1912 Cartoon

[don]

one year later the federal reserve was created

[EJ]

Re: 1912 Cartoon

one year later the federal reserve was created

"No one could have seen it coming."

[Mega]

Re: 1912 Cartoon

The British empire was finished, "they" needed a new head office.....

[Verrocchio]

Re: 1912 Cartoon

Not much has changed since this cartoon was drawn. The Octopus made $3.3 trillion in loans during the Global Financial Crisis of 2008 and 2009. Goldman Sachs went to the Overnight Emergency Lending Program 84 times for nearly $600 billion in 2008 and 2009. Not to be outdone, Morgan Stanley made 212 calls on the Primary Dealer Credit Facility. The extent of the backstop they enjoy is staggering. The high-risk gambling they did turns out to be low- or no-risk because the Octopus was there to cover their losses. Sweet, eh?!

[Verrocchio]

Re: 1912 Cartoon

For one of the most dramatic contemporary illustrations of the dollars being disgorged by the Octopus into the gaping maw of Wall Street, read Matt Taibbi's Rolling Stone article, The Real Housewives of Wall Street: Why is the Federal Reserve forking over $220 million in bailout million in bailout money to the wives of two Morgan Stanley bigwigs?

Learn how... ...the government lent taxpayer money to the same assholes who caused the crisis, so that they could then lend that money back out on the market virtually risk-free, at an enormous profit.

[EJ]

Re: 1912 Cartoon

Not much has changed since this cartoon was drawn. The Octopus made $3.3 trillion in loans during the Global Financial Crisis of 2008 and 2009. Goldman Sachs went to the Overnight Emergency Lending Program 84 times for nearly $600 billion in 2008 and 2009. Not to be outdone, Morgan Stanley made 212 calls on the Primary Dealer Credit Facility. The extent of the backstop they enjoy is staggering. The high-risk gambling they did turns out to be low- or no-risk because the Octopus was there to cover their losses. Sweet, eh?!

Our analysis of the data that Bloomberg extracted from the Fed using the Freedom of Information Act reveals that the Fed forecast a $4.2 billion gain on its financial crisis lending, only to lose $219 billion instead. The big question is, how do you get on the list to be available for Fed lending?

[Fiat Currency]

Re: 1912 Cartoon

"No one could have seen it coming."

http://mises.org/daily/5886/Withhold...-from-the-Khan

Withholding Consent from the Khan

People all over the world — in the United States, the eurozone, Asia, Africa, the Middle East, and everywhere in between — are now inescapably facing the consequences of a century of unmitigated fiat-currency expansion. In response, a global movement has risen to search for solutions to the central-bank-engineered deterioration of standards of living, purchasing power, employment prospects, and economic health in general.

In the United States, this pursuit is embodied by two superficially different — though both hopelessly naive and economically underinformed — political movements: the numerous Occupy groups and the so-called Tea Party. But both factions ultimately kowtow before the state, worshiping either its welfare or warfare.

Is activism that appeals directly to the political class and central bankers — the individuals who are directly responsible for the current economic morass — a logical course of action? A review of history reveals some alternatives; what follows is one of them.

Beginning in 1206, Mongol invaders swept west and east from central Asia to become the largest contiguous empire in the history of the world. As it expanded, the conquered territories were administratively partitioned into subkingdoms where the Khan's rulings could be enforced in accordance with local political and cultural flavors. One such subkingdom was the Ilkhanate, which covered portions of modern Iran, Iraq, Syria, Turkey, and Afghanistan, and had as its seat of power the city of Tabriz.

In 1291, Rinchindorji Gaikathu, a former governor of Anatolia, took the throne of the Ilkhanate. Like most politicians, Gaikathu was a reckless spendthrift and wasted no time finding numerous causes on which to squander the treasury in his effort to consolidate power. He gave generously to the Nestorian Christian sect, which was struggling against Zoroastrian oppression throughout portions of modern-day Iraq, perhaps investing in hope of their assistance with another project: a planned, but never-undertaken, seizure of Baghdad. But most of all, Gaikathu was known for his colossal expenditures on personal extravagance and debauchery. And so it was that, by 1294, the Ilkhanate's coffers were drained and its treasury on the brink of bankruptcy.

Ordinarily — again, like most politicians — Gaikathu would simply have imposed a crushing raft of taxes, tithing, and fees on the populace in order to extort funds; a coincident "cattle plague," however, thwarted the standard confiscatory tactics of the state. In a panic, he attempted to raise funds by selling bonds in Baghdad and Shiraz. But an ancient and time-honored credit agency — reputation — confounded his efforts, leaving the vast territory entrusted to him even closer to financial ruin.
....

[oddlots]

Re: 1912 Cartoon

Missed that Taibbi piece. Thanks.

[Verrocchio]

Re: 1912 Cartoon

Great chart, EJ!

With regard to the Fed's estimated profits and their actual losses, the GAO's July 2011 report on the Federal Reserve contained seven recommendations, of which several concerned conflicts of interest and risks. Most relevant to profit-loss is Bullet Point 5:

• Document a plan for estimating and tracking losses that could occur under more adverse economic conditions within and across all emergency lending activities and for using this information to inform policy decisions, such as decisions to limit risk exposures through program design or restrictions applied to eligible borrowing institutions.

I don't intend to go through the entire 250-page+ document to determine the basis for this finding, but this recommendation indicates that the Fed (Octopus) didn't have this type of plan. In other words, they weren't prepared to respond to the GFC as it emerged. They didn't know what they were doing.

[oddlots]

Re: 1912 Cartoon

Maybe a pedestrian, "beginner's" question, but is the problem with the Fed a problem with Central Banking per se? Much of the "end the fed" argument seems to suggest that the market should set the price of credit and that any effort to "game" this function, for whatever reason, will end up creating opportunities for fraud and create so many unintended consequences that, in the end, even the most laudatory goals will end up being completely subverted.

There's a lot to recommend this obviously as it so neatly captures the outrageous inversion of capitalist principles we see all around us. The problem I have with it is that it doesn't, to my mind, explain why central banking emerged in the first place. From my understanding laissez-faire economics leads to private credit bubbles and busts that the markets are not able to recover from, or recover from in a way that is compatible with some semblance of a democracy intact. As Clue has pointed out the 1873 - 90 (?) recession is a case in point and it seems obvious to say both that the only thing that made this tolerable was the number of people who were still on the land and therefore somewhat insulated from monetary issues at least in terms of mean survival and that such a "purging" approach would be intolerable in an urban, (post) industrialised country nowadays.

Or to take it a bit further, my cartoon image of the Central Banker was always McCheesey-Martin "taking away the punch bowl just as the party was getting started." In fact the apparent "independence" of the fed always seemed fully justified by this notion of the central bank to run counter to political pressure and act counter-cyclically. My question is, if it is possible to find a Fed official who could articulate this role in relatively recent history, is Central Banking the problem or is it a kind of recent rot that has set in under Greenspan or whatever?

The cartoon at least suggests that there is a fatal flaw in the Fed itself that was present at it's birth. Do we really believe this? Does this mean that we think all central banks are similarly flawed? And if we were to somehow abolish them en masse, or one by one etc... when the next credit bubble occurs (which as Minsky I think rightly suggests, is one of Laissez Faire's hallmarks) how, but through central banking, are we to respond to it? Doesn't this suggest that there's kind of a model central bank that's necessary for capitalism to function, somewhat approximated by Bageshot's Lombard Street?*

To put it another way, the end-the-fed argument strikes me as a bit like the anti-Fannie Mae and Freddie Mac arguments: the corruption of these institutions is taken as proof that the government needs to get out of price-fixing of credit products as it inevitably leads to corruption and abuse. Putting aside the question of whether the fetish of home-ownership should be supported in this way (and to my mind it shouldn't, for all the reasons Hudson has explained), the thing I never see explained is how these institutions remained relatively uncorrupted for so long. Or to get to the point, if like the Fed, these institutions are fatally flawed from birth, why did they serve their goals tolerably well for so long before we descended into the bacchanalia of our recent past?

I think this suggests that taking aim at the Fed per se is a bit obtuse if it fails to account for the many years that the Fed fulfilled it's mandate without at least the extent of outrageous corruption implied by the bailouts. This is doubly so if the onset of this corruption also maps onto the period of financial de-reglation so well. As I've said before, this is why the idea that anyone could blame regulation for this crisis seems the height of absurdity to me: it's as if you'd been hearing chicken little warnings that the sky is falling for years and instead, one day, half your town disappears into a sinkhole and the chicken littles say "See, I told you." It seems ideological to me because it seems so impervious to the real facts behind the crisis. I get a similar feeling when our dear leader (Canada's PM, Harper) lectures Europe on profligate social spending while passing over the fact that it's private lending that sunk many of these economies, or rather the transfer of these bad credits onto public balance sheets. Pure, dishonest drivel.

But really, if there is something in the Fed's structure that is fatally flawed from the beginning, what is it and is there a central bank in the world that doesn't share this flaw, where is it? Are all central banks, by nature, fatally flawed?


* By the way, I watched an interesting interview with Perry Mehrling, author of The New Lombard Street here. There's also a lecture version here. (Haven't read it yet.)

[cjppjc]

Re: 1912 Cartoon

Our analysis of the data that Bloomberg extracted from the Fed using the Freedom of Information Act reveals that the Fed forecast a $4.2 billion gain on its financial crisis lending, only to lose $219 billion instead. The big question is, how do you get on the list to be available for Fed lending?

Incredible information. Did I miss something, or am I always hearing how the taxpayer made money. I thought that statement was based on reality not pubished estimates. If you have a moment, could you humor me with what happened. Is the difference just the way things are priced?

[cjppjc]

Re: 1912 Cartoon

Maybe a pedestrian, "beginner's" question, but is the problem with the Fed a problem with Central Banking per se? Much of the "end the fed" argument seems to suggest that the market should set the price of credit and that any effort to "game" this function, for whatever reason, will end up creating opportunities for fraud and create so many unintended consequences that, in the end, even the most laudatory goals will end up being completely subverted.

There's a lot to recommend this obviously as it so neatly captures the outrageous inversion of capitalist principles we see all around us. The problem I have with it is that it doesn't, to my mind, explain why central banking emerged in the first place. From my understanding laissez-faire economics leads to private credit bubbles and busts that the markets are not able to recover from, or recover from in a way that is compatible with some semblance of a democracy intact. As Clue has pointed out the 1873 - 90 (?) recession is a case in point and it seems obvious to say both that the only thing that made this tolerable was the number of people who were still on the land and therefore somewhat insulated from monetary issues at least in terms of mean survival and that such a "purging" approach would be intolerable in an urban, (post) industrialised country nowadays.

Or to take it a bit further, my cartoon image of the Central Banker was always McCheesey-Martin "taking away the punch bowl just as the party was getting started." In fact the apparent "independence" of the fed always seemed fully justified by this notion of the central bank to run counter to political pressure and act counter-cyclically. My question is, if it is possible to find a Fed official who could articulate this role in relatively recent history, is Central Banking the problem or is it a kind of recent rot that has set in under Greenspan or whatever?

The cartoon at least suggests that there is a fatal flaw in the Fed itself that was present at it's birth. Do we really believe this? Does this mean that we think all central banks are similarly flawed? And if we were to somehow abolish them en masse, or one by one etc... when the next credit bubble occurs (which as Minsky I think rightly suggests, is one of Laissez Faire's hallmarks) how, but through central banking, are we to respond to it? Doesn't this suggest that there's kind of a model central bank that's necessary for capitalism to function, somewhat approximated by Bageshot's Lombard Street?*

To put it another way, the end-the-fed argument strikes me as a bit like the anti-Fannie Mae and Freddie Mac arguments: the corruption of these institutions is taken as proof that the government needs to get out of price-fixing of credit products as it inevitably leads to corruption and abuse. Putting aside the question of whether the fetish of home-ownership should be supported in this way (and to my mind it shouldn't, for all the reasons Hudson has explained), the thing I never see explained is how these institutions remained relatively uncorrupted for so long. Or to get to the point, if like the Fed, these institutions are fatally flawed from birth, why did they serve their goals tolerably well for so long before we descended into the bacchanalia of our recent past?

I think this suggests that taking aim at the Fed per se is a bit obtuse if it fails to account for the many years that the Fed fulfilled it's mandate without at least the extent of outrageous corruption implied by the bailouts. This is doubly so if the onset of this corruption also maps onto the period of financial de-reglation so well. As I've said before, this is why the idea that anyone could blame regulation for this crisis seems the height of absurdity to me: it's as if you'd been hearing chicken little warnings that the sky is falling for years and instead, one day, half your town disappears into a sinkhole and the chicken littles say "See, I told you." It seems ideological to me because it seems so impervious to the real facts behind the crisis. I get a similar feeling when our dear leader (Canada's PM, Harper) lectures Europe on profligate social spending while passing over the fact that it's private lending that sunk many of these economies, or rather the transfer of these bad credits onto public balance sheets. Pure, dishonest drivel.

But really, if there is something in the Fed's structure that is fatally flawed from the beginning, what is it and is there a central bank in the world that doesn't share this flaw, where is it? Are all central banks, by nature, fatally flawed?


* By the way, I watched an interesting interview with Perry Mehrling, author of The New Lombard Street here. There's also a lecture version here. (Haven't read it yet.)

Thank you for the great question.

Leaving aside the question of the Federal Reserve as a good thing or bad thing. Because I'm not sure. To me it seems obvious that things never go on the path they were intended. Nothing goes in a straight line for long.

The video was great too.

[c1ue]

Re: 1912 Cartoon

But really, if there is something in the Fed's structure that is fatally flawed from the beginning, what is it and is there a central bank in the world that doesn't share this flaw, where is it? Are all central banks, by nature, fatally flawed?

The Fed's flaw is the same flaw as anything involving people: corrupt people.

The libertarians say that this can be fixed via some amorphous 'free market' price setting, but of course conveniently neglect that the free market must also work through people.

Another alternative is to end all fiat currency and fractional reserve lending, but the consequence of this is highly negative especially in a recessionary era.

What we need is a system which somehow automatically morphs from high fiat during recessions, to fractional reserve during early expansions, to 'hard money' and 'enforced savings' during peak expansions.

I sometimes wonder if even a completely random monetary system every 10 years would also be better; the randomness prevents the full payout from gaming the system.

[don]

Re: 1912 Cartoon

Let Them Eat Derivatives

[EJ]

Re: 1912 Cartoon

Incredible information. Did I miss something, or am I always hearing how the taxpayer made money. I thought that statement was based on reality not pubished estimates. If you have a moment, could you humor me with what happened. Is the difference just the way things are priced?

Not all of them were losers. It's just that if you net out the winners and losers you come up with a $43 billion loss.