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The Fed released most of the data on its special lending facilities yesterday. (We are still waiting for fuller information on the collateral that was posted.) The world did not end. In fact, there is no evidence that the release of the data created any economic or financial disruptions whatsoever.
This is not surprising, since there is no reason that informing the public about what the Fed did with their money should create financial disruptions, however this is exactly what Fed Chairman Ben Bernanke and others argued when they originally objected to the release of this information. The origins of this release are in an audit the Fed bill that had Ron Paul as it original sponsor. He was later joined on the left by Alan Grayson and Bernie Sanders, as the leading proponents of the bill.
The idea that the Fed should be held accountable to the Congress and the public was originally treated as a crank notion pushed by extremists who did not understand modern finance. Well, the data are now public and there has been no implosion. Yet again, it turns out that the cranks were right, and those in positions of authority were either ill-informed or lying.
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Good morning, Dean.
“…those in positions of authority were either ill-informed or lying.”
To be intentionally “uniformed” and comfortable with such precious ignorance, is simply another form of deceit, deliberate incompetence.
They are all lying.
The question is: Why? To what end and to what purpose?
The answeres to those questions might spark more enlightened debate and the changes reasonable people have a right to expect of this country’s economic system.
An economic system, in an ostensible democracy, should (and must) serve to benefit all and not simply the few … else it is a deceit in its entirety.
DW
Thanks Dean!
Bernie Sanders has a statement on the FED data release.
http://www.sanders.senate.gov/newsroom/news/?id=f75fee31-aeba-4a13-b6a7-05adf56ccfe8
Numbers being tossed out based on his first 4 hours of examining the release:
Goldman $600 billion
Morgan Stanley $2 trillion
Citigroup $1.8 trillion
Bear Stearns nearly a trillion
Merrill $1.5 trillion
Deutsche $290 billion
Credit Suisse $287 billion
Notable none banks getting FED lovin included: General Electric, McDonald’s, Caterpillar, Harley Davidson, Toyota, and Verizon.
Just goes to show how much power a left-right alliance can bring to the table. If these (normally warring) factions could get on the same page about a few other issues (like putting these insolvent banks into receivership, for example), we might be able to get a little more work done. Nothing scares the crap out of politicians like a united front. Keeping the various factions scrapping is the Capitol Hill/MSM game. Making it exceedingly difficult for them to do that should be our game.
Pretty damn hard to argue with results.
Mr. Baker: What’s your take on the underlying implications of the FED holding all that (virtually) worthless paper?
this isn’t going to stop until there are riots and sit-ins. sure, as the data comes out there will be blustering sternly worded letters and ‘reform’ measures passed, but basically this is only going to end one of two ways: when the treasury is emptied and the credit of the US utterly ruined and we can’t sell T-Bills to foreign creditors anymore; or when so much of the commonweal has been taken away and destroyed that people have no other option left but uprising. the political class is wholly owned by the uber-rich and they can barely be bothered to pretend that’s not true anymore.
“there will be blustering sternly worded letters and ‘reform’ measures passed”
There might also be some finger-wagging. That’ll teach ‘em.
Well and truly said, chicagodyke.
DW
Trillions. Wow. That’s hubris.
…and very postmodern.
AND THE KILLIN’ GOEZ ON AND ON AND…
Citizen Dean Baker:
Thank you very much for this post but my question about the entire sorry episode of bailin’ out the banks through the Fed as it was done is left unanswered: what is the solvency of the system and what leverage does the government or our “democratic” political system have to get out from under this worthless paper and deflate the enormous hot air baloon that are so many of these mega banks without causing a complete collapse of the entire system? Have the banksters successfully captured the flag and will any real attempt to get our financial house in order create deflation and an economic collapse that will make the 1930′s look like the roarin’ 20′s?
KEEP THE FAITH AND PASS THE AMMUNITION, THE TRUTH BEATS FEAR EVERY TIME!
Copy that. I keep wondering the same thing.
The Federal Reserve Bank is an unconstitutional (See: Article 1, Section 8:1,2 and 5 ), private corporation. The quicker its charter is cancelled by Congress the sooner our republic will be restored. Peace
Not related to the topic!
vote for FDL http://www.3quarksdaily.com/3quarksdaily/2010/11/lewis-lapham-to-judge-2nd-annual-3qd-politics-prize.html
Citizen Ymhotep:
With all due respect, citizen, this idea that the Fed is unconstitutional and can have it’s charter cancelled by Congress is nonsense, and I am sure you know it. The Congress long since has lost any power to decertify or limit the charters of any corporation and as a practical matter, of course, it would be impossible at this moment without causin’ a complete collapse of our financial and social system…which is what the lunatics on the right have been callin for since 1933.
When the commercial paper market locked up, you had major corporations (who were profitable but suddenly illiquid) scrambling to meet payroll. I remember I had just closed a business deal with a Fortune 500 company and the day after their check cleared in my firm’s account (praise Jesus), they froze all payments because they had no money in the bank. It would have been amusing if I personally had driven them into insolvency, but alas it wasn’t THAT big a check.
The Fed keeping GE or Verizon (among others) in business is far more important to the real economy than GS or Citi. Hell, considering that GE is one of our biggest defense contractors and Verizon helps out the NSA in their various good works, President Bush could have issued an executive order for Tsy to take over the commercial paper market under the Defense Production Act (if Paulson was so ignorant of the law he didn’t understand the repercussions of a Lehman bankruptcy filing, there’s no way his team of back of the phonebook lawyers thought to consult with the Pentagon about the DPA).
The Act contains three major sections. The first authorizes the President to require businesses to sign contracts or fulfill orders deemed necessary for national defense. The second authorizes the President to establish mechanisms (such as regulations, orders or agencies) to allocate materials, services and facilities to promote national defense. The third section authorizes the President to control the civilian economy so that scarce and/or critical materials necessary to the national defense effort are available for defense needs.
http://en.wikipedia.org/wiki/Defense_Production_Act
The big thing this did was to pull back the curtain to reveal the little man behind the curtain handing money to his buddies.
Well there is a difference between unconstitutional and crazy. Congress can repeal the Federal Reserve Act at any time since the Fed exercises seigniorage power that Congress delegated to it. No court would say that since Congress slept on its rights, its given away its power to create money forever. Like they say to suckers who try to claim govt land by adverse possession, “the law runs not against the King”.
A better constitutional claim is the one Team Cheney unitary executive lawyers would make, the Fed exercises executive power and as such must be subject to the direct authority (i.e. to hire and fire at will) of the President. The recent PCAOB decision nudged the Supreme Court a little further in that direction.
Neither the President, nor anyone directly responsible to him, nor even an officer whose conduct he may review only for good cause, has full control over the Board. The President is stripped of the power our precedents have preserved, and his ability to execute the laws—by holding his subordinates accountable for their conduct—is impaired. That arrangement is contrary to Article II’s vesting of the executive power in the President. (p. 15)
http://www.supremecourt.gov/opinions/09pdf/08-861.pdf
…what the Fed did with their money…
It’s not their money! It’s ours.
Corporate sodomy………………
Yeah, no real beef with helping out the productive portion of the economy but it does highlight the extent to which the private financial sector is failing in it’s duties.
Excellent post as always, Dean Baker, except possibly for your conclusion: our elites can be ill-informed liars. So it’s not really an “OR” proposition.