Sin of Self-Praise at the New York Fed

Calculated Risk blogged yesterday as follows: Some Praise for the Fed.

This well-respected senior financial blogger previously stirred up his readership by supporting Ben Bernanke for reappointment as Fed Chairman, not overly reluctantly either.

Now he approvingly quotes EVP of the New York Fed Brian Sack as patting the Fed on the back and them some with what I view as highly inappropriate self-praise. From Sack's remarks as quoted by CR:

With the wind-down of these short-term liquidity facilities, it is a good time to look back and assess their performance. The bottom line here is simple: These programs were an unquestionable success. . .

It is impressive that the Fed was able to remove itself from such a large amount of credit extension . . .

This design worked incredibly well . . .

Where I come from, self-praise is unseemly. Brian Sack should let the independent bloggers and of course shareholders of the New York Fed, such as JPMorgan Chase, use whatever favorable language they wish to in favor of the brilliance of these guys.

So far as this blogger is concerned, the New York Fed engaged in improper activities in favor of Big Finance in 2008, Ben Bernanke was guilty of financial malpractice though the patient survived after an unnecessary stay in intensive care, and I am unsurprised and unimpressed that with the power of the printing press, massive influence in the White House under the Bushbama Continuity and effective ownership of both houses of Congress, Big Finance survived on the backs of millions of unemployed people and tens of millions of savers who have been forced to accept record low interest rates to satisfy the greed of the owners of the New York Fed.

Hitler and Mussolini may have made the trains run on time. Without meaning to compare the Fed to those dictators, the point is that we must look at the totality of the picture, not a pretty detail. The Fed did not see, or pretended not to see, the financial crisis even when it was clearly underway, it helped cause and exacerbate what Reinhard and Rogoff call the Second Great Contraction (since the Great Depression), so that printing vast amounts of money may have been a nice technical achievement, but that's small beer to the incompetence and outrageous insider dealing that the New York Fed and Ben Bernanke demonstrated.

And of course, the tax fiddler Tim Geithner who headed the New York Fed through its fateful decisions in 2008 now heads Treasury, having been succeeded as NY Fed head by the Goldman Sachs insider Steve Friedman, who was forced to resign after the news came out that he was double dipping between Goldman and the Fed.

Unlike the Washington Fed, the New York Fed is a privately owned institution. It acts on behalf of its owners, not you and me. When its EVP goes overboard to praise its brilliance, he makes it sound similar to the head of Goldman Sachs claiming to be doing God's work.

Not an attractive picture.

Copyright (C)Long Lake LLC 2010

Go-Go Not Gone

So much for the New Normal. Ring in the old:

Bloomberg has revealed a source of the improvement in the financial markets: leverage is back. Here are excerpts from Leverage Rising on Wall Street at Fastest Pace Since '07 Freeze:

Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.
Credit Suisse Group AG and Scotia Capital, a unit of Canada’s third-largest bank, said they’re offering credit to investors who want to purchase loans. SunTrust Banks In., which left the business last year, is “reaching out to clients” to provide financing, said Michael McCoy, a spokesman for the Atlanta-based bank. JPMorgan Chase & Co. and Citigroup Inc. are doing the same for loans and mortgage-backed securities, said people familiar with the situation.
“I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said.

So the world is back to more economically unproductive activity, the creation of credit to purchase a loan.
Why?

“There is a lot of political pressure on banks to lend and this is one form,” said Ratul Roy, head of structured credit strategy at Citigroup in New York.

Got it. Hair of the dog.

And now an electrician/labor leader, Denis Hughes, is the chair of the New York Federal Reserve Bank and the deputy chair is a lawyer with special expertise in free speech issues and an extensive career heading major universities (currently Columbia), Lee C. Bollinger. What about the word "bank" in the title of the New York Fed? Shouldn't there be a banker or someone with long-term banking/financial markets experience running the show? Now of all times to have political appointees running the NY Fed sounds both strange and simply wrong. And of course the NY Fed is not just one of 12 regional Fed banks, but it is first amongst equals.

Washington is now in effect running the economy and the markets. The implications of that are unclear but suggest that we are a long, long way from anything approaching free-market capitalism. It was one thing when after the devastation of the Great Depression, Washington interfered in the economy; it's another now after the far milder current downturn.


Copyright (C) Long Lake LLC 2009

"They Probably Won't Be Making a Lot of New Loans"

From Bloomberg.com comes further news that the abusive PPIP program so detested by Econblog Review may be unraveling, in Dudley’s TALF Comments Add Signs of a PPIP Stall:

The Federal Reserve may not start lending against residential mortgage-backed securities under its Term Asset-Backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley indicated. . .

His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role. . .

“We still need more” than the capital that banks have raised to revive commercial-mortgage lending, Russ Appel, a managing director at Praedium Group LLC, a New York-based real- estate-investment firm, said during the conference. “Until they start clearing the old loans, they probably won’t be making a lot of new loans.”

After the apparent demise of the PPIP-FDIC program for loans, banks will probably try to mainly off-load commercial mortgages that investors would be “fools” to take on, because the debt would be more troubled than it seems, said Barry Sternlicht, chief executive officer of Starwood Capital Group Global, LLC, a real-estate investor in Greenwich, Connecticut.

“The only things they’re going to try to sell is stuff you probably shouldn’t buy,” Sternlicht said, speaking on the same panel as Appel.

DoctoRx here. Mr. Appel got it both right and wrong. Yes, they probably won't make a lot of new loans. That much he got right. What he got very wrong was that his business prospers when new loans are made. Whether they are good loans doesn't matter to him. The last thing this country needs is new investment in commercial real estate!

The article goes on to prove the point made at EBR over and over. The point is that the entirety of the machinations have been a giant pump 'n dump scheme to push security prices up:

The TALF and PPIP plans contributed to a rally among many types of home-loan bonds. Typical prices for the most-senior prime-jumbo securities jumped to about 83 cents on the dollar on May 14, from about 63 cents March 19, before steadying, according to Barclays Capital. Similar bonds backed by Alt-A loans with a few years of fixed rates rose to 45 cents, from 35 cents, according to the bank’s reports.

Case closed, in my humble opinion.

Please stay away from Big Finance as much as possible for the next economic cycle; and consider making a political statement by doing your banking with the good guys, the small community banks that have been penalized by the authorities, who overtly favor the continued formation of a financial oligarchy.

Copyright (C) Long Lake LLC 2009

New York Fed Proves Lack of Lending Argument a Lie

From this week's New York Federal Reserve Board's "Empire State Manufacturing Survey":

Most respondents cited little or no difficulty obtaining financing for either long-term commitments (capital investment) or short-term needs (operating expenses). Moreover, fewer than 10 percent of those surveyed indicated that problems obtaining credit had adversely affected their production or sales.

A bigger surprise is that any manufacturing remains in New York State anymore!

In any case, the above but ignored statement by the New York Fed gives the lie to President Obama's argument that taxpayers need to subsidize Big Finance so that lending can resume. The truth is that the country overproduced beyond what it could afford in the last up-cycle. Let us be Green and use what we have rather than strain to satisfy the gods of output and employment, and just produce what we need and can afford, paying down debt and abjuring new debt along the way.


Copyright (C) Long Lake LLC 2009