Category Archives: Federal Reserve

The Dangers of the Bond Market’s Disagreement with the Fed

Right now, we have an unusually apparent difference of opinion between the market and the Fed. Bernanke in his Congressional testimony last week said as clearly as a Fed chairman could that the Fed thought growth prospect for the economy were solid and was concerned about the risks of inflation and plans to keep rates […]

Bernanke Argues for Rethinking Community Reinvestment Act

The Wall Street Journal reports tonight on its website, and presumably tomorrow in its print edition, that Federal Reserve Chairman Ben Bernanke said Friday that ongoing issues in the subprime mortgage market could force bank regulators to rethink their enforcement of a 30-year-old law that requires banks to serve the credit needs in their communities…. […]

More Evidence of Regulators’ Limited Effectiveness

Faithful readers may have read our recent posts on the limits to the Fed’s regulatory authority, both relative to the subprime mess and to the proliferation of new instruments (see here and here and here). We had the spectacle last week of Roger Cole, the Federal Reserve’s director of supervision and regulation appearing before the […]

On Market-Based Credit

Reader DS in on a roll. A couple of days ago, he sent us an e-mail which we posted, with a few comments of our own, as “Toothless Fed.” DS focuses on another remark in New York Fed President Timothy Geithner’s speech last week, “Credit Markets Innovations and Their Implications,” which led him to consider […]

Why Does the Fed Care if it is Understood?

There is a terrific post by Barry Ritholtz at The Big Picture, “What is the Fed Really Thinking?” which was also picked up by Brad DeLong as an excellent example of Fed-watching. Barry pointed out last week that the latest FOMC report clearly indicated stagflation. He later noted that the market’s peppy response to the […]

Larry Summers’ Grim View of Housing and Its Impact on Markets

This story in today’s Financial Times, “As America falters, policymakers must look ahead,” is remarkable because, as far as I can tell, it is the first time a prominent economist has come out and said the unwinding of the housing bubble is likely to have nasty consequences (actually, take that back, Paul Krugman had a […]

"Toothless Fed"

The post below is from a reader, DS. He focuses on the fact that the Fed has basically admitted that its powers are limited due to the extent of financial activity that takes place outside its purview (the Fed supervises federally-chartered banks; securities firms, which are regulated by the SEC and hedge funds, which are […]

Is Financial Innovation Really As Beneficial As It’s Supposed to Be?

A post from a reader, “Toothless Fed,” argues that the latest wave of financial innovation has produced “profit grabs” by the few at the expense of the many, Ponzi schemes, and an erosion of traditional values like prudence. Overheated? Overwrought? Perhaps. Or maybe he’s just calling a spade a spade. Other people are coming to […]

Toothless Fed, Part 2 (Risk Management Shortcomings)

Forgive us if we seem to be picking on New York Fed president Timothy Geithner. Actually, not that we know him, but he has a reputation (by Fed standards) for candor. So the problems we have with his speech should not be seen as an attack on him, but on the increasing difficulty of the […]

Toothless Fed, Part 3 (The Ghost of LTCM)

Most sophisticated financial people I know take great comfort from the happy resolution of the LTCM debacle. As you may know, LTCM (Long Term Capital Management) was a hedge fund created by John Meriwether, a star trader from Salomon who headed its highly profitable bond arbitrage group, and included two Nobel prize winners among its […]

New York Fed President Timothy Geithner’s Not-So-Reassuring Speech

Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week (“Credit Markets Innovations and Their Implications“) it should be reassuring. So why did this speech bother me? It wasn’t as […]

"Praying for Chemotherapy"

That’s Barry Ritholtz’s take on the market’s reaction to the Federal Reserve’s Open Market’s Committee release this week, which staged a nice peppy rally because the report was seen as signalling a greater likelihood of an interest rate cut. Some more discerning observers read the report much less positively, and saw it pointing to stagflation. […]

Is the Fed Culpable in the Subprime Meltdown?

On Thursday, both Democratic and Republican members of the Senate Banking Committee chewed out Roger Cole, the Federal Reserve’s director of supervision and regulation, for failing to intervene in the rapid rise of the issuance of mortgages to customers who were clearly likely to default, and now are, losing their homes and their investment in […]

How Liquidity Begets More Liquidity (and Asset Bubbles)

An excellent article Thursday in the Financial Times, “In the new liquidity factories, buyers must still beware,” by Mohamed El-Erian, the CEO of Harvard Management Company. He explains that a great deal of the liquidity in the markets is created not by the monetary authorities, but by the participants themselves, and works through a simple […]

The Fed Appears to Endeavor to Manipulate Elections

Cactus at Angry Bear has been on this trail for a while now (his latest is “The Fed, Presidential Elections, and Coincidence – Part 8“), and the Fed’s behavior has been consistent with what you’d expect if they were trying to influence Presidential elections. The entire post is very much worth reading, as are the […]