Tag: Federal Reserve

Now here’s an interesting idea put forth by none other than President Barack Obama’s former chief economic adviser Larry Summers to get the large banks to invest the money in the economy, charge the banks for not spending. At a recent International Monetary Fund conference, Summers proposed that the Federal Reserve should charge banks a negative interest rate for stashing cash, much like the European Central Bank is considering, as a way to ward off another recession or sinking further into a full blown economic depression. Supposedly, this would force the banks to put the money to work in the economy. Some economic writers consider this an act of desperation but as Marl Gongloff at Huffington Post explains the times are already getting desperate

Slashing rates well below zero to make it painful not to spend money is the desperate approach to avoiding an economic depression recently endorsed by Larry Summers, President Obama’s former top economic advisor and one-time pick to run the Federal Reserve. With economic growth likely to be weak for the next infinity, the job market stubbornly awful and inflation disappearing, central bankers around the world have been toying with the idea for a while. Every day it gets closer to being a reality.  [..]

. . . St. Louis Federal Reserve President James Bullard told Bloomberg TV he thought the Fed should consider making U.S. banks pay money to park cash, too. He’s been saying this for more than a year, but the idea is slowly gaining more credence.

That is because, even though the Fed has had a ZIRP (zero interest rate policy) in place for nearly five years now, that has not been enough to get the economy up to full speed. [..]

But even that might not be enough: Some economists think interest rates should be much, much lower than zero: Maybe negative four percent, before adjusting for inflation. Summers recently warned that the U.S. and other big economies could be in a near-permanent state of malaise — like Japan since the 1990s — because interest rates are still too high even at zero. Many liberal economists, including Paul Krugman, think sharply negative interest rates could be the only way to deal with this.

There may be some loud noise emanating from the banks and Wall Street but since congress is stuck on the austerity train wreck, this could be a way for the Federal Reserve to kick start some stimulus. With Summers behind it, it just might be the last desperate solution.  

During her confirmation hearing before the Senate Banking Committee to replace Ben Bernanke as chair of the Federal Reserve, Janet Yellen took congress to task its roll in the growth income inequality and the threat it is to the economy.

Yellen reminded lawmakers of their sheer terribleness during a Senate Banking Committee hearing on Thursday about her nomination to replace Bernanke as chair of the Federal Reserve when his term ends in January. Republican senators moaned and groaned, as usual, about the Fed’s extreme easy-money policies. Yellen reminded everybody that Congress has forced the Fed to act by constantly imposing harsh austerity measures on an economy still recovering from a financial crisis and deep recession. [..]

This belt-tightening has probably cost the economy nearly 2.5 million jobs, according to a recent study by the Center For American Progress, a liberal think tank — one huge reason this has been the slowest job-market recovery since World War II. Economists on the right and left agree austerity has hurt economic growth, employment and consumer spending, with executives from Walmart and Cisco among the most recent capitalists to complain about it.

The sluggish recovery is also making income inequality worse, Yellen pointed out, depriving poor and middle-class Americans of more and better job opportunities.

This is a very serious problem, it’s not a new problem, it’s a problem that really goes back to the 1980s, in which we have seen a huge rise in income inequality… For many, many years the middle and those below the middle [have been] actually losing absolutely. And frankly a disproportionate share of the gains, it’s not that we haven’t had pretty strong productivity growth for much of this time in the country, but a disproportionate share of those gains have gone to the top ten percent and even the top one percent. So this is an extremely difficult and to my mind very worrisome problem. [..]

Fiscal policy has been working at cross purposes to monetary policy. I certainly recognize the importance of the objective of putting the US debt, deficit and debt, on a sustainable path… But some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and from demand, making it harder for the fed to get the economy moving, making our task more difficult.

In many states, the recovery is making the income gap worse

By Niraj Chokshi, The Washington Post

For years, the wealthiest 1 percent have amassed income more quickly than the rest. From 1979 through 2007, for example, the top 1 percent of households saw income grow by 275 percent, according to a nonpartisan Congressional Budget Office study. Compare that to the bottom fifth of households, which saw income gains of only 18 percent over that time. Recent Nobel Prize winner for economics Robert Shiller, who is known for creating a closely tracked home-price index, last month called income inequality “the most important problem that we are facing now today.” And just last week, President Obama’s nominee to lead the Federal Reserve, Janet Yellen, called income inequality “an extremely difficult and to my mind very worrisome problem.”

Though rare, the recovery was strong and reduced inequality in some states, such as North Dakota, where an oil boom has provided a sustained economic boost. There, the number of households in the lowest half of income brackets shrank, while more joined the highest income brackets, a trend that suggests broad upward mobility. But in most states-and nationally-the data show the income gap worsening. In Michigan, for example, more than 65,000 households fell out of the middle-income brackets. That loss was counterbalanced by the addition of some 38,000 households, but only at the lowest and highest income levels.

That was true in many states: The number of middle-income households shrank while the number of low- and upper-income households grew. In many states, more upper-income households were added than lower-income ones-a positive economic sign not entirely unexpected during a recovery from such a severe downturn-but the middle class still shrank.

One of the “fixes” to close the income gap, create more and better jobs, and solve the Social Security fund problem is to raise the minimum wage to a livable wage. As Robert Reich explained in his recent column, if Walmart, the largest employer in America, were to “boost its wages, other employers of low-wage workers would have to follow suit in order to attract the employees they need”. He used Ford magnate, Henry Ford as an example of how that worked and made Ford a fortune.

Walmart is so huge that a wage boost at Walmart would ripple through the entire economy, putting more money in the pockets of low-wage workers. This would help boost the entire economy – including Walmart’s own sales. (This is also an argument for a substantial hike in the minimum wage.)

Now, states like New York and New Jersey and cities like Sea Tac, Washington are recognizing the need for a higher minimum wage to attract workers and business as it helps to improve the economy. There is overwhelming broad public support, with 58% of self identifying Republicans in favor. It’s time for Congress to wake up, end the sequester and austerity measures and raise the minimum wage.

Even as President Barack Obama’s nominee to chair the Federal Reserve is committed to transparency, Janet Yellen is opposed to an audit of the central bank’s monetary policy decisions.

Sen. Rand Paul (R-KY) has proposed legislation that would subject the Federal Reserve to a full audit by the Government Accountability Office (GAO), offering Congress a look at the internal operations of the famously opaque institution. Tea partiers like Paul aren’t the only people who support an audit: the proposal has also garnered support among labor leaders such as AFL-CIO president Richard Trumka, progressive economists like Dean Baker, and Congressional liberals such as Rep. Alan Grayson, D-Fla.

Paul has threatened to block Yellen’s nomination unless his proposal for a Fed audit gets a vote in the Senate. His office did not respond to a request for comment on Yellen’s remarks.

Yellen, who currently serves as vice chair of the Federal Reserve, also indicated during the confirmation hearing that her tenure would not represent a significant break from that of outgoing chair Ben Bernanke. She defended the Fed’s policy of buying Treasury bonds as a form of economic stimulus and hinted that she would continue with policies in that vein if confirmed.

The Federal Reserve has only been audited once in 2010 after the proposal for a one time only audit, sponsored by Sen. Bernie Sanders, was attached to the Dodd-Frank Finance Reform bill. That audit revealed trillions in secret bailouts to banks around the world.

“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” U.S. Senator Bernie Sanders, an Independent from Vermont, said in a statement.

The majority of loans were issues by the Federal Reserve Bank of New York (FRBNY). [..]

The report notes that all the short-term, emergency loans were repaid, or are expected to be repaid.

The emergency loans included eight broad-based programs, and also provided assistance for certain individual financial institutions. The Fed provided loans to JP Morgan Chase bank to acquire Bear Stearns, a failed investment firm; provided loans to keep American International Group (AIG), a multinational insurance corporation, afloat; extended lending commitments to Bank of America and Citigroup; and purchased risky mortgage-backed securities to get them off private banks’ books. [..]

Some of the financial institutions secretly receiving loans were meanwhile claiming in their public reports to have ample cash reserves, Bloomberg noted.

The Federal Reserve has neither explained how they legally justified several of the emergency loans, nor how they decided to provide assistance to certain firms but not others.

In the midst of the government shutdown and looming debt ceiling crisis, it was announced from the usual anonymous White House sources, that President Barack Obama will name the Federal Reserve’s vice chair, Janet Yellen, as his nominee to succeed Chairman Ben Bernanke.

The announcement by president Barack Obama is scheduled for 3pm EST on Wednesday, the White House said. Both Yellen and the current Fed chair, Ben Bernanke, are expected to attend.

The nomination ends a long public debate about Obama’s choice for Fed chairman. Yellen has long been seen as the frontrunner to succeed Bernanke, who is set to step down early next year. But she faced stiff opposition from former Treasury secretary Lawrence Summers who had strong support within the Obama administration. If approved by the Senate, she would be the first woman to head the central bank in its 100-year history.

The president was left with few choices after his “favorite” and “best bud’ Larry Summers was forced to withdraw because of fierce criticism from just about everyone, including Wall Street, except White House insiders. Larry was just not going to happen.

That said, while Ms. Yellen is going to be the first female head of the Federal Reserve (another glass ceiling broken), she is hardly that different policy-wise from Summers.

What We Really Should be Yellin About When it Comes to Who Runs the Fed

by priceman

Effective regulation, and on that note, it is a positive thing that the Summers of our discontent can finally be laid to rest. After all the damage Larry Summers has caused in being one of the architects of this crisis, from boxing in Brooksley Born and ignoring her warnings with regard to derivatives which brought down Long Term Capital Management during the Clinton administration, to his sexism among everything else. He has now thankfully taken himself out consideration for the job.

It’s a good thing he did. Rather than fighting for something or someone that helps people suffering from this economic crisis, President Obama strongly recommended and fought for Larry Summers to be Chairman of the Federal Reserve, a guy who lost a billion dollars as President of Harvard betting on interest rates. Yeah, let that sink in for awhile.

It’s really not OK. This is why making excuses for everything the President does, as too many Democrats do without thinking of the damage, is dangerous, immoral, and unprincipled. Now it looks like the front runner to replace Ben Bernanke as Chairman of the Federal Reserve is going to be Vice Chairwoman of the Board of Governors of the Federal Reserve System and once President and Chief Executive Officer of the Federal Reserve Bank of San Francisco, Janet Yellin. Unlike Larry Summers, she at least saw the crisis coming as early as 2005.

Be Careful What You Ask For

The progressive Democrats of the Senate got Larry Summers to withdraw from consideration for chair of the Federal Reserve over the weekend. So now they’re yellin’ for Yellen. Well, folks Janet Yellen the current vice chair of the Federal Reserve is just the distaff version of Larry minus the misogyny.

Huffington Post’s senior political economy reporter Zach Carter gives a rundown of Ms. Yellen’s policy history before and during her tenure as chair of Council of Economic Advisers in the Clinton administration. During that time she backed the repeal of the landmark Glass-Steagall bank reform, supported the 1993 North American Free Trade Agreement and pressured the government to develop a new statistical metric intended to lower payments to senior citizens on Social Security. Yes, dears, that last one would be an earlier version of the Chained CPI.

The progressive Democrats of the Senate got Larry Summers to withdraw from consideration for chair of the Federal Reserve over the weekend. So now they’re yellin’ for Yellen. Well, folks Janet Yellen the current vice chair of the Federal Reserve is just the distaff version of Larry minus the misogyny.

Huffington Post‘s senior political economy reporter Zach Carter gives a rundown of Ms. Yellen’s policy history before and during her tenure as chair of Council of Economic Advisers in the Clinton administration. During that time she backed the repeal of the landmark Glass-Steagall bank reform, supported the 1993 North American Free Trade Agreement and pressured the government to develop a new statistical metric intended to lower payments to senior citizens on Social Security. Yes, dears, that last one would be an earlier version of the Chained CPI.

But in the 1990s, Yellen and Summers both served in the Clinton administration, and pursued many of the same policies. Yellen began serving as Chair of President Bill Clinton’s Council of Economic Advisers in 1997, and publicly endorsed repealing Glass-Steagall’s separation between traditional bank lending and riskier securities trading during her Senate confirmation hearing. Yellen referred to deregulating banking as a way to “modernize” the financial system, and indicated that breaking down Glass-Steagall could be the beginning of a process allowing banks to merge with other commercial and industrial firms. [..]

At the same event, Yellen endorsed establishing a new statistical metric that would allow the federal government to reduce Social Security payments over time, by revising the consumer price index, or CPI, the government’s standard measurement for inflation. [..]

Before Yellen joined the Clinton administration, she was a respected economist at the University of California at Berkeley. In 1993, she joined dozens of other academics in signing a letter to Clinton advocating for the North American Free Trade Agreement. The letter was signed by prominent conservative economists including Milton Friedman, but also by many economists who are now considered progressive, including Paul Krugman and former Obama adviser Christina Romer. Krugman has since expressed disappointment with some of the trade pact’s effects.

(all emphasis mine)

The full transcript of Ms. Yellen’s Feb. 5, 1997 conformation hearing can be read here (pdf).

To be fair on the Glass-Steagall repeal, Ezra Klein weighed in at his Washington Post Wonkblog:

Another point here is that Glass-Steagall really wasn’t behind the crisis. Wonkblog’s Glass-Steagall explainer has much more detail on this, but perhaps the simplest way to make the point is to quote Sen. Elizabeth Warren, the lead sponsor behind the bill to restore Glass-Steagall. When Andrew Ross Sorkin asked her whether the law would’ve prevented the financial crisis or JP Morgan’s subsequent losses, she said, “the answer is probably ‘No’ to both.” There are good reasons to bring back Glass-Steagall, but they’re separate from the events of 2007 and 2008.

Which is only to say that supporting the repeal of Glass-Steagall in 1997 doesn’t say that much about somebody’s opinions on regulating Wall Street today. And, in general, we don’t know very much about Janet Yellen’s views on the subject. As I’ve argued before, the support for her on this dimension (as opposed to on the monetary policy dimension) really comes from an anybody-but-Summers impulse.

Carter also noted in his article that Ms. Yellen is more consumer friendly. During her tenure as president of the San Francisco Federal Reserve from June 14, 2004 until 2010, she identified the housing bubble and urged stronger regulation to limit its damage.

This still leaves a lot of questions about whether she would support the chained CPI, that is very unpopular among seniors and the public in general, or support regulation to rein in the TBTF banks. As lambert at Corrente puts it:

“Be careful what you wish for; you might get it” was made for situations like this.

So let’s not confuse a solid base hit with a game-winning grand slam, OK?

A long time ago, after an incident that had left me particularly furious with a disagreeable colleague, a friend told me to be patient eventually this person would fall on his own petard. After all, it wasn’t the short term paybacks that one needs to worry about, its the long term paybacks that get them in the end. And so it was, some years later, my nemesis got too arrogant, made some foolhardy decisions and was forced to retire in disgrace. I had long since moved on another path that was ultimately more satisfying but when I heard the story of his fall I had to wryly smile.

Over the weekend, after some weeks of speculation about who would succeed Ben Bernanke as chair of the Federal Reserve, President Barack Obama’s rumored favorite, his former chief economics adviser, Larry Summers, withdrew his name from consideration. Mr. Summers had come under fire from the progressive left for his Chicago School economic policies and his past history as President Bill Clinton’s Treasury Secretary. It was during Summer tenure as Treasury head that Glass-Steagal was repealed leading to the current economic mess. Add to that his misogynistic attitude and the rise of one of the women to whom he was so dismissive and you have the recipe for the down fall of one of the most “dickish” (Charlie Pierce’s term) personalities in government.

Washington bureau chief for The Huffington Post Ryan Grim summarized Larry’s fall from grace:

A progressive-populist coalition fueled by women’s groups and high-end donors was responsible for undoing President Barack Obama’s bid to install Larry Summers as the next chairman of the Federal Reserve. [..]

The five opposing senators were a combination of traditional progressives — Merkley, Elizabeth Warren (Mass.) and Sherrod Brown (Ohio) — and prairie populists — Jon Tester (Mont.) and, according to three Senate Democratic sources, Heidi Heitkamp (N.D.). Tester’s opposition was reported Friday by Reuters; Heitkamp’s intention was not previously public. [..]

Meanwhile, a coalition of progressive groups — which included UltraViolet and the National Organization for Women, two powerful women’s groups — teamed with the big donors and grassroots advocacy groups to pressure Banking Committee members and other Senate Democrats. ..]  The donors, who were mostly women, had [concerns that ranged from populist to feminist. [..]

Merkley, according to another aide, spoke to Democratic senators on the committee during caucus meetings on Tuesday and Thursday, and made Summers’ closeness to Wall Street and prior support for deregulation the key element of his pitch. He homed in on Summers’ backing for the Glass-Steagall repeal, which allowed banks to grow much larger and take on more risk. He also highlighted Summers’ opposition to regulating derivatives in a battle with then-Commodity Futures Trading Commission head Brooksley Born. Summers took both positions as treasury secretary during the Clinton administration. To make the point that Summers had not revised his approach, Merkley noted his intense behind-the-scenes opposition to the Volcker Rule, an attempt to reinstate some of Glass-Steagall’s restrictions that was added to the Dodd-Frank Wall Street reform law by Merkley and Brown. [..]

Summers had also opposed naming Warren to permanently head the Consumer Financial Protection Bureau, a decision that came back to haunt him, as Warren instead ran for the Senate and won a spot on the Banking Committee, where she has now helped tank Summers’ shot at the Fed chairmanship.

Essentially, Larry Summers was the author of his own demise. As Charlie Pierce observes:

The fact is that Senator Professor Warren was one of the driving forces behind a genuine populist uprising of liberal Democratic senators — and Jon Tester, too — and that uprising has kicked Larry Summers to the curb. She has quietly carved out a leadership role in the one area in which she is an acknowledged expert. (What she will do if it ever comes to a vote on making war in Syria is anybody’s guess.) Quite simply, she is doing what she said she would do when she was running for the Senate. She has enough allies to get done a lot of what she wants to get done. Anything this president — or his successor — wants to do as far as national economic policy now has to go through her, and through the coalition to which she belongs. I still don’t think the president will nominate Janet Yellin — He’s got his back up about it now — but whoever he does nominate is going to have to have a chat with the nice professor in the glasses who’s got just a few questions she’d like to ask.

I’m sure there are a lot of women, from Brooksley Born to Christina Romer, wryly smiling. Long term paybacks can be very satisfying.

Well, OK, I’m summarizing. I was startled to read at Agent Orange that Summers was a progressive thinker because Summers recognizes the massive increase in economic inequality that has taken place over the past three or four decades:

It would be, however, a serious mistake to suppose that our only problems are cyclical or amenable to macroeconomic solutions. Just as evolution from an agricultural to an industrial economy had far reaching implications for society, so too will the evolution from an industrial to a knowledge economy. Witness structural trends that predate the Great Recession and will be with us long after recovery is achieved: The most important of these is the strong shift in the market reward for a small minority of persons, relative to the rewards available to everyone else. In the United States, according to a recent CBO study, the incomes of the top 1 percent of the population have, after adjusting for inflation, risen by 275 percent from 1979 to 2007. At the same time, incomes for the middle class (in the study, the middle 60 percent of the income scale) grew by only 40 percent. Even this dismal figure overstates the fortunes of typical Americans; the number unable to find work or who have abandoned the job search has risen. In 1965, only 1 in 20 men between ages 25 and 54 was not working. By the end of this decade it will likely be 1 in 6-even if a full cyclical recovery is achieved.

…

 

There is no issue that will be more important to the politics of the industrialized world over the next generation than its response to a market system that distributes rewards increasingly inequitably and generates growing disaffection in the middle class. …

In the New York Times late last week there was a report how Goldman Sachs is manipulating aluminum commodities that is costing American consumer billions of dollars. This is how it works:

The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.

This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country. [..]

Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year – and add the tons of aluminum used in things like cars, electronics and house siding – and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.

All In host Chris Hayes spoke with Sen. Sherrod Brown (D-OH) about the newly revealed practice by Goldman Sachs to skirt price regulations on a product we use every day-aluminum-costing American consumers billions of dollars and it ain’t just aluminum.

U.S. Weighs Inquiry Into Big Banks’ Storage of Commodities

by Gretchen Morgenson and David Kocieniewski, New York Times

The overarching question is whether banks should control the storage and shipment of commodities, and whether such activities could pose a risk to the nation’s financial system.

But other crucial issues are expected to arise as well. Among them is how Wall Street’s push into these markets has affected the prices paid by manufacturers and ultimately consumers. Another is whether Goldman and Morgan Stanley have operated their storage facilities at arms’ length from their banking business, as required by regulators.

Goldman has exploited industry pricing regulations set by the London Metal Exchange by shuffling tons of aluminum each day among the 27 warehouses it controls in the Detroit area, The Times reported on Sunday. The maneuver lengthens the storage time and generates millions a year in profit for Goldman, which charges rent to store the metal for customers, the investigation found. The C.F.T.C. issued the notices late last week, and it was unclear on Monday whether the agency or other authorities would open a full-fledged investigation into banks’ activities.

Senate Scrutiny of Potential Risk in Markets for Commodities

by Edward Wyat, New York Times

The hearing, convened by the Senate Financial Institutions and Consumer Protection subcommittee, came as Goldman Sachs, JPMorgan Chase and others face growing scrutiny over their role in the commodities markets and the extent to which their activities can inflate prices paid by manufacturers and consumers. The Federal Reserve is reviewing the potential risks posed by the operations, which have generated many billions of dollars in profits for the banks. [..]

Several witnesses at Tuesday’s hearings warned that letting the country’s largest financial institutions own commodities units that store and ship vast quantities of metals, oil and the other basic building blocks of the economy could pose grave risks to the financial system. The ability of those bank subsidiaries to gather nonpublic information on commodities stores and shipping also could give the banks an unfair advantage in the markets and cost consumers billions of dollars, the witnesses said.

Goldman Sachs isn’t alone in this game.

Not Just Goldman Sachs: Koch Industries Hoards Commodities as a Trading Strategy

by Lee Fang, The Nation

Worth noting: Koch Industries, a company often inaccurately described as simply an oil or manufacturing concern, is highly active in the commodity speculation business akin to the big hedge funds and banks like Goldman Sachs.

As Fortune magazine reported, when oil prices dropped from a record high in July of 2008 to record lows in December of that year, Koch bought up the cheap oil to take it off of the market. Koch leased a number of giant oil tankers, including the 2-million-barrel-capacity Dubai Titan, to store the oil offshore. The decrease in supply increased the price for consumers that year, while Koch took advantage of selling the oil off later at higher prices.

Koch Industries’ executive David Chang later boasted, “The drop in crude oil prices from more than US$145 per barrel in July 2008 to less than US$35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery.”

The company took advantage when the prices were low, but they also gained when the prices were high. A leaked document I obtained shows Koch among the largest traders (including Goldman Sachs and Morgan Stanley) speculating on the price of oil in the summer of 2008.

Elizabeth Warren Wants To Take This Goldman Sachs Aluminum Story And Run Right Over Wall Street With It

by Linette Lopez, Business Insider

Back in 2003 the Federal Reserve decided to temporarily allow banks to purchase commodities directly. That means oil, power, copper, aluminium etc. This September, that temporary regulatory relaxation is set to expire, and if it does, a big chunk of Wall Street’s business will expire with it.

And now that the ruling is up for discussion, Congress gets to weigh in. Wall Street be warned, if this hearing was any indication, the Senate is coming down on the side of culling the commodities business.

Warren decried the idea that banks would use “other people’s money” in pension and retirement savings “to pave the way for big banks to be able to control an electric plant or an oil refinery.” [..]

The witnesses didn’t just talk about prices either, they talked monopolies. Since her rise to prominence as a regulator and then a Senator, Warren has been saying that banks are getting too big, too interconnected, and too complicated. (Joshua) Rosner’s testimony corroborated that idea, and added to it the specter of  commodities controlling, allencompassing banking behemoths backstopped by the government (too big too fail).

It is more than past time to break up these banks and for the Federal Reserve to be more transparent in how it regulates the banks.

In a day long Senate hearing, Ina Drew, the former head of the chief investment office that oversaw the London trading operation, Braunstein, JP Morgan’s former chief financial officer,  acting chief risk officer Ashley Bacon and Peter Weiland, Chase’s former head of market risk, appeared to answer questions about it disastrous “London whale” trading loss. Along with high-ranking federal regulators, they face withering questions if front of Senator Carl Levin’s Permanent Subcommittee on Investigations a day after the committee release a damning 300-page report on JP Morgan’s $6.2bn debacle. While the report lays out the evidence that JP Morganwas plating fast and lose with regulations and investor’s money, the report is heavily redacted giving the appearance that even Sen. Levin’s committee is covering for Jamie Dimon and, perhaps higher ups in the White House, under the guise of “protecting the markets.”

In an article by Pam Martens at Wall Street On Parade, she partially reconstructs some of the missing pieces:

Although the “Redacted” stamp has censored much of the relevant information on this stock trading, a few snippets can be pieced together. We learn, for example, that the original budget proposed for stock trading in 2006 was twice that for credit trading. The plan was to trade a maximum of $5 million in credit derivatives and $10 million in stock trading – the specific type of stock transactions have been redacted from the document while those for credit trading have been left in. Since the notionals (face amount) of the credit derivatives eventually grew to hundreds of billions of dollars by early 2012, one has to wonder what the stock-related trading grew to from a proposed $10 million since it was originally slated to be twice as large as credit trading.

Another item that slips through is that “ETFs will also be treated as trading instruments.” ETF is an acronym for “Exchange Traded Fund,” portfolios of stocks that trade on stock exchanges. In a memo dated May 5, 2006 to Jason Hughes at JPMorgan from Roger J. Cole in the Compliance Department, we learn that there is a plan to trade stock market indices. The caveat is given by Cole that: “…compliance approval required before trading in credit/equity indices with less than 20 names as we discussed.”

She concludes that the Senate needs to release the redacted portions of the report to let in some “disinfecting sunshine.” The article also contains and excellent chart of the hierarchy of the International Chief Investment Office that was headed by Javier Martin-Artajo, that blogger bobswern at Daily Kos gives us further incite:

If you take a look at the organizational chart provided by Pam Martens, immediately above, it’s topped-off with Javier Martin-Artajo. The reality was that, at the time, Martin-Artajo reported to JPMC CIO head Ina Drew who, in turn, reported to JPMC CEO Jamie Dimon, among others.

I’ve italicized “others” in the paragraph above this because in-between Ms. Drew and Mr. Dimon was none other than William M. Daley, Vice Chairman of the JPMC Board of Directors, who was, among many other duties including that of chief (unregistered) lobbyist for the bank and Chair of the JPMC Board’s Risk Management Committee, also in charge of supervising the bank’s corporate governance, up until January 9th, 2011, when President Obama appointed Daley as his chief of staff, replacing current Chicago Mayor Rahm Emanuel in that job.

It was fairly widely reported, in early November 2011, that Bill Daley was tacitly demoted in his position as White House Chief of Staff, when he was required to share duties with Pete Rouse. Interestingly, in January 2012, around the time that the first, industry-circulated reports of JPMC’s CIO meltdown appeared in the blogosphere, it was then reported that Daley would be leaving 1600 Pennsylvania Avenue, altogether, later that month.

The readers can draw their own conclusions from there.

Contributing Editor of Rolling Stone, Matt Taibbi, live blogged the hearing giving some amusing observations. In a phone interview with Sam Seder of the Majority Report discussed the testimony:

Within one week Republicans are going to grab the national spotlight on two huge issues that should be the realm of the party who stands up for the little guy.  That party used to be the Democratic party.  How can they let this happen?

On Friday, at the CPAC convention, Federal Reserve Bank of Dallas President Richard Fisher is going to call for breaking up the big banks in the wake of a failed Dodd-Frank bill.

This is mind blowing. First a Republican, Rand Paul, filibusters to get answers about the targeted killing program and now at CPAC, a speech calling for breaking up the TBTF banks.  Where are the Democrats??  The last thing we heard from the party was that the executives can’t be held criminally liable, via Eric Holder and Lanny Breuer.

End “Too Big to Fail” Once and for All

In advance of his speech on Friday to the Conservative Political Action Conference, Federal Reserve Bank of Dallas President Richard Fisher writes with Harvey Rosenblum about the failure of the Dodd-Frank financial reform law to adequately address financial institutions that are “too big to fail.”

[…]

“Third, we recommend that the largest financial holding companies be restructured so that every one of their corporate entities is subject to a speedy bankruptcy process, and in the case of banking entities themselves, that they be of a size that is ‘too small to save.'”

[Emphasis added]