Financial News

[Balta1701]

You mean the toxic assets on the fed's balance sheet that they do NOT want to talk about. The one's they hope to hold until they deem them above water. What a joke...

Serious question. Does it really matter if the Federal Reserve loses money?

[NorthSideSox72]

Just a remarkable statement for so many reasons.

Do you find fault in my statement? Let's look at this from a really basic point of view...

 

TARP: $700B authorized (give or take), $300B actually used, $200B returned so far with interest, ~$50B to be returned with interest in near term, leainvg ~$50B as true cost, minus whatever interest is received (which is well above opp cost in this case).

 

STIM: $787B authorized, all to be spent, to give us what? Temporary construction jobs, and other stuff not sustainable?

 

How can you not see the STIM bill as a much greater failure than TARP?

 

And again, I am not talking about the abject regulatory failure that is going on now, which I completely agree on. I am talking about TARP.

 

[Y2HH]

Do you find fault in my statement? Let's look at this from a really basic point of view...

 

TARP: $700B authorized (give or take), $300B actually used, $200B returned so far with interest, ~$50B to be returned with interest in near term, leainvg ~$50B as true cost, minus whatever interest is received (which is well above opp cost in this case).

 

STIM: $787B authorized, all to be spent, to give us what? Temporary construction jobs, and other stuff not sustainable?

 

How can you not see the STIM bill as a much greater failure than TARP?

 

And again, I am not talking about the abject regulatory failure that is going on now, which I completely agree on. I am talking about TARP.

 

Allow me to add:

 

STIM: $787B authorized, all to be spent -- and every penny they can possibly skim/steal, will be skimmed/stolen.

[Balta1701]

STIM: $787B authorized, all to be spent, to give us what? Temporary construction jobs, and other stuff not sustainable?

 

How can you not see the STIM bill as a much greater failure than TARP?

Because the unemployment rate has stabilized, we've avoided deflation (temporarily at least) and the economy is actually threatening to show signs of being declared to be growing again.

 

I'll be the first to admit it could have been done better. Fewer tax cuts, more directed spending, 1.5 to 2 times as large. But it did pretty much exactly what it was supposed to do given its size; avoid a second "Great Contraction" and give the Fed ammunition to keep pushing the effective interest rate down.

[Y2HH]

Because the unemployment rate has stabilized, we've avoided deflation (temporarily at least) and the economy is actually threatening to show signs of being declared to be growing again.

 

I'll be the first to admit it could have been done better. Fewer tax cuts, more directed spending, 1.5 to 2 times as large. But it did pretty much exactly what it was supposed to do given its size; avoid a second "Great Contraction" and give the Fed ammunition to keep pushing the effective interest rate down.

 

I don't think it's over yet.

[NorthSideSox72]

Because the unemployment rate has stabilized, we've avoided deflation (temporarily at least) and the economy is actually threatening to show signs of being declared to be growing again.

 

I'll be the first to admit it could have been done better. Fewer tax cuts, more directed spending, 1.5 to 2 times as large. But it did pretty much exactly what it was supposed to do given its size; avoid a second "Great Contraction" and give the Fed ammunition to keep pushing the effective interest rate down.

You are making a huge leap in assumption here - that the Stim bill is why the economy has stabilized. Everything I've see tells me we swung a huge hammer to kill a few gnats - the pay back was small for the cost. The economy has stabilized for lots of reasons, and no, we have not avoided deflation or depression because of the Stimulus Bill. Deflation was staved off partially by the massive amount of paper we are printing, and partially because of the stabilization itself. The stabilization of housing is due partialy to ground effect from demand levels of a growing and still largely employed population, mostly (and an assortment of other factors as well). The stabilization of employment is due partially to ground effect of Americans who are employed still being big spenders, as well as an assortment of other factors (SOME of which come from the Stim Bill).

 

[NorthSideSox72]

I don't think it's over yet.

By no means is it over. There is still a possible foreclosure bulge, which is looming out there but fortunately being slowly aired out by the banks and various other factors. But it could still get ugly.

 

Worse, the money we did spend in jobs creation had low effectivity, and it was temporary s*** - not sustainable industry.

 

[southsider2k5]

By no means is it over. There is still a possible foreclosure bulge, which is looming out there but fortunately being slowly aired out by the banks and various other factors. But it could still get ugly.

 

Worse, the money we did spend in jobs creation had low effectivity, and it was temporary s*** - not sustainable industry.

 

In Indiana the government is now the second leading employer as an industry group, behind only retail.

[southsider2k5]

0% chance that would have happened. You really think Chase, for example, was going under? There is no way. Far too much money was given out, most was not needed.

 

anyways, whats done is done. i really don't feel like getting back into this bailout debate. there will be plenty of time to debate this type of activity when they come back for the next inevitable ginormous government bailout.

 

If the cascade kept up out of control, and the federal reserve did what it was supposed to do, every single bank in the country probably would have gone under. There was zero confidence in the system, and with assets being the main part of the valuation of deposits for most institutions, there is zero chance they would have been able to keep up their reserve requirements when faced with the valuations of their loans falling double digit percents, especially with their concentrations in bubble markets such as Cali, Fla, and Las Vegas. Honestly, it is simple math.

[southsider2k5]

Do you find fault in my statement? Let's look at this from a really basic point of view...

 

TARP: $700B authorized (give or take), $300B actually used, $200B returned so far with interest, ~$50B to be returned with interest in near term, leainvg ~$50B as true cost, minus whatever interest is received (which is well above opp cost in this case).

 

STIM: $787B authorized, all to be spent, to give us what? Temporary construction jobs, and other stuff not sustainable?

 

How can you not see the STIM bill as a much greater failure than TARP?

 

And again, I am not talking about the abject regulatory failure that is going on now, which I completely agree on. I am talking about TARP.

 

The dirty secret is that most of the spending has been on things that were going to be spent anyway. I would argue that we would have gotten further with relaxing reserve requirements than we did with either program, though stabilizing banks was just number 1 in a one thing list. The last time we had a full out bank crash was 1929, and we all know how that worked.

[southsider2k5]

I agree with your last point about this not avoiding future risk the way it should - the follow-on work that had to happen after TARP has been slow and incomplete at best, and negligent at worst. But that isn't about TARP, its about the regulatory environment and the rules as they currently stand, which still need serious overhaul.

 

I think the overall impact of TARP was very positive in terms of what it avoided, and the return is going to be basically flat. To me, that is nothing to be concerned about - I am much more upset with the debacle that was the Stim bill, which is paying very little in the way of returns, certainly not to the level of its cost.

 

The regulations of anything financial in this country are about 80 years out of date, and we did nothing to fix it. If anything adding more layers and expenses has only made it worse. Instead of having a confusing system of competing agencies each trying to justify their existance by using contradictory rules that muck up the financial sector, now we have more layers, more regulations, and less cohesiveness and sense to things, with more worthless government oversight.

[southsider2k5]

so without 700 billion, which was paid back right away once it was found out that there would be some concessions for tarp users, the entire 14 trillion system would have collapsed?

 

seriously, what is the highest level math course you have taken. lol. i love the 'i have a liberal arts degree and can't pass calc I but i know math' arguments. continue.

 

Personally I love the "I read it on a blog" geniuses the roam the internet without actually understanding banking, financial markets, economics, or the federal reserve. Feel free to continue to actually justify something you have never shown any actual knowledge about.

[mr_genius]

Honestly, it is simple math.

 

it certainly is not. if you were to mathematically prove, that without the loose bailout structure and a complete payout of all funds, an entire meltdown of the 14 trillion dollar economy would occur; some extensively complicated mathematics would be involved.

Edited March 15, 2010 by mr_genius

[southsider2k5]

it certainly is not. if you were to mathematically prove, that without the loose bailout structure and a complete payout of all funds, an entire meltdown of the 14 trillion dollar economy would occur; some extensively complicated mathematics would be involved.

 

At it's surface it is much more simple than a 14 trillion dollar economy, because the economy isn't all in one bank. The way you are looking at it tells me that you need to read up on the federal reserve system, and very specifically the reserve requirements for banking, and how quickly deflating assets could, and did, sink massive banks.

[Balta1701]

Serious question. Does it really matter if the Federal Reserve loses money?

Can anyone take a crack at this for me?

[southsider2k5]

Can anyone take a crack at this for me?

 

Depends on what you mean by, does it matter...

[Y2HH]

Depends on what you mean by, does it matter...

 

Also depends on what you mean by "lose money".

 

It's a pretty vague question.

[Balta1701]

Also depends on what you mean by "lose money".

 

It's a pretty vague question.

More specifically, if the Federal reserve buys up a toxic asset at an inflated price and every mortgage in it goes bad such that it becomes essentially worthless, why should an average taxpayer care?

[Y2HH]

More specifically, if the Federal reserve buys up a toxic asset at an inflated price and every mortgage in it goes bad such that it becomes essentially worthless, why should an average taxpayer care?

 

Is that the federal reserves job?

[Balta1701]

Is that the federal reserves job?

The Federal Reserve's job according to Wikipedia is:

1. Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system, and protect the credit rights of consumers.

3. Maintaining stability of the financial system and containing systemic risk that may arise in financial markets.

4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.

I think you could make a legitimate argument that taking a loss on those securities falls under any of those. Yeah, there's likely some corruption built in that we need to correct, don't bother lecturing me about that, i'll be the first to admit it. I want to know a priori why I should worry if the Fed loses money.

[Y2HH]

The Federal Reserve's job according to Wikipedia is:

I think you could make a legitimate argument that taking a loss on those securities falls under any of those. Yeah, there's likely some corruption built in that we need to correct, don't bother lecturing me about that, i'll be the first to admit it. I want to know a priori why I should worry if the Fed loses money.

 

Because their first job is:

 

1. Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

 

If they begin losing money, they're failing at everything listed there. The influence, in an of losing money, would be detrimental to the value of the dollar, it would destabilize prices, and force them to have to increase interest rates to make up for their own blunders, which has to be illegal 500 ways to Sunday.

[southsider2k5]

The Federal Reserve's job according to Wikipedia is:

I think you could make a legitimate argument that taking a loss on those securities falls under any of those. Yeah, there's likely some corruption built in that we need to correct, don't bother lecturing me about that, i'll be the first to admit it. I want to know a priori why I should worry if the Fed loses money.

 

We are talking about two trillion dollars in assets owned by the Fed. I know a trillion dollars in debt isn't a big deal for the Democrats anymore, but really? It is also interesting you completely blow off policy potentially being influenced by the Fed bank doing things it really isn't set up to do.

[Balta1701]

We are talking about two trillion dollars in assets owned by the Fed. I know a trillion dollars in debt isn't a big deal for the Democrats anymore, but really? It is also interesting you completely blow off policy potentially being influenced by the Fed bank doing things it really isn't set up to do.

Oh, you mean like the Federal Reserve turning a blind eye to the inflation of a giant housing bubble and telling Congress there was no need for any actions to deal with it because the Fed would do its regulatory job.

 

Anyway, this still hasn't answered my basic question. Doesn't the Fed basically function like an independent bank? They started this off with what, nearly a trillion dollars sitting on their balance sheet, right? They've taken on $2+ trillion in assets, but if they lose it, and they're the ones who basically create money, if they lose that money and in the process do not trigger inflation (because we're up against the lower bound of interest rates anyway), what happens? The rest of the government doesn't step in with taxpayer money and bail out the Fed, does it?

[southsider2k5]

Oh, you mean like the Federal Reserve turning a blind eye to the inflation of a giant housing bubble and telling Congress there was no need for any actions to deal with it because the Fed would do its regulatory job.

 

Anyway, this still hasn't answered my basic question. Doesn't the Fed basically function like an independent bank? They started this off with what, nearly a trillion dollars sitting on their balance sheet, right? They've taken on $2+ trillion in assets, but if they lose it, and they're the ones who basically create money, if they lose that money and in the process do not trigger inflation (because we're up against the lower bound of interest rates anyway), what happens? The rest of the government doesn't step in with taxpayer money and bail out the Fed, does it?

 

In a nutshell, this is exactly why governmental regulation of the financial sector doesn't work. Every penny we pay for it, it wasted. The Fed tells the Congress to stay away, and Congress has no idea that they need to do anything else. It is the same way with all of the other ABC bodies, having personally dealt with many of them.

 

And these are the people we are trusting with trillions of dollars in assets, and that isn't a problem? Yeah.

 

As to the last line, yes, the federal government assumes the debts of the Fed bank. Profits go onto the ledger as pluses against our deficit, losses add on to it. If the federal government actually followed the laws that it requires for accounting, all of those toxic assets would be showing on the books as losses right now. But since they exempted themselves from mark to market, we will see a Japan like situation, where those assets float in nirvana forever, taking up valuable capital and stifling growth.

[Balta1701]

As to the last line, yes, the federal government assumes the debts of the Fed bank. Profits go onto the ledger as pluses against our deficit, losses add on to it. If the federal government actually followed the laws that it requires for accounting, all of those toxic assets would be showing on the books as losses right now. But since they exempted themselves from mark to market, we will see a Japan like situation, where those assets float in nirvana forever, taking up valuable capital and stifling growth.

So then how was it the Fed was sitting on $1 trillion before the bailouts started?