By the start of the 1960s, banking in America was in a state of flux. And as Shah Gilani explains it got ugly fast. Read more...
- What You Absolutely Need to Know About Money (Part 7)
- The New Crisis Warning Just Issued to the Federal Reserve
- What You Absolutely Need to Know About Money (Part 6)
- What You Absolutely Need to Know About Money (Part 5)
- FOMC Preview: Will the Fed Continue its $85B/Month Bond-Buying Program?
- Bernanke Testimony to Congress: The World According to the Federal Reserve
- The One Question We Must All Ask Ourselves
- Out of Answers, Federal Reserve Can Only Offer Empty Rhetoric
- Jim Rogers: "The Fed is Lying to Us"
- How to Fix the U.S. Housing Market
- Two Ways to Tell if the U.S. Economy is Ready to Get Back on its Feet
- Question of the Week: Readers Respond to Money Morning's Financial Reform Query
- How to Stop Greedy Banks From Killing U.S. Capitalism
- JPMorgan Close to $1.4 Billion Tax Refund Deal, Joining Long List of Companies Cashing In
- Having Served its Purpose, TALF Could Soon Turn a Profit for the Fed
- Apple Goes "Island-Hopping" in its War Against Google
Before the housing market crash, economists warned that record low-interest and mortgage rates were fueling a housing bubble.
Unfortunately, those fears were both overlooked and underestimated.
Now, an advisory council to the U.S. Federal Reserve is warning the Fed that its record $85 billon-a-month stimulus and ultra-low interest rates are fueling new bubbles in student loans and farmland.
"Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis," according to minutes of the council's Feb. 8 meeting.
In addition, "agricultural land prices are veering further from what makes sense," the council said. "Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates."
How did stodgy traditional banking morph into “casino banking” on a global scale? Shah Gilani explains the crooked path to where we are today… Read more...
Ever wonder where the Federal Reserve came from? Shah Gilani explains the little-known history behind the “The Creature from Jekyll Island." Take a look.
Investors will be looking to the Federal Reserve Wednesday for clues about how long it might continue its bond-buying program aimed at pushing interest rates down.
The Federal Open Market Committee is expected to release a policy statement at 2:15 p.m. Wednesday, the second day of its two-day meeting.
In keeping with a practice it began last January, the first meeting of the new year will highlight the FOMC's long-term goals and monetary policy.
The Central Bank likely will reiterate the goal it has maintained all of last year: boosting the stagnant U.S. economy.The Fed's first meeting of 2013 comes after an extraordinarily busy year, capped by two key moves in December.
That's when the Fed said it would continue spending $85 billion a month on bond purchases to keep interest rates low. At the same time, the Fed set unemployment and inflation "thresholds" instead of a date when the central bank expected to be able to raise interest rates.
"We don't see at this point that the very severe recession has permanently affected the growth potential of the U.S. economy," Bernanke told the Senate Banking Committee in his twice annual economic testimony to Congress.
Here's a look at what Team Bernanke does see in the economy:
Bernanke Testimony to Congress
No Additional Stimulus
Bernanke said elevated unemployment and subdued inflationary pressures support low interest rates into 2014, but did not give a hint of any additional stimulus measures.
Bernanke also defended previous stimulus measures, which have drawn criticism for not being worth their hefty price tags.
"If you look back at Quantitative Easing 2, so called, in November 2010, concerns at the time were that it would be a high inflationary environment, it would hurt the dollar, it would not have much effect on growth, etcetera," said Bernanke. "But since November 2010, we have had since then the QE2 and the so-called Operation Twist, we have had about 2-1/2 million jobs created, we have seen big gains in stock prices, we have seen big improvements in credit markets, the dollar is about flat, commodity prices excluding oil are not much changed, inflation is doing well in the sense that we are looking for about a 2 percent inflation rate this year."
What's at stake is whether gross criminal activity and reckless disregard for the public will continue to be whitewashed by regulators like the Securities and Exchange Commission (SEC), the U.S. Federal Reserve, courts, and Congress, which encourage half-baked civil fraud charges followed by non-prosecution agreements and nickel-and-dime fines.
And even more galling, guilty parties end up neither admitting nor denying wrongdoing.
Let's face it, we have allowed the SEC, the Fed, and Congress to be corralled as a matter of regulatory and legislative capture by the very crooks they are responsible for policing and protecting us from.
We are lying to ourselves if we do not believe that we are all part of this problem. It's not that most of us aren't honest. It's that we venerate money and wealth too much.
Rather than being disgusted by dishonest manipulators, liars and cheats, we excuse the less-than-obvious perpetrators as if their example of cutting corners to get ahead, as far ahead as possible, might clear a path for some of our own pursuits.
What have we become? Are we a nation of people with liberty and justice for all, or just a bunch of money grabbers stepping on each other's liberties to pursue self-centered happiness by becoming filthy rich?
Don't get me wrong. There's nothing wrong with the profit motive driving business. And there's nothing wrong with working hard and trying to make a lot of money. Those are honorable pursuits.
President Calvin Coolidge said: "The chief business of the American people is business."
But in the same speech made on January 17, 1925 our 30th president went on to say: "Of course the accumulation of wealth cannot be justified as the chief end of existence."
Tragically, the fountainhead of greed in America emanates from our own Congress. It has become obvious that the accumulation of personal wealth is their primary civic duty.
Indeed, with few options remaining, the Fed is expected to produce little more than a statement designed to reassure the markets following today's meeting.
"If the Fed were smart, they would use this meeting to take decisive action," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Sadly, though, I think they'll lay low and issue yet more hollow statements filled with information that at this point constitutes less than fluff."
At this point, few bullets remain in the Fed's chamber; interest rates have been near-zero for almost three years, and two programs of "quantitative easing" over the past two years have pumped $2.3 trillion into the U.S. economy.
In an attempt to show it was doing something to help the economy, the central bank said last summer that it would maintain rates at that level until mid-2013.
And while the Federal Reserve is not expected to announce immediate plans for more quantitative easing - QE3 - many believe some sort of accommodation, probably directed at the housing market, is coming next year.
"There is a 75% chance the Fed will buy mortgage-backed securities in the first half of the year, possibly by January," Lou Crandall, chief economist at Wrightson ICAP LLC, told MarketWatch.
A series of relatively positive economic reports in recent weeks - unemployment recently dropped to 8.6%, while consumer spending and manufacturing have edged upward - has eased the pressure on the Fed to take any more action this year.
As part of its strategy to maintain optimism in the markets, the FOMC will likely promise to pump more money into the U.S. economy at some point next year.
"The numbers are getting better, but not enough to keep [the FOMC] complacent," Crandalltold MarketWatch.
Word GamesRecognizing that its options are limited, the Federal Reserve instead will focus today on the one thing it can provide in near-limitless supply - words. Today's meeting is expected to focus on a new communications strategy that will offer more details on the Fed's goals for inflation and unemployment - its dual mandate - and how it plans to meet them.
The resulting low interest rates and creeping inflation, he says, are destroying the wealth of millions.
"[Federal Reserve Chairman Ben] Bernanke said last August he was keeping interest rates artificially low," Rogers told Yahoo! Financeon Tuesday. "The only way you can do that is to go into the market."
As proof, Rogers pointed to the rise in the broad M2 measure of the U.S. money supply, which has increased more than 5% since the Fed's second quantitative easing program (QE2) ended on June 30, and 20% since November 2008.
"Since August - well, this whole year - the M2 has jumped up," Rogers said. "They're in the market. They're lying to us."
A well-known critic of the Fed who has called for it to be abolished, Rogers warned that the central bank's policies would lead to disaster.
"Right now what the Federal Reserve is doing is ruining an entire class of people in America," Rogers said. "The people who saved and invested for the past 10, 20, 30 years are now being ruined because interest rates are [too] low."
He added that if he were Fed chairman, he'd raise interest rates to slow down inflation.
In a separate interview with The Streetyesterday (Wednesday), Rogers said he considered the Fed to be the greatest risk to the U.S. economy in 2012.
"They don't seem to understand economics or finance or currencies or much of anything else except printing money," Rogers said.
Painful RemediesThe other major concern that Rogers has is the soaring federal debt, which recently passed $15 trillion.
"We are the largest debtor nation in the history of the world and the debts are going higher and higher by trillions, every two or three years," Rogers said. "We're all paying the price for it. And wait till 2013 - we're really going to pay the price."
But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.
The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.
It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.
Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.
I call it a not-so-modest proposal.
The Worst Since the Great DepressionThe facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.
And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.
Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.
According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.
These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.
Simply put, there's no chance that stock investors will see a healthy, long-term bull market until credit again begins to flow freely and home prices start rising.
Unfortunately, neither the credit market nor the housing market is yet ready to lead a sustainable economic rebound. But knowing that these are the two legs on which our economy stands, we can effectively gauge their condition, and thus be better able to predict a stock market rally.
Let me explain.
To find out how you can effectively diagnose the economic recovery read on...
The Senate's second attempt at bringing the reform bill to debate occurred yesterday (Tuesday) on the same day as Goldman Sachs Group, Inc (NYSE: GS) executives - including vice president Fabrice Tourre, the only individual named in the suit - faced the Senate Permanent Subcommittee on Investigations in Washington. Tourre denied the Securities and Exchange Commission's charges and said the product in question "was not designed to fail."
Goldman was the recipient of $10 billion in bailout funds - one of the most contested topics halting financial reform progress.
The uproar over taxpayer-funded financial institution aid along with the looming financial regulation overhaul prompted our fifth installment of Money Morning "Question of the Week:" How do you feel about the status of financial reform? Has it gone far enough - will too much regulation crimp our free market system? Or does it need to go much further - and can the powers-that-be create an effective reform proposal?
Here is a collection of reader responses showing concern for the future, questions over government spending, and ideas for improvement.
What the report doesn't say is that banks - standing in the way of bank reform - don't want a simplified, standardized, and transparent securitization market, because that would revitalize free-market disciplines and undermine the control they exercise over the credit markets.
Right now, the stock market is discounting news about tight credit conditions. But analysts worry about an increasing disconnect between rallying stock prices and the hoped-for rebounds in consumer-driven growth and the U.S. housing market - both of which are struggling with a lack of access to credit. This disconnect is fostering fears of a stock-market correction.
Investors need to understand exactly what's at stake here. And they need to know how to protect themselves and - even more important - how to profit from the volatile-but-powerful capital waves that will result from this fundamental battle over our future.
A little-known provision in a November addition to the 2009 stimulus bill allows companies to apply losses from 2008 and 2009 to taxes paid up to five years ago, expanding the usual two-year limit. The " net operating loss carryback" extends the timeframe into years when companies were profiting and had to pay in each tax season.
Although companies that received Troubled Asset Relief Program (TARP) aid are not eligible for the tax break - and JPMorgan nabbed a hefty $25 million of those funds - JPMorgan is gunning for part of Washington Mutual Bank's $2.6 billion refund. JPMorgan bought the financial institution's banking operations for $1.9 billion in September 2008, after WaMu became the biggest bank failure in U.S. history and was seized by the Federal Deposit Insurance Corporation (FDIC).
In an interview with Dow Jones Newswires, Dudley, the president and chief executive officer of the Federal Reserve Bank of New York, said that the TALF program has reignited the market for securities backed by loans on vehicles and credit-card debt.
TALF was launched by the Fed to entice buyers to buy new bonds backed by auto and student loans. At the time, investors were reluctant to purchase securities backed by shaky collateral, fearing they would lose their entire investment.