back on the roost?
"Congress can't figure out what it is mad about with the Fed, but it is mad about something," said Fed watcher David Jones.
Congress looks likely to open up the Federal Reserve Act and change some of the operating procedures of the bank for the first time in its almost 100-year history. Many of the regulatory powers amassed by former Fed Chairman Alan Greenspan, a consummate bureaucratic in-fighter, could be stripped away.
Congress (and the American people) should be "mad about something", and frankly, if they're not sure "what", they're either insane, mentally retarded, or quite possibly both.
It appears that Mr. Shelby might have been reading some of the Tickers I have faxed to his office over the last couple of years:
Another point Shelby raised was that the Fed was the top regulator of the biggest banks, including Citicorp, which had to take $45 billion in taxpayer bailout funds.
"There are serious, serious...unexamined questions regarding the Fed's failure to fulfill its pre-existing regulatory responsibilities. With that in mind, I will view with great skepticism any move to give the Fed expanded authority," Shelby said.
It took this long to figure that out?
Then you have Fisher, who I usually at least somewhat like, spouting this nonsense:
His bigger concern these days would seem to be what he calls "the perception of risk" that has been created by the Fed's purchases of Treasury bonds, mortgage-backed securities and Fannie Mae paper.
Mr. Fisher acknowledges that events in the financial markets last year required some unusual Fed action in the commercial lending market. But he says the longer-term debt, particularly the Treasurys, is making investors nervous. The looming challenge, he says, is to reassure markets that the Fed is not going to be "the handmaiden" to fiscal profligacy.
I'll settle for a Fed that simply follows the law.
As I have repeatedly pointed out The Fed is not empowered to purchase instruments that do not carry the full faith and credit of the US Federal Government (except for some very limited exceptions in which maturity does not exceed six months.)
But that's all been forgotten in the name of "expedience". Fannie, Freddie, Bear Stearns, AIG - all have involved The Fed buying debt - not loaning against an obligation in a fully-collateralized fashion, or to use banker's parlance, "discounting a note."
There are all sorts of rumblings coming from China and other parts of the world.
There should be.
Our "regulatory institutions", including the OTS, FDIC and The Fed itself, have been derelict in their duties - at minimum - for years. The OTS has, according to the OIG monitoring it, actually encouraging what amounts to bank fraud in some of the institutions it oversees! The FDIC has ignored "prompt corrective action" to the tune of losing some $50 billion taxpayer dollars over the last year and change, and then The Fed is buying hundreds of billions of Fannie and Freddie paper for which they have no legal authority to acquire, say much less operating three LLCs that they can't legally own.
This sort of lawlessness along with Congressional failure to hold The Fed to account set forth a great example for The Obama Administration when it decided to decree "ex-cathedra" that creditor priority in bankruptcy is no longer the statutory law of The United States.
If one agency can decide on its own initiative that the law is in fact a "polite suggestion" why not two, three or four more?
Finally, we had Obama say this weekend that "we're out of money". Gee, you just figured that out Mr. President?
Did that revelation come to you before or after you put forward a budget proposal that is not only chock-full of the largest handouts in corporate welfare in history (in the form of bailouts) but in addition contains the largest deficits in history - by a factor of about four!
Everyone else has to tighten their belts when the economy goes to hell, but not you Mr. President! No, in bad economic times your response is to spend more - that you now (belatedly) admit we don't have.
Yes, we have a major entitlement problem down the road (and health care is the largest part of it), but here and now we have a spending problem along with a credit problem. We're junkies and unwilling to reform, to be blunt, and the world is coming to realize that we will continue to play them for patsies for as long as they'll allow it.
Worse, since Obama has declared that he feels perfectly free in rewriting statutes from his chair in the West Wing, the Chinese and others have to wonder - what if he simply decides to not pay foreign-owned T-bills? Exactly what would the holders do about it?
Yell?
That worked real well for the Chrysler and GM bondholders, didn't it?
Were I China, sitting on some trillion dollars plus of Treasury bonds, I'd be nervous too. In fact, I'd be shortening duration like a madman, laying off anything but the shortest end of the T-bill curve and hedging like crazy, all the while doing my damnedest not to get caught so as to not ignite a stampede and risk getting trampled.
Oh wait: They are.
Hmmm...
This week we will be treated to the US Government attempting to sell $100 billion in new Treasuries to finance its profligate spending habits.
Bernanke, for his part, is on the cusp of losing control of the long end of the bond curve. If it gets away from him he will have only two choices: pull liquidity and allow the curve to spike higher, repeating almost exactly what happened in the 1930s, or ramp up his "monetization campaign" to meet the issuance, risking an immediate tender of the entire outstanding float, resulting in an even worse outcome - a choice between collapse of the government or an Argentina-style currency implosion followed by that same collapse.
My bet is that is if push comes to shove Bernanke will back off and swallow The Depression that inevitably must follow, because the alternative is that he may literally swing from a lamppost - if not at the hands of angry citizens once the government and rule of law have fallen then from Congress, who, if he goes "all in" ramping up the monetization and loses, will find themselves unable to fund the government's operations.
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