Thursday, June 18, 2009
Being the Federal Reserve II
President Obama proposed a plan that would give the Federal Reserve more regulatory power. My only question is why didn't the Fed use the power it already had to avert a near collapse of the global economy? It seems that Alan Greenspan, former Federal Reserve Chairman, allowed some things to occur for so many years and Timothy Geithner, the current Treasury Secretary, was over the Federal Reserve of New York during the time that Wall Street nearly brought the global economy to its knees. What was Geithner doing then? It seems that he was not able to handle the power he had in New York. Why give Geithner and the Federal Reserve greater power now? And make no mistake about it, we are talking about power here and lots of it! Maybe someone can break all this complicated stuff down to me like I'm a two-year old. Sometimes I wonder if the complications are purposeful.
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6 comments:
Judith, I someitmes wonder if anyone really knows how it works. Given that most authorities aren't, is there anyone in town who knows baseball?
DB
DB - If a system is such that nobody understands, wouldn't the wise thing to do would be to do away with it? A lot of this simply seems disingenuous to me. No system is that complicated. Wall Street banks now want to repay billions back to taxpayers. This is good. But most Americans have already lost big in their kids’ college funds and their retirement funds while these banks collected fat fees on the front and back end and we bailed them out so that they can remain in business only to stick it to us again in another ten years. We seem to be on a ten year cycle of orchestrated boom and bust. I am not a financial expert but if feels like a big scam to me. The reason that no one is in jail after this financial mess is because no laws were broken. Deregulation and the Federal Reserve turning a blind eye seem to have made it such.
I think it's because there are too many fingers in the pie, local, national and international. There's the news, then the sub news and the anti news. I used to think it was primarily MSV. A nast practice called Maximizing Shareholder Value. If the value of the stock was high, even though the value of the company was not, if there even was a company, everyone wins, supposedly (until Enron) and since the major stockholders are the CEOs CFOs and COOs, they are the ones who know when to unload. I've since come to believe that it is even more complicated than that. So complicated in fact that the people who are supposed to know, don't. It's like trying to punch a fog, and it is kept that way. The amibiguity insures that no finger can be pointed at the real target. It has been so well manipulated that we have to bail out the banks. Everybody is going to suffer, but, as you said, some peopoe have suffered beyond the point of recovery.
DB
Yes, it seems as if community banking, such as credit unions and the banks such as Grameen Bank with its micro-financing, concentrate on the local community and are not as prosperous as the Wall Street banks. But they provide a valuable service globally and is perhaps a much better simpler system. Some 97% of Grameen customers are NOT in default. There seems to be no big mystery about how banks make money. They do so through structured investment vehicles designed to make interest and fees. It doesn't matter what the vehicle is.
What matters as I see it is how fees and interest were allowed through deregulation and apparent collusion with commercial and investment banks, credit agencies and insurance companies. I reject the premise that these vehicles were so complicated that no one understood them. They do not seem to be so complicated at all. It seems that those in the banking business knew exactly how to game the system by creating the perfect storm with the public (homeowners) and the help of Congress both Republicans and Democrats.
On a recent business blog someone wrote that Barclays in England did not need government. Well, they didn't need it if they had an insurance company like AIG with a hedge fund that bailed them out. The American taxpayer seems to have provided liquidity to Barclays and other European banks through AIG to the tune of billions of dollars. Now, if you were an international banker wouldn't you choose such a company when you know that the big United States government will bail them out even though the bailout comes out of debt? What do they care?
Since the early 20th Century when JP Morgan wrestled banking from the hands of Europe to America, we have had international banking. But during that time there seems to have been a greater sense of responsibility. I've been slowing reading a book on JP Morgan, Morgan: American Financier. He felt a responsibility to the American people and industry. In fact, he seems to have single-handedly built industry in America. But he was responsible. Consider this quote:
"All his adult life he tried to stabilize the emerging U.S. economy, to discipline speculative profiteers and bring the market destructive forces under control. With his eye on the lenders of capital (the U.S. was a net debtor until 1914), he took personal responsibility for maintaining the dollar's value and coaxing economic adversaries to the bargaining table - workers and managers as well as warring railroad and steel barons - while urging Washington to modernize the country's antebellum banking system."
But things were not perfect. This was the time of the anti-trust laws. And, of course, the Glass-Steagall Act of 1930 which limited the mixing of commercial and investment banking which was done away with under President Clinton after having been initiated by Republican senator Phil Graham. So, now we have collusion everywhere. And, we wonder why we are in this financial crisis? If we are going to have such global banking as we have come to know, strict regulation is necessary. But I would like to see banks such as Grameen play a central role. They are doing something right!
PBS just aired an investigative report this week called, Breaking the Bank, that delved into the behind the scenes machinations that went on prior to this whole financial global mess. If you have not seen it, keep your eye on when it will be aired again. I taped it and plan to see it again because I found myself many times stopping it and asking my husband whether I had heard right. Eye opening.
Thanks, Rebecca! I'll look out for it for sure.
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