central banks willingness to calm waters (raise assets prices) leaves policy makers with little choice but to print print print for fear of the instability created by not doing so.
Faith in the widely held view that money can be created from nothing and used to solve all financial problems needs desperately to be proven wrong.
And what happens if inflation picks up?? Will central banks continue to print? Well, yes they will. Once you start it’s very difficult to reverse coarse. Inflation may require selling assets – i.e govt debt. Not likely – instead you will see is a change to the method of how inflation is calculated…
I think Alex sent me this article:
“The “End the Fed” movement appears to have a lot going for it these days. Its adherents now include both conservatives and supporters of the Occupy movement. Perhaps its most prominent proponent, Rep. Ron Paul, has garnered respectable poll numbers in the 2012 Republican presidential race and blasts the Federal Reserve at every opportunity. Plus, the succinct slogan fits well on protest signs.
Removing the institution at the helm of U.S. monetary policy since 1913 seems unrealistic, though, and opponents consider it a crazy idea, even dangerous. However, proponents keep up the call, using an array of arguments from economic theory to promoting liberty.
Whatever view one takes, ending the Fed is a goal much more easily stated than accomplished. But if Fed bashers got their wish, here are a few snapshots of how the country
A New Monetary Standard
Many advocates of ending the Fed argue for a return to the gold standard, which President Nixon ended in 1971, due in part to growing inflation, which was itself due to the costs of the Vietnam War. In addition, Nixon was concerned that Fort Knox contained only one third of the gold needed to back the dollars in foreign hands at that time. Under this system, the dollar’s value would once again be tied to the price of gold. Another option is to tie the U.S. dollar’s value to a basket of commodities. (I back the latter)
End to Constant Inflation (for better or worse)
Tying the dollar’s value to a commodity could very well moderate inflation. If the country moved to a strict gold standard, for example, the money supply would be bound to the supply of gold, so printing more dollars would require acquiring more bullion to back them, a big disincentive. This notion, of course, pleases proponents of controlled government spending. Though there might be short-term bouts of inflation and deflation, in the long run, prices could easily remain stable. There are, of course, caveats. For example, the country would be forced to periodically deal with the relatively unfamiliar territory of deflation. Returning to the gold standard in particular could make these problems worse. “The gold market can have very large movements within a day,” says Randall Kroszner, an economics professor at the Booth School of Business at the University of Chicago and a former governor of the Federal Reserve System. He adds that during recent times of economic uncertainty, this added volatility would likely not have been helpful.
Shock to the System
A change to the U.S. currency system could potentially be destabilizing to foreign economies. Kroszner says that, as many countries tie their currencies’ values to the dollar, the potential deflationary effects of being linked to a gold standard would lead to more exchange-rate volatility. But advocates say the result would be more long-term stability for the global economic system. “I think it would be extremely positive, but the initial effect would be so bold as to be alarming,” says Judy Shelton, a senior fellow at the Atlas Economic Research Foundation, a nonprofit organization that advocates for free markets.
A Sad Day for Keynesians
(good – I want them all to die painfully)
Most Keynesian economists believe that expansionary monetary policy moves can boost economic growth. The U.S. has seen this at work most notably with the latest round of quantitative easing, known as QE2. The effectiveness of quantitative easing, especially balanced with associated inflation risks, have been hotly debated in recent years. But no more Fed would simply mean no more easing programs.
Saving May Be More Attractive
(see Bernanke is killing my mom)
Shelton argues that the Fed, with its near-zero interest rates and contributions toward dollar devaluation, “makes a sucker out of a saver.” “You save money, you’ve got zero interest for saving it, and by the time you get it back out, it’s worth less,” she says. Without the Fed pushing interest rates low in hopes of stimulating the economy, says Shelton, saving money could be much more rewarding.
Ending the Business Cycle
This is how Ron Paul put it in his 2009 book, End the Fed. According to Paul and the Austrian school of economics, the booms, bubbles, and busts of business cycles are the result of meddling by central banks. But Shelton moderates this slightly, saying that the Fed has worsened the cycle’s negative effects: “Instead of smoothing out that cycle, [the Fed has] tended to exacerbate it,” generally providing too much credit. Ultimately, she says, this can lead to irrational exuberance. Whether or not this would be universally true, many economists do blame former Federal Reserve Chairman Alan Greenspan’s policies for encouraging the housing bubble that sparked the economic crisis.
The Fed has been around since 1913, so it seems difficult to envision exactly how a Fed-free monetary system would look. According to Kroszner, without a central bank, the U.S. might revert to the system in place before the creation of the Fed: one of private clearinghouses that would determine short-term liquidity, altering short-term interest rates. However, Kroszner points out, longer-term rates are already largely determined by supply and demand.
A Fairer Banking Industry?
“Fairness” is, of course, subjective, but Fed critics argue that two of the Federal Reserve’s chief functions–selling bonds and regulating banks–are at cross purposes and make for an unfair market. “If [the Fed] goes into a community bank and says, ‘We’re very uncomfortable with your loans to entrepreneurs…but we won’t penalize you at all if you lend to the govt – buy U.S. Treasury bonds,’ that’s a huge conflict of interest. That makes me uncomfortable, that the Fed has the inside track on the financial resources of the country,”
Not all regulation is good.
Deregulation is often blamed for the financial collapse (see the OTC derivatives market) but certain regulations themselves were also to blame.
Take for example the Basel banking rules which require commercial banks to hold a specified amount of capital against certain kinds of assets. Under these rules in 2007 banks and investment banks were required to hold 8% capital against corporate loans, 4% against mortgages and 1.6% against mortgage-backed securities. (Capital is primarily equity, or cash). The riskier the asset the more capital banks needed to hold to secure against losses. The result was financial institutions held substantially more holdings of mortgage-backed securities – due to the lower capital requirements. Hmm, that didn’t turn out so great as banks and other financial institutions were encouraged by the Basel rules to hold the worst possible assets which collapsed with the U.S. housing bubble.
Banks are also incentivized to own sovereign debt – and look what’s going on in Europe and you wonder why Euro banks are doomed?
Think that can’t happen here??? US treasuries won’t be risk free for long me thinks…
To create financial stability regulators should encourage asset diversification (penalize concentration) advocate fair value accounting and limit the amount of leverage in the system. I don’t like the idea of governments dictating which assets financial companies should own.
No sir, I don’t like it.
British Gas was formed in 1996 by denationalizing the state run gas company.
Since it’s inception, the stock price has increased 1200%
In the past two years BG has raised its prices by first 7% then 17%.
Customer dissatisfaction hovers at 50%
Profits are up 800%.
BG has just signed a large deal to export US fracked gas to the UK and abroad for a large profit. (Sorry, No lowering of US gas prices, or lowering of dependence on foreign energy.)
BG seeks to purchase the formerly national Irish gas company. (Bord Gáis is being sold as part of the new Irish austerity measures to pay off national debt.)
BG is fined (a paltry £1 million) for greenwashing. (actively involved in to promoting the perception that a company’s policies and products are environmentally friendly. They are not.)
BG’s CEO’s annual compensation is $44 million.
BG announced that they are laying off another 850 workers, adding to 110 from earlier this year (10% of workforce) in order to remain competitive in the marketplace.
Margaret Thatcher came repeatedly.