Reforming the Financial System

[lifewasgood]

I start this post and invite all to intelligently discuss the market impact if the Federal Reserve System is to be reformed.

A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18, but Sanders said one thing already is abundantly clear. "The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street."

sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

The information coming out and that will be coming out in October is disturbing in a Constitutional Republic.

If Congress is successful in gaining oversight and approval authority over the Fed, the markets will surely react.

[lifewasgood]

Why did the Federal Reserve lend to foreign institutions during the financial crisis?

Consistent with provisions in the Federal Reserve Act, branches and agencies of foreign banks operating in the United States have the same access as domestic banks to the Fed's discount window, which is used for borrowing short-term funds. Moreover, many foreign-owned institutions operating in the United States experienced funding problems similar to those experienced by domestic institutions. Addressing the funding problems of both domestic and foreign-owned financial institutions operating in the United States was essential to restore the flow of credit to U.S. households and businesses and to encourage a stronger economic recovery and a return to full employment.

www.federalreserve.gov/faqs/banking_12843.htm

Addressing the funding problems of both domestic and foreign-owned financial institutions operating in the United States was essential to restore the flow of credit to U.S. households and businesses and to encourage a stronger economic recovery and a return to full employment.

This has been a failure as credit has not flowed into households or businesses resulting in a economic recovery.

One Reform would be to halt the feds ability to create the money to loan without first coming to Congress for a vote and presidential signature to do so. The Fed could make its request to the Treasury and the Treasury could then make it part of the budgetary requirements to congress. Thoughts?

[maui1]

we don't need a fed. central planning can't do what the mass free market economy can do. tinkering has not helped flat line our economy, in fact it has done the oppistie............and magnified each down and each up market.

[maui1]

i don't even want to go into the propensity to have political greed, favoritism, theft.........of having a central planning monetary agency.

[lifewasgood]

Agreed, but in reality the best we can hope for is congress removing fed authority to create money on the fly. What would be the impact to the markets? I think initially it would be a Hugh collapse of stocks until real value was reestablished and then a recovery. Many companies listed on the stock exchanges would simple go bankrupt, Banks would suffer and force themselves into a downsizing for survival. Main street America would be thrown into a depression probably worse than the 1930's. Thoughts?

[lifewasgood]

What were the Federal Reserve's emergency lending facilities during the financial crisis?

www.federalreserve.gov/faqs/banking_12842.htm

The Federal Reserve created a number of emergency lending facilities during the crisis that were designed to address severe strains in key financial markets and institutions.

In late 2007 and early 2008, the Federal Reserve implemented several programs intended to address the extremely limited availability of credit in short-term funding markets, which are frequently used by financial institutions and other businesses to finance their day-to-day operations. These programs included the Term Auction Facility, which auctioned term loans to depository institutions (that is, financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions), as well as the Primary Dealer Credit Facility and the Term Securities Lending Facility, which provided overnight and term loans to primary dealers, a group of major financial firms that have an established trading relationship with the Federal Reserve Bank of New York. The financial crisis was a global phenomenon, and many institutions outside the United States also experienced problems in obtaining short-term, dollar-denominated loans. To address this difficulty, the Federal Reserve established so-called dollar liquidity swaps with foreign central banks to help them provide dollar loans to financial institutions in their jurisdictions.

The financial crisis intensified dramatically in the second half of 2008, and many financial markets all but shut down. The Federal Reserve implemented a number of additional liquidity programs at this time to try to maintain the flow of credit to U.S. households and businesses. To reduce funding pressures experienced by money market mutual funds and borrowers in the commercial paper markets, the Federal Reserve established the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, and the Money Market Investor Funding Facility. And to address the shutdown in the markets for asset-backed securities, the Federal Reserve established the Term Asset-Backed Securities Loan Facility.

During the crisis, the Federal Reserve also supplied credit to financial institutions that were important to the entire financial system. Early in 2008, the Federal Reserve provided credit to facilitate the acquisition of The Bear Stearns Companies, Inc., by JPMorgan Chase & Co. Bear Stearns was one of the largest securities dealers in the world, and its problems in obtaining funding threatened to create a domino effect for other securities dealers and other markets. Later in 2008, the Federal Reserve provided credit to support American International Group, Inc. (AIG)--one of the largest insurance companies in the world--to allow time for an orderly resolution of the firm's difficulties. In 2010, the Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which is designed to address many of the fundamental problems seen during the crisis, and the Federal Reserve is working with other regulators and federal agencies to implement the new law. The Dodd-Frank Act gives federal authorities additional tools to address in the future any problems like those experienced by Bear Stearns and AIG.

This clearly shows the Feds #1 concern was market collapse. (Financial Institutions) This invites the argument that the markets are not free, but fixed by way of the Federal Reserve unethical handouts to conflicting interests. Had this not happened, the markets would have collapsed and a new beginning would have emerged. We are still stuck in the same old problems with no new solutions. Time for a Change I think.

[silverguy25]

So you get rid of the Fed. Who dispenses/creates the money now? Government? We've seen how well and behaved they are about borrowing money, just imagine them with total control of the printer

[lifewasgood]

No, don't get rid of the Fed, just require congressional oversight and presidential authority to increase the Dollar supply via Treasury. I agree congress is stuck in one uping each other, but as seen so often, regular folks in mass can influence the house of representatives.

[lifewasgood]

Wall Street Reform

www.treasury.gov/initiatives/wsr/Pages/wall-street-reform.aspx

The financial crisis cost millions of jobs, erased more than $16 trillion in household wealth, and deeply scarred confidence in the integrity of the financial markets. The Dodd-Frank Wall Street Reform and Consumer Protection Act addresses key gaps and weaknesses in the system to help make future financial shocks less likely and less damaging. That’s critical because investors need confidence in the underlying safety, stability, and integrity of the financial system if they are going to put their capital to work financing new products, new businesses, and new jobs. The Dodd-Frank Act’s reforms are vital to restoring that trust and rebuilding a pro-growth, pro-investment financial system. It helps achieve those objectives by:

•Promoting a Safer, More Stable Financial System Focused on Sustainable Growth and Job Creation.
•Putting in Place a Dedicated Watchdog for Consumers.
•Bringing the Derivatives Market Out of the Darkness and Into the Light of Day.
•Providing New Tools for Winding Down Failing Firms Without Putting the Economy in Jeopardy.

Funny how 16 Trillion is the magic number for some reason.

Bringing the Derivatives market out of the dark will be a real eye pooping experience to say the least.

[silverguy25]

I see, but in order to do that you'd have to turn the FED into a truly government entity. Right now its hanging around in a quasi governmental role, but can still tell the government to F off.

[lifewasgood]

You are correct, but the quasi is the troubling part as we now know there was unethical behavior by the Fed and banks during the crisis. Had this been a true government agency ethics laws would apply and many Fed chiefs would be in cuffs right now.

[lifewasgood]

Conflict of interest did not seem to phase those engaged in the unethical behavior.

[maui1]

anyone can print money.......your printer down the street can do what needs to be done.

the importance is to have what is printed, established as backed by something of measurable value.

if it goods, gov't lands, what ever.......it needs to be simply measured and valued.........this is one of the reasons, that over thousands of years, gold/metals have been that entity.

[lifewasgood]

The point of the thread and I would respectfully like to keep it to speculation on how and what happens to the markets when/if real financial system reform is achieved. Short term and long term. Reform is not always good but it will bring change. So bring on the reform ideas but follow-up with short and long term market impacts.

[maui1]

The point of the thread and I would respectfully like to keep it to speculation on how and what happens to the markets when/if real financial system reform is achieved.

like greece, america will change, when confronted with outside force. talk will continue until talk is not accepted anymore.......and from all the disgust witnessed in public opinion, we are not far away.

[lifewasgood]

Deficit reductions — it’s all in how you measure
Neither Reid's nor Boehner's proposal would be enough to keep the debt from growing

According to what the Congressional Budget Office has forecast, both of these proposals would be inadequate to keep the debt from growing above the level it will reach by the end of this fiscal year, about 70 percent of gross domestic product, or GDP.

Proposing solutions that don't solve the problem, means either the problem is not real and does not require a real solution or the system is so broken it needs overhauled at the basic level, ie Financial System.

[lifewasgood]

Could Tax Reform Make the Financial System Safer?

economix.blogs.nytimes.com/2011/07/21/could-tax-reform-make-the-financial-system-safer/

The House Ways and Means Committee and the Senate Finance Committee held a joint hearing last week — the first time these two committees had met in this fashion to discuss taxation in more than 70 years, their chairmen said. The theme of the hearing, “Tax Reform and the Tax Treatment of Debt and Equity,” might sound dry, but in fact it was well designed to carve out some space for agreement across the political spectrum.

The basic question at the hearing was: Did the tax code contribute to the severity of the financial crisis in 2008-9? At one level the answer is a simple yes, because the tax deductibility of interest payments encourages families to take out bigger mortgages and companies to borrow more relative to their equity capital. (Dividend payments to stockholders are not tax deductible.)

Maybe Congress is waking up and will work to level the taxation playing field which helps reforming the financial system.

[maui1]

the only way to stop our debt from rising from 14.5 trillion, is to vote against raising the debt ceiling forcing the gov't to prioritize, get smaller, and be more efficient.

[lifewasgood]

Yes,

But doing it in one ax swing will cause collateral damage and drive us into a depression. (Maybe that is what is needed) That kind of financial collapse is all the president needs to evoke marshal law and suspend congress. Then what?

A better solution is to overhaul the Fed by requiring congressional approval through the treasury requests for increase in monetary supply and how much the fed can loan from one budget cycle to the next. This takes the conflict of interest unethical antics of the Fed out of the picture. True it will increase lobbying to congress but that puts the issue one step closer to the voters.

[maui1]

But doing it in one ax swing will cause collateral damage and drive us into a depression.

only forced change will result in change. we will take a hit, but it is coming anyway........better me than my grandchildren.

[lifewasgood]

Not so sure, it depends on the hit, if cutting off my arm to save the grand children's ability to live and prosper in a free society, then I am in, but if it means I become crippled and the Grandchildren are put in financial bondage, well probably need to rethink the ax approach.

This gets right back to reforming the financial system. It is a debt system and lives and breaths on debt. The system needs to be changed in order for us to prosper.

Keep in mind government spending supports a very large portion of the countries employment, directly and indirectly. Cutting a third of the budget quickly will send unemployment through the roof. This will cause more social welfare programs to support the newly unemployed. The domino effect would also send stocks to the basement as so many of the major corporations operations in this country are heavily weighted with DOD money.

We are in a trap and must be very careful how we pull the jaws apart, or we could lose more than a little blood.

[maui1]

Not so sure, it depends on the hit, if cutting off my arm to save the grand children's ability to live and prosper in a free society, then I am in

that is what our future requires........the sooner we get that thru our heads the quicker we can limit our loss to just our arm, figuratively (funny) speaking of course.

[decoy409]

Life, from your post above:

"The financial crisis cost millions of jobs, erased more than $16 trillion in household wealth,..."
(end)

That's some good comedy!!!

Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts

www.unelected.org/audit-of-the-federal-reserve-reveals-16-trillion-in-secret-bailouts

Little strange those numbers both on the mark as they are.

[lifewasgood]

(Reuters) - A bill to cut the deficit faced a nail-bitingly close vote in Congress on Thursday as the top Republican lawmaker sought to quell an internal revolt and push his plan to avoid a ruinous default.

Approval of a plan by House of Representatives Speaker John Boehner would break the inertia in Washington over a debt crisis that has spooked markets and raised the prospect that the government of the world's largest economy will run out of money to pay its bills in less than a week.

President Barack Obama has threatened to veto the bill and a majority of the Democratic-controlled Senate has vowed to vote against it.

But a successful vote in the House would give the bill legitimacy and make it a crucial element of the legislative chess game that is likely to play out up to August 2.

That's when the Obama administration says it will run out of funds to pay the country's bills unless a $14.3 trillion borrowing limit is increased.

www.reuters.com/article/2011/07/28/us-usa-debt-idUSTRE7646S620110728

With all the Debt Ceiling, Budget Cuts and Tax Revenue debates, I must ask is this really the solution to the problem? I think not! Monetary reform has to be top priority IMO

[maui1]

we will never fix the spending issue until we fix our revenue source, which is taxes.

how can we budget when we don't have any idea where our tax money comes from? the gov't was expecting at least 25% of GE's 14 billion dollar net profit, but due to the tax structure, or lack of one, the gov't got a bill from GE instead.

how does someone budget like that? can you budget your household or small business, like that?

[lifewasgood]

How the Nation’s Only State-Owned Bank Became the Envy of Wall Street

The Bank of North Dakota is the only state-owned bank in America—what Republicans might call an idiosyncratic bastion of socialism. It also earned a record profit last year even as its private-sector corollaries lost billions. To be sure, it owes some of its unusual success to North Dakota’s well-insulated economy, which is heavy on agricultural staples and light on housing speculation. But that hasn’t stopped out-of-state politicos from beating a path to chilly Bismarck in search of advice. Could opening state-owned banks across America get us out of the financial crisis? It certainly might help, says Ellen Brown, author of the book, Web of Debt, who writes that the Bank of North Dakota, with its $4 billion under management, has avoided the credit freeze by “creating its own credit, leading the nation in establishing state economic sovereignty.” Mother Jones spoke with the Bank of North Dakota’s president, Eric Hardmeyer.

motherjones.com/mojo/2009/03/how-nation%E2%80%99s-only-state-owned-bank-became-envy-wall-street

I think every State should have a bank, such as ND.

[decoy409]

maui1 says,"we will never fix the spending issue until we fix our revenue source, which is taxes."

Why maui1,those were FIXED long,long ago and updated when the Fed moved on in for good.

[jarhead1976]

The government says my share of the national debt is @ $48,000. Let me pay that off in 2 years using what money is payed on my federal income tax each of those 2 years. Then I will no longer have any use for the federal part of the money game. I will reject all futher benifits while getting to keep my federal income taxes from that point on. Let them feed off each other ( Congress ) and stop feeding off me. I will ask nothing of them and they can expect nothing more from me.

[decoy409]

jarhead, wouldent that be great! However sad that it can't work that way. Don't know if you were around the MSN MT board a few years ago however we had a very similar conversation. Many were considering getting the heck out of town however first you had commitments to your homeland here to cover before checking out.

[lifewasgood]

WASHINGTON — Demoralized House Republicans are trying for a third straight day Friday to pass a bill on raising the country's borrowing authority that has almost no chance of surviving the Senate, even as the clock ticks closer to next week's deadline for avoiding a potentially calamitous government default.

House Speaker John Boehner, a Republican, suffered a stinging setback Thursday when, for a second consecutive day, he had to postpone a vote on his proposal to raise the borrowing cap, known as the debt ceiling, while cutting federal spending by nearly $1 trillion.

www.msnbc.msn.com/id/43923236/ns/politics-capitol_hill/?gt1=43001

So far none of the report proposals are addressing the real issues, except maybe the Ryan Plan was pointing in the right direction. From my understanding we need to Trim 16 Trillion in 10 years which means roughly 1.6 Trillion in cuts every year for 10 years. Decoy, the goofy 16 Trillion number comes up again.

The house freshman class is standing firm on getting serious about the debt and deficit problems. The senior class man are taken back by the lack of respect the freshman are showing for the old way of doing business. This is becoming a real show!