Global Economics

[sls.stormyrider]

Someone please tell me this is just a bad dream

http://www.bloomberg.com/news/2012-01-18/summers-under-consideration-to-lead-world-bank-when-zoellick-s-term-ends.html

Obama Considering Summers for World Bank

President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick's term expires later this year, according to two people familiar with the matter.

Summers has expressed his interest in the job to White House officials and has backers inside the administration, including Treasury Secretary Timothy Geithner and the current NEC Director, Gene Sperling, said one of the people. Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.

Lael Brainard, the under secretary of Treasury for international affairs, is compiling a list of potential candidates to replace Zoellick, who was nominated to a five-year term that began in July of 2007 by then-President George W. Bush. By tradition, the U.S. president chooses the leader of the World Bank while the head of the International Monetary Fund is selected by European leaders. The nomination is subject to approval by the World Bank's executive board.

White House press secretary Jay Carney declined to comment. Summers' assistant, Julie Shample, said he was unavailable. Philippe Reines, a spokesman for Clinton, did not respond to a request for comment.

Scrutiny of Record

A nomination of Summers would bring scrutiny of his previous stints in government, both as former President Bill Clinton's Treasury Secretary and Obama's NEC director, as well as his tenure as the president of Harvard University.

"Larry is controversial," said Erskine Bowles, who served as Clinton's chief of staff. "Anything you appoint Larry to, you know there are going to be some people who are going to take shots at him. But you know he's a brilliant economist, which I think everybody recognizes."

Bowles said he had no information on the White House deliberations.

"He performed well in some difficult markets," Bowles said. "I think it's been a passion of his for a long, long time and I am confident that he will do a good job."

Summers also may come under fire for some of his previous work at the bank, as well as the commercial relationships he has forged since leaving the White House in December of 2010.

In 1991, at the World Bank, he signed off on a memo that argued that less-developed countries might benefit from accepting pollution from first world countries.

Return to Harvard

After leaving the Obama administration at the end of 2010, Summers, 57, returned to Harvard University, where he once served as president and is now a professor at the John F. Kennedy School of Government.

Summers earned his doctorate in economics at Harvard in Cambridge, Massachusetts, and at 28 was granted tenure, the youngest age anyone had gained tenure at the time. He spent time on the staff of the White House Council of Economic Advisers in the 1980s before joining the World Bank as chief economist.

He was Clinton's Treasury secretary from 1999 to 2001, after which he became president of Harvard. Summers quit that post in 2006 after a series of battles with the Faculty of Arts and Sciences, which teaches most of the undergraduate courses, and following a controversy over comments he made at a conference, in which he suggested women lacked an aptitude for science.

Period of Upheaval

Jared Bernstein, former chief economist for Vice President Joe Biden, said Summers would be a good choice for the World Bank.

"Larry has a deep understanding of global economics and is particularly tuned in to this moment in time, with all the upheaval in the system," Bernstein said.

Under a long-standing unwritten agreement, the IMF has always been led by a European while the World Bank has been headed by an American. The U.S. in June backed then-French Finance Minister Christine Lagarde to take the head of the IMF.

Emerging market leaders such as Brazilian Finance Minister Guido Mantega have questioned the division of leadership posts at the two institutions, saying the choice should be made on the basis of merit, not nationality.

The World Bank, which was established to rebuild Europe after World War II, offers financial and technical assistance to countries. Under Zoellick, shareholders approved a capital increase providing the institution with $5.1 billion in cash and enhancing China's clout at the lender.

follow up
http://www.boston.com/Boston/metrodesk/2012/03/choice-jim-kim-lead-world-bank-draws-praise-but-unsettles-dartmouth/aqv5KpkmSox82rCLkiubNK/index.html?p1=News_links

Choice of Jim Kim to lead World Bank draws praise but unsettles Dartmouth By Mary Carmichael, Globe Staff


President Obama's nomination of Dartmouth College President Jim Kim to lead the World Bank rippled throughout political and higher education circles today, leaving many surprised though approving of the choice.

Political leaders had widespread praise for the nomination, noting Kim's sterling public health resume and his years of experience at international agencies, including the World Health Organization.

Timothy F. Geithner, the Treasury secretary and a Dartmouth alumnus, praised Dr. Kim's lifetime commitment and passion for development.

"In a world with so much potential to improve living standards, we have a unique opportunity to harness that passion and experience at the helm of the World Bank," Geithner said in a statement.

But the news left many at Dartmouth feeling unsettled. Kim, 52, has been president for only two years and nine months, and if he leaves his term would be one of the shortest ever for an Ivy League president.

Many Dartmouth faculty members said they did not expect Kim to stay long.

"It's not clear whether he and Dartmouth were a great match," said David Blanchflower, a professor of economics. "The scuttlebutt has been that he was using the school as a stepping stone to something bigger and greater. Maybe this is better for both places."

Kim, born in South Korea but raised largely in the United States, has impeccable credentials. They include a MacArthur "genius" grant, an MD and PhD degrees from Harvard, and a stint directing the World Health Organization's HIV/AIDS program.

He is "willing to go out on a limb and take important and calculated risks," said Ophelia Dahl, who along with Kim was one of five co-founders of the international global health organization Partners in Health. "The qualities he brought to Partners in Health that will be translatable in this job are a real boldness of vision and a tenacity. He sways and woos people and brings unlikely partners together. That will be important, because some of these institutions are quite staid in the way they do things."

During his time at Partners in Health, Kim frequently spoke of how his mother, a neo-Confucian philosopher, had shaped his tendency "to question assumptions and lift barriers," Dahl said. "If someone says something isn't possible, he says, 'Tell me why?' And then he finds out more."

Kim's nomination itself represents a lifting of barriers, given that he is the first Asian-American tapped to lead the World Bank.

Among other candidates reportedly considered by the White House were former White House adviser and Harvard president Larry Summers, UN ambassador Susan Rice, and Pepsi chief executive Indra Nooyi. The prominent economist Jeffrey Sachs, of Columbia University, also became a potential nominee after he broke with tradition and openly lobbied for the job.

Blanchflower said Kim's nomination was actually "not a surprise" in some respects, given his well-developed connections with powerful national and global leaders and his recent visit to the White House for a state dinner honoring the president of South Korea.

"Clearly the White House is going to push the line – and I sort of share this – that politically this is an astute appointment, since he's the first nominee who's actually got development experience," said Blanchflower.

Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, echoed that sentiment, describing Kim in a statement as "the first qualified [World Bank] president in 68 years."

The bank -- created in 1944 toward the end of World War II to finance post-war reconstruction -- is a multinational institution headquartered in Washington that gives financial and technical assistance to developing countries. In 2011, its investments in those developing countries totaled $57.4 billion, a spokesman said.

Kim's appointment at Dartmouth, in Hanover, N.H., was in many ways more surprising because he had no experience as a college administrator.

During a recent interview, gazing at a group portrait of the 16 previous Dartmouth presidents, Kim joked that he differed from his predecessors "in so many ways."

He did share their major challenge: bringing a tradition-bound campus into line with modern norms.

Kim immediately put his public health credentials to work on that front, establishing a 31-campus collective to study the longstanding problem of binge drinking – a move that earned him nationwide praise.

But in the last two months, student-life issues have severely tested his leadership skills.

In January, a student went public with graphic accusations of alcohol-soaked hazing in a popular fraternity at Dartmouth. Professors were so horrified by the allegations that within weeks a fourth of the faculty had called on Kim to dissolve single-sex fraternities altogether -- a proposal that constitutes the third rail of academic politics at Dartmouth.

Kim rejected the idea, telling the Globe earlier this month that "the minute you think as an administrator that by fiat you can institute culture change, the only thing you'll get is mocking and ridicule" -- a result he added would be "well-deserved."

He added: "I can't lead on everything."

Those comments left some faculty members cold.

English professor Ivy Schweitzer said they showed a "severe failure of leadership on addressing the deleterious effects of the Greek system," though she said Kim has shown leadership on other issues at Dartmouth.

Some faculty have also criticized Kim for spending little time on campus.

Many university presidents travel frequently, typically in the service of fund-raising, and from the outset Kim made clear that a large part of his job would be restoring the university's finances to health after they took a hit in the economic crisis.

But his absence was sorely felt, said Michael Bronski, a professor of women's and gender studies.

"There were often many, many times when faculty and students wondered if Kim was on campus and he was not -- as opposed to [previous president James Wright], who made it a point to be seen almost every day walking around campus," he said. "Many people felt that Jim Kim was conspicuously absent a great deal of time."

Kim sent out a campus-wide letter today saying he will stay on as Dartmouth president while the confirmation process plays out, despite the fact that he is expected to embark on a world tour to raise support for his nomination. "If I am elected, our board will take appropriate steps to ensure continuity of leadership and determine the timing of a search," it read. "For now, I remain president of Dartmouth."

A final decision on the World Bank job will be made next month.

College presidential searches typically take much longer than that, lasting anywhere from six to 18 months, and the effort to replace Kim could be complicated by the fact that several other prestigious university presidencies are currently open.

[runawayjimbo]

Yeah, I saw that. I don't know much about him but he seems like just another establishment guy who's going to go along with the bubble inflating monetary scam. Still, Obama didn't pick Summers so in that respect it's a win.

Also, this Corzine bit is getting funnier by the day too. Now we can add perjury to embezzlement and fraud. I'd love to see them nail him to the wall but of course he's in the club (several of them actually: Senator, Gov., banker, all-around dooshbag) so I'm sure he'll walk. Or, more likely, someone will get paid off to take the fall for him.

http://www.bloomberg.com/news/2012-03-23/mf-global-s-corzine-ordered-funds-moved-to-jpmorgan-memo-says.html

MF Global's Corzine Ordered Funds Moved to JPMorgan, Memo Says

Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)'s chief executive officer, gave "direct instructions" to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage's JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.

Edith O'Brien, a treasurer for the firm, said in an e-mail sent the afternoon of Oct. 28, three days before the company collapsed, that the transfer of the funds was "Per JC's direct instructions," according to a copy of a memo drafted by congressional investigators and obtained by Bloomberg News.

O'Brien's internal e-mail came as the New York-based broker found intraday credit lines limited by JPMorgan, the firm's clearing bank as well as one of its custodian banks for segregated customer funds, according to the memo, which was prepared for a March 28 House Financial Services subcommittee hearing on the firm's collapse. O'Brien is scheduled to testify after being subpoenaed this week.

"Over the course of that week, MF Global (MFGLQ)'s financial position deteriorated, but the firm represented to its regulators and self-regulatory organizations that its customers' segregated funds were safe," said the memo, written by Financial Services Committee staff and sent to lawmakers.

Vinay Mahajan, global treasurer of MF Global Holdings, wrote an e-mail on Oct. 28 that said JPMorgan was "holding up vital business in the U.S. as a result" of the overdrawn account, which had to be "fully funded ASAP," according to the memo.

O'Brien Letter

Barry Zubrow, JPMorgan's chief risk officer, called Corzine to seek assurances that the funds belonged to MF Global and not customers. JPMorgan drafted a letter to be signed by O'Brien to ensure that MF Global was complying with rules requiring customers' collateral to be segregated. The letter was never returned to JPMorgan, the memo said.

The money transferred came from a segregated customer account, according to congressional investigators. Segregated accounts can include customer money and excess company funds.

Corzine testified that he never intended a misuse of customer funds at MF Global, and that he doesn't know where client funds went.

"I did not instruct anyone to lend customer funds to anyone," Corzine told lawmakers in December.

Steven Goldberg, a spokesman for Corzine, declined immediate comment.

$1.6-Billion Shortfall

The bankruptcy trustee overseeing the liquidation of the company's brokerage subsidiary has estimated a $1.6-billion shortfall between customer claims and assets available.

Lawmakers and investigators from the Commodity Futures Trading Commission, Securities and Exchange Commission and Department of Justice have been reviewing events leading up to MF Global's bankruptcy filing. Executives including Corzine, a Democrat who served in the Senate before he was elected governor of New Jersey, gave testimony on the collapse at three congressional hearings last year.

Representative Randy Neugebauer, a Texas Republican, will hold the third in a series of hearings into the firm's failure. Neugebauer, the chairman of the Financial Services oversight and investigations subcommittee, will release a final report on his investigation into the firm's failure.

MF Global and its brokerage, MF Global Inc., sought Chapter 11 bankruptcy after a $6.3 billion bet on the bonds of some of Europe's most indebted nations prompted regulator concerns and a credit rating downgrade. Corzine quit MF Global Nov. 4.

O'Brien, who was subpoenaed by lawmakers this week to testify at the hearing on the final week before the New York- based futures brokerage's failure, was identified by Corzine as someone with knowledge of a transfer of funds from customer accounts before the firm sought bankruptcy protection Oct. 31.

CME Audit

Reid H. Weingarten, O'Brien's lawyer, did not immediately respond to a phone call and e-mail seeking comment.

The memo's account of the e-mail exchanges aligns with what Terrence Duffy, the executive chairman at CME Group Inc. (CME), told lawmakers during a December congressional hearing. Auditors at CME, which had authority to oversee MF Global, learned from an employee of the brokerage that Corzine knew about the loans involving a European affiliate, Duffy told committee members.

O'Brien is scheduled to appear before lawmakers with Christine Serwinski and Laurie Ferber, two other MF Global executives named by Corzine as being involved in the transaction, according to the memo. Henri Steenkamp, the firm's chief financial officer, is also scheduled to testify, as is a representative from JPMorgan who has not yet been identified.

[runawayjimbo]

If you thought you hated banks before, check this shit out. It's an infographic and corresponding commentary regarding the derivative exposure of the 9 largest banks, which combined equals $229 trillion or 3x the GDP of the world. In other words, we are so screwed.

http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html

Here's what the derivative exposure at Hicks' favorite bank, Goldman Sachs, looks like. Those stacks of money represent $2T (each) in $100 bills which would amount to a tower of money 930 ft high. Oh, and there's 20 of them.

[Hicks]

Hey Wall Street, kick your gambling habit and start investing in our country's future.

k thnx bai.

[runawayjimbo]

Hey Wall Street, kick your gambling habit and start investing in our country's future.

k thnx bai.

As long as they have the explicit backing of the Federal Reserve and the US Gov't, that will never happen. This is the inherent problem with bailouts: once you prove to the assholes they are untouchable they will continue exploiting you until you're left with nothing.

[gah]

Hey Wall Street, kick your gambling habit and start investing in our country's future. self in the nuts, get fucked, and die.

k thnx bai.

fyp.

[Hicks]

Hey Wall Street, kick your gambling habit and start investing in our country's future.

k thnx bai.

As long as they have the explicit backing of the Federal Reserve and the US Gov't, that will never happen. This is the inherent problem with bailouts: once you prove to the assholes they are untouchable they will continue exploiting you until you're left with nothing.

On that we can agree, start making these douchebags accountable for their shitty decisions regardless of the supposed economic fallout which may or may not happen.

[VDB]

If you thought you hated banks before, check this shit out. It's an infographic and corresponding commentary regarding the derivative exposure of the 9 largest banks, which combined equals $229 trillion or 3x the GDP of the world. In other words, we are so screwed.

http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html

Well that article was thoroughly depressing and scary. Like this excerpt:

Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don't know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system...

Now, this reminds me of this guy at my gym, a real pompous blowhard who's always eager to air his opinions all over the place whether you want to hear them or not. One of his favorite pastimes is blaming Obama for everything. You name it, he can tie it back to The Great Satan Obama. He believes that Obama (and all Democrats for that matter) is deliberately trying to devalue the dollar, destroy the world economy, and collapse the government. (Supposedly this is all so that Obama can hang on to power, which I guess could prove hard to do if you've collapsed the government.) Anyway, this guy sounds like he watches way too much Glenn Beck. Big fan of all those right-wing conspiracy theories, especially if they involve George Soros or Saul Alinksy.

So my point is, here we have a rather chilling description of how fucked up the financial system is, how it could possibly go down at any moment and take the entire world economy with it, and how it's not so much of a stretch to say that greedy bankers and corrupt/inept government officials would deserve a big old slice of the blame, and this guy at my gym will be convinced that it all happened because Obama deliberately orchestrated the complete ruin of civilization as we know it solely for the sake of his own personal socialist-authoritarian designs.

[runawayjimbo]

Hey Wall Street, kick your gambling habit and start investing in our country's future. 

k thnx bai.

As long as they have the explicit backing of the Federal Reserve and the US Gov't, that will never happen. This is the inherent problem with bailouts: once you prove to the assholes they are untouchable they will continue exploiting you until you're left with nothing.

On that we can agree, start making these douchebags accountable for their shitty decisions regardless of the supposed economic fallout which may or may not happen.

Yep. It's this moral hazard component of bailouts that is far more difficult to quantify but also far more dangerous to the very system that (albeit well intiontioned) people are trying to "save". BTW, this applies to the auto bailouts too (but I suspect we may part ways there :wink:).

Well that article was thoroughly depressing and scary.

 :hereitisyousentimentalbastard

Oh yeah, I meant to mention that. And if you think that's scary, don't go anywhere near this (somewhat technical) primer on shadow banking.

The funniest part is that the banks justify these unfathomable derivative exposures by saying "Well we hedge virtually the entire position so our net exposure is closer to $0." How the hell do the regulators let them get away with this shit? (hint: because they work for the banks)

As for dude at the gym, he's the kind of moron that gives people like me a bad name. He bastardizes concepts that he has no clue about and then tries to spin them against his political opponents. The good news is that a tool like that will never understand things enough to actually have any influence over anyone else. He'll just go on in his sheltered little world convinced of his own righteousness trying to pin every problem in the world on somebody else. What a dick.

If I never hear Saul Alinsky's name again it'll be too soon.

[Hicks]

So my point is, here we have a rather chilling description of how fucked up the financial system is, how it could possibly go down at any moment and take the entire world economy with it, and how it's not so much of a stretch to say that greedy bankers and corrupt/inept government officials would deserve a big old slice of the blame, and this guy at my gym will be convinced that it all happened because Obama deliberately orchestrated the complete ruin of civilization as we know it solely for the sake of his own personal socialist-authoritarian designs.

It's guys like that almost make me wish that Obama will lose so when things really go in the shitter they'll have no one but themselves to blame.

But then I remember that they are so delusional that it will still be Obama's fault, or Clinton's for that matter.   

As for the auto bailouts at least some working class people in the factories got to keep their jobs, so yeah that makes it different for me.  Not to mention that at least they contribute to our GDP rather than making money off of basically nothing. 

[runawayjimbo]

As for the auto bailouts at least some working class people in the factories got to keep their jobs, so yeah that makes it different for me.  Not to mention that at least they contribute to our GDP rather than making money off of basically nothing.

No doubt it's a more difficult leap to make, but the principles are the same, right? A poorly managed company gets handed a wad of taxpayer cash to (temporarily) stave off bankruptcy and in the process is rewarded for their bad decisions. Meanwhile, competitors who didn't engage in such horrendous lapses in judgment/leadership are penalized for refusing to engage in the same self-destructive practices. And the shitty companies are validated that they don't have to worry about righting the ship because they know they will be thrown a lifeline the next time they are in trouble.

GM is clearly doing a better job than the bankers in giving the appearance that they give a shit, but how long will it be before they are in need of some more support? When/how do you cut them off? And as far as middle class goes, far more working people would have been affected in terms of jobs, retirement funds, etc. by a financial meltdown than if GM was allowed to fail. Add to that the fact that it was, IMO, such obvious pandering to the UAW to placate one of the most important factions of the Democratic base and it is nearly as enraging to me as the financial bailout. So, while I hear you that it's different (and I know many people who would agree with you), I think you're being a little inconsistent in wanting to nail the bankers to the wall while giving GM a pass.

[runawayjimbo]

A phenomenal look on why the Fed's indefinite zero interest rate policy is hampering, not aiding, the recovery. Selected highlights below but the whole thing, complete with an extended Simpsons allegory, really is worth a read.

http://www.huffingtonpost.com/david-einhorn/fed-interest-rates_b_1472509.html

The Fed's Jelly Donut Policy

A Jelly Donut is a yummy mid-afternoon energy boost.

Two Jelly Donuts are an indulgent breakfast.

Three Jelly Donuts may induce a tummy ache.

Six Jelly Donuts -- that's an eating disorder.

Twelve Jelly Donuts is fraternity pledge hazing.

My point is that you can have too much of a good thing and overdoses are destructive. Chairman Bernanke is presently force-feeding us what seems like the 36th Jelly Donut of easy money and wondering why it isn't giving us energy or making us feel better. Instead of a robust recovery, the economy continues to be sluggish. Last year, when asked why his measures weren't working, he suggested it was "bad luck."

I don't think luck has anything to do with it. The blame lies in his misunderstanding of human nature. The textbooks presume that easier money will always result in a stronger economy, but that's a bad assumption.

...

Everyone agrees that low interest rates are a good way to stimulate a stalled economy. The Fed takes this logic a step further. It believes that if low interest rates are good, then zero-interest rates must be even better. As a brief emergency measure, such drastic behavior is reasonable and can even be necessary. In 2008, Chairman Bernanke had near unanimous support for his decision to drop rates to near zero. At the peak of the crisis, it made sense. But that was four long years and many jelly donuts ago. In the 2012 economy, a zero rate policy not only adds no benefit, it's actually harmful.

...

Zero-rate policy makes traditional riskless investments, such as CDs and Money Markets, unattractive to savers. Rather than view this as an unfortunate consequence of policy, Chairman Bernanke sees this as a benefit. He subscribes to the philosophy that rising stock prices will contribute to a 'virtuous cycle' of economic growth. He's hoping that those approaching retirement, and even the retired, will abandon the idea of making safe returns, and put their savings into equities instead.

...


Some will argue that if the Fed raises rates, it will cause deflation. Just the word 'deflation' makes Chairman Bernanke break into a cold sweat and reach for the Jelly Donuts. Fear of deflation should depend on what, exactly, is deflating.

The sort of deflation that puts pressure on wages is a clear negative, as it leads to a lower standard of living. On the other hand, lower prices caused by scientific progress and higher efficiency are unambiguously positive.

Apple's newest iPhone has twice the memory, a better camera, and other small improvements and carries the same price as the prior version. Government statisticians see an improved product at the same price and count it as a price cut, or deflation.

There is no reason for the Fed to conduct monetary policy to offset advances that improve our standard of living, in particular when it results in driving up the price of something else, like oil.

Yet, while the Fed seems compelled to respond to innovation as if it were a bad thing, it throws up its hands when confronted with rising oil prices. Unfortunately, when the Fed sets policy with a goal of driving prices higher, it doesn't get to choose which prices are most affected.

...

The household sector balance sheet has a negative duration gap, meaning that it holds proportionately more short-term floating assets like bank deposits and money markets compared to its liabilities, which are disproportionately long-term fixed obligations including mortgages.

Raising rates would directly transmit income to families, enabling them to spend more freely and boost the economy -- a stimulus so to speak.

Unfortunately, it appears that Chairman Bernanke is more focused on financial institution balance sheets. While the Fed recently declared most of the largest banks to be healthy, and approved programs to reduce bank capital, continuing with zero rates several years into the recovery reveals a focus to support banks rather than households.

Zero rates allow the banks to carry non-performing and other questionable assets indefinitely. When the cost of money is nearly zero, dead beat borrowers can appear current by making nominal payments. When banks can finance their non-performers for free, they have little incentive to work them out. This lengthening of the work-out process supports banking profits and defers needed pain for some underwater borrowers. But, it also prevents the markets -- particularly the real estate market -- from clearing. This in turn delays the economic recovery and postpones job creation.

Income inequality remains a headline issue. Democrats argue for higher taxes for top earners, and increased transfer payments to those on the other end of the spectrum. Republicans remain opposed to any redistributive policies. Ending the Jelly Donut monetary policy would do more to alleviate income inequality than any of the widely debated changes in the tax code.

For the super wealthy, zero rates supported by a Bernanke put on the bond market encourage outsized income through leveraged speculation. For everyone else, zero rates reduce the standard of living because greater food and energy costs soak up income. Ironically, it is some Republicans that are beginning to question the Jelly Donut monetary policy, while Democrats generally support it. Democrats who sincerely care about income inequality should speak out against the Fed's policies.

[VDB]

Thanks for that fright and frustration to start my weekend Jimbo.

Does anyone out there actually have anything good to say about Ben Bernanke? And if not, how is this guy still allowed to do what he's doing?

If it's true that he cares more about banks than households, does Obama know about this? Does he agree with him? (Obama's public persona would suggest not, at least.) If not, is Obama just oblivious to what's going on? Has he been hoodwinked? Would a tycoon like Romney be any more sympathetic to "Main Street"? What the fuck is happening to our economy??

[runawayjimbo]

Thanks for that fright and frustration to start my weekend Jimbo.

Does anyone out there actually have anything good to say about Ben Bernanke? And if not, how is this guy still allowed to do what he's doing?

If it's true that he cares more about banks than households, does Obama know about this? Does he agree with him? (Obama's public persona would suggest not, at least.) If not, is Obama just oblivious to what's going on? Has he been hoodwinked? Would a tycoon like Romney be any more sympathetic to "Main Street"? What the fuck is happening to our economy??

Well, if you want to hear the other side, you can read this puff piece from the April edition of The Atlantic. I wasn't able to make it through the entire 8,000+ word lovefest because it just regurgitates the points that Einhorn rebuts in the original article: Bernanke did what he had to to avoid the next depression, he has no other option but to continue the unprecedented intervention to keep us from falling off a cliff, anyone who questions the legitimacy of the Fed is a crackpot. It's a shame because I really liked Roger Lowenstein who wrote one of my favorite financial books, When Genius Failed about the collapse of the original "we're too smart for our own good" club, Long Term Capital Management. But, to answer your question, here's someone saying something good about him.

The point about caring more about banks isn't that it's an evil scheme for the benefit of the banks (although some would argue it's intentional), it's that keeping rates so low for so long (and promising to do so at least until 2014) ultimately benefits the banks even though it is ostensibly for the benefit of Main St. But when you look at the results, isn't it obvious who is benefitting from the easy money policies? Banks have been posting record profits. Bonuses are basically back to pre-crisis levels. The five largest banks are BIGGER now than they were before Lehman failed. And (this one's my favorite), there was a stretch of a couple quarters during '10-'11 where Goldman and JPMorgan made a trading profit every single day. Seriously, not one off day that the firms finished in the red no matter what the overall market was doing (which was mostly, but not always, going up). Meanwhile we have the longest sustained period of unemployment over 8% in history (a threshold the administration promised would not even be reached if the stimulus was passed, BTW). Wages are stagnant. Since 2009, people are more likely to give up looking for work than finding a job. And more of people's income is being eaten up by rising food and energy prices. So to me, it doesn't matter what the intentions or motivations are, when you look at the results, there is little question that the Fed's easy money policies are benefitting the banks (which really shouldn't come as that much of a surprise since the banks are the Fed's customers; Jamie Dimon sits on the NY Fed's board for fucks sake). Not understanding and focusing on this incestuous relationship was one of OWS' biggest failings, IMO.

And while the right hates Bernanke because he is working for a Democrat, they'd be extolling his genius if McCain had won and they were using the newly printed money to finance their wars in Iran. But it's the criticisms from the left from people like Krugman and Brad DeLong who are bitching that he should be even more accommodating with monetary policy that get me going. They simply have no other answer on how to respond to any downturn, mild or severe, but to reduce interest rates and print more money. Krugman is now actively calling for raising the Fed's inflation target from 2% to 4%, as if inflation is something policy makers can turn off like a faucet before it gets out of control. There is now some momentum building on the left for adding a third pillar to the Fed's mandate for nominal GDP targeting, which is just a blank check to print as much money as possible to make GDP hit a level that an unelected group of people deem acceptable. To Bernanke's credit he's stood up to these calls (Krugman and Bernanke, old Princeton buddies, actually have a mini-feud going on) but who knows for how long.

All the Republicans made a big show during the debates about how they'd fire Bernanke, but (shocker!) that was really just campaign rhetoric since I'm fairly certain the President can't fire the Fed Chairman. What they really meant is they wouldn't nominate him for a third term when his current one ends in January 2014. Clearly Romney wouldn't nominate someone more sympathetic to Main St. But the important point is that even if Obama wins and nominates someone new (which he most likely will, possibly at Bernanke's request), the person he nominates will take the exact same approach as Romney's nominee. Sure, Obama's guy will say different things ("we need to keep interest rates at zero for the foreseeable future because if we don't people will lose their homes"), but, as Einhorn points out, the outcomes are exactly the same. That's the most important thing to remember. No one would explicitly come out and say "Fuck you little guys, this one's for my homies at B-to-the-O-to-the-muthafuckin-A!" (well, maybe, Romney's guy would). But the results would be such that when you assume the Fed can solve all the world's economic ills by reducing interest rates (although they can't do that since the rate is 0%) or by expanding it's balance sheet (i.e., printing more money), you are inherently endorsing a policy that helps the people at the top at the expense of people who just want to make a decent and safe return because they don't have access to a trading desk of arrogant coked up dooshbags.

Anyway, the best thing to me is that words like Einhorn's are even making it into the mainstream and being published at places like HuffPo. If you take a look at the comments, you see there's still a long way to go (people just accuse him of being a right wing hack and shouting off the same defenses you would see in the Atlantic's article). But the fact that more people are beginning to question these policies gives my free market loving heart some hope that we could be closing out the chapter where the Fed is seen as the only path to prosperity and the only bulwark from economic collapse.

/rant

PS - this Atlantic cover makes me puke in my mouth:

[VDB]

Tell us how you really feel, Jimbo!

So yesterday, I'm out at this festival getting saucy and, newly armed with some Einhorn knowledge, I went on a mini-rant about the Fed to this friend of mine and her coworker who I'd not met before... they both kind of looked at me like "what is this idiot blathering about?" Good times.