The “Global Crises of Capitalism”; Whose Crises, Who Profits?

Global Research
James Petras

From the Financial Times to the far left, tons of ink has been spilt writing about some variant of the “Crises of Global Capitalism”. While writers differ in the causes, consequences and cures, according to their ideological lights, there is a common agreement that “the crises” threatens to end the capitalist system as we know it.

There is no doubt that, between 2008-2009, the capitalist system in Europe and the United States suffered a severe shock that shook the foundations of its financial system and threatened to bankrupt its ‘leading sectors’.

However, I will argue the ‘crises of capitalism’ was turned into a ‘crises of labor’. Finance capital, the principle detonator of the crash and crises, recovered, the capitalist class as a whole was strengthened, and most important of all, it utilized the political, social, ideological conditions created as a result of “the crises” to further consolidate their dominance and exploitation over the rest of society.

In other words, the ‘crises of capital’ has been converted into a strategic advantage for furthering the most fundamental interests of capital: the enlargement of profits, the consolidation of capitalist rule, the greater concentration of ownership, the deepening of inequalities between capital and labor and the creation of huge reserves of labor to further augment their profits.

Furthermore, the notion of a homogeneous global crisis of capitalism overlooks profound differences in performance and conditions, between countries, classes, and age cohorts.

The Global Crises Thesis:The Economic and Social Argument

The advocates of global crises argue that beginning in 2007 and continuing to the present, the world capitalist system has collapsed and recovery is a mirage. They cite stagnation and continuing recession in North America and the Eurozone. They offer GDP data hovering between negative to zero growth. Their argument is backed by data citing double digit unemployment in both regions. They frequently correct the official data which understates the percentage unemployed by excluding part-time, long-term unemployed workers and others. The ‘crises’ argument is strengthened by citing the millions of homeowners who have been evicted by the banks, the sharp increase in poverty and destitution accompanying job loses, wage reductions and the elimination or reduction of social services. “”Crises” is also associated with the massive increase in bankruptcies of mostly small and medium size businesses and regional banks.

The Global Crises: The Loss of Legitimacy

Critics, especially in the financial press, write of a “legitimacy crises of capitalism” citing polls showing substantial majorities questioning the in justice s of the capitalist system, the vast and growing inequalities and the rigged rules by which banks exploit their size (“too big to fail”) to raid the Treasury at the expense of social programs.

In summary the advocates of the thesis of a “Global Crises of Capitalism” make a strong case, demonstrating the profound and pervasive destructive effects of the capitalist system on the lives of the great majority of humanity.

The problem is that a ‘crises of humanity’ (more specifically of salary ad wage workers) is not the same as a crisis of the capitalist system. In fact as we shall argue below growing social adversity, declining income and employment has been a major factor facilitating the rapid and massive recovery of the profit margins of most large scale corporations.

Moreover, the thesis of a‘global’ crises of capitalism amalgamates disparate economies, countries, classes and age cohorts with sharply divergent performances at different historical moments.

Global Crises or Uneven and Unequal Development?

It is utterly foolish to argue for a “global crises” when several of the major economies in the world economy did not suffer a major downturn and others recovered and expanded rapidly. China and India did not suffer even a recession. Even during the worst years of the Euro-US decline,the asian giants grew on average about 8%. Latin America’s economies especially the major agro-mineral export countries (Brazil, Argentina, Chile, ) with diversified markets, especially in Asia, paused briefly (in 2009) before assuming moderate to rapid growth (between 3% to 7%) from 2010-2012.

By aggregating economic data from the Euro-zone as a whole the advocates of global crises, overlooked the enormous disparities in performance within the zone. While Southern Europe wallows in a deep sustained depression,by any measure, from 2008 to the foreseeable future, German exports, in 2011, set a record of a trillion euros; its trade surplus reached 158 billion euros, after a155 billion euro surpluses in 2010. (BBC News, Feb. 8 2012).

While aggregate Eurozone unemployment reaches 10.4%, the internal differences defy any notion of a “general crises”. Unemployment in Holland is 4.9%, Austria 4.1% and Germany 5.5% with employer claims of widespread skilled labor shortages in key growth sectors. On the other hand in exploited southern Europe unemployment runs to depression levels, Greece 21%, Spain 22.9%, Ireland 14.5%, and Portugal 13.6% (FT 1/19/12, p.7). In other words, “the crises” does not adversely affect some economies, that in fact profit from their market dominance and techno-financial strength over dependent, debtor and backward economies. To speak of a ‘global crises’ obscures the fundamental dominant and exploitative relations that facilitate ‘recovery’ and growth of the elite economies over and against their competitors and client states. In addition global crises theorists wrongly amalgamated crises ridden, financial-speculative economies (US, England ) with dynamic productive export economies ( Germany , China ).

International Monetary Fund (IMF) Leader Calls for Trillion-dollar "Firewall"

The New American
William F. Jasper

“We need a larger firewall.” So declared Christine Lagarde (left), Managing Director of the International Monetary Fund (IMF) during a speech in Berlin on January 23, in which she called on taxpayers of the world to chip in $1 trillion to the IMF to stave off a global crisis. “We need to act quickly or else we could easily slide into a 1930s moment,” Lagarde warned, in an obvious reference to the Great Depression.

Suddenly, talk of “firewalls” was everywhere. Australian Treasurer Wayne Swan backed Ms. Lagarde, saying that  without “larger firewalls” to protect embattled European nations the global economy was at risk. On January 27, U.S. Treasury Secretary Timothy Geithner, speaking at the annual billionaire confab known as the World Economic Forum, in Davos, Switzerland, said that “building a stronger, more credible firewall,” is key to resolving the eurozone sovereign debt crisis.

But the IMF is not the only institution calling for expensive new fire protection. On January 30 CNN reported that European leaders meeting in Brussels had just concluded an agreement “to strengthen a financial firewall and most members of the 27-nation group will sign a new fiscal compact.” The centerpiece of that pact is €500 billion ($650 billion) to implement the European Stability Mechanism, or ESM, for bailing out Greece, Spain, Portugal, Italy and other troubled European economies.

Arsonists-R-Us Preaching Fire Protection? Time to Beware!
European Council president Herman Van Rompuy declared: "The early entry into force of this permanent firewall will prevent contagion in the euro area and further restore confidence."

The German audience that IMF chief Lagarde selected to pitch the new $1 trillion IMF firewall was carefully chosen: the German Council on Foreign Relations, or GCFR (in German, it is the Deutsche Gesellschaft für Auswärtige Politik, or DGAP). Like its interlocking counterparts in the United States (the Council on Foreign Relations, CFR), Britain (the Royal Institute of International Affairs, RIIA), and other countries, the GCFR represents the globalist elites of corporate, banking, political, and academic circles that are promoting convergence toward world government. Selling the German public on the massive new funding for the ESM and IMF “firewalls” will be critical, and the influential voices represented by the GCFR will be key to accomplishing that. It remains to be seen whether the GCFR members and their counterparts throughout the Eurozone will succeed in duping their fellow Europeans into giving even more matches and gasoline to the arsonists who have already burned through trillions of dollars in “quantitative easing” and “stimulus” funds.

Secretary Geithner, a CFR member, was only too happy to assist his fellow arsonists in throwing more gasoline on the global “liquidity” and “stimulus” fire. He was interviewed on the main stage at the WEF palaver before a packed audience by Fareed Zakaria, editor-at-large of Time magazine, as well as a host and commentator at CNN, and  — a member and director of the Council on Foreign Relations.

More Cash, More Power = Rosy Prognosis
Here is how the DGAP (GCFR) described Madame Lagarde’s speech in the opening paragraph of its report on January 23, on the DGAP web site:

In a cautiously optimistic address at the DGAP, IMF Managing Director Christine Lagarde said that 2012 could be a “year of healing.” But overcoming the crisis will require quick and coordinated action. The eurozone must introduce measures that will lead to more growth and integration – and increases to the euro bailout fund. This is the only way to build trust in the financial system. Lagarde also envisages a massive increase in the IMF’s crisis funds.

“2011 was not a successful year because many measures were not thought through, were half-heartedly implemented, or were not coordinated with other countries,” reports the DGAP, “But the IMF head sees a positive turnaround coming in 2012.”

“We know what needs to be done,” said Lagarde. “It is now up to governments to show the necessary political will.”

The DGAP agrees and predicts a rosy economic picture — if producers and taxpayers will only stop being so miserly and agree to give the IMF, the European Central Bank and other central banks the “tools” they desperately need to solve the problem. After all the wise wizards at the IMF, ECB, and the Fed have sterling track record already, right?

According to the DGAP:

Eurozone countries have already taken important steps, including the establishment of the temporary European System of Financial Supervisors (ESFS) and the permanent European Stability Mechanism (ESM). But these are only “parts of a more extensive solution."

But what kind of “more extensive solution” would these new creations bring? The kind of solution only the central bankers and their politically connected corporate cronies could love. As The New American’s Bob Adelman and Alex Newman point out, the ESFS and ESM are “the tools of international fiscal dictatorship.”

The EFSM and ESM are integral parts of the scheme to destroy the dollar and “Supersize" the IMF into a global Federal Reserve that this magazine has been exposing for the past several years.

The European Central Bank (ECB) admits that the ESFS and ESM are designed to fit into the IMF’s new globalized architecture, stating in the ECB Monthly Bulletin for July, 2011: “These design features of the European crisis management framework purposely resemble the main design features of the IMF-supported adjustment programmes.”

“Global crises call for global solutions” — GCFR

The German Council on Foreign Relations goes on to offer these points in favor of Lagarde’s arguments for supersizing the ECB and IMF (the enlarged, bold headings are their own):

Comprehensively Solving the Crisis
What would such a comprehensive solution look like? Lagarde thinks Europe needs stronger growth, higher financial firewalls, and more fiscal integration. Eurozone states now have a duty to expand financial firewalls to tackle the debt crisis: by increasing funds for the ESM, with further monetary easing through the European Central Bank, or through eurobonds (an idea that contradicts the German government’s present course)….

More Money to Avoid a Credit Crunch
Additionally, the eurozone bailout fund must be endowed with more than the planned 500 billion euros. “We need a larger firewall,” claimed Lagarde. The permanent bailout fund ESM should be expanded to include all funds set aside for the temporary EFSF… Lagarde thus sees stronger fiscal integration within the eurozone as a third essential task. “We cannot have seventeen completely independent fiscal systems and one common monetary policy.” Risks must be more strongly distributed beyond national borders….

Bulking Up the IMF
Lagarde envisions a massive increase in the IMF’s crisis reserves. This will allow the organization to help not only Europeans, but countries around the world that have been gripped by the crisis – even those without substantial debts of their own. “It is not about saving individual states or regions. Rather, it is about preventing a worldwide downward spiral.” Global crises call for global solutions. Lagarde estimates that 1 trillion dollars will be needed to fight the crisis in the coming years. A 500 billion dollar increase will be needed for the IMF ...

What Kind of Firewall?
"More fiscal integration," "more money," "bulking up the IMF," "global solutions," "higher financial firewalls." But what do the IMF and ECB mean when they talk about firewalls? Wikipedia offers this for its first definition of “firewall”:

“a barrier inside a building or vehicle, designed to limit the spread of fire, heat and structural collapse."

Christine Lagarde and the other Insiders at the IMF, the ECB, the Fed and the other central banks and Treasury departments obviously intend that definition and the image it evokes to win the support they need to pull off this enormous swindle. However, the firewall metaphor in this case not only is completely inappropriate, but ludicrous. Firewalls are made of noncombustible, “fireproof” materials, but the arsonists at the IMF and ECB are calling for throwing more paper and gasoline — more money and credit created out of thin air  — onto the global inferno.

However, Wikipedia offers a second definition for “firewall” that is entirely apropos to the IMF/ECB proposals:

“a technological barrier designed to prevent unauthorized or unwanted communications between computer networks or hosts."

The IMF, ECB, and the Fed do indeed intend to “prevent unauthorized or unwanted” inspection of their activities by citizens or national legislators. The so-called firewall they are constructing is, as Alex Newman puts it, “a massive, perpetual bailout machine.” It is a machine that they intend to be completely unlimited, unaccountable and untouchable.

6 Shocking Revelations About Wall Street's "Secret Government"

Alternet
Les Leopald


We now have concrete evidence that Wall Street and Washington are running a secret government far removed from the democratic process. Through a freedom of information request by Bloomberg News, the public now has access to over 29,000 pages of Fed documents and 21,000 additional Fed transactions that were deliberately hidden, and for good reason. (See here and here.)

These documents show how top government officials willfully concealed from Congress and the public the true extent of the 2008-'09 bailouts that enriched the few and enhanced the interests of giant Wall Streets firms. Here’s what we now know:

• The secret Wall Street bailouts totaled $7.77 trillion, 10 times more than the $700 billion Troubled Asset Relief Program (TARP) passed by Congress in 2008.

• Knowledge of the secret bailout funds was not shared with Congress even while it was drafting and debating legislation to break up the big banks.

• The secret funding, provided at below-market rates, gave Wall Street banks an additional $13 billion in profits. (That’s enough money to hire more than 325,000 entry level teachers.)

• The secret loans financed bank mergers so that the largest banks could grow even larger. The money also allowed banks to step up their lobbying efforts.

• While Henry Paulson (Bush’s Secretary of the Treasury) was informing Congress and the public that only minor reforms were needed to protect Fannie and Freddie from collapse, he met secretly with leading Wall Street hedge fund managers -- among them his former colleagues at Goldman Sachs -- to alert them that he was about to nationalize the giant mortgage companies – a move that would eradicate nearly all the stock value of the companies. This information was enormously valuable because it allowed these hedge funds to short Fannie and Freddie and thereby make a fortune.

• While Timothy Geithner was head of the NY Federal Reserve, he argued against legislative efforts by Senator Ted Kaufman, D-Delaware, to limit the size of banks because the issue was “too complex for Congress and that people who know the markets should handle these decisions,” Kaufman recalls. Meanwhile, Geithner was fully aware of the enormous secret loans while Senator Kaufman was kept in the dark. Barney Frank, who was authoring key bank reform legislation was also not informed of the secret loans. No one in Congress was told.
So what does this all mean?

1. The big banks and hedge funds were in much more trouble than we were led to believe.

As many of us suspected, all the big banks were on their knees begging for help – secretly – while telling their investors, the public and Congress that all was well. They had gambled and lost. Under the rules of ideal capitalism, they should have suffered some “creative destruction,” and seen their shareholder value eliminated through bankruptcy, and their managers replaced. The entire banking system should have been reorganized from top to bottom as well. Instead, these colossal failures were secretly rewarded.  

2. Wall Street’s secret government made sure the largest banks would grow even larger, aided by the secret funding.

While Congress was debating legislation to break up the large banks and reinstitute Glass Steagall (to separate risky investment banking from insured commercial banking,) the secret government was using public funds to grow even larger through mergers and acquisitions. Because Congress and the public were unaware of the secret funding and ill-health of all the banks, the legislation was easily defeated. As the chart below makes painfully clear, too-big-to-fail banks grew even bigger.  

3. The bigger Wall Street becomes, the more government it can buy.

This part isn’t secret. As the top six banks grew larger, they spent more funds lobbying to make sure that they wouldn’t suffer any unprofitable impacts from banking reform legislation. So after the biggest banks received hundreds of billions in secret loans, they upped their lobbying funds to maintain their size and power. Read ‘em and weep:

4. Wall Street’s secret government protects its own.

At first, it’s not easy to understand how Treasury Secretary Paulson, the former head of Goldman Sachs, could risk attending a secret meeting with giant hedge fund managers, many of whom used to work at Goldman Sachs. How could the nation’s highest ranking financial official dare to tip off these hedge fund elites about the imminent government takeover of Fannie and Freddie before Congress and the public were informed? Well, one answer is that Paulson felt obliged to warn his old comrades of the impeding nationalization. Maybe, he wanted to get them out of harm’s way just in case they were heavily involved in those markets. Or maybe he also wanted to give them a very valuable tip to profit by. But the deeper explanation, I believe, is that Wall Street’s key government officials – Paulson, Summers, Geithner, Orszag (the former Obama OMB chief who now makes millions working for CitiGroup), etc. truly believe the following:

• Wall Street banks are the best in the world and are the cutting-edge of the American economy. They are our future.

• Wall Street bankers and hedge fund managers are enormously smarter and sharper than the rest of us. They deserve our admiration.

• Helping Wall Street to grow and prosper is precisely the same thing as helping all Americans and the entire economy. They deserve our support.

• Secret meetings to provide insider information are normal on Wall Street. There’s nothing wrong with warning your friends about upcoming policy decisions that might impact their profits.

• There’s also absolutely nothing wrong with providing trillions of dollars of secret loans to the best and the brightest and not telling Congress about it.

It’s all a closed loop of self-justification and self-deception: Wall Street is brilliant. What Wall Street does is for the good of the country. Helping Wall Street profit is good for the country. Hiding the truth from democratically elected leaders is also for the good of the country because Wall Street is brilliant and knows better.

US to Play 'Very Major Role' In Helping Europe: Geithner

CNBC

The U.S. plans on being an active partner as efforts intensify to get Europe get back on its feet financially, Treasury Secretary Timothy Geithner told CNBC Friday.

U.S. Treasury Secretary Timothy Geithner

With global leaders preparing for next month's Group of 20 nations (G20) summit in Cannes, France, the International Monetary Fund — of which the U.S. is the greatest contributor — is being relied on to help underwrite whatever efforts are needed to backstop toxic European sovereign debt .

Geithner said the International Monetary Fund (IMF) has "very substantial" resources to fund a device that could look like the Troubled Asset Relief Program, which helped navigate American financial institutions through the crisis in 2008 and 2009.

"Through the IMF, of course, we're already playing a very major role," he said in a live interview in Paris. "We're happy to see the IMF continue to play that role in support of a more forceful, comprehensive strategy where Europe's own resources—very ample resources—are deployed on a much more substantial scale."

The comments give a lift to U.S. stocks, which have been highly volatile in the past several months as proposed solutions have come and gone for the euro crisis.

Geithner declined to give a specific number on what would be required to aid Greece and any other potential countries that need help meeting their obligations.

Estimates have run as high as $2 trillion for a liquidity fund, and Geithner said that whatever the figure is, it should leave no doubt that there will be more than enough.

"A basic rule of financial crises management is you want to make sure you have a level of resources that are larger than the potential need you face," he said. "If markets see that then they'll have the incentive to continue to lend, invest, to get more exposure to those countries."

By next week, IMF participants should have "a more comprehensive strategy" to solve the problem and put in place a plan at the G20 summit, which begins Nov. 3.

While that is happening, Geithner said the threat of a massive global recession has decreased, making solutions easier to devise.

"The numbers as we see them around the world have been somewhat encouraging over the last couple of weeks," he said. "You've seen steady, gradual—not strong, but gradual—growth across large sections of the U.S. economy and you're seeing a little bit of that outside the United States, too."

He added: "The concerns you saw over the summer that the world might be headed into a much weaker growth outcome have receded a bit."

Geithner said he understands the concerns of widespread protests that emanated from the Occupy Wall Street movement, and said the administration is taking steps to address concerns of economic imbalances.

"What you see is a general sense across the country from concern that the U.S. economy is not growing faster, you're not seeing unemployment come down more rapidly, you're not seeing incomes rising," he said. "People to make sure that the government — Washington — is acting to make things better now."

Financial Polarization and Corruption: Obama’s Politics of Deception Don’t Let Him Get Away With It...

Global Research
Prof. Michael Hudson

The seeds for President Obama’s demagogic press conference on Thursday were planted last summer when he assigned his right-wing Committee of 13 the role of resolving the obvious and inevitable Congressional budget standoff by forging an anti-labor policy that cuts Social Security, Medicare and Medicaid, and uses the savings to bail out banks from even more loans that will go bad as a result of the IMF-style austerity program that Democrats and Republicans alike have agreed to back.

The problem facing Mr. Obama is obvious enough: How can he hold the support of moderates and independents (or as Fox News calls them, socialists and anti-capitalists), students and labor, minorities and others who campaigned so heavily for him in 2008? He has double-crossed them – smoothly, with a gentle smile and patronizing patter talk, but with an iron determination to hand federal monetary and tax policy over to his largest campaign contributors: Wall Street and assorted special interests – the Democratic Party’s Rubinomics and Clintonomics core operators, plus smooth Bush Administration holdovers such as Tim Geithner, not to mention quasi-Cheney factotums in the Justice Department.

President Obama’s solution has been to do what any political demagogue does: Come out with loud populist campaign speeches that have no chance of becoming the law of the land, while quietly giving his campaign contributors what they’ve paid him for: giveaways to Wall Street, tax cuts for the wealthy (euphemized as tax “exemptions” and mark-to-model accounting, plus an agreement to count their income as “capital gains” taxed at a much lower rate).

So here’s the deal the Democratic leadership has made with the Republicans. The Republicans will run someone from their present gamut of guaranteed losers, enabling Mr. Obama to run as the “voice of reason,” as if this somehow is Middle America. This will throw the 2012 election his way for a second term if he adopts their program – a set of rules paid for by the leading campaign contributors to both parties.

President Obama’s policies have not been the voice of reason. They are even further to the right than George W. Bush could have achieved. At least a Republican president would have confronted a Democratic Congress blocking the kind of program that Mr. Obama has rammed through. But the Democrats seem stymied when it comes to standing up to a president who ran as a Democrat rather than the Tea Partier he seems to be so close to in his ideology.

So here’s where the Committee of 13 comes into play. Given (1) the agreement that if the Republicans and Democrats do NOT agree on Mr. Obama’s dead-on-arrival “job-creation” ploy, and (2) Republican House Leader Boehner’s statement that his party will reject the populist rhetoric that President Obama is voicing these days, then (3) the Committee will get its chance to wield its ax and cut federal social spending in keeping with its professed ideology.

New York Attorney General Kicked Off Government Group Leading Foreclosure Probe

Huffington Post
Shahien Nasiripour

WASHINGTON -- New York Attorney General Eric Schneiderman on Tuesday was kicked off the committee leading the 50-state task force charged with probing foreclosure abuses and negotiating a possible settlement agreement with the nation's five largest mortgage firms, according to an email reviewed by The Huffington Post.

Schneiderman was one of roughly a dozen state attorneys general leading the talks with the five companies, alongside representatives of the U.S. Department of Justice, the Department of Housing and Urban Development and other federal agencies. The government launched the negotiations in the spring after widespread reports of foreclosure irregularities, such as so-called "robo-signing" and illegal home seizures, emerged.

But state prosecutors and federal officials are pressing to complete a proposed settlement with the five companies even though they've initiated only a limited investigation that hasn't examined the full extent of the alleged wrongdoing, The Huffington Post reported last month. Elizabeth Warren, who until recently was a senior adviser to President Barack Obama and Treasury Secretary Timothy Geithner, told a congressional panel last month that government agencies may not have sufficiently investigated claims that borrowers' homes were illegally seized.

Schneiderman, a Democrat who's in his first term as New York's top law enforcer, has been among a group of state legal officers who has also questioned the desire for a speedy resolution. He's leading his own investigation into mortgage improprieties, subpoenaing documents from the nation's largest financial institutions and reviewing court records for possible illegal home repossessions.

The Obama administration officials -- in particular, Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan -- have publicly stated on numerous occasions that they want a quick resolution to the 50-state mortgage probe.

Sources said attorneys general like Schneiderman, along with the top legal officers from Massachusetts, Delaware and Nevada, among others, were complicating that goal by questioning the plan to scuttle the state and federal investigations in exchange for a settlement.

These attorneys general have said they're reluctant to sign on to an agreement that effectively kills their ongoing investigations or prevents new ones from being launched. Beau Biden, Delaware's top law enforcer, remains on the states' executive committee.

In a statement of support for Schneiderman, Biden said that the "events leading up to the mortgage crisis must be fully investigated, including origination and securitization practices, before any broad immunity is granted."

"The American people deserve an investigation," he added.

Top Obama administration officials recently reached out to Schneiderman and his allies, effectively requesting he get in line, people familiar with the discussions said. The New York Times editorial board on Tuesday declared that Schneiderman "should stand his ground in not supporting the deal."

"The administration says that a settlement would quickly deliver much needed relief to hard-pressed borrowers, but it’s doubtful it would provide redress on a par with the banks’ wrongdoing or borrowers’ needs," the board wrote.

The email announcing Schneiderman's dismissal from the states' executive committee was sent just after noon to more than 50 people by Patrick Madigan, a top lawyer in the Iowa Attorney General's Office. It read: "Effective immediately, the New York Attorney General’s Office has been removed from the Executive Committee of the Robosigning multistate."

This month, Schneiderman accused Bank of New York Mellon, the 11th-largest U.S. bank by assets, of "repeated fraud and illegality" when it came to its actions as a trustee for various mortgage securities, and he accused Bank of America of fabricating missing documents when foreclosing on some homeowners who defaulted on their mortgages.

Bank of America's stock price is down more than 55 percent over the past six months. Investors haven't seen a closing price as low as Tuesday's -- $6.30 per share -- since March 2009.

New backup plan would let Obama raise debt ceiling without congressional OK

Chicago Tribune
Lisa Mascaro

Senate Majority Leader Harry Reid speaks to the media after meeting with
Treasury Secretary Timothy Geithner, right, about the debt limit.

Editor's Note:  As Suggested by Mike Rivero of WhatReallyHappened.com:

Raising the debt limit is not necessary. Congress has the right to revoke the Federal Reserve's charter - at any time.

Call or email your local congressman and ask them,

"Why does the government insist on borrowing money from outside banks when Article 1, Section 8 of the constitution allows the government to simply print its own money?"

Contact the Whitehouse:

http://www.whitehouse.gov/contact 

Contact Congress:

http://weeklyintercept.blogspot.com/p/complete-contact-list-for-us-congress_15.html


WASHINGTON — A plan by the Senate's two top leaders to allow President Obama to raise the debt limit without congressional approval is emerging as the most likely strategy to avoid a looming federal default.

The plan being drafted by Senate Minority Leader Mitch McConnell of Kentucky and Majority Leader Harry Reid of Nevada would lock in roughly $1.5 trillion in deficit reduction over the next ten years — a figure considerably smaller than Republican leaders or President Obama had been seeking.

Administration officials have said they still would prefer a more sweeping deal on the deficit, but they signaled the idea would be acceptable to Obama.

Conservatives, particularly in the House, seem likely to oppose it. But with efforts to deliver a larger deficit-reduction deal still stalemated, the new plan, which builds on a proposal put forward earlier in the week by McConnell, could provide a way out of a dead end that has become politically and economically perilous.

House Speaker John Boehner (R-Ohio) indicated such "last-ditch" efforts may become more palatable in the time ahead.

"What may look like something less than optimal today, if we're unable to get to an agreement, might look pretty good," Boehner said.

Rep. Eric Cantor (R-Va.), the House majority leader, toned his hard-line stance Thursday, saying, "There is a dose of pragmatism in all that we do."

The plan came as Treasury Secretary Timothy Geithner warned that time for debate was running out. The nation's bond-rating, and with it the financial stability of the nation, hinge on the ability of Congress and the White House to approve more borrowing before the government begins running out of cash on Aug. 2, he said.

"We're running out of time," Geithner told reporters after a private lunch meeting with Senate Democrats.

Underscoring Geithner's warning, the government of China, which is one of the largest holders of U.S. debt, issued a statement urging American officials to act "responsibly."

Congressional leaders met at the White House for a fifth straight day Thursday. There were no plans for a session on Friday, but Obama gave congressional leaders 24 to 36 hours to evaluate options, and planned a news conference Friday morning. The president said he and his staff were available and willing to meet over the weekend.

"It's decision time," Obama told those meeting at the White House, according to a Democratic official familiar with the session and who would describe it only condition of anonymity. "We need concrete plans to move this forward," the president said.

House Majority Leader Eric Cantor (R-Va.), who was criticized after confronting Obama during a meeting Wednesday, was more restrained at Thursday's talks. The Democratic official said the meeting was "cordial."

NYT: Tim Geithner Convinced NY AG Andrew Cuomo To Back Off Wall Street Prosecutions

Daily Bail

It is a question asked repeatedly across America: why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?

Answering such a question — the equivalent of determining why a dog did not bark — is anything but simple. But a private meeting in mid-October 2008 between Timothy F. Geithner, then-president of the Federal Reserve Bank of New York, and Andrew M. Cuomo, New York’s attorney general at the time, illustrates the complexities of pursuing legal cases in a time of panic.

At the Fed, which oversees the nation’s largest banks, Mr. Geithner worked with the Treasury Department on a large bailout fund for the banks and led efforts to shore up the American International Group, the giant insurer. His focus: stabilizing world financial markets.

Mr. Cuomo, as a Wall Street enforcer, had been questioning banks and rating agencies aggressively for more than a year about their roles in the growing debacle, and also looking into bonuses at A.I.G.

Friendly since their days in the Clinton administration, the two met in Mr. Cuomo’s office in Lower Manhattan, steps from Wall Street and the New York Fed. According to three people briefed at the time about the meeting, Mr. Geithner expressed concern about the fragility of the financial system.

His worry, according to these people, sprang from a desire to calm markets, a goal that could be complicated by a hard-charging attorney general.

Asked whether the unusual meeting had altered his approach, a spokesman for Mr. Cuomo, now New York’s governor, said Wednesday evening that “Mr. Geithner never suggested that there be any lack of diligence or any slowdown.” Mr. Geithner, now the Treasury secretary, said through a spokesman that he had been focused on A.I.G. “to protect taxpayers.”

Whether prosecutors and regulators have been aggressive enough in pursuing wrongdoing is likely to long be a subject of debate. All say they have done the best they could under difficult circumstances.

But several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr., of Lincoln Savings and Loan in Arizona, and David Paul, of Centrust Bank in Florida.

Former prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.

As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud. That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.

Leading up to the financial crisis, many officials said in interviews, regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis — weak regulation — also made it harder to pursue fraud in its aftermath.

A more aggressive mind-set could have spurred far more prosecutions this time, officials involved in the S.&L. cleanup said.

“This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity,” said William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government’s director of litigation during the savings and loan crisis. “But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.”

House rejects proposal to raise debt ceiling

Washington Post
Lori Montgomery and Paul Kane

With an August deadline looming, the House overwhelmingly refused Tuesday to raise the legal limit on government borrowing, setting the stage for a long, sweaty summer of haggling over the shape of the largest debt-reduction package in at least two decades.

Not a single GOP lawmaker voted for the measure to raise the limit on the national debt from $14.3 trillion to $16.7 trillion — a sum sufficient to cover the government’s bills through the end of next year. Republican leaders said their troops would reject any increase without a plan to sharply curtail spending and, thus, future borrowing.

“Tonight’s vote illustrates that there is no support in the People’s House for a debt limit increase without real spending cuts and binding budget process reforms,” House Majority Leader Eric Cantor (R-Va.) said in a statement, adding: “The families and business owners throughout the country want Washington to begin to live within its means and stop maxing out the credit card.”

 

Polls show that a higher debt limit is extremely unpopular with a large majority of voters, which has left Democrats leery of calling for an increase. On Tuesday, as the House voted 318 to 97 against raising the limit, nearly half of the chamber’s Democrats sided with the Republicans. In doing so, they ignored a long-standing request from the Obama administration to boost the limit before plunging into a complex and politically difficult battle over the size of the federal budget.

“I don’t intend to advise our members to subject themselves to a 30-second political ad and attack,” House Minority Leader Steny H. Hoyer (D-Md.) said hours before the vote, noting that GOP leaders offered the bill with the intention of letting their party’s members vote against it. Seven Democrats voted “present” to protest the manner in which the Republican majority called up the bill.
Hoyer and other Democrats accused House Speaker John A. Boehner (R-Ohio) of toying with the issue and running the risk that the “no” vote could roil financial markets. Bond traders, however, appeared to pay little attention to a move that many observers on Wall Street and in Washington dismissed as political theater.

“I didn’t even know they had a vote tonight, to be honest with you,” said Ian Lyngen, a senior government bond strategist at CRT Capital Group in Stamford, Conn. “The only real event that the market is focused on is the point at which they run out of money and have to shut down the government” — a date that Treasury Secretary Timothy F. Geithner has fixed at Aug. 2.

On that date, without additional borrowing authority, Geithner has said, the Treasury would be forced to default on at least some of the government’s obligations, an outcome that could have far-reaching consequences for global financial markets and the U.S. economy.

White House press secretary Jay Carney said Tuesday that default would be “calamitous.” But he dismissed the evening vote, saying Obama believes that Congress ultimately will act both to raise the debt ceiling and to rein in future borrowing.

U.S. hits debt ceiling

NEW YORK (CNNMoney) -- It's official: The U.S. government hit the debt ceiling on Monday, Treasury Secretary Timothy Geithner told Congress.

Geithner said he would have to suspend investments in federal retirement funds until Aug. 2 in order to create room for the government to continue borrowing in the debt markets.

The funds will be made whole once the debt limit is increased, Geithner said. "Federal retirees and employees will be unaffected by these actions."

He went on to urge Congress once again to raise the country's legal borrowing limit soon "to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens."

Congress, meanwhile, is not showing any signs of budging. Many Republicans and some Democrats say they won't raise it unless Congress and President Obama agree to significant spending cuts and other ways to curb debt. (Social Security and Medicare squeezed)

Geithner told Congress that he estimates he has enough legal hoop-jumping tricks to cover them for another 11 weeks or so.

But then he said that's it. If lawmakers don't get it together by Aug. 2, the United States will no longer be able to pay its bills in full. (Slashing spending alone won't cut it)

The rhetoric about whether to raise the ceiling and under what conditions has been loud, harsh and, at times, misleading. Exasperatingly, it's far from over.

What is the debt ceiling exactly? It's a cap set by Congress on the amount of debt the federal government can legally borrow. The cap applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare.

The first limit was set in 1917 and set at $11.5 billion, according to the Center for a Responsible Federal Budget. Previously, Congress had to sign off every time the federal government issued debt. 

How high is the debt limit right now? The ceiling is currently set at $14.294 trillion. Based on Treasury's announcement, it hit that mark on Monday morning.
And by taking various extraordinary measures like suspending investments in federal retirement funds, Geithner will be able to bring total debt down enough to allow the government to continue borrowing until Aug. 2.

How is the ceiling determined? They don't admit it, but lawmakers tacitly agree to raise the debt ceiling every time they vote for a spending hike or tax cut.
"Congress has already passed and the president has already signed legislation that increases spending or decreases revenues. Those decisions have already been made," said Susan Irving, director for federal budget issues at the Government Accountability Office.
So in reality arguing over the debt ceiling is essentially arguing over whether to pay the bills the country has already incurred.

Debt ceiling: Time to get real

But politicians who make a stink about the debt ceiling will always try to make the case that the guy who votes to raise it is a fiscal spendthrift.

And politics, of course, permeates the whole debate. Lawmakers who want to make hay of the issue for political gain may push for a small increase so the debate comes up again soon. Others may want a bigger increase so they don't have to revisit the issue for awhile.

How many times has the ceiling been raised? Since March 1962, the debt ceiling has been raised 74 times, according to the Congressional Research Service. Ten of those times have occurred since 2001.
Expect more of the same over the next decade. Barring major changes to spending and tax policies, "Congress would repeatedly face demands to raise the debt limit," CRS wrote.

Why does Congress even bother to set a debt limit? In theory, the limit is supposed to help Congress control spending. In reality, it doesn't.

Every time the debt limit needs to be raised, lawmakers and the president are forced to take stock of the country's fiscal direction, which isn't a bad thing necessarily.
But the decision about how high to set the ceiling is divorced from lawmakers' decisions to pass spending hikes and tax cuts. It's also made after the fact, so it doesn't do much to pull in the purse strings.

That's why budget experts say it would be better to tie the debt limit decision to lawmakers' legislative actions.

What happens if Congress doesn't raise the debt ceiling before Aug. 2? No one knows for sure. But the going assumption is that no good can come of it.

What happens if Congress blows the debt ceiling?

Treasury would not have authority to borrow any more money. And that can be a problem since the government borrows to make up the difference between what it spends and what it takes in. It uses that borrowed money to help fund operations and pay creditors.

Geithner's critics say he could prevent default by simply paying the interest due to bondholders.
But since average spending -- minus interest -- outpaces revenue by about $118 billion a month, Geithner won't be able to pay all the country's bills.

That means he will have to pick and choose who to pay and who to put off every day. And there's no guarantee that paying interest while shirking other legal obligations will protect the country from the perception of default.

Geithner said it would be akin to a homeowner who pays his mortgage but puts off his car loan, credit cards, insurance premiums and utilities. The mortgage is taken care of, but the homeowner's credit could still be damaged.

Ultimately, if lawmakers fail to raise the ceiling this year, they will have two choices, both awful.
They could either cut spending or raise taxes by several hundred billion dollars just to get through Sept. 30, which is the end of the fiscal year. Or they could acknowledge that the country would be unable to pay what it owes in full and the United States could effectively default on some of its obligations.

0:00 / 1:34 Debt ceiling's history lessons

The first option would be impossible to execute without serious economic repercussions.
And the second option could cripple the economy and send world markets into a tailspin.
"Not only the default but efforts to resolve it would arguably have negative repercussions on both domestic and international financial markets and economies," according to the CRS.

At a minimum, a default could hurt U.S. bonds, the dollar and investors' portfolios. "Our bond market and stock market would crash," said former Congressional Budget Director Rudolph Penner.

Will reaching the debt ceiling for good cause a government shutdown?

Not technically.

A government shutdown occurs if lawmakers fail to appropriate money for federal agencies and programs.

By contrast, if the debt ceiling is breached, Uncle Sam would still have revenue coming in that could be used to fund the government, Penner noted.

But if Geithner is coming up short by $118 billion every month, and lawmakers just decide to cut spending by that amount, that could effectively mean a partial government shutdown. 

Nobel Prize winner argues austerity measures limit growth; message aimed for Brussels or Washington?

Advisor One
Gil Weinreich

Joseph Stiglitz (left) in 2001 receiving his
Nobel Prize in economy from
Swedish King Carl XVI Gustaf.

Nobel Prize-winning economist Joseph Stiglitz said that countries adopting an austerity-based economic policy were sure to fail. Speaking in Copenhagen on Friday, he accused European leaders of what he called “deficit fetishism,” arguing that budget cutting in lean times retards rather than encourages economic growth.

Bloomberg News quotes the Stiglitz, a Columbia University professor, paraphrasing the famous Einstein quote about insanity. Said Stiglitz: “Austerity is an experiment that has been tried before with the same results.”

The Stiglitz criticism comes on the heels of first-quarter economic results that proved stronger than expected for Europe’s leading economies, Germany and France. Even Greece, whose solvency issues triggered Europe’s economic crisis, eked out its first economic expansion in three years, with growth of 0.8% for the quarter, which matched the EU average.

Possibly bolstering the economist’s case, the U.K. and Spain, two prominent budget cutters, posted quarterly growth of 0.5% and 0.3%, respectively.

The Stiglitz comments may also be aimed at influencing the economic policy debate currently raging on Capitol Hill, ahead of expectations the U.S. will reach its debt ceiling limit of $14.3 trillion on Monday. The current consensus in Washington is that the deficit must be reduced, but Democrats and Republicans agree on little else. Before the 2010 midterm elections that brought a House Republican majority, the Democratic administration favored a stimulative fiscal policy in contrast to Republican budget cutting preferences.

Now the differences lie in how deep budget cuts should be, with Republicans wanting to take on large entitlement programs and Democrats seeking tax hikes. Some officials, including Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke, have stated that failure to lift the debt limit could wreak havoc in the bond markets. A Gallup poll released Friday confirmed months of earlier polling suggesting the American public opposed raising the debt ceiling.

US to press China on financial reform!: Geithner

Activist Press

WASHINGTON (AFP) - The United States will press China to make progress on financial reform at high-level bilateral talks next week, Treasury Secretary Timothy Geithner has said.

The US is going "to put a little more attention this time on expanding our discussion to the next stage of financial reform in China," he told a US-China Business Council forum in Washington.

"If China's going to be successful in moving the economy away from exports to a more domestic-demand economy, it's going to have to increase the return to savers in China and dismantle the set of protections that are now designed to lower the cost of capital to state-owned enterprises."

Geithner and Secretary of State Hillary Clinton will host Chinese Vice Premier Wang Qishan and State Councilor Dai Bingguo in the two-day talks that open Monday in the US capital amid continued tensions over debt, exports and the value of China's currency.

It will be the third US-China Strategic and Economic Dialogue (SED) since Obama and Hu established the forum to discuss a broad range of issues in April 2009.

Geithner said China's current system of controls on both bank deposit and loan rates is designed to channel low-cost loans to state-owned enterprises, giving them a competitive advantage over private firms, both domestic and foreign, and adding to trade tensions.

High on the economic agenda for the talks are persistent conflicts over China's monetary policy and intellectual property rights protection.

Geithner said that China's currency, the yuan, had appreciated by more than five percent since Beijing decided in June 2010 to allow it to trade more freely against the dollar.

However, "the renminbi remains substantially undervalued," he said, using the formal name for the yuan.

"China needs to let the exchange rate adjust at a faster pace to correct that undervaluation," he added.

China in July 2005 freed the yuan from an 11-year-old peg to the dollar and moved to a tightly managed floating exchange rate.

But in mid-2008, policymakers effectively pegged the currency at about 6.8 to the dollar to prop up its exporters during the global financial crisis.

Critics say the yuan could be undervalued by as much as 40 percent.

On Tuesday, the yuan edged down against the dollar, to 6.498 yuan per dollar from 6.492 yuan.


Geithner said the US strategy is to "work with the grain of China's interests."

The Chinese authorities' recent moves to cool inflation in the booming economy "will be enhanced if they let the exchange rate appreciate more rapidly," he suggested.

The Treasury Department has delayed the publication of its next currency manipulation report to Congress that could lead to sanctions against Beijing until after the SED meeting.

The semi-annual report, which was due on April 15, has become a focal point for critics who accuse Beijing of unfairly keeping the yuan weak against the dollar to boost Chinese exports.

Geithner said the Obama administration sees encouraging changes in China's economic policy that could benefit all countries, but stressed the need for "action on the ground."

"Over the past two years, we have seen the beginning of promising shifts in the economic policy in China that have the potential to benefit China, the United States, and the world as a whole," he said.

Geithner recalled that Chinese President Hu Jintao, in his state visit to Washington in January, had made commitments to Obama to level the playing field between the world's two largest economies.

The pledges included further opening of access for non-Chinese companies to compete for government procurement, and strengthening intellectual property rights protection and enforcement.

"These changes in policy direction offer the prospect of much more substantial economic gains for US companies and workers in the future, provided we see durable changes in actual policies on the ground," he said.

Obama, Congress renew push for austerity measures

World Socialist Website
By Patrick Martin
30 April 2011

The Obama administration and leading Democrats and Republicans in the US Congress are preparing the next round of austerity measures directed at slashing public services, jobs and incomes for working people, to pay for the deepening crisis of American and world capitalism.

Treasury Secretary Timothy Geithner signaled the direction of administration policy in a speech Thursday to the Economic Club of Detroit, where he hailed the auto makers’ return to profitability—through drastic cuts in wages and intensified exploitation of labor—and reiterated Obama’s determination to make drastic spending cuts. “Reducing the deficit is a war of necessity,” he declared. “There is no alternative.”

Geithner’s speech was only one of a series of such political signals, given as backroom discussions began over the next stage in the onslaught on federal social programs, following the bipartisan agreement on the fiscal year 2011 budget, reached April 8 between the White House and House Speaker John Boehner.

This involves bipartisan talks on a measure to raise the federal debt ceiling, currently set at $14.3 trillion. The treasury department says it will reach the debt ceiling May 16, but can stave off default on federal debt payments until early July using various financial expedients.

Congressional Republicans have demanded binding measures to cut spending, focused on entitlement programs like Medicare, Medicaid and Social Security, as the price of agreeing to raise the debt ceiling. Formal negotiations are to begin May 5, chaired by Vice President Joseph Biden, but informal talks are ongoing.

Several Senate Democrats announced this week that they were prepared to join the Republicans in demanding spending cuts as part of a bill to lift the debt ceiling. These include Kent Conrad of North Dakota, chairman of the Senate Budget Committee, Joe Manchin of West Virginia, Mark Pryor of Arkansas and Amy Klobuchar of Minnesota. Given the narrow 53-47 Democratic majority in the Senate, the defection of any four Democrats would ensure defeat of the debt ceiling measure, since all the Republicans are expected to oppose it.

Manchin began a statewide campaign swing by announcing his support for a Republican plan to impose legally binding caps on federal spending. The conservative Democrat openly criticized the White House position, which is that the debt ceiling measure should be passed as a stand-alone, without any policy provisions. A statement issued by his office Thursday read: “Only in Washington would people argue that the responsible thing to do is raise the debt ceiling and add trillions of dollars in more debt, without a real and responsible debt fix.”

In the House of Representatives, members of the ultra-right Republican Study Committee said they planned to propose a series of two-month increases in the debt ceiling, each of them requiring additional concessions from the White House on spending, rather than a single multi-year bill, as has been the practice in the past.

In his speech in Detroit, Geithner made no direct reference to the debt ceiling, but he came out forcefully for the kind of “enforcement mechanism” proposed by politicians of both parties in Congress to compel long-term spending cuts.

“You need fail-safe discipline that will force Congress to make choices to live within constraints and make reforms even when they find a hard time agreeing on them,” he said. He called for legislating “a broad framework that locks in reforms over a multi-year period and forces future Congresses and executive branch officials to shrink the deficit.”

The effect of such measures would be to short-circuit democratic processes, even in the extremely attenuated form in which they now exist, and insulate budget decisions from the mass popular opposition they are sure to provoke.

Congressional Republicans were already getting the first glimpses of such opposition at a series of town hall meetings held over the Easter Week recess, where thousands of people, mainly elderly, turned out to protest the plan endorsed by House Republicans to phase out Medicare and Medicaid.
There were press reports of heated exchanges and congressmen being shouted down by angry constituents in New Hampshire, New York, Pennsylvania, Illinois, Wisconsin, North Carolina, California, and in many districts in Florida.

While the congressional Republicans adopt the most openly reactionary posture, the Obama administration is no less hostile to the mounting popular opposition to the policies of austerity embraced by both the big business parties.

Treasury secretary Geithner’s appearance in Detroit was just as provocative, in its own way. He traveled to the most devastated major city in America, a city virtually destroyed by the auto bosses, to declare that the administration’s economic policies were working and to give Obama credit, in particular, for the revival of the auto industry.

“For the first time since 2004, all three American automakers have an operating profit,” he boasted. “And since GM and Chrysler emerged from bankruptcy in 2009, the industry has added nearly 90,000 jobs—the strongest period of job growth in more than 10 years.”

Geithner did not mention that the wages paid to these newly hired auto workers have been slashed by 50 percent, to only $14 an hour, barely above the poverty line. Nor that the strategy of the Obama administration, backed by the auto companies and the United Auto Workers union, is to make the US auto industry a successful low-cost competitor for its overseas rivals, both in Europe and Asia, including China.

The treasury secretary hailed the latest economic figures, although by any objective standard they were dismal: GDP growth of only 1.8 percent in the first quarter of 2011, and a jump in new claims for unemployment insurance.

Geithner said, “The economy is healing and getting stronger. Today’s GDP estimate shows the economy grew for the seventh straight quarter.”

He continued, “And it’s important to note, the private sector is leading this expansion. The private sector continues to boost its investments, purchases and hiring even as government spending continues to drop.”

The truth is that American corporate CEOs are sitting on $2 trillion in cash, which they are refusing to invest in production, let alone hiring, preferring instead the more (personally) lucrative stock buybacks and speculative financial investments.

The cutback in federal, state and local government spending played a major role in the reduction in GDP growth from 3.1 percent in the last quarter of 2010 to the miserable 1.8 percent figure for the past three months.

Geithner held out the prospect that the growth rate could return to the 3-4 percent level over the next two years, although that would barely make a dent in the massive army of unemployed and underemployed workers.
The author recommends:

Oil bosses rake in record profits as US economy stalls
[29 April 2011]

UAW sets benchmark for wage-cutting in global auto industry
[25 April 2011]

 

"Why Did the Fed Bail Out the Bank of Libya?" and Other Questions for Mr. Bernanke

Washington's Blog

Preface: Fed Chairman Ben Bernanke will give his first in a series of regular press conferences tomorrow. Journalists will be allowed to ask questions.

The Fed is largely responsible for the unstable economy, and it has not changed course. And as Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - notes, the press conferences are simply a p.r. ploy, and will not remedy the fed's corrupt and deceptive public records policies.

But some people have written some good suggested questions for Mr. Bernanke. For example, Senator Sanders asks:

Why Did the Fed Bail Out the Bank of Libya?

Another interesting question might be:

Mr. Bernanke, you have previously admitted that the Federal Reserve caused the Great Depression. Do you think the Fed caused the Great Recession, given that the Fed:

• Turned its cheek and allowed massive fraud

• Acted as cheerleader in chief for unregulated use of derivatives at least as far back as 1999 (see this and this)

• And for subprime loans

• Allowed the giant banks to grow into mega-banks, even though most independent economists and financial experts say that the economy will not recover until the giant banks are broken up. For example, Citigroup's former chief executive says that when Citigroup was formed in 1998 out of the merger of banking and insurance giants, Greenspan told him, “I have nothing against size. It doesn’t bother me at all”

• Argued that economists had conquered the business cycle, and that modern, technologically advanced financial markets are best left to police themselves

• Preached that a new bubble be blown every time the last one bursts

• Kept interest rates too low?

Here are some other good questions from Senator Sanders, and some good ones from Tyler Durden.

In 2009, I wrote the following questions for Bernanke's Senate confirmation hearing. Unfortunately, nothing has changed, and so the questions are still relevant today.

High-Level Fed Officials Slam Bernanke 

Fed Vice Chairman Donald Kohn conceded that the government's actions "will reduce [companies'] incentive to be careful in the future." In other words, he's admitting that the government's actions will encourage financial companies to make even riskier gambles in the future.

Kansas City Fed President and veteran Fed official Thomas Hoenig said:

Too big has failed....

The sequence of [the government's] actions, unfortunately, has added to market uncertainty. Investors are understandably watching to see which institutions will receive public money and survive as wards of the state...

Any financial crisis leaves a stream of losses among the various participants, and these losses must ultimately be borne by someone. To start the resolution process, management responsible for the problems must be replaced and the losses identified and taken. Until these actions are taken, there is little chance to restore market confidence and get credit markets flowing. It is not a question of avoiding these losses, but one of how soon we will take them and get on to the process of recovery....

Many of the [government's current policy revolves around the idea of] "too big to fail" .... History, however, may show us a different experience. When examining previous financial crises, both in other countries as well as the United States, large institutions have been allowed to fail. Banking authorities have been successful in placing new and more responsible managers and directions in charge and then reprivatizing them. There is also evidence suggesting that countries that have tried to avoid taking such steps have been much slower to recover, and the ultimate cost to taxpayers has been larger...

The current head of the Philadelphia fed bank, Charles Plosser, disagrees with Bernanke's strategy of the endless printing-press and ever-increasing fed balance sheet:

Plosser urged the Fed to "proceed with caution" with the new policy. Others outside the Fed are much more strident and want plans in place immediately to reverse it. They believe an inflation storm is already in train.***

Bernanke argued that focusing on the size of the balance sheet misses the point, arguing the Fed's various asset purchase programs are not easily summarized in a single number.

But Plosser said that the growth of the Fed's balance sheet was a key metric.

"It is not appropriate to ignore quantitative metrics in this new policy environment," Plosser said...

Plosser is bringing the spotlight right back to the Fed's balance sheet.

"The size of the balance sheet does offer a possible nominal anchor for monitoring the volume of our liquidity provisions," Plosser said.

The former head of the Fed's Open Market Operations says the bailout might make things worse. Specifically, the former head of the Fed's open market operation - the key Fed agency which has been loaning hundreds of billions of dollars to Wall Street companies and banks - was quoted in Bloomberg as saying:

"Every time you tinker with this delicate system even small changes can create big ripples,'' said Dino Kos, former head of the New York Fed's open-market operations . . . "This is the impossible situation they are in. The risks are that the government's $700 billion purchase of assets disturbs markets even more.''

And William Poole, who recently left his post as president of the St. Louis Fed, is essentially calling Bernanke a communist:

Poole said he was very concerned that the Fed could simply lend money to anyone, without constraint.

In the Soviet Union and Eastern Europe during the Cold War era, economies were inefficient because they had a soft-budget constraint. If a firm got into trouble, the banking system would give them more money, Poole said.

The current situation at the Fed seems eerily similar, he said.

"What is discipline - where are the hard choices - when does Fed say our resources are exhausted?" Poole asked.

But the strongest criticism may be from the former Vice President of Dallas Federal Reserve, who said that the failure of the government to provide more information about the bailout could signal corruption. As ABC writes:

Gerald O'Driscoll, a former vice president at the Federal Reserve Bank of Dallas and a senior fellow at the Cato Institute, a libertarian think tank, said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.

"Nontransparency in government programs is always associated with corruption in other countries, so I don't see why it wouldn't be here," he said.

Of course, former Fed chairman Paul Volcker has also strongly criticized current Fed policies.

Given such harsh criticism from within the Fed, how can Bernanke justify his actions to date?
Global Agencies Slam Bernanke

The Bank of International Settlements (BIS) - called "the central banks' central bank" - has slammed the Fed for blowing bubbles and then "using gimmicks and palliatives" which "will only make things worse".
As the Telegraph wrote in June 2007:

The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood...
The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system...
The bank said it was far from clear whether the US would be able to shrug off the consequences of its latest imbalances ...
"Sooner or later the credit cycle will turn and default rates will begin to rise," said the bank.

A year later, in June 2008, the Telegraph wrote:

A year ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. This has proved frighteningly accurate...
[BIS economist] Dr White says the US sub-prime crisis was the "trigger", not the cause of the disaster.

Indeed, BIS slammed the Fed and other central banks for blowing the bubble, failing to regulate the shadow banking system, and then using gimmicks which will only make things worse. As the 2008 Telegraph article notes:

In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to "clean up" once property bubbles have burst...
Nor does it exonerate the watchdogs. "How could such a huge shadow banking system emerge without provoking clear statements of official concern?"
"The fundamental cause of today's emerging problems was excessive and imprudent credit growth over a long period. Policy interest rates in the advanced industrial countries have been unusually low," he said.
The Fed and fellow central banks instinctively cut rates lower with each cycle to avoid facing the pain. The effect has been to put off the day of reckoning...
"Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand. If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off.
"To deny this through the use of gimmicks and palliatives will only make things worse in the end," he said.

In other words, BIS slammed the easy credit policy of the Fed and other central banks, and the failure to regulate the shadow banking system.
More dramatically, BIS slammed "the use of gimmicks and palliatives", and said that anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts "will only make things worse".
But Bernanke and the other central bankers (as well as Treasury and the Council of Economic Advisors and Barney Frank and Chris Dodd and the others in control of American and British and French and Japanese and German and virtually every other country's economic policy) ignored BIS' advice in 2007 and 2008, and they are still ignoring it today.
Instead, they are doing everything they can to (2) prop up asset prices by trying to blow a new bubble by giving banks trillions, (2) re-write accounting and reporting rules to let the big banks and other giants keep bad debts on their books (or in sivs or other "second sets of books") and to hide the fact that they are bad debts, and (3) encourage consumers to spend spend spend!
"The world's most prestigious financial body", "the ultimate bank of central bankers" has condemned Bernanke and all of the other G-8 central banks, and stripped bare their false claims that the crash wasn't their fault or that they are now doing the right thing to turn the economy around.
As Spiegel wrote in July of this year:

White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market...

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy...

In the restrained world of central bankers, it would have been difficult for White to express himself more clearly...

It was probably the biggest failure of the world's central bankers since the founding of the BIS in 1930. They knew everything and did nothing. Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space... In their report, the BIS experts derisively described the techniques of rating agencies like Moody's and Standard & Poor's as "relatively crude" and noted that "some caution is in order in relation to the reliability of the results."...
In January 2005, the BIS's Committee on the Global Financial System sounded the alarm once again, noting that the risks associated with structured financial products were not being "fully appreciated by market participants." Extreme market events, the experts argued, could "have unanticipated systemic consequences."
They also cautioned against putting too much faith in the rating agencies, which suffered from a fatal flaw. Because the rating agencies were being paid by the companies they rated, the committee argued, there was a risk that they might rate some companies too highly and be reluctant to lower the ratings of others that should have been downgraded.
These comments show that the central bankers knew exactly what was going on, a full two-and-a-half years before the big bang. All the ingredients of the looming disaster had been neatly laid out on the table in front of them: defective rating agencies, loans repackaged to the point of being unrecognizable, dubious practices of American mortgage lenders, the risks of low-interest policies. But no action was taken. Meanwhile, the Fed continued to raise interest rates in nothing more than tiny increments...
The Fed chairman was not even impressed by a letter the Mortgage Insurance Companies of America (MICA), a trade association of US mortgage providers, sent to the Fed on Sept. 23, 2005. In the letter, MICA warned that it was "very concerned" about some of the risky lending practices being applied in the US real estate market. The experts even speculated that the Fed might be operating on the basis of incorrect data. Despite a sharp increase in mortgages being approved for low-income borrowers, most banks were reporting to the Fed that they had not lowered their lending standards. According to a study MICA cited entitled "This Powder Keg Is Going to Blow," there was no secondary market for these "nuclear mortgages."...
William White and his Basel team were dumbstruck. The central bankers were simply ignoring their warnings. Didn't they understand what they were being told? Or was it that they simply didn't want to understand?

The head of the World Bank also says:

Central banks [including the Fed] failed to address risks building in the new economy. They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy. They argued that damage to the 'real economy' of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. They turned out to be wrong.

Given such piercing criticisms from BIS and the World Bank, how can Mr. Bernanke justify his actions to date?

Economists Slam Bernanke Stephen Roach (former chief economist for Morgan Stanley, and now director of Morgan Stanley Asia) is one of the most influential and respected American economists. Roach told Charlie Rose recently that we have had terrible Federal Reserve policy for the past 12 years under Greenspan and Bernanke, that they concocted hair-brained theories (for example, that we should let the boom and bust cycle occur, but then "clean up the mess" once things fall apart), and that we really need to reform the Fed.
Specifically, here's the must-read portion of the interview:

STEPHEN ROACH: And what’s missing in the debate that drives me nuts is going back to the very function of central banking that’s at the core of our financial system. Do we have the right model for the Fed to go forward? And, you know, I think we’ve minimized the role that the custodians, the stewards of our financial
system, the Federal Reserve, played in leading to this crisis and in making sure that we will never have this again. I think we’ve had horrible central banking in the United States for the past dozen of years. I mean, we elevate our central bankers, we probably .

CHARLIE ROSE: From Greenspan to Bernanke.

STEPHEN ROACH: Yeah.

CHARLIE ROSE: Both.

STEPHEN ROACH: We call them maestro, and, you know, we make them
sound larger than life. And, you know, and the fact is, they condoned
policies that took us from one bubble to another. They failed to live up
to their regulatory responsibility granted them by law. They concocted new
theories to explain why these things could go on forever, and they harbored
the belief, mistakenly in my view, that monetary policy is too big and
blunt an instrument, and so you just bring it in to clean up the mess
afterwards rather than prevent a mess ahead of time. Well, look at the
mess we’re in right now. We need a different approach here. We really do.

Leading economist Anna Schwartz, co-author of the leading book on the Great Depression with Milton Friedman, told the Wall Street journal that the Fed's entire strategy in dealing with the financial crisis is wrong. Specifically, the Fed is treating it as a liquidity problem, when it is really an insolvency crisis. Moreover, prominent Wall Street economist Henry Kaufman says that the Federal Reserve is primarily to blame for the financial crisis:

"I am convinced that the misbehavior of some would have been much rarer -- and far less damaging to our economy -- if the Federal Reserve and, to a lesser extent, other supervisory authorities, had measured up to their responsibilities ...
Kaufman directly criticized former Federal Reserve Chairman Alan Greenspan for not using his position to dissuade big banks and others from taking big risks.
"Alan Greenspan spoke about irrational exuberance only as a theoretical concept, not as a warning to the market to curb excessive behavior," Kaufman said. "It is difficult to believe that recourse to moral suasion by a Fed chairman would be ineffective."
Partly because the Fed did not strongly oppose the repeal in 1999 of the Depression-era Glass-Steagall Act, more large financial conglomerates that were "too big to fail" have formed, Kaufman said, citing a factor that has made the global credit crisis especially acute.
"Financial conglomerates have become more and more opaque, especially about their massive off-balance-sheet activities," he said. "The Fed failed to rein in the problem."...
"Much of the recent extreme financial behavior is rooted in faulty monetary policies," he said. "Poor policies encourage excessive risk taking."

Economist Marc Faber says that central bankers are money printers who create bubbles, and that the system would be much better now if the Fed hadn't intervened. Specifically, Faber says that - if the Fed hadn't intervened - the system would be cleaned out, the system would be healthier because debt load and burden on taxpayers would be reduced.

Economist Jane D'Arista has shown that the Fed has failed miserably at its main task: providing a "counter-cyclical" influence (that is, taking the punch bowl away before the party gets too wild).
The Fed has also failed miserably in its role as regulator of banks and their affiliates. As well-known economist James Galbraith says:

The Federal Reserve has never been an effective regulator for the straightforward reason that it is dominated by economists and bankers and not by dedicated skeptics who make bank regulation a full-time profession.

As PhD economist Steve Keen has pointed out, the Fed (along with Treasury) has also given money to the wrong people to kick-start the economy.

Given such devastating criticism from prominent economists, how can Mr. Bernanke justify his actions to date?

Unemployment
The Federal Reserve is mandated by law to maximize employment. The relevant statute states:

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

However, PhD economist Dean Baker says:

The country now has almost 25 million people who are unemployed or underemployed as a result of the Fed's disastrous policies. Millions of people are losing their homes and tens of millions are losing their life savings. The country is likely to lose more than $6 trillion in output ($20,000 per person) due to the Fed's inept job performance.

The Fed could have stemmed the unemployment crisis by demanding that banks lend more as a condition to the various government assistance programs, but Mr. Bernanke failed to do so.

Ryan Grim argues that the Fed might have broken the law by letting unemployment rise in order to keep inflation low:

The Fed is mandated by law to maximize employment, but focuses on inflation -- and "expected inflation" -- at the expense of job creation. At its most recent meeting, board members bluntly stated that they feared banks might increase lending, which they worried could lead to inflation.
Board members expressed concern "that banks might seek to reduce appreciably their excess reserves as the economy improves by purchasing securities or by easing credit standards and expanding their lending substantially. Such a development, if not offset by Federal Reserve actions, could give additional impetus to spending and, potentially, to actual and expected inflation." That summary was spotted by Naked Capitalism and is included in a summary of the minutes of the most recent meeting...
Suffering high unemployment in order to keep inflation low cuts against the Fed's legal mandate. Or, to put it more bluntly, it may be illegal.

In fact, the unemployment situation is getting worse, and many leading economists say that - under Mr. Bernanke's leadership - America is suffering a permanent destruction of jobs.For example, JPMorgan Chase’s Chief Economist Bruce Kasman told Bloomberg:

[We've had a] permanent destruction of hundreds of thousands of jobs in industries from housing to finance.

The chief economists for Wells Fargo Securities, John Silvia, says:

Companies “really have diminished their willingness to hire labor for any production level,” Silvia said. “It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said.

And former Merrill Lynch chief economist David Rosenberg writes:

The number of people not on temporary layoff surged 220,000 in August and the level continues to reach new highs, now at 8.1 million. This accounts for 53.9% of the unemployed — again a record high — and this is a proxy for permanent job loss, in other words, these jobs are not coming back. Against that backdrop, the number of people who have been looking for a job for at least six months with no success rose a further half-percent in August, to stand at 5 million — the long-term unemployed now represent a record 33% of the total pool of joblessness.

And see this.

Given that the law mandates that the Fed maximize employment, but that unemployment is instead becoming catastrophic under Mr. Bernanke's watch, how can Mr. Bernanke justify his actions to date?

Leverage
The Fed says that we should reduce leverage, but is doing everything in its power to increase leverage.

Specifically, the New York Federal published a report in July entitled "The Shadow Banking System: Implications for Financial Regulation".
One of the main conclusions of the report is that leverage undermines financial stability:

Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities. In the new, post-crisis financial system, the role of securitization will likely be held in check by more stringent financial regulation and by the recognition that it is important to prevent excessive leverage and maturity mismatch, both of which can undermine financial stability.

And as a former economist at the New York Fed, Richard Alford, wrote recently:

On Friday, William Dudley, President of FRBNY, gave an excellent presentation on the financial crisis. The speech was a logically-structured, tightly-reasoned, and succinct retrospective of the crisis. It took one step back from the details and proved a very useful financial sector-wide perspective. The speech should be read by everyone with an interest in the crisis. It highlights the often overlooked role of leverage and maturity mismatches even as its stated purpose was examining the role of liquidity.
While most analysts attributed the crisis to either specific instruments, or elements of the de-regulation, or policy action, Dudley correctly identified the causes of the crisis as the excessive use of leverage and maturity mismatches embedded in financial activities carried out off the balance sheets of the traditional banking system. The body of the speech opens with: “..this crisis was caused by the rapid growth of the so-called shadow banking system over the past few decades and its remarkable collapse over the past two years.”

In fact, every independent economist has said that too much leverage was one of the main causes of the current economic crisis.
Federal Reserve Bank of San Francisco President Janet Yellen said recently that it’s “far from clear” whether the Fed should use interest rates to stem a surge in financial leverage, and urged further research into the issue.“Higher rates than called for based on purely macroeconomic conditions may help forestall a potentially damaging buildup of leverage and an asset-price boom”.
And on September 24th, Congressman Keith Ellison wrote a letter to Mr. Bernanke and Geithner stating:

As you know, excessive leverage was a key component of the financial crisis. Investment banks leveraged their balance sheets to stratospheric levels by using short-term wholesale financing (like repurchase agreements and commercial paper). Meanwhile, some entities regulated as bank holding companies (BHCs) used off-balance-sheet entities to warehouse risky assets, thereby evading their regulatory capital requirements. These entities’ reliance on short-term debt to fund the purchase of oftentimes illiquid and risky assets made them susceptible to a classic bank panic. The key difference was that this panic wasn’t a run on deposits by scared individuals, but a run on collateral by sophisticated counterparties.

The Treasury highlights this very problem in its policy statement before the recent summit of G-20 finance ministers in London. To address this problem, the Treasury advocates stronger capital and liquidity standards for banking firms, including “a simple, non-risk-based leverage constraint.” The U.S. is one of only a few countries that already has leverage requirements for banks. Leverage requirements supplement risk-based capital requirements that federal banking regulators have in place pursuant to the Basel II Accord, an international capital agreement. While important features of our system of financial regulation, leverage requirements only apply to banks and bank holding companies and therefore have not covered a wide array of financial institutions, including many that are systemically important. Moreover, leverage requirements have generally not captured the considerable risks associated with off-balance-sheet activities.

Of course, the Administration looks to address the shortcomings in the existing regulatory system through a proposal to regulate large, systemically-significant financial institutions as Tier 1 Financial Holding Companies (FHCs). Building upon its existing authority as the consolidated supervisor of all BHCs (which includes FHCs), the Federal Reserve would be responsible for overseeing and regulating the Tier 1 FHCs under the plan. In the legislative draft of the proposal, the Federal Reserve would have the authority to prescribe capital requirements and other prudential standards for these institutions that are stronger than those for all other BHCs. To that point, the text specifically says, “The prudential standards shall be more stringent than the standards applicable to bank holding companies to reflect the potential risk posed to financial stability by United States Tier 1 financial holding companies and shall include, but not be limited to—(A) risk-based capital requirements; (B) leverage limits; (C) liquidity requirements; and (D) overall risk management requirements.”

The application of leverage limits – as advanced by the Treasury’s G-20 policy statement and by the Administration’s financial regulatory reform plan – is a simple and elegant way to limit risk at specific financial institutions (and within the overall financial system). The financial crisis has underscored the importance of leverage requirements and manifested the problems associated with relying upon risk-based capital requirements alone ...

Nevertheless, there are some open questions regarding exactly how a leverage requirement should be applied. Some scholars and policy experts have advocated putting in place a leverage requirement for banks and other financial institutions that is set in statute. As Congress moves forward on comprehensive financial regulatory reform, it may consider such a requirement. I would therefore be interested to hear your views regarding the wisdom of such an approach.
As you know, setting capital standards requires decisions regarding what institutions would be covered, how capital would be defined, and what levels the requirements would be set. In light of that, what specific difficulties would you anticipate Congress facing with respect to specifying such a requirement? In addition, would a statutory requirement be too inflexible and place too many constraints on regulators with respect to refining regulatory capital requirements and negotiating with bank regulators from other countries?

On November 13th, Mr. Bernanke responded to Ellison (I received a copy of the letter from a Congressional source):

The Board's authority and flexibility in establishing capital requirements, including leverage requirements, have been key to the Board's ability to require additional capital where needed based on a banking organization's risk profile. One of the lessons learned in the recent financial crisis is the need for financial supervisors to have the ability to react quickly to changing circumstances, as in the capital assessments conducted in the Supervisory Capital Assessment Program. The Board and other federal banking agencies initiated this program to conduct a comprehensive, forward-looking assessment of the capital positions ofthe nation's 19 largest bank holding companies (BHCs). The Board's authority to mandate specific levels of capital was critical to this exercise because each BHC had a unique set of risks and circumstances that demanded careful supervisory scrutiny and evaluation in order to identify the amount of capital appropriate for its safe and sound operation. The Board required corrective actions on a case-by-case basis and continues to assess the capital positions ofthese institutions as well as all others under its supervision.

We note that in other contexts, statutorily prescribed minimum leverage ratios have not necessarily served prudential regulators of financial institutions well. Previously, the minimum capital requirements for the housing government-sponsored enterprises Fannie Mae and Freddie Mac (collectively, "GSEs") were fixed in statute; the risk-based capital requirement for the GSEs was based on a stress test that was also set forth in statute; and the GSE's regulator, the Director ofthe Office of Financial Housing Enterprise Oversight (the predecessor agency to the Federal Housing Finance Authority) did not have the authority to establish additional capital requirements for the GSEs. This limitation was different from the authority that the federal banking agencies have to set the leverage and risk-based capital requirements for banking organizations. In 2008, Congress enacted the Housing and Economic Recovery Act of 2008, which created FHFA and empowered it to establish additional minimum leverage and risk-based capital requirements for the GSEs.

With regard to the Board and other U.S. banking agencies' efforts to join with international supervisors to strengthen capital requirements for internationally active banking organizations, the Basel Committee is working on proposals for an international supplement to minimum risk-based capital ratios. While this work is in process, it is likely that these efforts will take the form of a minimum leverage ratio. It will be important for the international regulatory community to carefully calibrate the aggregate effect ofthis initiative, along with other efforts underway that are intended to strengthen capital requirements, to ensure that they protect against future financial crises while not raising capital requirements to such a degree that the availability of credit to support economic growth is unduly constrained. The current authority and flexibility the Board has to establish and modify leverage ratios as a banking organization regulator is very important to the successful participation of the Board in the process of establishing and calibrating an international leverage ratio.

The Supervisory Capital Assessment Program Mr. Bernanke refers to were the infamous "stress tests". There's just one little problem: the stress tests were a complete complete sham.
In reality, the Fed has been one the biggest enablers for increased leverage. As anyone who has looked at Mr. Bernanke and Geithner's actions will tell you, many of the government's programs are aimed at trying to re-start securitization and the "shadow banking system", and to prop up asset prices for highly-leveraged financial products.
Indeed, Mr. Bernanke said in February:

In an effort to restart securitization markets to support the extension of credit to consumers and small businesses, we joined with the Treasury to announce the Term Asset-Backed Securities Loan Facility (TALF).

And he said it again in September:

The Term Asset-Backed Securities Loan Facility, or TALF ... has helped restart the securitization markets for various types of consumer and small business credit. Securitization markets are an important source of credit, and their virtual shutdown during the crisis has reduced credit availability for many borrowers.

Given that the Fed admits that too much leverage is destabilizing to our financial system, how can Mr. Bernanke justify his actions to date in increasing leverage?

Has the Fed Manipulated any Markets?

There are allegations that the Fed has manipulated the markets.

Has the Fed - directly or as part of the President's Working Group on Financial Markets or any other group or organization - manipulated any markets?

Trillions in Unnecessary Interest to the American People
Many people - including former analyst for the U.S. Treasury Richard Cook - argue that credit is too important a function to be left to the private banks. AFL-CIO president Richard Trumka told Congress recently:

If the Federal Reserve were made a fully public body, it would be an acceptable alternative.

Bloomberg News columnist Matthew Lynn writes:

The U.K. government needs to start thinking about what it will do with all the banks it now owns. The answer is simple: Hand them to the people...

Instead of selling the stakes it acquired in the financial system to other banks, or listing the shares on the stock market, it could create mutually owned societies. Royal Bank of Scotland Group Plc could be a people’s bank, owned by everyone.That would ensure more diversity, competition and stability, all goals just as worthy as getting back the money Prime Minister Gordon Brown’s government spent on bank rescues...

Michael Moore recommends that the American people demand:

Each of the 50 states must create a state-owned public bank like they have in North Dakota. Then congress MUST reinstate all the strict pre-Reagan regulations on all commercial banks, investment firms, insurance companies -- and all the other industries that have been savaged by deregulation: Airlines, the food industry, pharmaceutical companies -- you name it. If a company's primary motive to exist is to make a profit, then it needs a set of stringent rules to live by -- and the first rule is "Do no harm." The second rule: The question must always be asked -- "Is this for the common good?" (Click here for some info about the state-owned Bank of North Dakota.)

As Moore notes, the state of North Dakota already has such a bank, and - because of that - North Dakota is just about the only state which is not running a huge deficit.

PhD economist and candidate for Florida governor Farid Khavari wants to create a Bank of the State of Florida, to create credit without burdening the state and its citizens with high interest charges by private banks. See this for details.

If the power to create credit were taken away from the Federal Reserve system and its private banks and given back to the government (as the Constitution envisioned), then American taxpayers would save hundreds of billions or trillions of dollars in unnecessary interest charges in paying off the national debt, as the government would not have to pay interest to finance its debt (sovereign nations such as the U.S. and England have the power to create credit and money; see this, this, this, and this).

Given that America is already deeply in debt, how can Mr. Bernanke justify the ongoing mountain of interest debts placed on the backs of the American people by the private credit-creation system of which the Fed is a part?