Showing posts with label Federal Reserve Board. Show all posts
Showing posts with label Federal Reserve Board. Show all posts

Wednesday, December 30, 2015

Why the #FED doesn’t care about Black unemployment

Why the #FED doesn’t care about Black unemployment.

EllisonReport 12/22/2015 edition: New shifts in the GOP primary. Emerging differences among Democratic and GOP candidates on national security issues. How the political calculus might reshape (or not) in wake of trial, grand jury decisions. Federal education policy 50 years later. How recent interest rate hikes eviscerate already eviscerated African Americans.  

Economist William Cunningham (@CreativeInv) talks about how the Fed doesn’t care about Black unemployment – but, has many tools at its disposal to take care of it. 

Listen at:

Thursday, May 28, 2015

US GDP Forecast

The Bureau of Economic Analysis at the U.S. Department of Commerce will release the second estimate of First Quarter 2015 US GDP on Friday at 8:30 am. Gross Domestic Product (GDP) is the the broadest measure of economic activity. Most forecasters are predicting GDP will decline by 1.0% from the earlier quarter (4th Quarter, 2014.)

Our 2015 Fully Adjusted Return® forecast for GDP suggests there will be no change, in other words, we will have a first quarter 2015 GDP estimate that reflects virtually no change, or negative 0.5%." 

The US economy is strong and getting stronger. The only thing that can damage it are policy mistakes (like raising interest rates too soon) by officials at the Federal Reserve, and this is reason to be concerned. 


These guys collectively have, as one analyst noted, made some of the worst economic forecasts EVER.  

For example, in a speech titled The Great Moderation given on February 20, 2004, Ben Bernanke, not shown above, but another former Chairman of the Federal Reserve, failed to note the risk of the then soon to be felt Great Recession that started in 2006.

We note that Bernanke now says "China's economic slowdown should not worry markets as there was no risk of a hard landing, and emphasized that a move to raise U.S. rates should be viewed as a positive sign for the world's largest economy."

As I said, reason to be concerned.

Wednesday, July 18, 2012

Bernanke on the Hill

Chairman of the Fed Benjamin Bernanke testified before the House Financial Services Committee today. In his prepared remarks he hewed closely to his July 17th testimony before the Senate Banking Committee.
A surprising number of questions focused on the LIBOR scandal. One question in particular seemed to go to the heart of the matter. A Committee member read a transcript of a conversation between a Barclay's trader and a staff member at the Federal Reserve Bank of NY. The transcript seemed to show the trader acknowledging his complicity in the commission of fraud. The Congressman then read the definition of fraud to the Chairman. This matched what the transcript revealed.

The Committee member then asked the Chairman if he thought this combination was enough to justify a charge of fraud against Barclays. The Chairman was, predictably, reluctant to agree.

Fiscal cliffs, twists and sequesters are irrelevant in the face of this type of clearly defined unethical behavior. 

It is this type of refusal to acknowledge the plain truth that confirms we are still at risk of a significant decline in economic activity.

Wednesday, November 3, 2010

Federal Reserve Board QE2 - $600 billion, $75 billion at a time...

According to the Fed, "To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

$600 billion is $100 billion larger than anticipated and $75 billion per month seems reasonable. This is an appropriate response and stands every chance of being effective, especially since economic activity has been strengthening in the weeks leading up to this announcement.

From a social investing perspective, the Fed's new focus on employment (as opposed to inflation) is a welcome change. Monetary policies that primarily seek to limit inflation risk (inflation targeting) tend to serve the needs of asset holders, since inflation first impacts and reduces asset values. These type of asset focused monetary policies are inappropriate and ineffective in the current, ongoing crisis. Why? With a record number of foreclosures, there are fewer and fewer asset holders. Income inequality is increasing rapidly as assets are being concentrated in fewer and fewer hands.

A concern with an "increase in long-term inflation expectations that could destabilize the economy" is misplaced. The larger, more immediate and significant risk for society and the economy resides in the possibility of an increase in both short and long-term unemployment, since this could destabilize both the economy and the political system (as we saw last night). Better to seek to increase social return/benefits by putting people in a position to acquire assets. This is done through employment.

Wednesday, July 21, 2010

Creative Investment Research, Inc. testifies at the Joint Public Hearing on CRA

Sponsored by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision (The Agencies), the Joint Public Hearing on the Community Reinvestment Act Regulation was held in Arlington Virginia on July 19, 2010. We provided testimony for the hearings.

Congress passed the Community Reinvestment Act (CRA) in 1977 “to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods, consistent with safe and sound operations.”

Our testimony follows a series of warnings we have issued since 1998:

- In an October 1998 brief filed with the Court of Appeals for the District of Columbia Circuit, we objected to the Citigroup/Travelers merger. We cited evidence that growing financial market malfeasance greatly exacerbated risks in financial markets, reducing the safety and soundness of large financial institutions. We went on to note that: “The nature of financial market activities is such that significant dislocations can and do occur quickly, with great force. These dislocations strike across institutional lines. That is, they affect both banks and securities firms. The financial institution regulatory structure is not in place to effectively evaluate these risks, however. Given this, the public is at risk.”

- On June 15, 2000, we testified before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSE’s) of the US Congress. We suggested the GSE’s (Fannie Mae and Freddie Mac) be subject to a thorough “Social Audit.” Had they been subject to this audit, certain flaws in their operation, including ethical shortcomings, may have been revealed earlier and in a better market in which to make corrections.

- On December 22, 2003, we warned regulators that statistical models created by the firm using the Fully Adjusted Return ®Methodology signaled the probability of system-wide economic and market failure.

- On Monday, April 11, 2005, we testified before Judge William H. Pauley III in the U.S. District Court for the Southern District of New York on behalf of investors at a fairness hearing regarding the $1.4 billion dollar Global Research Analyst Settlement.

- On February 6, 2006, we warned regulators that statistical models using the Fully Adjusted Return® Methodology confirmed that system-wide economic and market failure was a growing possibility. See page 2:

- On June 18, 2010, we released a comment letter sent to Mr. Phil Angelides, Chairman, Financial Crisis Inquiry Commission, outlining our Transaction Cost Theory of the Financial Crisis. See: ...

Our CRA testimony focuses on:

- The best approaches to evaluating the geographic scope of depository institution lending, investment and/or deposit-taking activities under CRA. We seek open and market based CRA performance evaluation standards.

- We suggest the Agencies conduct a “credit needs” based review, subject to financial institution lending and service capabilities. In other words, we suggest they look at total credit needs in areas served by large and small institutions, calculate the potential impact that the institution has in meeting those needs, calculate the actual impact (number and dollar amount of loans provided), and use this metric as part of the CRA review process.

- We suggest the agencies revise CRA regulations to require that bank examiners routinely consider activities by affiliates.

- We suggest that the Agencies focus on opportunities to encourage "green" community development loans, "green" investments and "green" services to support projects that have a significant impact on a neighborhood.

- We suggest that the agencies’ evaluations of evidence of discriminatory or other illegal credit practices as outlined in the CRA rules are inadequate.

- We suggest the creation of a single online access point for CRA ratings, HMDA and small business data, accessible online, covering all regulated financial institutions and all affiliates, across regulatory agencies (OCC, OTS, FDIC, FRB, SEC, CFTC, etc.). We believe this would streamline CRA disclosures and performance evaluation reports, simplify compliance, improve consistency and enhance clarity.

- Finally, we suggest the agencies consider using the social networking sites (Facebook, Linked-In, etc) to collect public comments on the CRA performance of banks.

Friday, March 19, 2010

Hearing on the link between Fed Policy and Bank Supervision (Frank Hung, Intern)

We attended the hearing held by House Financial Services Committee on Wednesday March 17, 2010. Among the speakers:

The Honorable Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve

The Honorable Paul Volcker, Chairman of the President’s Economic Recovery Advisory Board, Former Chairman of the Federal Reserve

Their testimony focused on interest rates and government guarantees, such as those granted Fannie Mae and Freddie Mac. One Congressman asked if holding rates too low for too long causes inflation? Bernanke indicated he is watching economic trends closely will move rates up or down in order to avoid future economic problems. He stated that arbitrage opportunities still happened and that, based on current reports and research, demand is still lower than the full employment level. He noted that low interest rates can stimulate consumer expenditures and alleviate the unemployment problem.

He also stated that the Fed cooperates with other regulatory agencies in supervising the banking system since some of the banking organizations are large and complex. Bernanke indicated that the Fed will do its best to address systemic safety issues for the whole financial system by rigidly supervising high leverage or low credit companies.

The hearing also covered problems with Fannie Mae and Freddie Mac. Bernanke said, while the Fed understands the problem and has already started to address it, results will not be seen anytime soon. Time will tell what they did and how is it works.

In conclusion, there was not much useful or new information. We note there was no discussion concerning the supervision and regulation of a company like Goldman Sachs.

Tuesday, July 21, 2009

Bernanke's History

Looks like they got that one wrong.

On January 17, 2008, the Chairman of the Federal Reserve Board, Mr. Bernanke, testified that "A recession is probably not on the horizon, but quick passage of an economic-stimulus package plus aggressive action by the Federal Reserve are the appropriate prescription for the ailing economy.."

What we got wrong.

We note that on June 18, 1998, in a letter to Betsy White, Senior Vice President at the NY Fed, we said:

"Finally, it is our continuing belief that the Federal Reserve Board should be designated a 'Superregulator,' with broad responsibility for overseeing the activities of banks, thrifts, pension funds, insurance companies, mutual fund companies, brokerage firms and investment banks. We note our belief that financial institution convergence, driven by recent advancements in financial and computer technology, requires the creation of such a 'Super-regulator.' "

We, and others, no longer believe the Federal Reserve independent or objective enough to serve as "Superregulator" or as "Systemic Regulator." They are, thus, unqualified for the role, which should be filled by an entirely new entity.

Saturday, July 19, 2008

Federal Reserve Chairman Ben Bernanke’s Monetary Policy Report to the Senate Banking Committee (Emerson Bluhm)

In his semi annual Monetary Policy Report to the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke spoke about the current troubles in the economy, the future outlook and the FED’s plans to help the economy return to health. With an average of 94,000 jobs lost per month over the last six months, unemployment at 5.5%, home prices falling, rising inflation, soaring commodity prices and trouble at Freddie Mac and Fannie Mae, Bernanke was less than optimistic about the economy over the next year, forecasting extremely slow growth. While he claimed that the U.S. is technically not in a recession by a textbook definition, he acknowledged the hardships many Americans are facing with extremely low consumer confidence, declining wealth, and rising food and energy costs.

According to the Chairman, the housing crisis and rising commodities prices are at the center of the current economic problems. Bernanke told the committee that he believes the Treasury Department’s plan to backstop the Government Sponsored Enterprises (GSEs), Freddie Mac and Fannie Mae, is a step in the right direction to help the housing sector regain his footing. Bernanke expects the housing sector to bottom out by the end of the year and explained that once this happens, he feels the rest of the economy will largely fall into place. As the economy recovers, he believes that the dollar will strengthen. He expects inflation to rise further in the near term but moderate in 2009 as international growth slows and the commodity market cools down but acknowledged that this outcome is highly uncertain. While slowing international growth could hurt U.S. exports that have been vital to U.S. growth, he claimed it would be a net positive if it could help lower commodity prices. Bernanke cited rising demand and a shortage of supply as the reasons for rising oil prices. Several senators asked about the role of speculators in oil prices, to which Bernanke replied that they have had no role in the increase in oil prices and defended their role in the marketplace. Proposals to regulate the futures markets would have no effect on the price of oil.

Treasury Secretary Henry Paulson spoke to the Senate Banking Committee as well, defending the administration’s rescue plan for the GSEs. With Fannie Mae and Freddie Mac now touching 70% of mortgages and representing the only secondary market for mortgages, Paulson and Bernanke both claimed it was essential to provide a capital backstop to these companies to ensure a recovery in the housing market. The rescue plan calls for an 18 month window where the Treasury has unlimited funds to provide liquidity through a line of credit as well as unlimited funds to buy stock in the two companies if they see a need to raise capital. The plan also calls for reform that will give the FED consultative authority to the GSEs in order to reduce systemic risk.

Several members of the Banking Committee expressed their displeasure with the idea of giving the Treasury Department a blank check from taxpayers, questioning why the current $2.25 Billion line of credit would not suffice. Mr. Paulson responded that this $2.25 Billion was set in 1971 when the GSEs had a market capitalization of only $1 Billion. He explained that this was not enough today as “markets have changed but the architecture has not” and told the committee that the authorization to use unlimited funds shows confidence to the market and makes it less likely that he will have to use them. If Congress wants all the funds to be used, they “can make it small enough and it will be a self-fulfilling prophecy”, claimed Paulson who also likened the funds to a bazooka in the Treasury’s pocket. With the entire world watching the current economic situation in the U.S. very closely, Paulson urged a quick passage of the proposals to help restore confidence.

Securities Exchange Commission Chairman Christopher Cox faced many questions from the Committee about their role in enforcing and investigating claims of manipulation in the marketplace. With encouragement from many members of the committee, Cox also explained the SEC’s recent emergency decision to curb naked short selling in the equities of several financial firms. Concerned that short sales may be pushing the financial sector down too far, Cox said the SEC would move to immediately put an end to naked short selling in the GSEs and 17 financial firms for the next 30 days. The SEC is also considering extending this to the entire market. Cox also updated the committee on the SEC’s investigations and prosecutions of investors spreading false rumors to drive down stock prices, charges that he claimed were the first of their kind. He also described a desire to increase regulation of credit rating agencies and require more disclosure of off balance sheet items.

July 15, 2008. Emerson Bluhm.

Monday, July 14, 2008

Freddie and Fannie: What should be done now

Our recommendations for dealing with the housing GSEs are as follows:

1. Freddie Mac should be closed. Having a second housing GSE was supposed to provide competition and serve as a check on the first housing GSE, Fannie Mae. Clearly, this did not work. No need to continue, so:
2. Merge Freddie and Fannie. Instead of two failing agencies, we now have one. Allows for a concentration of focus, effort. Stabilize the resulting institution.
3. After one year, move Fannie back into HUD. Fannie Mae was separated from HUD in 1968. Time to reverse this. Moving Fannie into HUD extends the full faith and credit guarantee umbrella.

Time to revise the housing GSE experiment.

Saturday, March 29, 2008

"Treasury Dept. Plan Would Give Fed Wide New Power"

According to the New York Times, a Treasury Department plan released (over a weekend to the press and selected insiders only) would give substantial new power to the Federal Reserve Board. "The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system." This would be a significant expansion of the central bank’s regulatory mission.

We are not, at this point, opposed to this effort. We noted, in an October 2, 1998 filing with the DC Circuit of the US Court of Appeals (Case Number 98-1459), our belief that the Fed should be designated a "Super-regulator, with broad responsibility for overseeing the activities of banks, thrifts, pension funds, insurance companies, mutual funds, brokerage firms and investment banks.

We believe social investors need to review the plan carefully. The Times stated:

"The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades." (This is, of course, false. Financial regulatory agencies recognized "rampant excesses in mortgage lending" (see: Irrational Exuberance) but were unable to take the steps required to protect the financial system.)

Treasury's plan calls for the consolidation of "banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms."

Further, "the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves" and it "reduce the power of the Securities and Exchange Commission" while merging the S.E.C. with the Commodity Futures Trading Commission.

Thursday, January 17, 2008

A Socially Responsible Economic Stimulus Plan

We attended House Budget Committee hearings today.

As the New York Times noted, the Chairman of the Federal Reserve Board, Mr. Bernanke, testified that "A recession is probably not on the horizon, but quick passage of an economic-stimulus package plus aggressive action by the Federal Reserve are the appropriate prescription for the ailing economy.."

Let's hope he is right on the first count. As Fed Chair, he is pledged to political neutrality, so he cannot be specific on the second. We, of course, have no such limitation. Our suggestions follow.

Any economic-stimulus package should target low to moderate income consumers. We suggest implementing a $30 billion dollar increase in food stamp benefits. Given new distribution technology (EBT), this part of the stimulus plan would hit the economy first and quickly and, as an added benefit, would go a long way toward beginning to even the income distribution in the country. Benefits should be expanded to include more and newer consumption necessities, like disposable diapers and low cost (not greater than $400) computers.

Further, we would include a significant tax credit, up to $5 billion total, for investments in community development banks. (Our reasoning: someone will need to take the place of the lenders who got caught up in the Subprime lending mess.) We might also include a significant rebate for the purchase and use of energy efficient technologies.

We would also implement at full rebate of tuition, books and fees for low to moderate income (80% or lower of area median income for at least the last four years) persons studying at any accredited four year college.

Finally, we would include $20 billion for infrastructure repair projects (vetted, of course, to eliminate all pork) focusing on bridges. We suggest the infrastructure work first target US counties with an unemployment rate at least twice the national average.

Aggressive action by the Federal Reserve should focus on repairing the regulatory safety net that allowed subprime lending to damage the markets. This includes working with States as they seek to uncover subprime lending fraud.

Part of the economic recovery plan should require the Federal Reserve conduct a complete census (not a survey) of all subprime loans and borrowers. This would include collecting information on loan terms and conditions, reported borrower income at the time of closing, property location, and other demographic information on the borrower. We understand that a complete census will not be cheap (we estimate this would cost at least $100 million) but it will allow a better understanding of the exact nature of the problem.

Tuesday, December 18, 2007

"Framework" to Help Prevent Foreclosures

We have been attempting to review the Bush Administration's plan to help stop foreclosures. We have not been able to find coherent, consistent documentation, thus we believe there is no plan. There is, however, a public relations effort designed to feign concern.

According to the Jacksonville Business Journal,

"Nationwide, nearly 1.1 million homes entered the foreclosure process so far this year, up 93 percent from the 559,750 foreclosures filed during the same period last year. About 526,936, or more than six out of every 1,000 households in the United States, were repossessed by banks or lenders during the first 11 months of the year, up 41 percent from the same time last year."

HUD notes that the FHA Secure Plan " has helped 33,000 homeowners prevent foreclosure in three months; More than 50,000 to be helped by end of year. " Thus 33,0000/1,100,000 or three percent of homeowners in foreclosure have been helped. That is three out of one hundred. Even under the Administration's most optimistic scenario, only 240,000, or 21.8% of homeowners facing foreclosure are eligible for assistance, meaning that 78.2% are not.

On the basis of these numbers, we judge this effort to be ineffective and cynical, giving false hope to those facing one of the most stressful life events possible.

Recent news articles point to the fact that the "Fed Shrugged as Subprime Crisis Spread." The Fed's mantra in 2001, according to a Governor of the Federal Reserve, speaking at a Board meeting of a faith-based pension fund (a speaker, by the way, we suggested) was "subprime good, predatory bad." This was, in hindsight, wrong. This was, also, no accident.

As we noted on November 9th, in 2000 and 2001, most of the people losing their homes were low to moderate income people of color. Those with new ideas and solutions to the problem were carefully excluded from providing suggestions to help with the problem, due to the same bigotry that gave rise to it.

This, too, was no accident.