At noon today the New York Federal Reserve Bank will release its bail out data. It is good to know that Fed Watchdog Matt Stoller is on the job. He has this quality piece today on Naked Capitalism and will be examining the report and bringing us analysis. Here is a teaser:
This is a tremendous step forward. Of the many castle walls the Fed used to keep the rabble out, secrecy and complexity were critical. The Fed couldn’t keep its dealings secret, and financial bloggers are constantly explaining, explaining, and explaining. Those walls have fallen. A lack of public debate was another. That too has fallen. A monopoly of public information dissemination, via personal contacts between bankers and outlets like the Washington Post (whose owner in the 1930s was Hoover’s Federal Reserve Chairman), has broken down as well through internet communities.
Gradually, a new generation of politicians is gaining the confidence that the people themselves through their elected representatives should be making critical decisions about economic efficiency and banking. The Fed is adapting to these changes, building up its communication staff and doing town hall style meetings. Bernanke is on TV all the time, a far cry from the days when the Federal Reserve head simply refused to even brief Congress. In some ways, the hardest part of the fight is generating public debate, but that has been accomplished. The structure of our monetary system is now up for grabs.
As we move forward in this debate, it is important to understand that Sarah Palin is coming from a genuinely rooted tradition in American economic debates, from the era of the late 19th century, when Wall Street came together to finance railroad mega-corporations. Her argument is one against the mutability of money; she rejects the idea that money is a political object, because that implies that it is collective decision-making that determines property values and ultimately the social hierarchy. She believes in a natural and fixed social hierarchy, which is a very conservative idea deeply held by the business class.
Palin is using the lack of legitimacy of the modern Fed, the failed technocratic screw-ups and the elitist tendencies, to push for the equivalent of societal debtor’s prison. She is speaking for creditors, and many of the conservative forces within the Federal Reserve agree with her. It is important to understand that reflexively defending the Federal Reserve, which is what the Democratic establishment is doing, is a foolish and anti-populist attempt to pretend that the Fed is a legitimate decision-making body. It isn’t. It is powerful, but not legitimate.
Stoller is on the right track here. The issue is power and its incestuous nature. Perhaps this information will begin to separate the populists from the populists. There is a brand on populism in ascendency that is naive. It believes that the notion of small, efficient, and non-intrusive government is necessarily democratic, and Constitutional. It can be, if it fulfills its functions relating to freedom, equality, and justice. This is where the Sarah Palin Tea Party will be tested. For if it simply suggests that government disengage and allow the economic masters free rein in a rigged marketplace, then it is not really populist at all. It will really stand for economic “exceptionalism” within our population, where some that rise to the top get to stay there by any means including by the use of some exempt and secretive arms of government.
On the other hand, as Stoller points out, there is the Ron Paul wing of the Tea Party, which does stand for equal economic opportunity.
The Fed is actually one point of contention between the right-wing billionaire Koch family and the Ron Paul libertarians; the Koch’s are supportive of Federal Reserve-tied scholars, and Paul’s people are not (the Palin tea party had no involvement in the Audit the Fed fight, the Ron Paul tea party was the driving force on the right for that legislation).
So perhaps between this release on the upcoming Wikileaks release on a major bank, if it happens, more light will be shed on the sharing of power and money by the economic elites, who prefer to bail out the richest 10% at the expense of the other 90%. See Ireland for details.
The Fourteenth Banker Blog 
Excellent post, 14! Thanks for drawing my attention to Matt Stoller’s analysis and warning too. Right on the money!
Comment by Lawrence — December 1, 2010 @ 9:49 AM |
Very interesting, although I seriously doubt Palin has a clue as to what is going on with regards to the Fed & welfare/warfare state.
The Koch bros. are naturally a little leery of Paul, as he would remove much of the advantage of almost every billionaire, which is gaining a regulatory advantage over competition vs. an better/cheaper/faster advantage (although perhaps they are willing to give this up for the greater good, I will suspend judgment until it becomes evident which side they fall on).
I predict that the Fed document will reveal some, but be ultimately unsatisfactory, ultimately resulting in their receiving more heat rather than less.
Comment by Dave Narby — December 1, 2010 @ 12:35 PM |
Stoller is a political propagandist and it is very evident in his piece. He says, as an example, that the Fed gave Goldman Sachs $12 billion through AIG. That is utter factual horsepoop and very good political writing. AIG had a legally binding contract with GS that pre existed the Fed involvement with AIG. That contract could have been set aside or modified by a bankruptcy judge had AIG been put in bankruptcy. The Fed and Treasury invested to avoid bankruptcy. Had the Fed investment precluded settling the CDS contracts with their funds with some magic non comingling clause, AIG would have legally have still owed GS the $12 bn. GS would have sued and won or what I would have done… Petition for involuntary bankruptcy of AIG. It would have been granted.
Did the Fed’s actual funds go from AIG to GS… certainly some did. But it was AIG’s funds the moment the Fed invested… not the Feds funds. If I buy stock from A do I have a claim on how A spends what I paid him. Similarly, if I loan A I lose control of the funds absent a covenant.
Was this deliberate? Absolutely. This over simplification will kill everything in time. Did the Fed have time to do covenants in the heat of September 2008 panics? I doubt it. They are simply not that smart. After all the Fed let the whole thing happen. Geithner simply kept coming out and barking at the bankers when all this was coming down. Had the Fed minions been smart the problem would not have come up. THe FEd people were free market truthers . Truthers of the worst sort.
If the Fed wanted to control payouts to people like GS, the honest method was to put AIG in bankruptcy. The fright factor was way to big for such a choice.
Comment by Jerry J — December 1, 2010 @ 2:37 PM |
What if the Fed had made a deal with GS? But on what basis in the time allowed? GS had all the cards because the same deal would have had to be given to all CDS contract holders owed money by AIG.
GS owed most of that money others because they laid off the GS contracts at 2 % or more to AIG for .25 %. If AIG did not pay off , GS still owed the people they sold protection to. People like John Paulson’s fund. The same was true of other big banks that sold protection to others and laid it off to AIG. These people must have elevated themselves into an informal creditors committee to form a common front to get paid in full. That front would be all petition for AIG to be put into involuntary bankrutcy. These same government people were clucking all over the place about the immorality of Jingle Mailers. Yet, the Fed was supposed to Jingle Mail too using it’s power to lean on people?
Who is more corrupt. The banks? The Government? The Fed? Or maybe mostly , the citizen?
Comment by Jerry J — December 1, 2010 @ 4:04 PM |
The Fed Release will trigger amusing angst all over the political landscape for months. Sorting out the drivel in the press will take some time. But, when it is over, those loans likely went to US subsidiaries of foreign banks, National Associations in their own right. Hence legally US banks taking deposits and FDIC insured. Not foreign banks at all. How much? Next question. What loans were made to foreign subsidiary banks of United States Bankcorps by foreign central banks. I have seen no clear analysis yet.
Comment by Jerry J — December 1, 2010 @ 11:32 PM |
By the way, notice that misleading ” tapped for $2.4 Trillion”. That number is adding up the total daily borrowings of the parties involved. They would be far more factual if they quoted average daily balance during the period the loans were outstanding. For example , X has a mortgage note for 30 years of $100,000. Well his total borrowings for a 30 day month on a daily basis is $3,000,000 while his average daily balance is still $100,000.
At no time at the end of each week ending balance sheet did any loan category get even near $1 trillion. SO on the face of it, the reporting is adding up the number of transactions which were very short term like daily to 28 days. One could borrow $100 million three times for three days each and would be said to have borrowed $900 billion.
The press is doing a grift or they do not know any better.
Comment by Jerry J — December 2, 2010 @ 4:33 PM |
I don’t think the FRB provided the information in a format that could be easily digested, intentionally no doubt. What’s a $100 Billion among friends anyway? If there were any honesty at the Fed they would have explained all this.
Comment by thefourteenthbanker — December 2, 2010 @ 6:57 PM |