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Old 03-19-2009, 10:59 AM   #41
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Originally Posted by ChrisC View Post
For the most part you have it right. However, the Federal Reserve System is not independent of the government; it is the government in many senses. The Board of Governors of the Federal Reserve System, with its current Chairman Bernanke, is as governmental as you can get, but they are so supposed to be "independent" of the Executive and Legislative Branch. They are part of the "administrative state" of the Federal Government which runs most of our Governmental operations. The Federal Reserve System includes the Federal Reserve Banks, which are not governmental in many cases; in fact, I think the Banks are owned by "member banks" in terms of "stock ownernship" but the Banks are essentially under the control of the Board of Governors, as the Banks carry out monetary and supervisory policies of the Fed. The Federal Reserve Banks have big balance sheets and the most important one is the NY Fed Bank, which also serves as the depository institution for the U.S. Government!

So when AIG initially received loans from the NY Fed Bank, which only lends when fully collaterialized or secured, the press reported this as Federal money; well, it's probably more complicated than that, but yes in a sense this was Federal money but not "taxpayer dollars." Money that the Federal Reserve Banks have in their vaults is probably dervived from many sources, including services it charges member banks, loans it makes to others, fedwire charges, custodial services, correspondent bank services, etc.

Not sure it's accurate to say that when the Fed does not have anything in its vaults the Fed prints the money. Federal Reserve Notes (american currency) is fiat currency, so the Notes or digital book entry configurations of the currency just increase the supply of currency in circulation and the Fed may also inject liquidity in the economy in a number of ways -- i.e. relaxing "bank reserve requirements."
Yes, I find this confusing: so in a nutshell the real tie of the Federal Reserve Bank to the US Treasury is through the Board of Governor's, otherwise, they can act independently like a private entity? For T-Al's question, then, the Federal Reserve, a private entity, purchased US Treasury notes - it would be like China purchasing them of some other bank. It could be the word "Federal" that leads one to believe it is part of the US Government....although, isn't the Federal Reserve responsible for M1 (total amount of dollars in circulation)? So wouldn't there be a conflict of interest of sorts in that they own a US Treasury Bond, but they control the amount of dollars that are being circulated? Is that why the statement is made later that the Federal Reserve could affect the long-term interest rates by controlling M1 thereby indirectly (or directly) affecting interest rates?

It seems like the Federal Reserve is one of the 'private-public' entities that can be used by the US Government to control certain aspects of the banking business. However, one would hope that acts such as the one described above wouldn't need to happen very often. I'm not a fan of the government, yet again, going in and fiddling with the knobs not knowing exactly what the systemic response will be nor what the lag factor is....sigh.
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Old 03-19-2009, 11:47 AM   #42
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Originally Posted by MichaelB View Post
While I am not a great supporter of either the Fed or any of the recent Administrations, the problems we are facing are as much the result of we the people. Neither the Fed nor the political leadership are responsible of our collective greed, they just fanned the flames, encouraged, and turned a blind eye.
None of this problem was capable of being pulled off without Citicorp's management of the CDO's. This was totally within the control of the Federal Reserve and the solution to keep this from being part of the bank was to make it "off balance sheet". When the Federal Reserve is actively allowing non-qualified and ill-financed buyers to bid up homes, it is not collective greed, it is the ability of poorly financed individuals to purchase homes through Federal Reserve policy which made it happen.

Greenspan's response at the time in 2005 when it could have done something when they obviously understood their effect is indicative of how poorly the Federal Reserve actually does in performing it's job and understanding economic reality

Quote:
To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace.......
Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications. Nationwide banking and widespread securitization of mortgages make it less likely that financial intermediation would be impaired than was the case in prior episodes of regional house price corrections.
http://www.federalreserve.gov/BOARDD...92/default.htm
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Old 03-19-2009, 01:31 PM   #43
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Yes, I find this confusing: so in a nutshell the real tie of the Federal Reserve Bank to the US Treasury is through the Board of Governor's, otherwise, they can act independently like a private entity? For T-Al's question, then, the Federal Reserve, a private entity, purchased US Treasury notes - it would be like China purchasing them of some other bank. It could be the word "Federal" that leads one to believe it is part of the US Government....although, isn't the Federal Reserve responsible for M1 (total amount of dollars in circulation)? So wouldn't there be a conflict of interest of sorts in that they own a US Treasury Bond, but they control the amount of dollars that are being circulated? Is that why the statement is made later that the Federal Reserve could affect the long-term interest rates by controlling M1 thereby indirectly (or directly) affecting interest rates?

It seems like the Federal Reserve is one of the 'private-public' entities that can be used by the US Government to control certain aspects of the banking business. However, one would hope that acts such as the one described above wouldn't need to happen very often. I'm not a fan of the government, yet again, going in and fiddling with the knobs not knowing exactly what the systemic response will be nor what the lag factor is....sigh.
Well, the Federal Reserve System is a government operation, for the most part. (I say for the most part because there are clearly some things the Federal Reserve Banks have done that are not government-sponsored but have become integral parts of our economy such as development of the Fedwire system of payments.) And the tie that binds the Banks to the Board of Governors is fairly strong, including the FOMC. Federal Open Market Committee - Wikipedia, the free encyclopedia But the Federal Reserve Banks are curious quasi-governmental entities created by an Act of Congress, performing private and governmental functions. I think many find this confusing but it's simply a few degrees removed from Alexander Hamilton's First Bank of the United States, which was the first Central Bank of the U.S.

You want confusion; try understanding the Federal Home Loan Banks, which are GSEs.
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Old 03-19-2009, 01:38 PM   #44
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Well, the Federal Reserve System is a government operation, for the most part. (I say for the most part because there are clearly some things the Federal Reserve Banks have done that are not government-sponsored but have become integral parts of our economy such as development of the Fedwire system of payments.) And the tie that binds the Banks to the Board of Governors is fairly strong, including the FOMC. Federal Open Market Committee - Wikipedia, the free encyclopedia But the Federal Reserve Banks are curious quasi-governmental entities created by an Act of Congress, performing private and governmental functions. I think many find this confusing but it's simply a few degrees removed from Alexander Hamilton's First Bank of the United States, which was the first Central Bank of the U.S.

You want confusion; try understanding the Federal Home Loan Banks, which are GSEs.
So, it really isn't a true national bank, but can act both on private as well as public or governmental interests, which makes it a bit dicey to understand, which leads to difficulty in 'regulating' or controlling. To get back to T-Al's question then, as I understand it, what is the significance of the Federal Reserve Bank purchasing Treasury Bonds - it seems it isn't a day-to-day thing that occurs. I guess I'm with T-Al in why is their an uptick in the eyebrow raising and based on the responses here, is it truly a precursor to hyper-inflation. Also, is there a conflict of interest as I described in my previous post in that they can affect the interest rate on the bonds by either adding to the money supply or subtracting from the money supply. Is that ability what is raising the eyebrows? And lastly, what would drive the Federal Reserve to take such an action, if it truly is one that is extreme in nature?

Thanks! Oh, and if I just am obtuse and don't understand what was written before, then I can be re-directed.
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Old 03-19-2009, 01:41 PM   #45
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Fed decides to buy Treasurys

It sounds like the government is borrowing money from itself. Help me understand what they did and how it helps. Thanks.

Also why isn't it "treasuries" instead of "treasurys?"
Here's a 3 minute explanation recommended by a well known economist (I got the link from Mankiw):

FT.com / Video & Audio / Interactive graphics - Quantitative easing explained

Basically, the Fed may be "public-private", but it has the right to create the stuff in your wallet. It created some to buy these bonds. It understands that there is real inflation risk in doing this, but is trying to walk a fine line where they do more good than harm.
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Old 03-19-2009, 02:24 PM   #46
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Here's a 3 minute explanation recommended by a well known economist (I got the link from Mankiw):

FT.com / Video & Audio / Interactive graphics - Quantitative easing explained

Basically, the Fed may be "public-private", but it has the right to create the stuff in your wallet. It created some to buy these bonds. It understands that there is real inflation risk in doing this, but is trying to walk a fine line where they do more good than harm.
Independent - that is an awesome link - thanks so much - and yes, it answered all of my questions:

1) It is about money supply and what can be done with that money supply
2) I didn't realize the central bank's ability to directly regulate the interest rates right now has been obviated by the low interest rates (close to q)
3) This is an extreme measure to undo that 'upside-down' situation as described by the video
4) This is a big deal and the systemic response is an unknown with possible non-response to hyper-response

Again, thanks for posting that.
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Old 03-19-2009, 02:44 PM   #47
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So, it really isn't a true national bank, but can act both on private as well as public or governmental interests, which makes it a bit dicey to understand, which leads to difficulty in 'regulating' or controlling. To get back to T-Al's question then, as I understand it, what is the significance of the Federal Reserve Bank purchasing Treasury Bonds - it seems it isn't a day-to-day thing that occurs. I guess I'm with T-Al in why is their an uptick in the eyebrow raising and based on the responses here, is it truly a precursor to hyper-inflation. Also, is there a conflict of interest as I described in my previous post in that they can affect the interest rate on the bonds by either adding to the money supply or subtracting from the money supply. Is that ability what is raising the eyebrows? And lastly, what would drive the Federal Reserve to take such an action, if it truly is one that is extreme in nature?

Thanks! Oh, and if I just am obtuse and don't understand what was written before, then I can be re-directed.
I think the link to the FOMC, the one Independent provided about quantitative easing and perhaps this one about Open Market Operations (Open market operations - Wikipedia, the free encyclopedia) should explain the situation. Regarding the conflict of interest issue, we've designed the System such that the Fed is supposed to act in the public interest and Congress can easily control or curb "real" conflicts of interest. The Federal Reserve Banks might be enable to act like a private entity under certain circumstances but they are subject to direct oversight and control by Congress. Their charter is set by Congress so they simply can't launch into any business enterprise. And I believe any income earned by the System is turned over to the Treasury or gets "scored" for the Federal Budget."

Not sure what you mean by "a true national bank." There are Central Banks, like the Federal Reserve System or the Bank of England, and there are "national banks" that are federally charted and regulated by the Office of the Comptroller of Currency in the U.S. Department of the Treasury. Even "national banks," which are "private" depository institutions chartered by the OCC, like Bank of America, carry out some "public" features like collect taxes for the Federal Government through TT&L accounts or perform all sorts of initial law enforcement activities like money laundering or suspcious activities report filings.
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Old 03-19-2009, 02:46 PM   #48
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Mortage rates down
Old 03-19-2009, 04:40 PM   #49
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Mortage rates down

I heard on the news today that mortage rates have come down 1/4 today. They dont think they will stay down long. So thought I would mention it in event anyone wants to re finance.
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Old 03-19-2009, 09:43 PM   #50
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Just locked in at 4.875%. Thought I had a 4.5% a few months ago, but I missed out. While I was waiting for it to drop back down it went up into the 5s. So this time I'm jumping on it, and if it goes down further during the process I can renegotiate for a small fee.
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