The Fed is corrupt

by Russ Roberts on November 28, 2011

in Crony Capitalism

Frightening. (HT: Drudge) Time for an overhaul.

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{ 187 comments }

Jon Murphy November 28, 2011 at 10:23 pm

Shameful. Just shameful.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:05 am

What is shameful is what Bush and your libertarian friend Greenspan did to the economy but you will never lay blame where it belongs.

Paul Andrews November 29, 2011 at 5:32 am

Greenspan was the central planner’s central planner, and Bush was the worst kind of Straussian neocon – neither is a friend to true libertarians.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:44 am

they did exactly what you pray for: REDUCED REGULATION

how come it didn’t work, you A!! h!!!

dsylexic November 29, 2011 at 8:11 am

how is the EXISTENCE of the FED a proof of deregulation?
remove the fed -that would be deregulation.
YOU regulator lovers are responsible for the monster called the fed.

Sam Grove November 29, 2011 at 2:50 pm

REDUCED REGULATION

I don’t think those words mean what you think they mean.
The regulatory budget increased significantly under Bush.
Changing a few rules in a regulatory regime consisting of MANY thousands of rules IS NOT deregulation.

Josh S November 29, 2011 at 3:27 pm

Sam, you don’t understand how it works. Here’s how leftist logic works:

a) Republicans believe in free markets.
b) Therefore, all policies implemented by Republicans are free-market policies.
c) Therefore, all disasters which Republicans have any hand in are caused by the free market.

Once you understand how they think, it all makes sense.

Paul Andrews November 29, 2011 at 10:45 pm

“they did exactly what you pray for: REDUCED REGULATION”

Libertarianism is about determining a powerful combination of minimal regulations.

Political and legal regulations should be structured so as to prevent corporate capture of government. If this can be achieved, then a large regulatory structure that tries to temper parasitic corporate behavior is not needed.

The current situation is one of complete corporate capture. It is natural for taxpayers to seek regulation under such circumstances, and it may seem justified n the surface. Keep in mind however that those in control will shape the regulations to suit themselves, while giving the appearance of upholding the popular will.

morganovich November 29, 2011 at 10:30 am

nikolai-

bush? try clinton. it was he and greenspan that changed the CPI calculation freeing them up for preposterously loose monetary policy.

Clinton was the one who planted the seeds of the CRA that made the housing mess so nasty. greenspan has piles of culpability as well and was the architect of preposterous bubble after bubble, but clinton is the one who gave him the air cover, not bush.

bush tried to rein in freddy and fannie before it was too late and got shot down by pelosi, reid, frank, and dodd.

just what is it you think bush did apart from being unable to stop the subsidized housing machine clinton put in palce?

if i set fire to your house and you are unable to put it out, are you saying we should blame you for the damage?

John T. Kennedy November 29, 2011 at 1:38 pm

“ust what is it you think bush did apart from being unable to stop the subsidized housing machine clinton put in place?”

Uh, the particular travesty noted in this article is Bush’s TARP.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 10:10 pm

morgtanovich:

having seen the Lesser Depression first hand, it was 99.99% fraud, pure and simple.

1) borrowers lying to get loans

2) investment bankers lying to sell the loans when bundled into securities.

Munger explains that the worse crime is fraud or embezzlement like this. Everyone feels twice as rich until they find out the money has been stolen.

muirge0 November 29, 2011 at 11:54 am

Thank God we’ve got you, Nikolai, to explain this to us, and to lay blame where blame belongs!

Got your back. Don’t worry.

SmoledMan November 29, 2011 at 3:56 pm

Hey “Nikolai”, go back to your gulag.

Silas Barta November 29, 2011 at 11:39 am

Doubly shameful that most of the high-readership bloggers (Yglesias, Krugman, Drum, several on The Atlantic) have condescendingly dismissed this as “nothing to see here [except we need more social spending]“.

muirgeo November 29, 2011 at 7:03 pm

Jon,

Shameful??? I bought this up over a month ago and you told me it was bogus.

Mogden November 28, 2011 at 10:26 pm

Come now, are you one of those economist crazies that Hubbard warned us about?

Methinks1776 November 28, 2011 at 10:35 pm

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma.

When did stigma go out of style?

Oh, that’s right! Around the time capitalism went out of style and we were all led to believe that government regulation can do a better job of separating the wheat from the chaff than our own judgement.

vikingvista November 29, 2011 at 12:36 am

“revealing borrower details would create a stigma”

No, would reveal the truth. Thank you, public servants, for protecting your bosses from the truth. Please, don’t stop there. There are all kinds of things I shouldn’t know about lest I make a rational decision about them.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:04 am

Methings1776

You lack the judgment to know how to wipe your A and your surely lack the judgment to second guess Bernanke, who performed tremendously

Ubiquitous November 29, 2011 at 8:06 am

Alas, shit-for-brains, one scores points only for results, not for performance. Bernanke’s policies have been a failure.

No wonder you admire him.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:13 am

Bernanke’s policies have been a failure.

and how would that be so?

Greg Webb November 29, 2011 at 8:35 am

“Bernanke’s policies have been a failure.”

Let’s see…Bernanke’s policies have led to high unemployment, low economic growth, monetizing the national debt and excessive monetary expansion to create conditions that will lead to inflation, etc. That is failure by anybody’s standards.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:44 am

Greg Webb

let me get this

had the Fed not made these loans, you contend:

employment would be higher

federal debt would be less

economic growth would be faster

the theory seems to be less money = more of everything

if this were true, why don’t we just burn or melt all our money and, for good measure, make it illegal to borrow as well

Ubiquitous November 29, 2011 at 12:00 pm

Because the economy — like you, ass-hat — still sucks. Ergo, Bernanke’s performance has been brilliant but his results, like your posts, have been failures. No A’s in this class for effort. You pass only for results.

And if you can’t prove that his policies have succeeded, then you can go F!!! yourself.

Greg Webb November 29, 2011 at 10:41 pm

Nikki Luzha said, “let me get this. had the Fed not made these loans, you contend:employment would be higher federal debt would be less economic growth would be faster the theory seems to be less money = more of everything if %this were true, why don’t we just burn or melt all our money and, for good measure, make it illegal to borrow as well

That’s what happens when you give a few facts to a Luzha – you get an incoherent conclusion. The economy, like the environment, is not as fragile as you think. The only thing that can damage the economy long term are interventionist policies of the government.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 10:15 pm

Ubiquitous

here is a link to a chart that explains how good the job was by the Fed.

It is colored so, while you won’t understand it or the text, you will keep your mind occupied

http://blogs.reuters.com/felix-salmon/2011/11/28/chart-of-the-day-morgan-stanley-bailout-edition/

morganovich November 29, 2011 at 10:39 am

nikolai-

methinks craps things smarter than you are, so i’d let that one go if i were you.

bernanke is just another bubble baby greenspan acolyte.

while i take no issue with the TAF lending, as lender of last resort id the legitimate role of any CB is a fractional reserve banking system, claiming that helicopter ben performed well is absurd.

he’s running the lowest interest rates ever, driving massive inclation that the BLS has defined out of existence, massively swelling the fed balance sheet to terrifying proportions from which there can be no climb down, and putting our entire economic system and currency at unspeakable risk while holding up the actual recovery by preventing the asset markets from behaving as they should.

bubbles are not prosperity.

greenspan, after ignoring the .com bubble, drove it to absurd heights, then cleaned it up by inflating a new, much more pernicious bubble in real estate, aided and abetted by populist politicians, the CRA, and F+F. when he saw the end of the road and knew the blow up was coming, we ran for the hills and we got helicopter ben, who then took the housing bubble and turned it into something even more difficult to deal with: a federal debt bubble and a bubble in fed balances.

this is the most reckless behavior of a major CB head since weimar.

TAF is one thing, but claiming that bernanke performed “tremendously” is so ignorant that no one with even a modicum of understanding about asset bubbles would even try to defend such a statement.

Josh S November 29, 2011 at 3:28 pm

Wait, I thought you were against bailouts and Bush appointees. Now I am confused.

Adam Smith November 29, 2011 at 8:08 am

When regulators capture a market and monopolize the separation of wheat from chaff, you can at least appreciate that the market for scythes, numchuks, and other separators will flourish. Progress is inevitable.

Why quibble over the rise of social power at the expense of individual power? Power is on the rise. America is known as a Superpower, not a Supercreator, nor a Supertrader.

http://glyfix.com/soa/lyrics/anacreon_theme.html

It’s hard not to laugh when these misty eyed American zombies stand in solemn attention during a performance of the plagarized old drinking club song, they think is their national anthem. Cheers.

Greg Webb November 28, 2011 at 10:53 pm

Holy shit! $7.7 Trillion!

Okay. Do any of you big-government advocates want to argue that you are anything but useful idiots to corrupt government officials and their political cronies now?!

muirge0 November 29, 2011 at 12:05 am

LOL!

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:03 am

Greg Webb

What, pray tell, is corrupt about the Fed doing its job, filling its role as lender of last resort?

These loans made it possible for our Banks to in turn lend billions if not trillions to their customers.

It is called banking. You seem to have some problem with people borrowing and lending money

Greg Webb November 29, 2011 at 8:18 am

I have a problem with political corruption and cronyism. By supporting such, you reveal that you are merely a useful idiot.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:45 am

Daniel Kuehn says that you are a troll

Greg Webb November 29, 2011 at 10:43 pm

Why don’t you let Daniel Kuehn speak for himself.

anthonyl November 29, 2011 at 9:18 am

I’m not sure about the loaning out to their customers half of your argument. That’s a good thing as we wouldnt want ~8b dumped into the markets all at once.

morganovich November 29, 2011 at 10:50 am

actually greg, nikolai has the right of this.

the TAF loans are PRECISELY what a CB is for. any fractional reserve bank can become illiquid, even if they never make a single bad loan.

i think you are confusing 2 issues. TAF lending is one thing. ruinous interest rate policy and massive monetization of federal debt while pretending their is no inflation because the BLS defined it out of existence in 1992 is another.

if you want to rail at the fed, there are excellent reasons to do so. if you think asset backed lending under TAF is an issue, consider the non asset backed lending to the federal government.

also understand that that 7.7tn number is an accounting fiction. most of these loans are VERY short duration like overnight.

if lend you $100 on monday and you pay it back tuesday, then i lend you $100 tuesday and you pay it back wednesday, that’s reall a $100 loan for 2 days, not $200 in lending.

the way that number is aggregated results in outlandish double counting due to the short time-frames.

this is not true of the trillions in federal debt on the fed sheet that is NOT being driven by any rational profit or systemic concern, but rather underlies that bernanke is a lap dog of the federal government and has tossed any pretense of fed independence out the window.

what we need is a fully independent CB with one specific mandate (keeping inflation low) like the old bundesbank. adding in “growth” as a mandate allows for this absurd bubble behavior that can take the whole system down.

bernanke is arguably the worst fed chair ever (though you could argue for burns as well), but not for the reasons you claim.

that was the one thing he did right.

Greg Webb November 29, 2011 at 10:50 pm

Morganovich, that is wrong. The TAF loans were intended for temporary liquidity issues of well-managed, well-capitalized banks secured by sound collateral. It was not intended to give below-market interest rate loans to the largest banks that were financially unsound because of asset quality and capital (lack of) issues based on collateral with little liquidity and of questionable value.

muirge0 November 29, 2011 at 12:05 pm

What, pray tell, is corrupt about the Fed doing its job, filling its role as lender of last resort?

You tell ‘em, boy!

There’s absolutely nothing corrupt about a corrupt institution simply doing its mandated job. Gimme a break!

Man, I love it how you just cut right through the bullshit and grasp the essence of a problem. Have you ever thought of going into politics? I don’t mean running for office or anything like that, but maybe something like consulting work?

Sam Grove November 29, 2011 at 2:54 pm

It’s called systemic corruption.

WhiskeyJim November 29, 2011 at 6:49 pm

$7,700,000,000,000.

And we ain’t getting started yet. Wait until Europe blows up.

GAAPrulesIFRSdrools November 28, 2011 at 10:57 pm

When did stigma go out of style?

Funny, the left removed “stigma” from being an unwed mother and that served their purposes in creating a durable and dependent underclass, should we assume that removing “stigma” from bank bailouts will have similarly wonderful effects.

Bernanke should be impeached-oh wait a minute, we can’t eject the fed chair.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:00 am

Bernanke should be impeached.

Hell No, he should be given a Monument on the Mall

Greg Webb November 29, 2011 at 8:37 am

Bernanke cannot be impeached. Rather, the Federal Reserve system should be audited, government officials exceeding their authority should be arrested, charged, and imprisoned, and the Fed should be abolished.

ralph November 29, 2011 at 11:35 am

let’s start from the top down. Is it possible that Bernanke is printing all of that money so that Obama would have all the money he wants that a Republican House refuses to give him?

Darren November 29, 2011 at 12:17 pm

the Federal Reserve system should be audited

When considering how the federal government in general should be reformed, I’d like to see a completely independent fourth ‘branch’ of government, with the power to audit the books of the federal government and quasi-government agencies like the Federal Reserve.

GAAPrulesIFRSdrools November 29, 2011 at 8:37 am

And you should be institutionalized

Greg G November 29, 2011 at 8:43 am

Let’s imprison and institutionalize those we disagree with and call it “libertarianism.”

GAAPrulesIFRSdrools November 29, 2011 at 10:30 am

I’m not a libertarian. (probably not with the small “l” and definitely not with the big “L”).

However, I do subscribe to the theory that leftism is a manifestation of poor mental health and an inability to dismiss fantasy from reality.

That having been said, get a grip and recognize dismissive hyperbole for what it is. Institutionalizing political opponents is a hallmark of the LEFT. Trolls are nuts.

Darren November 29, 2011 at 12:18 pm

Let’s imprison and institutionalize those we disagree with and call it “libertarianism.”

That would be too inhumane. I’d settle for sending them to a reeducation camp.

Daniel November 29, 2011 at 4:41 am

Not that I’m supporting this, but the Fed’s transmission mechanism was broken and the only way they knew how to fix it was to become it itself. Perry Mehrling’s dealer of last resort description is absolutely accurate. I agree though, it is definitely time for an overhaul.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:00 am

it is definitely time for an overhaul

what needs to be overhauled? the Fed worked

Greg Webb November 29, 2011 at 8:38 am

Yes, the Fed worked very well for the corrupt government officials and their political cronies at Goldman Sachs. Thanks a lot, you useful idiot.

morganovich November 29, 2011 at 10:54 am

that’s a narrow straw man nikolai.

TAF worked. the rest of the feds behavior has been disastrous. the entire system and our currency are in jeopardy because bernanke is a political sock puppet who believes that if you print enough money, everyhting will always be OK.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:55 pm

morganovich

I have had enough of playing with Don and Russ for awhile, but you seem like a reasonable sort and I wanted to get your take on something.

I read all the usual suspects. The two fellows who make the most sense to me about the recent past, the present, and the future are Roubini and Stiglitz. Both have pretty much said, “The currency issue doesn’t matter because the economy was in such bad shape before the start of the Lesser Depression and the damage of the Lesser Depression was so much greater than people realize that any future price increases, any threat of inflation other than externally caused commodity price increases,will be meaningless.” Not there words, but that is the substance I am hearing.

I look around and I agree, from what I can see. Things are not as reported on CNBC, even with some sending for Black Friday. Business conditions are horrible. I see more vacant store fronts every day. Most empty office space, etc.

So here is my question. Until one can truly measure how bad the damage was, other than a biased guess, how can one measure when we have helicoptered too much money. When I look at the charts velocity is still dropping, so the Fed has no choice but to print money, so to speak

Jon Murphy November 29, 2011 at 9:33 pm

“When I look at the charts velocity is still dropping, so the Fed has no choice but to print money, so to speak”

Velocity of money is calculated with he following equation:

VM2=P/M

Where

VM2 is Velocity of Money
P is Price Level
M is Money Supply

If the velocity of money is falling, increasing the money supply (eg printing money) will make it fall further, but reverse the direction.

For example, Which has a lower VM2?

Situation 1:
P=1, M=10
( 1/10=.1)

or

Situation 2:
P=1, M=100
(1/100=.01)

The answer is clearly Situation 2, which we can assume is an increase of money supply.

Jon Murphy November 29, 2011 at 9:34 pm

****Make it fall further, NOT reverse direction*** Sorry, my bad on the typo.

Jon Murphy November 29, 2011 at 9:50 pm

For those of you who don’t like numbers, a simple intellectual thought supports my above claim, too.

Velocity of money is how often a bill changes hands. If we increase the number of bills in circulation (print money), then a bill will change hands less often.

vikingvista November 29, 2011 at 11:19 pm

“If the velocity of money is falling, increasing the money supply (eg printing money) will make it fall further”

Why hold P constant at 1? If velocity is falling, given your relation, either P is falling or M is increasing or both. If M was fixed, then P was falling, and deliberately increasing M could be seen as a P-stabilizing measure, since P = velocity * M.

Do you know how that expression is derived? I thought velocity was proportional to T * P/M, T being total transactions using money, since total nominal spending = M*(Velocity) = T*P, to within a constant factor. Or are you using velocity per unit transaction (or per unit real GDP)?

Nikolai Luzhin, Eastern Promises November 30, 2011 at 3:28 am

on the subject of the velocity of money, idiot Jon Murphy below gives the formula for the velocity and then makes the super stupid argument that an increase in the money supply will cause velocity to drop.

IOW, the idiot is arguing that we should burn all our currency and melt all our coins.

The able reader here (there are two) will understand that increasing the supply of money, under his formula, will increase aggregate demand. We have Keynes to thank for this and similar insights.

Jon Murphy November 30, 2011 at 7:35 am

Viking, you are correct. I just kept P constant for the sake of simple math.

As for where the expression comes from, I don’t have my textbook in front of me right now and I am late for work, so I’ll give you this link for right now: http://en.wikipedia.org/wiki/Velocity_of_money

Not that I did substitute Price Level for Nominal Value of Aggregate Transactions. They’re the same thing and I figured Price Level would be easier for non-economists to understand.

I’ll do my best to give you a more complete explanation today, but I can’t promise anything.

Jon Murphy November 30, 2011 at 9:44 am

Ok, Viking. Here is the more complete answer to your question:

” I thought velocity was proportional to T * P/M, T being total transactions using money, since total nominal spending = M*(Velocity) = T*P, to within a constant factor.”

That is correct. The assumption of constant velocity, I believe it’s called. However, that is a theoretical assumption. Just like any economic model, we hold certain variables constant to study effects. It helps simplify problems (you can’t measure what you don’t know, right?). A simple study of the data shows money velocity is decreasing. So, using the knowledge of the formula, we know that P must be decreasing, M must be increasing or some combination of the two (but the change in M must be greater than the change in P).

So, the formula is derived thus:

People hold money to buy goods and services. The more money needed for transactions, the more money people hold. Thus, the quantity of money in the economy is related to the number of dollars exchanged in transactions. The link between transactions and money is expressed in the following equation (the quantity equation):

Money x Velocity = Price x Transactions
M x V = P x T

The right side of the equation tells us about transactions. T is the number of transactions in a period of time, say, a year. In other words, T is the number of times goods and services are exchanged for money. P is the price of a typical transaction-the number of dollars exchanged. The product of the price of a transaction and the number of transactions, PT, equals the number of dollars exchanged in a year.

The left-hand side tells us about the money used to make transactions. M is the quantity of money. V is the velocity of money and measures the rate at which money circulates in the economy. In other words, velocity tells us the number of times money changes hands in a given period of time.

Example, Suppose that 60 loaves if bread are sold in a given year at $0.50 per loaf. T = 60 loaves, P = $0.50. The total number of dollars exchanges is:

PT=0.50*60=30. So, $30/year are exchanged.

So, now we have V*M=$30

By rearranging the equation, we can compute velocity as

V=PT/M
V=30/M

Suppose further the money supply (quantity of money) is $10.

Now we have V=$30/$10

V=3

So, each dollar changes hands 3 times a year.**

I hope this helps, Viking?

**This explanation comes from Macroeconomics 6th Ed., Mankiw, Greg Pgs. 83-85. Worth Publishing.

vikingvista November 30, 2011 at 5:56 pm

Thanks Jon. That helps, and I appreciate the referenced text.

I would just add that it seems you need to insert the word “average” into a few places where you talk about price and velocity. The formula is commonly written as PT=MV, but P and V, I believe, are actually averages, so perhaps better notation would be T = M.

Here’s how I think of the derivation. p is a vector of all price listings occurring in the system under discussion (in one year, usually). t is an integer vector of equal length tallying the number of transactions at each of those prices in p. v is a constant integer vector (0, 1, 2, 3, … ) where each element we use as a number of circulations. m is an equal length vector indicating how much money circulated exactly that number of times (the amount of money that did not circulate is stored in m[0], e.g.)

Then, using a vector scalar product, p’t = m’v = total nominal spending. If we take T = sum of all the t elements, then = p’t/T. If M is the sum of all the m elements (total money), = m’v/M. Making these substitutions into p’t=m’v we get:

T = M

So, P= is the average transaction price. V= is the average number of money circulations.

I don’t have Mankiw’s text readily available. Does that derivation resemble his at all?

vikingvista November 30, 2011 at 6:01 pm

Jon,

Sorry, but the html parser stripped some things. Everywhere that appears as “T = M” in the above post is intended to be:

leftBracket p rightBracket T = M leftBracket v rightBracket

And in the 4th paragraph where there is nothing in front of the equal signs, there should be “leftBracket p rightBracket” and “leftBracket v rightBracket”, respectively.

Jon Murphy December 1, 2011 at 2:55 pm

Hi Viking,

Mankiw’s text does use that explanation. Believe it or not, we are both saying the same thing, it’s just a different mathematical approach. I like the one I used as it’s easier on the math lingo and for a non-economist/non-mathematician, it’s easier to understand.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 4:58 am

Russ,

You silly silly little idiot. You are truly a know-nothing.

There is nothing corrupt about what the Fed did whatsoever. It did exactly what it is supposed to do, acting as lender of last resort.

Where is the corruption?

The place where I see it is in your little head, which refuses to support meaningful legislation to regulate banks by breaking them into much much smaller institutions.

What is corrupt is that you and the GOP have refused to tackle fundamental problems in the structure of our economy.

These loans prevented the Lesser Depression from becoming the Greatest Depression, cause by Bush and that idiot Libertarian/Ayn Rand follower Greenspan.

Everyone has known of these loans, who knows anything. I have known about them and hell, I am so far from the centers of power it is laughable.

They haven’t been hidden by Congress, who could have easily subpoenaed any details for over site purposes.

Idiots who post here about “stigma,” are know nothings.

The purpose of having a lender of last resort is to assure business borrowers that it is ok to do business with a bank, not depositors, who are protected by the FDIC.

Borrowers have to have confidence that their lender will be in business to fund their loans. Often, these loans are intended for tough times. A case in point: Ford. Ford used billions in lines of credit from Banks to survive. The Fed assured that the Banks which gave those lines of credit could fund their loans.

This was repeated over and over throughout the economy, probably hundreds of thousands of times.

My clients lived on such lines of credit.

IOW the chart you show is dishonest, for it omits the loans made by these Banks (in turn) to thousands and thousands of businesses.

Bernanke should be given a Monument on the Mall, along with FDR.

Russ Roberts November 29, 2011 at 6:13 am

Please do not feed the troll. He simply comes here to disagree and distract. Leave him alone.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:38 am

no Russ, I come here to point out how wrong you are, you and your little pity party.

note you could not answer any of my points

Don Boudreaux November 29, 2011 at 8:07 am

Time is scarce. And someone whose time is as valuable and well-employed as Russ’s is cannot and should not waste a single moment of that time responding to incoherent and uninformed babblings from persons such as yourself.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:15 am

russ ‘s time is anything but valuable

no one wastes time more

Greg Webb November 29, 2011 at 8:20 am

LOL! Russ is psi well. Luzha is unemployed, living in the family basement.

Josh S November 29, 2011 at 3:31 pm

I agree, Don. Time is scarce, and Call of Duty ain’t gonna play itself. Er! I mean! My dissertation isn’t going to write itself! That’s what I meant!

muirge0 November 29, 2011 at 11:53 am

I certainly noted that, Nikolai. Thanks for reminding everyone else here, though.

You are truly a public benefactor in the tradition of Al Capone, John Dillinger, and Albert Shanker. Your name will be writ large in the history books, laddie.

I got your back. Don’t worry about a thing.

Methinks1776 November 29, 2011 at 8:00 am

Can explosive mental poop really be characterized as “disagreement”?

muirge0 November 29, 2011 at 11:03 am

explosive mental poop

Exploding Mental Poop (EMP) was yet another important R&D project from government-funded science in academia. Private investors and industry wanted nothing to do with it.

Why do you resist the ineluctable power of my reasoning?

ralph November 29, 2011 at 11:37 am

Has the value of the dollar really cheapened by98% since the start of the Fed in 1914? Is that why the dollar value of gold has risen?

vikingvista November 29, 2011 at 3:56 pm

Well, it isn’t so precisely measured, and it is ambiguously defined (e.g. do you diminish monetary inflation by productivity deflation?). But even so, looking just at those items that existed then as well as today, it is obvious by any measure that the nominal prices of almost everything have dramatically risen. Just ask grandpa.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:56 pm

if your target was 1% per annum, 98% over 100 years would be about right

vikingvista November 30, 2011 at 2:14 am

Nitpick–not if you *target*, but only if you actually *achieve*. Both targeting and knowing if you’ve achieved it are entirely dependent upon how you measure it.

And also, (1-0.03)^100 ~= 1-0.952

Bagelwoof November 29, 2011 at 5:14 am

Would a fundamental problem of the economy be that there is a monopoly of credit and currency granted to a semi-private cartel in which the government is a partner? Or that the currency supply is usurious? And deflationary?

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:31 am

BTW, where is the Herman Cain story today?

Russ Roberts November 29, 2011 at 6:17 am

See what I mean? Don’t feed the troll.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:48 am

Russ

I am merely pointing out that you disregard the relevant

Last week everyone here was a Herman Cain buff. Anyone with any judgment knew the other shoe would drop. Turns out he has been financially supported a (think popular Christmas refrain here)

muirge0 November 29, 2011 at 11:47 am

Nikolai:

I love you. I wanna marry you. Right NOW!

Just want to let you know that I start doing a Snoopy Dance after reading your posts!

Nikolai Luzhin, Eastern Promises November 29, 2011 at 5:42 am

for all the writers and readers of this blog here is a link to Jim Cramer with a short lesson, today on the lending of money

http://www.businessinsider.com/cramer-we-are-in-defcon-3-two-stages-away-from-a-financial-collapse-so-huge-its-hard-to-get-your-mind-around-2011-11

muirge0 November 29, 2011 at 11:46 am

Love it! Keep ‘em coming, Nikky!

Gotcha covered, baby!

Paul Andrews November 29, 2011 at 5:52 am

This pales in comparison to the purchase of trillions in shonky MBS and other toxic assets, at par, from operators who should have been put out of business.

Karl Smith November 29, 2011 at 6:03 am

I don’t know that there was any corruption here. This is what the Fed is for. We can argue about whether or not their should have been a penalty rate but to lend freely in times of crisis against good credit is the fundamental role of a central bank.

That banks make profit from borrowing short and lending long, should hardly come as a shock to anyone.

Russ Roberts November 29, 2011 at 6:16 am

Karl,

The largest beneficiary was Citigroup, $1.8 billion in earnings from these loans. Do you really think that was lending in a crisis against good credit?

Daniel Kuehn November 29, 2011 at 6:56 am

The facility has borrowing requirements, Russ. I’m not clear on what you’re saying – are you saying that Citigroup didn’t meet those requirements and was allowed to borrow anyway (which I guess might be called “corrupt” – but that still doesn’t quite seem appropriate), or are you saying you just think those established standards should be higher (which doesn’t seem like “corruption” to me).

Methinks1776 November 29, 2011 at 7:43 am

Daniel,

The Fed obliged not only the banks for which it is the lender of last resort, but, through various means (think AIG bailout and Goldman’s sudden application to become a bank holding company), institutions for which it was not a lender of last resort.

What should worry you very much is the secrecy. Here we have an unaccountable government institution operating in the shadows. While one of the justifications for regulation of industry is transparency, we have a regulatory body operating in extreme secrecy in order to hide the difficult realities from the population that will ultimately bear the cost of the Fed’s activities. The activities of the Fed were purposely hidden in order to defraud the public. Isn’t that what regulation is meant to prevent (it doesn’t, obviously. Regulation institutionalizes fraud)?

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:50 am

Methinks charges that , “The activities of the Fed were purposely hidden in order to defraud the public.”

How so? What did the public loose because these loans were made?

Daniel Kuehn November 29, 2011 at 7:53 am

“The activities of the Fed were purposely hidden in order to defraud the public”

Could you elaborate on this? This doesn’t seem to be true at all, Methinks. How have we been defrauded?

Methinks1776 November 29, 2011 at 8:14 am

Daniel, did you read the article? For starters, the Fed lied about the state of the institutions to which it lent and the soundness of the collateral against which it lent. What do you think would happen if you were running a company and you lied to your investors about its financial condition?

Daniel Kuehn November 29, 2011 at 8:51 am

I did read it, and I’ve just skimmed it again and I have no idea what you’re talking about. Do you just mean that the Fed didn’t broadcast that some of the borrowers were much weaker and more of a concern than others?

Maybe instead of insinuating I haven’t done due diligence you can just… well I don’t know… quote the thing, and perhaps be a little more specific about what you’re talking about.

Ubiquitous November 29, 2011 at 11:16 am

I did read it, and I’ve just skimmed it again and I have no idea what you’re talking about.

Don’t be so lazy. Read it; don’t skim it.

Do you just mean that the Fed didn’t broadcast that some of the borrowers were much weaker and more of a concern than others?

It’s called a “lie of omission.” Ever hear of it?

“Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy.”

Daniel Kuehn November 29, 2011 at 12:38 pm

re: “Don’t be so lazy. Read it; don’t skim it.”

To repeat – I DID READ IT.

In my second go-over, I’m not going to do more than skimming simply because Methinks is incapable of providing evidence for her claims.

Greg Webb November 29, 2011 at 9:38 am

Daniel, there are many quotes from the article that support corruption by the Federal Reserve. They include:

1. “The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret.”

Corruption hides in the dark. People do not work so hard to keep things hidden unless there are things they do not want the public to see. The fact that the Fed and the recipient banks worked so hard to keep from revealing this to the public indicates that the Fed and the banks know that their actions were wrong.

2. ‘The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.”

This indicates that these banks were in such poor financial condition that no one would have loaned them any funds to survive except, perhaps, at much higher interest rates than the Fed charged.

3. “Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. “

This sentence indicates that the banks were violating securities laws and regulations to mislead investors. That is securities fraud. The fact that the Fed knew that banks were intentionally misleading investors and took no enforcement action indicates regulatory capture and a conspiracy to defraud investors.That’s why libertarians do not want government and business working together because that merely means that corrupt government officials are helping political cronies like Goldman Sachs at the expense of taxpayers.

4. “And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.”

This sentence indicates that the banks reinvested the proceeds of those below-market interest rate government loans in riskier, and better yielding investments to earn an additional $13 billion. I would like the Fed to give me a few billion dollars at very low interest rates for a few months. I will invest it and make a fortune. If I invest poorly, I won’t have to repay the loan and they can keep my subprime mortgages that happen to be underwater. What a deal! Head I win, tails the taxpayer loses.

5. “. . . the Fed . . . never disclosed the details of the rescue to lawmakers . . . ”

This sentence indicates that government bureaucrats mislead Congress by not providing it with the details of their actions because Congress would surely have objected. Misleading Congress is fraudulent activity.

6. “. . . details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger . . “

This sentence indicates that government bureaucrats circumvented the free enterprise system to bail out political cronies at the largest banks. That is corruption pure and simple.

7. “Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.”

The Treasury needed Congressional approval and oversight for the $700 billion TARP, but the Fed did not obtain Congressional approval for $7,77 Trillion in loans and guarantees. The Fed clearly exceeded its authority and intentionally made misrepresentations to Congress and the public. That is corruption.

8. “The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under.”

And, that in and of itself, is a huge financial windfall for the largest banks as well as a huge competitive advantage over their not-as-politically-connected smaller competitors.

9. “Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.”

So government policies introduced incentives that created the financial crisis and the government keeps introducing incentives to reward their willing cronies in creating the financial crisis.

10. “Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.”

All at the expense of taxpayers and to the detriment of their not-so-politically-connected cronies.

11. “When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.”

That is right.

12. “During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.”

This sentence supports that the interest rates charged by the Fed were below market, especially considering the poor financial condition that these banks were in.

13. “The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion.”

Subsidies and bailouts are gifts from government officials to political cronies.

14. “Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”

Exactly.

Daniel, in the article, there is more evidence of corruption in the form of political cronyism where government officials exceeded their authority and mislead Congress in order to help their special friends (i.e., political cronies) at the biggest banks.

Methinks1776 November 29, 2011 at 9:54 am

Thank you for spoon feeding the child, Greg. He’s especially cranky this morning and mommy just doesn’t have the energy.

Greg Webb November 29, 2011 at 10:26 am

You are welcome, Methinks1776.

I am not sure what Daniel is doing. He has the ability to read and comprehend economic issues. I had little difficulty in seeing the corruption despite skimming the article myself.

I think it is inappropriate to ask Don and Russ to explain what is clearly written in the article. It appears to be the common and disingenuous debate tactic of pretending that the clear meaning of the article does not mean what is says by asking “what does this mean” and “provide some examples” when they are clearly discussed in the article.

Ubiquitous November 29, 2011 at 11:18 am

@Gregg Webb re Daniel Kuehn:
“He has the ability to read and comprehend economic issues.”

No he doesn’t. He’s a Keynesian.

anthonyl November 29, 2011 at 11:27 am

Like! “There is nothing illegal going on here that you need to know about.” “Please keep moving toward the mall.” “There’s nothing to see here.”
That was the attitude of Bush and the fed at the time. We all knew things weren’t as rosy as was portrayed.

Fred November 29, 2011 at 11:35 am

It appears to be the common and disingenuous debate tactic of pretending that the clear meaning of the article does not mean what is says…

The obvious need not be explained.
Insisting that the obvious be explained is a sure sign of intellectual dishonesty.

Methinks1776 November 29, 2011 at 12:32 pm

We all knew things weren’t as rosy as was portrayed.

Well, we didn’t know and that’s the worst part.

When people can’t believe anything government tells them, people tend to believe everything or nothing at all. How do you trust a government to do anything when the government is in the habit of lying and expanding institutions’ mandates on a whim to protect cronies?

In the Soviet Union, nobody ever believed the government about anything because everyone understood that the government’s only competency was lying to the public (and it wasn’t terribly competent at that). The Soviet government was a giant club of stressed out cronies leaching off the peasants in ways the Czar could only dream of. The United States government is increasingly breaching its own laws in order to serve its crony club at the expense of the peasants. There is every reason to worry about that.

Daniel Kuehn November 29, 2011 at 12:40 pm

re: “Thank you for spoon feeding the child, Greg.”

Shut up. I can’t wait for the day that Don and Russ realize you’re one of the biggest trolls on this blog. It may never come, of course – probably won’t.

Methinks1776 November 29, 2011 at 12:47 pm

OMG. I broke Daniel Kuehn again.

I understand your frustration with not being able to cobble together a successful counter, Danny. However, you are closing in on 30 years of age and it’s really time you at least make some sort of attempt to control your emotions.

Daniel Kuehn November 29, 2011 at 12:59 pm

Greg – thanks for the leg work. I’m sorry Methinks couldn’t do it herself.

The first two aren’t examples of “lies” or “corruption” at all. Keeping borrowing information confidential is not a lie and it’s not corrupt. It’s not clear to me why you think it is.

The third quote could be relevant – this is between the SEC and these companies and between the companies and their shareholders. I’m not going to take a position on it because I don’t know securities law well enough. I do know that it is not evidence of lying or corruption at the Fed.

Your fourth quote doesn’t seem to be evidence of lying or corruption either. How is the fact that the auctions loans came in under market rates “corruption”? That doesn’t seem corrupt at all to me. That’s just monetary policy. You may not like it, but it was not dishonest or corrupt.

For the fifth quote, see my comment on your first two quotes. The Fed keeps certain information about lenders confidential. Confidentiality in transactions is not “lying”. You can’t just choose to redefine monetary independence as “lying”. Congress created the Fed to be an independent monetary authority.

Number six doesn’t imply corruption at all. They achieved the objective of preventing the collapse of major investment banks. They did preserve the status quo – it’s the job of Congress and the market to change the status quo if that’s what we want. That’s not the Fed’s job. The Fed’s job is stabilization of the monetary system. This is not corruption – I’m not sure why you’re pretending it is.

Seven is basically oggling at the big numbers. The Fed has all the authority it needs to extent credit. The Treasury needed Congressional approval for TARP, because the executive branch can’t just decide to appropriate public funds! The Fed has Congressional approval to extend credit, period. There is nothing corrupt about this.

Answer to number eight is the same as the answer to number four. Although I would have thought any financial institution could bid under TAF. Is that not true? Yes “small businesses” don’t have access, but neither do “big businesses” there aren’t financial institutions.

Nine and ten just describes what happened. No lie is indicated. No corruption is indicated. I’m beginning to wonder how you define the words “lying” and “corruption”.

Eleven has a grain of truth. Often preventing a collapse that would hurt small firms immeasurably more involves helping out people we don’t have much sympathy for. I hope this means you’d support an investment bank for small firms. Nevertheless – number eleven provides no evidence of lying or corruption (I’m starting to see a pattern here).

For number 12 and 14, see my answer to 4 and 8.

For number 13 describes what happened – I see no evidence that any of this involved lying or corruption. You certainly haven’t offered any.

So basically you don’t like central banking and to drive your point home you just decide to call it “corruption” and “lying”. I understand we disagree about central banking, but you haven’t presented any example of corruption here (except PERHAPS number 3 – I’m not saying no corruption was going on anywhere).

Daniel Kuehn November 29, 2011 at 1:05 pm

Greg -
re: “I think it is inappropriate to ask Don and Russ to explain what is clearly written in the article.”

I think it is inappropriate to accuse someone of being “corrupt” just because you find what they do unpalatable. There is nothing corrupt, nothing deceitful, nothing, illegal about anything described in the article and you, Russ, Methinks, etc. are suggesting otherwise without offering any proof. If you don’t like the TAF lending, fine. I understand you don’t. Instead of making things up you should just explain why you don’t like it.

You all are just like muirgeo or IB (funny IB can be sometimes). If you don’t like something, instead of just explaining why you don’t like or don’t think it’s a good idea you always have to accuse everyone of corruption, lying, conspiracy, bad intentions, getting paid off, etc. You don’t like TAF. Lots of people don’t. Big deal. Don’t make stuff up.

Daniel Kuehn November 29, 2011 at 1:08 pm

Now THIS is corruption, if it played out this way: http://blog.mises.org/19577/paulson-tipped-his-friends-about-fannie-and-freddie-in-08/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MisesBlog+%28Mises+Economics+Blog%29

A central bank extending credit during a crisis is not corruption no matter how hard you wish it was.

Methinks1776 November 29, 2011 at 1:32 pm

I’m ever so sorry I couldn’t oblige your temper tantrum this morning, Danny. I was forced to choose between you and a little thing called “work” and you just didn’t make the cut.

The first two aren’t examples of “lies” or “corruption” at all. Keeping borrowing information confidential is not a lie and it’s not corrupt. It’s not clear to me why you think it is.

Keeping that information confidential in order to fool people into thinking that the banking system is in better shape than it is is fraud. If any private company or individual engaged in such activity it would be prosecuted for fraud. The important issue isn’t lending to troubled institutions, it’s the intent behind keeping the truth from the public.

As for what the banks disclosed…the Fed has oversight over the banks. Not only was the Fed (and the SEC) allowing the banks to lie to their investors, but they were also lying to the public at large. You know, the public the Fed was supposed to be acting in the interest of. As a person who does know more about securities law, I can assure you that this lie was on par with WorldCom and Enron (both lied about the financial health of the company in order to fool investors). Of course, in the case of Worldcom and Enron, our trusted government institutions created to protect the public were not partners in the fraud.

If the Fed is simply acting as lender of last resort, why the lying, the omission, the lawsuit required to get to the truth? Do the people who are ultimately responsible for bearing the cost not deserve to know what’s going on (these people also include account holders of these banks, you know)?

You also completely ignored the issue I brought up earlier that was not in the article – the Fed’s AIG bailout of foreign banks and other institutions for which it has no legal mandate. The GOA has called out the Fed for this abuse of its mandate. By far this is not the first time you haven’t answered a question I asked you, but then you have a double standard, as most children do. And, of course, it’s also my guess that this double standard is why you forgive government things you wouldn’t forgive a private institution.

Fred November 29, 2011 at 2:06 pm

Methinks -
I always enjoy when you put Danny in his place.
Danny -
Pointing out when you are disingenuous and wrong does not make someone a troll.

Greg G November 29, 2011 at 3:24 pm

Daniel

It’s not a big mystery why they want to call this, and so many other things, forms of corruption. If your worldview involves seeing every issue through the prism of a battle between the forces of liberty and the forces of oppression then there will be very limited room for civil discussion regardless of the specifics.

Greg Webb November 29, 2011 at 5:14 pm

“Greg – thanks for the leg work. I’m sorry Methinks couldn’t do it herself.”

Daniel, I am sorry that you and Methinks1776 do not get along. I will let you guys work that out. You asked Russ to provide you with specifics and, since I had only briefly scanned the article myself, I thought that I would read it carefully and provide you with a list of sentences that reveal a lack of transparency in government as well as fraud and corruption. So, let’s address your points below:

You said, The first two aren’t examples of “lies” or “corruption” at all. Keeping borrowing information confidential is not a lie and it’s not corrupt. It’s not clear to me why you think it is.”

The first two sentences and comments that I listed were:

1. “The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret.”

Corruption hides in the dark. People do not work so hard to keep things hidden unless there are things they do not want the public to see. The fact that the Fed and the recipient banks worked so hard to keep from revealing this to the public indicates that the Fed and the banks know that their actions were wrong.

2. ‘The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.”

This indicates that these banks were in such poor financial condition that no one would have loaned them any funds to survive except, perhaps, at much higher interest rates than the Fed charged.

I did not say that the first two sentences involved fraud or corruption. The problem noted in the first sentence is the lack of government transparency. The Federal Reserve, though required to disclose such information by the Freedom of Information Act, fought it out in the court system all the way to the Supreme Court, to try to keep this public information confidential. The Court refused to hear the case so the Federal Reserve was required to disclose the information to Bloomberg News Service. The sentence indicates a desire by the big banks and the Federal Reserve to keep public information from the public and Congress. That is dishonest.

The second sentence reveals how bad the financial condition of those banks were, which reveals that no one would have lent them money except with liquid collateral and at high interest rates. The fact that the Federal Reserve took substandard collateral and charged below market interest rates is revealed in sentences listed after Nos. 1 and 2.

I am going to break my response into several parts because I am busy and understanding this really is not difficult to anyone looking objectively at it.

Greg Webb November 29, 2011 at 5:21 pm

“The third quote could be relevant – this is between the SEC and these companies and between the companies and their shareholders. I’m not going to take a position on it because I don’t know securities law well enough. I do know that it is not evidence of lying or corruption at the Fed.”

The sentence I listed and my comment were:

3. “Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. “

This sentence indicates that the banks were violating securities laws and regulations to mislead investors. That is securities fraud. The fact that the Fed knew that banks were intentionally misleading investors and took no enforcement action indicates regulatory capture and a conspiracy to defraud investors.That’s why libertarians do not want government and business working together because that merely means that corrupt government officials are helping political cronies like Goldman Sachs at the expense of taxpayers.

This one is easy. It is fraud if a company intentionally makes misleading statements or omits information that a shareholder would find material in making an investment decision. The Federal Reserve System knew that these banks were misleading investors by not disclosing this information. It is charged with making referrals to the SEC as well as issuing its own enforcement actions for violations of securities laws and regulations. The fact that the Federal Reserve took no action when it was clearly required indicates corruption…or perhaps just stupidity or regulatory capture. Your choice.

Greg Webb November 29, 2011 at 5:34 pm

“Your fourth quote doesn’t seem to be evidence of lying or corruption either. How is the fact that the auctions loans came in under market rates “corruption”? That doesn’t seem corrupt at all to me. That’s just monetary policy. You may not like it, but it was not dishonest or corrupt.”

The fourth sentence and comment that I listed are as follows:

4. “And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.”

This sentence indicates that the banks reinvested the proceeds of those below-market interest rate government loans in riskier, and better yielding investments to earn an additional $13 billion. I would like the Fed to give me a few billion dollars at very low interest rates for a few months. I will invest it and make a fortune. If I invest poorly, I won’t have to repay the loan and they can keep my subprime mortgages that happen to be underwater. What a deal! Head I win, tails the taxpayer loses.

It is not monetary policy for government officials to make huge loans to the big banks at below market interest rates secured by substandard collateral. These were not auction loans. There were no lenders other than the Federal Reserve. The below market interest rate information is provided in Sentence No. 12. The big banks made $13 billion based on sweetheart loans from the federal government. That is corruption.

Greg Webb November 29, 2011 at 5:38 pm

“For the fifth quote, see my comment on your first two quotes. The Fed keeps certain information about lenders confidential. Confidentiality in transactions is not “lying”. You can’t just choose to redefine monetary independence as “lying”. Congress created the Fed to be an independent monetary authority.”

My fifth sentence and comment are:

5. “. . . the Fed . . . never disclosed the details of the rescue to lawmakers . . . ”

This sentence indicates that government bureaucrats mislead Congress by not providing it with the details of their actions because Congress would surely have objected. Misleading Congress is fraudulent activity.

The information that the Fed refused to provide was required to be disclosed under the Freedom of Information Act. The Court of Appeals ruled in favor of Bloomberg and the Supreme Court denied the Fed’s writ. So, your view that it is confidential information is wrong.

You seem to assume that a federal agency may do anything it wants. That is a false assumption. There are statutes restricting the Fed’s authority and a Congressional Committee to oversee the Fed’s actions. It mislead Congress. The question is why. But, the actions indicate corruption.

Greg Webb November 29, 2011 at 5:43 pm

“Number six doesn’t imply corruption at all. They achieved the objective of preventing the collapse of major investment banks. They did preserve the status quo – it’s the job of Congress and the market to change the status quo if that’s what we want. That’s not the Fed’s job. The Fed’s job is stabilization of the monetary system. This is not corruption – I’m not sure why you’re pretending it is.”

The sixth sentence and comment are:

6. “. . . details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger . . “

This sentence indicates that government bureaucrats circumvented the free enterprise system to bail out political cronies at the largest banks. That is corruption pure and simple.

The Fed’s job, among other things, is to maintain the stability of the financial system, not reward or bail out the biggest banks. Doing the latter instead of the former is simply corruption. I am not sure why you are pretending that it isn’t.

Greg Webb November 29, 2011 at 5:50 pm

“Seven is basically oggling at the big numbers. The Fed has all the authority it needs to extent credit. The Treasury needed Congressional approval for TARP, because the executive branch can’t just decide to appropriate public funds! The Fed has Congressional approval to extend credit, period. There is nothing corrupt about this.”

The seventh sentence and my comment are:

7. “Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.”

The Treasury needed Congressional approval and oversight for the $700 billion TARP, but the Fed did not obtain Congressional approval for $7,77 Trillion in loans and guarantees. The Fed clearly exceeded its authority and intentionally made misrepresentations to Congress and the public. That is corruption.

The Federal Reserve, as is any governmental agency, subject to statutory restrictions and protocol. The Fed exceeded its authority with such loans and guarantees. Independent does not mean it can do whatever it wants. Independent means that it is formally not subject to the executive branch’s authority., but is still subject to Congressional oversight. However, in reality, the Fed is greatly influenced by the executive branch.

Greg Webb November 29, 2011 at 5:54 pm

“Answer to number eight is the same as the answer to number four. Although I would have thought any financial institution could bid under TAF. Is that not true? Yes “small businesses” don’t have access, but neither do “big businesses” there aren’t financial institutions.”

The eighth sentence and my comment are:

8. “The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under.”

And, that in and of itself, is a huge financial windfall for the largest banks as well as a huge competitive advantage over their not-as-politically-connected smaller competitors.

Nothing else need be said here. Your comment does not address the issue. Any company or financial product with an implicit government guarantee is a subsidy. Subsidies are favoritism or patronage is you prefer. That is, of course, cronyism and corruption.

Greg Webb November 29, 2011 at 6:14 pm

“Nine and ten just describes what happened. No lie is indicated. No corruption is indicated. I’m beginning to wonder how you define the words “lying” and “corruption”.”

The sentences I quoted and my comments are:

9. “Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.”

So government policies introduced incentives that created the financial crisis and the government keeps introducing incentives to reward their willing cronies in creating the financial crisis.

10. “Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.”

All at the expense of taxpayers and to the detriment of their not-so-politically-connected cronies.

I described facts that indicate that government actions have helped the big banks (i.e., political cronies — look at the campaign contributions and who the government officials go to work for when they leave government service) and hurt smaller competitors (i.e., not political cronies). Those are key facts to understanding that government officials help political cronies at the expense of taxpayers and their competitors. That means those calling for even more government power and intervention in financial markets — which will help the politically connected, hurt the competitors, be paid for by taxpayers, and hurt consumers — are useful idiots to such corruption.

Greg Webb November 29, 2011 at 6:22 pm

“Eleven has a grain of truth. Often preventing a collapse that would hurt small firms immeasurably more involves helping out people we don’t have much sympathy for. I hope this means you’d support an investment bank for small firms. Nevertheless – number eleven provides no evidence of lying or corruption (I’m starting to see a pattern here).”

The eleventh sentence and my comment are:

11. “When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.”

That is right.

A grain of truth?! LOL! Free enterprise and free markets are about letting the incompetent fail. Government backing of those firms is political cronyism.

No. I do not support the government intervening to help small banks either. If you bail them out, they simply don’t have to compete. And, competition is what drives businesses and banks to serve the customer. The more government intervenes, the more banks serve their true masters – politicians, not consumers.

I am beginning to see a pattern here. Simple conclusory statements denying the evidence presented in the article. The few arguments that you provide, like the confidential information argument and the independent agency argument are clearly wrong. The Fed had no right under the Freedom of Information Act to refuse to release that information and the Fed is subject to Congressional oversight.

Greg Webb November 29, 2011 at 6:25 pm

“For number 12 and 14, see my answer to 4 and 8.”

Sentences 12 and 14 and my comments are:

12. “During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.”

This sentence supports that the interest rates charged by the Fed were below market, especially considering the poor financial condition that these banks were in.

14. “Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”

Exactly.

Those are facts supporting that the Fed was giving below market interest rate loans with substandard collateral to big banks in clearly troubled financial condition. Consequently, the loans should not have been made or, if make, at much higher rates of interest. Your comments are disingenuous.

Greg Webb November 29, 2011 at 6:29 pm

“For number 13 describes what happened – I see no evidence that any of this involved lying or corruption. You certainly haven’t offered any.”

Sentence 13 and my comment are:

13. “The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion.”

Subsidies and bailouts are gifts from government officials to political cronies.

A subsidy to a failing financial institution is political cronyism. It is wrong to do so with taxpayer money. And, sound monetary policy does not require such gifts.

Anna Schwartz, co-author with Milton Friedman in writing “A Monetary History of the United States”, when asked what the government should do said, “Let them fail.” She was right.

Greg Webb November 29, 2011 at 6:37 pm

“So basically you don’t like central banking and to drive your point home you just decide to call it “corruption” and “lying”. I understand we disagree about central banking, but you haven’t presented any example of corruption here (except PERHAPS number 3 – I’m not saying no corruption was going on anywhere).”

Nope. I don’t like corruption, political cronyism, and government officials keeping information, required by law to be disclosed, from the public and Congress. The information has recently been given to Bloomberg. The article was written to present evidence that indicates corruption, political cronyism, and government officials misleading the public and Congress. That is wrong. And, the case for corruption was well presented.

I did not present the case for corruption. Bloomberg, in its article, did. I merely made it easier for you to understand by eliminating a lot of extraneous material. The fact that you simply made conclusory statements and made certain incorrect assumptions indicates that you are want to continue your attack on anyone who argues for less government intervention in markets. I am not sure why. I don’t dislike you and your comments on DeLong’s blog indicate that you can make reasonable arguments. In responding to my comments, however, you acted very much like muirgeo, invisible backhand, Nicholas Luzha, Greg G, etc. In doing so, I can see why so many call you “Disingenuous Kuehn.”

Greg Webb November 29, 2011 at 6:46 pm

“I think it is inappropriate to accuse someone of being “corrupt” just because you find what they do unpalatable. There is nothing corrupt, nothing deceitful, nothing, illegal about anything described in the article and you, Russ, Methinks, etc. are suggesting otherwise without offering any proof. If you don’t like the TAF lending, fine. I understand you don’t. Instead of making things up you should just explain why you don’t like it.

Daniel, you have made conclusory statements without supporting your argument. I am sorry that you cannot see why the Fed extending loans with substandard collateral at below-market interest rates to financially-troubled banks is not corruption and political cronyism. It is certainly not sound monetary policy.

“You all are just like muirgeo or IB (funny IB can be sometimes). If you don’t like something, instead of just explaining why you don’t like or don’t think it’s a good idea you always have to accuse everyone of corruption, lying, conspiracy, bad intentions, getting paid off, etc. You don’t like TAF. Lots of people don’t. Big deal. Don’t make stuff up.”

I believe that muirgeo, IB, Nikki Luzha, Greg G, and the rest of the big-government advocates are on your side. I’m sorry that you don’t like the evidence presented in the article, which clearly indicates that more government intervention is not the answer. Your statements about confidential information was wrong given that the information was clearly subject to the Freedom of Information Act. Also, your assumption that the Fed may do anything it wants because it is an independent agency is wrong as it is limited by statute and Congressional oversight. You really should not make stuff up. Now, that is proof. Now, what did I make up again — and provide proof other than conclusory statement in favor of your big-government position.

Greg Webb November 29, 2011 at 6:49 pm

“A central bank extending credit during a crisis is not corruption no matter how hard you wish it was.”

Straw man argument. That is not what happened. The facts indicate that the Fed loaned $7.77 Trillion to severely troubled banks based on substandard collateral and at below-market interest rates. That is political corruption and cronyism.

Greg Webb November 29, 2011 at 8:21 pm

“It’s not a big mystery why they want to call this, and so many other things, forms of corruption. If your worldview involves seeing every issue through the prism of a battle between the forces of liberty and the forces of oppression then there will be very limited room for civil discussion regardless of the specifics.”

It is not a mystery as to why useful idiots like Greg G want to cover up and summarily dismiss charges of corruption against the government unless it involves Halliburton and Dick Chaney. It all about the leftist ideology. Libertarians call the government on corruption no matter whether it’s Bush or Obama, or Goldman Sachs or Halliburton.

anthonyl November 29, 2011 at 10:00 am

Why should a healthy company need to borrow from the federal government?  Why bail out big companies and not little ones that don’t succeed?  It seems like the fed is just propping up companies that wouldn’t make it without enormous injections of dollars.  Despite the crisis, one would think such large “stabilized-by-their-size” institutions could muster the resouces to ride out a dip.  The fact that they couldn’t goes against the argument that bigger is better.  The fact that the true size of the relief that was provided was hidden from public view shows the fed was worried about public opinion of the solvency of these institutions it sought to help.
Yes, fed did its job and it did it “well” but I question a system that seems to make large banking institution larger by picking winners, propping them up then, passing legislation that would limit the size of the banks?
Why not just let banks operate, handling their own risks, failing when they lend unwisely and growing to the size their success at serving their customers and managing their risk bestows them.  I understand this is naive at this point in the mess but I think the charge of cronyism comes from a feeling that we are just heaping bailout on top of bailout on top of stupid rules and regulations that have brought us to the point were even the fed feels they must obfuscate the size of bailouts.  Banks are using the central banking system to grow needlessly larger, destabilizing an already precariously overgrown financial system.  Instead of bailouts we could have allowed some big unworthy boats to sink.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 10:15 am

passing legislation that would limit the size of the banks?

this makes too much sense and involve regulation, so libertarians, here, and elsewhere, oppose such legislation

Darren November 29, 2011 at 12:28 pm

Don’t be so lazy. Read it; don’t skim it.

He *said* he read it. He then skimmed it. Don’t be so lazy. Read his post. (I’ll give you the benefit of the doubt that it wasn’t dishonesty instead.)

Nikolai Luzhin, Eastern Promises November 29, 2011 at 9:26 pm

Methinks1776

You write, “Keeping that information confidential in order to fool people into thinking that the banking system is in better shape than it is is fraud.”

I don’t think so. The classic definition of fraud is that one deprives a person of choices or options or obtains their money or property. Even if people misunderstood the strength of the banking system, how did that deprive them of any choices or options or of their money or property. What else could they have done at that point in time?

Second, fraud requires that one know that the information was materially false. Bernanke, like all of us, was shrouded in the fog of battle at that time. To suggest that he had any real better picture of the banking system than anyone else is nonsense.

What he did have was know, skill, judgment, and tools at hand. He believed, correctly, that the Fed could stabilize the banking system, avoiding losses to borrowers and depositors, and he performed those tasks exceptionally.

In the midst of any battle the generals do not tell their troops we are loosing. An economic crisis like the Lesser Depression is no different.

Bernanke is not answerable to anyone except the American people as a whole. There are going to be winners and losers and good decisions and mistakes in any crisis situation.

It is not Bernanke’s fault that Congress refused to take a million steps that would have helped because of Republican Party politics and the drive we have had since the election to assure that Obama fails as President, regardless of the cost to the Nation.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:41 am

Russ,

What evidence do you have regarding the collateral offered by Citigroup?

If you have none, the Shut the F!!! up

muirge0 November 29, 2011 at 11:31 am

If you have none, the Shut the F!!! up

You go, girl!

Darn, I admire you!!

Say, er, Nikky, darling. This wouldn’t be some little personal vendetta between you and the professor, would it? I’d hate to think that a First Rate Intellect like yours would stoop to something as unworthy as that, especially considering the immense and glorious ideological agenda for the Left that’s at stake here. I mean, as fellow travelers in the Horseshit Utopia Society of America, we have our reputations to protect. So why don’t you let me play Iago to your Othello, OK? I’ll be your “man behind the man,” steering you straight, and giving you good advice.

Anyway, I just wanted to let you know that I’ve got your back — “gotcha covered”, as they say. I’m here when and if you need me, pal. Keep up the great work!

Nikolai Luzhin, Eastern Promises November 30, 2011 at 3:47 am

muirgeo

have never meet or seen either of the dumba!!! that run this blog

nothing personal about it

I am opposed to fraud and mendacity in all its forms

these two are “Sarah Palin” wanna bees

they want on Fox, want the $$$ from the Koch brothers, from selling newsletters like Rush, and DVDs and t-shirts like Geln Beck

they are like Newt—they will say or do anything for the Almighty Dollar, including throwing the rich under the bus

Like Hayek and MF they are glad flies and idiots, guilty of pandering at all cost to the greater good

take the underlying premise around here: gov’t is bad. That is super stupid. My Dad died shortly after WWII when I was very young, but fortunately we got SS death benefits. We would not have made it otherwise. I have a world class education paid for in large part by taxpayers. This was all done for me by others, to say nothing of the sacrifices of the people who never came back.

The people here who are all about rationalizing their greed and selfishness are sick sick assholes

I could go on but ….

Josh S November 29, 2011 at 3:34 pm

If no one will lend you money except a governmental institution, you don’t have “good credit.” You have “bad credit.”

GAAPrulesIFRSdrools November 29, 2011 at 4:05 pm

@DK:

“Keeping borrowing information confidential”

If the relationship is between private entities, then confidentiality should be respected. The Fed, functioning in a public role should not be keeping secrets.

It may very well be LEGAL, as is insider trading by Congresscritters-but it is corrupt.

There’s a difference between confidentiality and concealment.

Daniel Kuehn November 29, 2011 at 6:28 am

Could you explain what is corrupt exactly? I’m not getting it. Are you suggesting that the TAF itself is corrupt? Why?

Greg G November 29, 2011 at 7:37 am

Daniel

When libertarians fail to get their way on any policy issue, they almost always characterize it as either a violation of their rights or a violation of the law (or both). That is why the “toilet and light bulb issues” get talked about with the same kind of impassioned language as Stalin’s murders.

There is little room in that kind of world view for honest disagreements between people arguing in good faith.

Methinks1776 November 29, 2011 at 7:44 am

Arguing in good faith? This is something you know exactly nothing about.

Daniel Kuehn November 29, 2011 at 7:55 am

Can you stop insulting people and just explain why the TAF was fraudulent?

I really don’t care what you think of Greg G. I do care that you’ve made sweeping accusations with absolutely no attempt of supporting them. And I care that Russ has identified Nikolai as a troll but is still unable to see your trolling for what it is.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:20 am

Daniel

I am most certainly not a troll.

By point is posting is to show the whole world how dishonest Don and Russ are.

You just did such, administering a coup de grace to these twin A!! H!!!! by pointing out that Methinks is nothing by a troll but they tolerant her because of the Long Con they are playing, as they troll for Koch money and DVD and T-Shirt sales (or grants or Fox News appearances)

Methinks1776 November 29, 2011 at 8:22 am

It must really suck for you that you can’t get Russ and Don to cater to your demands matter how many temper tantrums you throw. Your parents really neglected their duties.

Liberty 1 November 29, 2011 at 10:30 am

As I read some of the back and forth I see the more right leaning patrons believing the process was manipulated by the Fed to achieve an outcome which supported cronyism (fairness is a process). The more left leaning patrons trust the actions of the Fed and support the Fed’s power to achieve a desired outcome (fairness is an outcome).

A am in agreement with Russ, Don, Methinks1776, and the rest of the right leaning patrons. You seem to see the Fed’s actions as banking, I see its actions as cronyism.
Fairness is a well designed process, not a well designed outcome. The ends do not justify the means.

anthonyl November 29, 2011 at 11:39 am

I think it was fraudulent because it was a transfer of funds to businesses. That in itself is fraudulent. All legal sure, we can make just about anything legal. But if a business isn’t providing a valuable service to taxpayers, why give them any money. What is the service these institutions provide that couldn’t be filled by more responsible firms?
I realize these particular funds were not from taxes but created by the fed. The point is the giving, not the source.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:49 am

Methings1776

I heard you are an expert on all aspects of the sucking life

muirge0 November 29, 2011 at 11:34 am

Awesome!

Such command of the language! You’re a poet, Nikolai! A combination of Marx, Keynes, and Pushkin. Amazing.

anthonyl November 29, 2011 at 10:14 am

I think the libertarian charge here is the coersive transfer of private property via government through a couple of mechanisms;
1) Using tax funds to help businesses.
2) Devaluing the dollar by loaning to banks.
Neither is illegal, just true.

GAAPrulesIFRSdrools November 29, 2011 at 1:30 pm

There are many legal things that are corrupt, and many illegal things that are incorrupt (malum prohibitum)

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:42 am

Russ has no facts

Russ is just seeking to promote himself with the Koch brothers or Fox News

muirge0 November 29, 2011 at 11:36 am

Fantastic!

You are the very soul of articulate reason, me boy! Have you, by chance, ever been on the stage?

Jay November 29, 2011 at 7:25 am

Come on. This reporting is flawed.

A) $7.7 trillion in loans.

Fed loans are for a matter of days. Every time a bank rolled over a million dollars the principal increases (the way Bloomberg did the math). Using Bloomberg’s math and assuming that credit card debt is rolled every day, a person with an average credit card balance of $500 over the last 365 days borrowed $182,500 (365*500).

B) $13 billion in income

The study states they took the average net interest margin. This is wrong. The advantage of Fed loans is that they are borrowed at below market rates. The advantage is the difference between the interest rate on the Fed loans and market interest rates, which will be substantially lower than average net interest margins.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:43 am

Jay

all you can manage is a “come on”

Russ is so intellectually dishonest it smells from here to Denmark

why not a go F!!! yourself

muirge0 November 29, 2011 at 11:39 am

why not a go F!!! yourself

I can’t get enough of this! Please, Nikolai: post more. And after you post, post yet again.

It’s like God himself commanding the flowers to grow and bloom: “Encore! Bloom again, O Flower!” That modest example scarcely suffices to illustrate the effect you have on your many admirers, Nikky.

Adam Smith November 29, 2011 at 7:46 am

“A pregnant protester named Jennifer Fox has miscarried after being pepper sprayed and hit in the stomach by Seattle police officers during an Occupy Seattle peaceful protest last week.”

http://www.buzzfeed.com/mjs538/pregnant-woman-miscarries-after-being-sprayed-with

Are there any men in America? Or just boys, waiting to speak until you are spoken to. Worse still only yobs? (Boy spelled backwards).

I can’t claim to be any better, it’s far too dangerous be a player on the fields of life, when one can watch from the safety of one’s own flat, drinking a pint with your mates.

Good luck in this weeks’ Fantasy Freedom League Draft. I’m picking Samuel Adams in the first round and Thomas Paine in the second. Cheers.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 7:52 am

Don and Russ will cheer this news

muirge0 November 29, 2011 at 11:40 am

Just as your ardent fans everywhere cheer you!

Michael November 29, 2011 at 8:34 am

Wait, something doesn’t smell right.

How did the Fed manage to hide loans that amounted to more than half of GDP?

And if they did manage that, what kind of collateral did the banks provide? It sure as hell wasn’t enough to cover half of GDP. Is anybody familiar with the rules surrounding the Fed’s collateral policies?

Nikolai Luzhin, Eastern Promises November 29, 2011 at 8:54 am

For starters the loans were no for half of GDP. As explained above with the $500 credit card balance being carried for 365 days

What difference does it make what collateral was provided? How is such relevant to anything, today? The information would be as useless as trying to find out now who supplied cotton and wool for civil war uniforms.

Focus on what matters. To sell DVDs and T-shirts and so curry favor with the Koch brothers this blog is going to attack the Fed, trying to limit its future conduct, which is something we do not need.

carlsoane November 29, 2011 at 9:45 am

The collateral is the critical piece of information. The lender of last resort should lend to illiquid banks, but risks bringing the system down if it lends to insolvent banks.

muirge0 November 29, 2011 at 11:42 am

You’ve outdone yourself, Nikolai. I have to admit that I chuckled conspiratorially along with you upon skimming — er, I mean, reading — that line about civil war uniforms. Heh, heh, good one!

Captain Profit November 29, 2011 at 9:07 am

“Saved by the bailout, bankers lobbied against government regulations”

I’d hazard a guess that the bankers in question are opposed to a certain subset of “government regulations” while remaining quite supportive of others.

Methinks1776 November 29, 2011 at 10:40 am

And you’d be right. Regulations that block their own ability to take subsidized risks are vehemently opposed. Regulations that simply impede competition are very much encouraged.

anthonyl November 29, 2011 at 9:11 am

Is 7.7 trillion a lot of money? I’m not sure anymore.

vikingvista November 29, 2011 at 10:31 am

It is now, but give it a couple years.

Slappy McFee November 29, 2011 at 9:22 am

I would like to withdraw my objection to banning people from the forum.

I still don’t think Muirgeo has reached that point but someone has.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 10:09 am

Don and Russ

Don can’t. His hero Mencken favored totally uncensored speech, so Don either has to put up with me (and the truth) or ban me and expose this he lies when he worships Mencken

muirge0 November 29, 2011 at 10:56 am

(Applause! Encore!)

You’ve outdone yourself this time, Nikolai! Who said that epic poetry died long ago? You’re Homer, Virgil, and Dante, combined.

You should collect your posts and try to get them published as an anthology. You could title it “Cafe Hayek Agonistes“.

I’d be first in line to buy a copy — and please: autograph it for me, would you?

Just freakin’ brilliant.

Iain November 29, 2011 at 12:38 pm

This is what you call brilliant? You must be the lowest of halfwits.

Fred November 29, 2011 at 1:21 pm

Your sarcasm detector needs tuning.

brotio November 30, 2011 at 12:06 am

The funniest thing about these little exchanges is, that if Yasafi were ever to actually receive Communion from His Holiness: The Divine Prophet Algore I; Leader of The Church of Anthropogenic Climate Chaos (formerly known as The Church of Anthropogenic Climate Change [formerly known as The Church of Anthropogenic Global Warming]), I’ll bet the conversation would look a lot like these replies to Little Nikki.

Paul Andrews November 29, 2011 at 10:54 pm

Please, no. All of the comments are revealing, if only for what they tell us about people who hold a particular viewpoint. Let’s leave the censorship to sites that need to censor in their attempt to uphold untenable viewpoints, such as the socialist Naked Capitalism and MMT-based Pragmatic Capitalist sites.

Paul Andrews November 30, 2011 at 5:08 am

Keynesian Brad deLong is also big on censorship.

Iain November 29, 2011 at 12:20 pm

13 billion? Who cares?! That’s chump change compared to the trillions given to European banks.

Darren November 29, 2011 at 12:38 pm

Most of us would be satisfied with a hundred thousand. Where do we apply anyway?

muirgeo November 29, 2011 at 7:16 pm

I applied. I wrote to the Fed and asked them if I could have one of their loans. They declined me saying I wasn’t an accredited institution. I wrote them back to ask how I go about getting accreditied.

Anyway its a bogus system that needs continued transparancy and massive reform. It’s the equivalent of a GSE.

Nikolai Luzhin, Eastern Promises November 29, 2011 at 10:06 pm

Alan Greenspan would have approved you.

Seriously, he interpreted parts of the Code of Federal Regulations that referred to financial institution as “anyone.”

I wrote to him, starting in 2002 or 03, saying this is nuts. I doubt my letters got past the censor at the Ayn Rand desk.

brotio November 30, 2011 at 12:11 am

Yasafi,

I was on the board that reviewed your loan application. I told The Ben Bernanke that I fully understood his need to lube his fellow Statists (some people will do anything to keep a job – look at what Bill Clinton married), but that he should have a little pride, and insist they have a double-digit IQ.

muirgeo November 29, 2011 at 7:12 pm

Just so you all know the audit that lead to this disclosure of the Feds massive bank bailouts was a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Methinks1776 November 29, 2011 at 8:27 pm

Dodd-Frank mandated a one time audit of the Fed. If that’s all the Dodd-Frank crapfest did, that would be fine.

Dodd-Frank didn’t lead to the disclosure of anything. Bloomberg fought the Fed in court to release the audit under the Freedom of Information Act. The Fed appealed until it could appeal no more. Dodd-Frank had nothing at all to do with that information being revealed to the public. For that, we have to thank a Bloomberg’s willingness to fight for it.

The Fed should be audited yearly and the audit should be posted online.

Greg Webb November 29, 2011 at 9:06 pm

George, you really are uninformed.

brotio November 30, 2011 at 12:14 am

If brains were manure, Yasafi wouldn’t be able to fertilize a grasshopper’s garden.

Henri Hein November 30, 2011 at 1:03 am

Something is missing from this story. It lists the banks that got Federal loans and implies that these banks would appear less healthy if we knew they were getting those loans. There are two problems with this. First off, my sense is that taking short-term loans from the Federal reserve is pretty routine in the banking industry. Secondly, and more important, some banks may have been pressured to take loans. This definitely happened with TARP, so why could it not also be a factor here?

Methinks1776 November 30, 2011 at 1:34 am

I guess that would depend on what you mean by “routine”. It’s not the banks’ preferred source of funding. Banks prefer to borrow from each other. There is a stigma associated with accessing the discount window as it signals other banks that you may not be a good credit risk and couldn’t get financing in the interbank market (even though the reasons for accessing the window may be entirely innocuous) . Plus, borrowing from the lender of last resort is more expensive than borrowing in the interbank market.

I don’t remember anything about the fed forcing banks to access the discount window. I do remember the Fed pimping the discount window like a two dollar whore beginning in the second half of 2007. If you remember, this was around the time inter-bank lending seized up.

anthonyl November 30, 2011 at 6:47 am

None of this had to happen if we had stuck with a gold standard.  No one can mess with gold like they can a fiat currency.  Manipulation of currency is used by governments to cause misallocations of resources to occur.  Exactly the situation we are in now.
Socialism at it’s finest. 

muirgeo November 30, 2011 at 7:02 am

If you want to know what it’s like to be on the gold standard look to Europe.

Vangel November 30, 2011 at 3:11 pm

It seems that the Austrian Economists were right yet they are still being ignored. It is time that the Fed was fully audited and that we got to the bottom of the gold status issue. How much gold does the Fed really hold and how much of that belongs to foreign countries?

Chucklehead November 30, 2011 at 9:25 pm

The 6.000 tons of gold at the NY Fed is owned by Europe, Japan & the IMF. There is another 3,000 tons at JFK owned by Scotia Bank and HSBC. The US 8,000 tons of gold is at West Point & Fort Knox.
http://www.youtube.com/capitalaccount#p/u/12/oZkNSfh2oz0

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