Comments on: Stephen Roach Needs to Read the Fed’s Website http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html Mon, 23 Nov 2009 05:03:06 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: dlr http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23569 dlr Wed, 29 Oct 2008 04:34:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23569 Matt Dubuque is absolutely right. Greenspan could have deflated the dot.com bubble without impacting the real economy in any way, or changing the federal funds rate, simply by raising the margin requirements for the purchase of stocks (or, even better, eliminating margin buying of stocks altogether).<br/>Why in the world should ANYONE, EVER, be allowed to buy stocks and bonds on margin? It is ridiculous. No one NEEDS to own a stock or bond. And it is MASSIVELY DESTABILIZING - both going UP and coming DOWN. Unless all margin loans are against the law you can count on more booms and busts in the stock market. <br/><br/>Similarly, the housing bubble could have been pricked or never been allowed to develop, if bank regulators had done their jobs. Which also seems to come under the Fed's definition of its responsibility:<br/><br/>"supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system"<br/><br/>Every bank that fails is a clear indictment of the INCOMPETENCE or criminal negligence of the Federal Reserve and the FDIC. Matt Dubuque is absolutely right. Greenspan could have deflated the dot.com bubble without impacting the real economy in any way, or changing the federal funds rate, simply by raising the margin requirements for the purchase of stocks (or, even better, eliminating margin buying of stocks altogether).
Why in the world should ANYONE, EVER, be allowed to buy stocks and bonds on margin? It is ridiculous. No one NEEDS to own a stock or bond. And it is MASSIVELY DESTABILIZING – both going UP and coming DOWN. Unless all margin loans are against the law you can count on more booms and busts in the stock market.

Similarly, the housing bubble could have been pricked or never been allowed to develop, if bank regulators had done their jobs. Which also seems to come under the Fed’s definition of its responsibility:

“supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system”

Every bank that fails is a clear indictment of the INCOMPETENCE or criminal negligence of the Federal Reserve and the FDIC.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23526 Anonymous Tue, 28 Oct 2008 19:17:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23526 Re: "influencing the monetary and credit conditions"<br/><br/>That sort of sums up how we got here, I think. Re: “influencing the monetary and credit conditions”

That sort of sums up how we got here, I think.

]]> By: Matt Dubuque http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23500 Matt Dubuque Tue, 28 Oct 2008 15:00:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23500 Greenspan's comment earlier this year that, even if commodities WERE a bubble there was nothing you could do to halt it was of course clearly false.<br/><br/>As commenters as diverse as Buiter and Bernanke have noted, excessive leverage is a key factor in bubble formation.<br/><br/>The CFTC should have raised the margin requirements earlier in the year.<br/><br/>That would have pricked it.<br/><br/>Matt Dubuque Greenspan’s comment earlier this year that, even if commodities WERE a bubble there was nothing you could do to halt it was of course clearly false.

As commenters as diverse as Buiter and Bernanke have noted, excessive leverage is a key factor in bubble formation.

The CFTC should have raised the margin requirements earlier in the year.

That would have pricked it.

Matt Dubuque

]]> By: Anonymous http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23497 Anonymous Tue, 28 Oct 2008 14:14:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23497 Roach has said this many times now. By "financial stability", he usually meant that FED has a responsibility to stop a bubble in the formation.<br/><br/>But when Greenspan/Bernanke talked about "financial stability", they usually meant that the FED had a responsibility to support the financial system when a bubble bursted. (And Greenspan always argued that it's impossible to spot a bubble before it exploded.) Roach has said this many times now. By “financial stability”, he usually meant that FED has a responsibility to stop a bubble in the formation.

But when Greenspan/Bernanke talked about “financial stability”, they usually meant that the FED had a responsibility to support the financial system when a bubble bursted. (And Greenspan always argued that it’s impossible to spot a bubble before it exploded.)

]]> By: Matt Dubuque http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23495 Matt Dubuque Tue, 28 Oct 2008 14:10:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23495 Quick note of clarification.<br/><br/>Civil statutes are construed BROADLY in COMMON law societies, such as the US and Britain.<br/><br/>In CIVIL law societies, such as France and Germany, they are narrowly construed.<br/><br/>BIG difference between the continent and Britain and the USA. We partially have Sir Thomas Moore to thank for that.<br/><br/>Unfortunately most Americans are unaware of the critical distinctions between civil and common law societies.<br/><br/>An absolutely CRITICAL distinction woefully absent from popular discourse on American law today, unfortunately.<br/><br/>Matt Dubuque Quick note of clarification.

Civil statutes are construed BROADLY in COMMON law societies, such as the US and Britain.

In CIVIL law societies, such as France and Germany, they are narrowly construed.

BIG difference between the continent and Britain and the USA. We partially have Sir Thomas Moore to thank for that.

Unfortunately most Americans are unaware of the critical distinctions between civil and common law societies.

An absolutely CRITICAL distinction woefully absent from popular discourse on American law today, unfortunately.

Matt Dubuque

]]> By: Matt Dubuque http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23494 Matt Dubuque Tue, 28 Oct 2008 14:04:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23494 Basic tenet of law:<br/><br/>Civil statutes are construed liberally, criminal statutes construed narrowly. This is a CIVIL issue.<br/><br/>No party has challenged this in Court. Here is why.<br/><br/>Long-term interest rates can remain low ONLY in a stable macroeconomic environment.<br/><br/>Therefore, by implication, systemic issues fall within the Fed's ambit if they adversely affect the prospect for long-term rates.<br/><br/>For example, the failure of Bear Stearns CLEARLY would have had an adverse impact on long term rates.<br/><br/>This is clearly why the Supreme Court would uphold this view; Scalia's opinions are numerous on this treatment of administrative discretion, as well as those of the liberal wing and Justice Kennedy.<br/><br/>And this is, after all, a nation of laws.<br/><br/>Civil laws are construed LIBERALLY and administrative creatures of statute are given WIDE judicial deference.<br/><br/>It's a separation of powers thing.<br/><br/>Matt Dubuque Basic tenet of law:

Civil statutes are construed liberally, criminal statutes construed narrowly. This is a CIVIL issue.

No party has challenged this in Court. Here is why.

Long-term interest rates can remain low ONLY in a stable macroeconomic environment.

Therefore, by implication, systemic issues fall within the Fed’s ambit if they adversely affect the prospect for long-term rates.

For example, the failure of Bear Stearns CLEARLY would have had an adverse impact on long term rates.

This is clearly why the Supreme Court would uphold this view; Scalia’s opinions are numerous on this treatment of administrative discretion, as well as those of the liberal wing and Justice Kennedy.

And this is, after all, a nation of laws.

Civil laws are construed LIBERALLY and administrative creatures of statute are given WIDE judicial deference.

It’s a separation of powers thing.

Matt Dubuque

]]> By: joe http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23481 joe Tue, 28 Oct 2008 12:33:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23481 One and the same.<br/>For some reason there is a stated difference between the FED's regulatory structure/role and the collective policy actions taken by the bankers themselves.<br/>The FED is the bankers.<br/>The bankers are the FED.<br/>As should be becoming painfully obvious in these times.<br/>Within the amalgamated "financial services industry", we have all of the members of the groups who thought to make, sell and repackage mortgages into SIVs and all the other alphabet soup of paper things going on out there.<br/>In so doing, they were responsible for creating the brittleness and vulnerability of that system, or, in other words, to set-up the threat to financial stability.<br/>Given that it is no one else's role to "maintain financial stability" and given the FED's role to provide for economic growth and prevent inflation, the FED has the implied power and the implied responsibility.<br/>But the FED itself is part and parcel of the private banking system in this country.<br/>It is not an agency of government.<br/>The people who work for the FED are not part of the government.<br/>They ALL work for the private self-regulated banking system in its many parts.<br/>The problem isn't related to the FED's role in the creation of this financial monster.<br/>That's a given.<br/>The problem is the lack of a true governmental role in setting clear responsibility and accountability standards and methods for the private banking cartel, and a final, clear, greater-than-arms-length regulatory structure between a bank-driven monetary policy of irrational exuberance and the economic well being of the average American worker. One and the same.
For some reason there is a stated difference between the FED’s regulatory structure/role and the collective policy actions taken by the bankers themselves.
The FED is the bankers.
The bankers are the FED.
As should be becoming painfully obvious in these times.
Within the amalgamated “financial services industry”, we have all of the members of the groups who thought to make, sell and repackage mortgages into SIVs and all the other alphabet soup of paper things going on out there.
In so doing, they were responsible for creating the brittleness and vulnerability of that system, or, in other words, to set-up the threat to financial stability.
Given that it is no one else’s role to “maintain financial stability” and given the FED’s role to provide for economic growth and prevent inflation, the FED has the implied power and the implied responsibility.
But the FED itself is part and parcel of the private banking system in this country.
It is not an agency of government.
The people who work for the FED are not part of the government.
They ALL work for the private self-regulated banking system in its many parts.
The problem isn’t related to the FED’s role in the creation of this financial monster.
That’s a given.
The problem is the lack of a true governmental role in setting clear responsibility and accountability standards and methods for the private banking cartel, and a final, clear, greater-than-arms-length regulatory structure between a bank-driven monetary policy of irrational exuberance and the economic well being of the average American worker.

]]> By: Terminal http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23473 Terminal Tue, 28 Oct 2008 11:59:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23473 Well said! Well said!

]]> By: ruetheday http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23471 ruetheday Tue, 28 Oct 2008 11:49:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23471 "Financial stability" is one of those vague, feel-good phrases that require further examination.<br/><br/>One could make the case that eliminating the equity market volatility that we've seen recently could fall under that umbrella? But do we really want the Fed manipulating the stock market? “Financial stability” is one of those vague, feel-good phrases that require further examination.

One could make the case that eliminating the equity market volatility that we’ve seen recently could fall under that umbrella? But do we really want the Fed manipulating the stock market?

]]> By: Anonymous http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-feds.html#comment-23460 Anonymous Tue, 28 Oct 2008 10:42:00 +0000 http://www.nakedcapitalism.com/2008/10/stephen-roach-needs-to-read-the-feds-website/#comment-23460 Is a mission statement partly a wish list for an actual mandate? Is a mission statement partly a wish list for an actual mandate?

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