The Roadrunner Paved To Hell

April 9, 2008

Elaine Meinel Supkis

April 9, 2008

Elaine Meinel Supkis

Today we get to eat popcorn and watch a very funny Wiley E. Coyote cartoon. Then we get to look into what the Fed wants to do to fix things: call Acme! Of course! Indeed, they are intent on taking over even more of our financial systems, not just destroy the banking system but the whole economy. And Volker begins a historic argument in the media about all this. Obama supports Volker as I support both. I found the official FDIC timeline of their history and the previous banking collapse of the Savings & Loans in the Southwest which brings up McCain and the Keating business. Arrest MaCain! And then we get to read the official progress report for the Federal Reserve for 2006 which was published last spring. Arrest Bernanke. And Greenspan. Put them away with McCain.

Fed Weighs Its Options in Easing Crunch

The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at the Fed; issuing debt under the Fed's name rather than the Treasury's; and asking Congress for immediate authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011.

More than one writer has compared the present banking collapse to Wiley E. Coyote going off a cliff. But if we take a moment to look at this interesting old Coyote/Roadrunner cartoon while keeping in mind the above news story, it looks pretty clear, what is really going on. Just think of the Roadrunner as the global asset collapse coupled with global inflation. And of course, Bernanke is the Coyote.

It is with not just astonishment but growing dismay, we watch Wiley try every trick his clever brain can think up only to see it destroyed by the elemental forces at work. Of course, the problem is the point of view, as always. When one leaves out all possible forces at work, it is easy to devise a solution. But once these solutions are launched, the underlying problems make themselves unpleasantly obvious. An inability to understand the surrounding fiscal and economical landscape leads to jerry-rigged solutions that only backfire. Understanding cause and effect is very important.

Once I was babysitting a child who went through a typical growth spurt that week. Up until then, the child could crawl under the dining room table and stand up. But this particular day, standing up made for a very painful whack. Crying, the child crawled back out and said, 'Who changed the table?'

From the child's perspective, the child was unchanged ergo, the table had been altered. This is how humans reason. We assume things concerning our own point of view and moving to a new perspective often happens only after it is too painful to hold old ideas.

Goodness knows, Bernanke is chock full of ideas. But has a remarkable inability to change his point of view. To himself, he thinks he has covered all his bases when he dreams up a new way of stopping the hyper-dynamics of the ongoing global asset class collapse. Just as he thinks he understands inflation and depressions. But since he has no idea of the role empires play in global collapses, he cannot see the ultimate causes underlying this collapse. So all his fixes are like Wiley E.'s clever traps. They all backfire. Often, in very dangerous ways.

I selected this particular episode from the Looney Tunes library because is shows how dynamic systems interact. When the Roadrunner spins past the fake leg set to trip him up, the energy transmitted by the speeding event unwinds unexpectedly back into the hand of Bernanke Coyote. In another scene, he hopes to get the energy from a compressed spring and use it to overtake the speeding events. But instead, it slips around his body, confining him from taking any actions. Then there is the classic train in the tunnel which he thinks is a train even though he knows for a fact, it cannot be a train. And it is not a train. It is what he knew it should be. But his doubts about cause and effect as well as TIMING causes him to stand in front of the speeding event instead of moving faster than it.

In the past, the Fed chiefs themselves love to tell us that they are driving a Wiley E. Coyote car. It has a blacked-out windshield so they can't see where they are going and the brakes and gas pedal have this long time lag delay. And this is why the Federal Reserve drives off of cliffs like clockwork. They can't help it. They are unable to see ahead at all. Of course, anyone who CAN see ahead are ignored. Say, if I were in the car, and stick my head out the side window and start yelling, 'There is a cliff ahead!' they respond by stuffing cotton in their ears or talking very, very loudly.

So here we are: to fix the out of control world events that are now causing the global banking system to collapse, they are going to play even more dangerous, stupid and useless Acme games. Mysteriously enough, each of these games are set up to give more and more power to the Federal Reserve, the author of this global banking and asset collapse! Why, if they could only drive faster, with more blind faith, we will all be safe! Heh.

Item #1 on any list of 'what is terribly wrong' is the fact that the US government has wildly overshot its budgets for every year in the last 50 years except for ONCE. This occasion so shocked everyone, the Supreme Court overruled standard election counting procedures in order to install a President who instantly flew to the rescue and reset everything so we had record government deficits which still continue. Doubling the national debt of the last 200 years in less than 7 years, we now are very deep in the red.

So...the Bernanke Coyote solution is to...increase the money the Treasury is grinding out! Way to go! Will this slow down or speed up global and national inflation? HAHAHA. The answer is obvious. This inflating of Peter to pay Paul's inflationary tactics is exactly why our nation is going bankrupt. The Federal Reserve that has been losing reserves and isn't Federal at all, will latch onto our Treasury in order to increase fiat money making so they can increase world debt creation which is why the world banking system is collapsing in the first place.

As for the 'Creating debt in place of the Treasury': the coup that began in 1913 continues. Bit by sly bit, the Fed takes over more and more elected government functions. The entire excuse for taking over the Treasury's money making abilities is now evolving into a total take over of the Treasury. The US Treasurer will get to sign the fiat IOU dollars but will have absolutely no control or power over money making. Great. The manifold disaster of the last 100 years of misbanking by the Federal Reserve will end with it devouring our entire financial systems and using it to only enrich the very rich! How unusual is that?

The founders of the Fed happen to be pirates like old J.P. Morgan himself.

Ex-Fed Chairman Chides Current One

In a speech on Tuesday, Paul A. Volcker, the imposing former Fed chief who felled the runaway inflation of the 1980s, chided the current chairman, Ben S. Bernanke, for toeing “the very edge” of the bank’s legal authority in orchestrating last month’s bailout of the beleaguered investment bank Bear Stearns.

“Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank,” Mr. Volcker told members of the Economic Club of New York.

His remarks came on the same day that Alan Greenspan, Mr. Bernanke’s immediate predecessor as chairman, deflected criticism of his tenure in an interview with The Wall Street Journal, dismissing as “unfair” claims that his policies stoked an untenable housing bubble.

I wish to remind readers that ever since Obama revealed he was going to back Volker and was talking to Volker, as soon as he also co-sponsored the bill to close down all the pirate coves where tax cheats like candidates Mitt Romney and Hill Clinton hold their ill-gotten multimillions, his star has declined in the media but risen nationwide. To the great annoyance of the media bosses. The other day, I saw on the TV news, when talking about the election, they showed only clips of Hill and John and none of Barak. He is slowly being made 'invisible'. I often comment on this. If a candidate is invisible, no one hears from or about that person and they slowly fade from view. This is a crude method used by the Soviets long ago, for example. This has been applied to my own case. I can't get in the news unless I were to commit a crime or die an ugly death. Otherwise, they blank out the screens rather than let me appear.

Volker is absolutely right, of course. The Fed is author to our mess today. And Greenspan's whining about being blamed for the goofy things he did shows us how mature he really is. This infantile analysis of his own deeds is classic. Just as Coyote doesn't learn, neither can he. The Fed itself, in its own documentation as well as things Greenspan actually said, clearly show how they enabled, assisted and promoted the housing bubble and all those destructive lending practices. And they did this in cahoots with Congress and the Presidents who wanted easy lending, funny money and all the goodies attendant with all this. And the bankers wanted this more than anyone. This is why they were is such a panic when the Fed actually began to pay down the national debt which is held by them. As well as a huge hunk held by our trade rivals and future military rivals.

Let's first visit the FDIC and their wonderful timeline they so thoughtfully produced for anyone who wishes to learn from history.

FDIC history of home lending from LBJ to Bush Jr.:

1966-1979 Market interest rates fluctuate with increasing intensity and S&Ls experience difficulty with each interest rate rise. Interest rate ceilings prevent S&Ls from paying competitive interest rates on deposits. Thus, every time the market interest rates rise, substantial amounts of funds are withdrawn by consumers for placement in instruments with higher rates of return. This process of deposit withdrawal ("disintermediation") and the subsequent deposit influx when rates rise ("reintermediation") leaves S&Ls highly vulnerable. Concurrently, money market funds become a source of competition for S&L deposits. S&Ls are additionally restricted by not being allowed to enter into business other than accepting deposits and granting home mortgage loans.

1967--State of Texas approves major liberalization of S&L powers. Property development loans of up to 50% of net worth are allowed.

1972--Hunt Commission recommendations would have created federal savings banks to replace S&Ls. The banks would have had additional authority to make commercial loans and invest in commercial paper.

1973--FINE Study would have granted same powers for S&Ls as for banks, including checking accounts. Also recommends consolidation of the regulators. Interest rate insurance was recommended if S&Ls are to remain primarily involved in housing finance.

1978--Financial Institutions Regulatory and Interest Rate Control Act of 1978 enacted. Weak version of previous recommendations. Allows S&Ls to invest up 5% of assets in each of land development, construction, and education loans.

1979--Doubling of oil prices. Inflation moves into double digits for second time in five years.

1980-1982 Statutory and regulatory changes give the S&L industry new powers in the hopes of their entering new areas of business and subsequently returning to profitability. For the first time, the government approves measures intended to increase S&L profits as opposed to promoting housing and homeownership.

March, 1980--Depository Institutions Deregulation and Monetary Control Act (DIDMCA) enacted. The law is a Carter Administration initiative aimed at eliminating many of the distinctions among different types of depository institutions and ultimately removing interest rate ceiling on deposit accounts. Authority for federal S&Ls to make ADC (acquisition, development, construction) loans is expanded. Deposit insurance limit raised to $100,000 from $40,000. This last provision is added without debate.

November, 1980--Federal Home Loan Bank Board reduces net worth requirement for insured S&Ls from 5 to 4 percent of total deposits. Bank Board also removes limits on the amounts of brokered deposits an S&L can hold.

August, 1981--Tax Reform Act of 1981 enacted. Provides powerful tax incentives for real-estate investment by individuals. This legislation helps create a "boom" in real estate and contributes to over-building.

September, 1981--Federal Home Loan Bank Board permits troubled S&Ls to issue "income capital certificates" that are purchased by FSLIC and included as capital. Rather than showing that an institution is insolvent, the certificates make it appear solvent.

1982-1985 Reductions in the Bank Board's regulatory and supervisory staff. In 1983, a starting S&L examiner is paid $14,000 a year. The average examiner has only two years on the job. Examiner salaries are paid through OMB, not the Bank Board. During this period of supervisory and examination retraction, industry growth increases. Industry assets increase by 56% between 1982 and 1985. 40 Texas S&Ls triple in size between 1982 and 1986; many of them grow by 100% each year. California S&Ls follow a similar pattern.

[ELAINE: the lesson they learned here was, no supervision=tremendous growth!]

January, 1982--Federal Home Loan Bank Board reduces net worth requirement for insured S&Ls from 4 to 3 percent of total deposits. Additionally, S&Ls are allowed to meet the low net worth standard not in terms of generally accepted accounting principles (GAAP), but of even more liberal regulatory accounting principles (RAP).

[ELAINE: this is what Basel II was trying to fix, by the way!]

April, 1982--Bank Board eliminates restrictions on minimum numbers of S&L stock holders. Previously, it required at least 400 stock holders of which at least 125 had to be from "local community", with no individual owning more than 10% of stock and no "controlling group" more than 25%. Bank Board's new ownership regulation would allow a single owner. Purchases of S&Ls were made easier by allowing buyers to put up land and other real estate, as opposed to cash.

[ELAINE: And this is the open door that let all those pirates into our banking system.}

December, 1982--Garn - St Germain Depository Institutions Act of 1982 enacted. This Reagan Administration initiative is designed to complete the process of giving expanded powers to federally chartered S&Ls and enables them to diversify their activities with the view of increasing profits. Major provisions include: elimination of deposit interest rate ceilings; elimination of the previous statutory limit on loan to value ratio; and expansion of the asset powers of federal S&Ls by permitting up to 40% of assets in commercial mortgages, up to 30% of assets in consumer loans, up to 10% of assets in commercial loans, and up to 10% of assets in commercial leases.

[ELAINE: And here are the seeds of the first banking collapse.]

December, 1982--In response to the massive defections of state chartered S&Ls to the federal system, Nolan Bill passes in California. Allows California-chartered S&Ls to invest 100% of deposits in any kind of venture. Similar plans adopted in Texas and Florida.

1983--Lower market interest rates return many S&Ls to health. 35% of institutions, however, still sustain losses. 9% of all S&Ls (representing 10% of industry assets) are insolvent by GAAP standards.

March, 1983--Edwin Gray becomes Chairman of the Federal Home Loan Bank Board. Beginning in 1984 and continuing throughout his tenure, regulatory and supervisory measures passed by the Bank Board begin the reversing of deregulation.

November, 1983--Bank Board raises net worth requirement for newly chartered S&Ls to 7%.

[ELAINE: the 'Eastern Establishment' put down its foot, hard.]

March, 1984--Failure of Empire Savings of Mesquite, TX. "Land flips" and other criminal activities are a pattern at Empire. This failure would eventually cost the taxpayers approximately $300 million.

April, 1984--Bank Board moves jointly with the FDIC to attempt to eliminate deposit insurance for brokered deposits. Federal court rejects this attempt in mid-1984 as overstepping statutory limits.

July, 1984--Bank Board requires S&L management to adopt policies and procedures for managing interest rate risk.

January, 1985--Bank Board limits the amount of brokered deposits to 5% of deposits at FSLIC insured institutions failing to meet their net worth requirements. Bank Board also limits direct investment (equity securities, real estate, service corporations, and operating subsidiaries) to the greater of 10% of assets or twice the S&L's net worth, provided the institution meets regulatory net worth.

March, 1985--Ohio bank holiday. Anticipated failure of Home State Savings Bank of Cincinnati, OH and possible depletion of Ohio state deposit insurance fund cause Governor Celeste to close Ohio S&Ls. Eventually, those that can qualify for federal deposit insurance are allowed to reopen.

May, 1985--S&L failures in Maryland eventually cause loss to state deposit insurance fund and Maryland taxpayers of $185 million. Ohio and Maryland S&L failures helped kill state deposit insurance funds.

July, 1985--Chairman Gray begins transfer of federal examiners to the twelve regional Federal Home Loan Banks so that they are no longer overseen by OMB and their salaries are paid directly by the Bank Board system.

August, 1985--Only $4.6 billion in FSLIC insurance fund. Chairman Gray tries to gain support for recapitalizing FSLIC on Capitol Hill. In 1986, GAO estimates the loss to the insurance fund to be around $20 billion.

December, 1985--Bank Board allows S&L examiners to "classify" questionable loans and other assets for the purpose of requiring loan loss reserves.

[ELAINE: History loves to run in small circles such as in this case. The fix for the mess is to destroy the true value of assets held by pretending defunct or bad loans are really good.]

1986-1989 Compounding of losses as insolvent institutions are allowed to remain open and grow, allowing ever increasing losses to accumulate.

[ELAINE: It is painfully obvious that today's attempt to do the same thing is equally doomed!]

August, 1986--Bank Board raises net worth standard gradually to 6% with up to 2% points offset for reduced interest rate-risk.

1987--Losses at Texas S&Ls comprise more than one-half of all S&L losses nationwide, and of the 20 largest losses, 14 are in Texas. Texas economy in major recession: crude oil prices fall by nearly 50%, office vacancy is over 30%, and real estate prices collapse.

January, 1987--GAO declares FSLIC fund insolvent by at least $3.8 billion. Recapitalization has stalled on Capitol Hill until now by claims of powerful S&L lobbyists that Bank Board regulations are too harsh and arbitrary.

[ELAINE: President Carter is hated because he saved us. Reagan is remembered with fondness because he presided over the near destruction of our entire banking system.]

February, 1987--Bank Board requires prior supervisory approval for S&Ls making direct investment in excess of 2.5 times their tangible capital.

April, 1987--Edwin Gray ends his term as chairman of Federal Home Loan Bank Board in June. Before his departure, he is summoned to the office of Sen. Dennis DeConcini. DeConcini, with four other Senators (John McCain, Alan Cranston, John Glenn, and Donald Riegle) question Gray about the appropriateness of Bank Board investigations into Charles Keating's Lincoln Savings and Loan. All five senators, who have received campaign contributions from Keating, would become known as the "Keating Five". The subsequent Lincoln failure is estimated to have cost the taxpayers over $2 billion.

[ELAINE: This alone should disqualify McCain from running for President!]

May, 1987--Bank Board begins phasing out the remains of the liberal RAP accounting standards. S&Ls must conform to GAAP accounting standards, as banks do. Effective date of this rule postponed by new Chairman of the Federal Home Loan Bank Board, M. Danny Wall, to 1/1/1989.

August, 1987--Competitive Equality Banking Act of 1987 enacted. The Act authorizes $10.8 billion recapitalization of the FSLIC with only $3.75 billion authorized in any 12-month period. Also contains forbearance measures designed to postpone or prevent S&L closures.

February, 1988--Bank Board introduces the "Southwest Plan" to consolidate and package insolvent Texas S&Ls and sell them to the highest bidder. The strategy is to resolve insolvencies quickly while conserving scarce cash for FSLIC. The Bank Board uses a number of strategies to pay for the difference between assets and liabilities of the failed institutions: FSLIC notes, tax incentives, and income, capital value and yield guarantees. The Bank Board disposes of 205 S&Ls through the Southwest Plan with assets of $101 billion.

November, 1988--George Bush elected President. S&L problem not part of election debate.

[ELAINE: And pray tell, who exactly is at fault here? The media owners should all have been arrested for news fraud.]

1989--President Bush unveils S&L bailout plan in February. In August, Financial Institutions Reform Recovery and Enforcement Act (FIRREA). FIRREA abolishes the Federal Home Loan Bank Board and FSLIC, switches S&L regulation to newly created Office of Thrift Supervision. Deposit insurance function shifted to the FDIC. A new entity, the Resolution Trust Corporation is created to resolve the insolvent S&Ls.

[ELAINE: As usual, after destroying a perfectly good agency by strangling it financially as well as shoving destructive rules down its throat, they launch a new entity rather than reset things to where they were when the US began its currency crisis in the late 1960's under LBJ.]

Other major provisions of FIRREA include: $50 billion of new borrowing authority, with most financed from general revenues and the industry; meaningful net worth requirements and regulation by the OTS and FDIC; allocation funds to the Justice Department to help finance prosecution of S&L crimes. Additional bank crime legislation the next year (i.e., the Crime Control Act of 1990) mandates a study by the National Commission on Financial Institution Reform, Recovery and Enforcement to uncover the causes of the S&L crisis, and come up with recommendations to prevent future debacles.

Alas, once this was established, all the rules set up in the huge banking collapse were slowly or swiftly eroded. Rules stopping wild money making via reckless lending always die the same way: it gets in the way of people wishing to make lots of money, very fast. Since profits lie in fees and processing deals, the tendency of the bankers of all stripes is to have money be as easy as possible. To have the lowest reserves possible. To have low interest rates that can reset higher in the future so they can be peddled faster and the hope being, there will be enough inflation in assets BUT NOT IN COMMERCE to pay for all this.

The desire for assets held by banks, rising, is very strong. It allows them to increase lending without increasing reserves. We see today how the opposite works. Reserves vanish as loans go belly up or people sensibly refuse to buy up older loans, freeing up banks for more business. When the present regulators of our banking system read this timeline, it should become crystal clear to them, the process they launched in 2000 is a replication of this timeline only speeded up in spades. And now it is unwinding just like back then. The FDIC was pushed literally to bankruptcy thanks to lax lending laws and regulations imposed on them by the Federal Government itself. Corrupt politicians working for sharpsters and con men, worked tirelessly to undermine and destroy regulations and controls. Then they bailed out the banking system using the wallet of the American People. This caused our national debt to rise, of course.

As the present rescue shall do. Virtually nothing has changed except the names of the organizations involved in all this. The names of the individual humans also remains remarkably the same. Indeed, McCain is rising in the world, not festering in prison again.

Time to read more government documents. This time, the report put out by the Federal Reserve over a year ago.

93rd Annual Report Federal Reserve Banking System, 2006:

Capital Adequacy Standards

Risk-Based Capital Standards for Certain Internationally Active
Banking Organizations

On September 25, 2006, the Federal Reserve, OCC, FDIC, and OTS published a joint notice of proposed rule-
making (NPR) setting forth their views on Basel II and seeking public comment on the U.S. plan for implementing the agreement. Under the proposal, the ba- sic minimum risk-based capital ratio

Revisions to Market Risk Capital Rule

On September 25, 2006, the agencies issued for public comment a notice of proposed rulemaking proposing revisions to the market risk capital rule used by the OCC, Board, and FDIC since 1997 for banking organizations having significant exposure to market risk. Under the market risk capital rule, certain banking organizations are required to calculate a capital requirement for the general market risk of their covered positions and the specific risk of their covered debt and equity positions. The proposed revisions would enhance the rule’s risk sensitivity, require the market risk capital charge to reflect any incre- mental default risk of traded positions, and require public disclosure of certain qualitative and quantitative market risk information. The comment period will end on January 23, 2007.

This paragraph was forced upon our corrupt and poorly controlled banking system by frightened Europeans. Specifically, the French and even more so, the German bankers. They needed a realistic accounting of the true value of the papers being sold across the planet by American bankers and lenders. This document came out just as the housing bubble began its great collapse. They wanted reassurance that all the SIVs and CDOs, ABX.He bonds, etc were all good and not toxic waste. The US promised to figure this all out during 2007. During that year, as they fiddled and faddled, it looked increasingly grim as the boom states all went downhill, rapidly after March, 2007. As the August deadline for valuing all these things realistically approached, panic began to show up, especially in July. July was incidentally the same month that the Japanese Carry Trade began to unwind like that fake leg in the Wiley E. Coyote cartoon.

Complex Structured Finance Activities

During the year, the Federal Reserve, FDIC, OCC, OTS, and SEC prepared a final statement on sound practices for complex structured finance transactions (CSFTs). The statement, to be issued in early 2007, describes the types of internal controls and risk-management procedures that financial institutions should use to identify, manage, and address the heightened legal and reputational risks that may arise from certain CSFTs. (Excluded are most structured finance transactions that are familiar to participants in the financial markets and have well-established track records—such as standard public mortgage-backed securities and hedging-type transactions involving “plain vanilla”derivatives or collateralized debt obligations.) Financial institutions that engage in CSFTs should, as part of their process for approving transactions and new products, establish and maintain policies, procedures, and systems that are designed to identify elevated-risk CSFTs and should ensure that transactions and new products so identified are subject to greater review by appropriate levels of management. An institution should decline to participate in an elevated-risk CSFT if it determines that the transaction present unacceptable risks or would result in a violation of applicable laws, regulations, or accounting principles.

Oh, isn't that entire paragraph funny as hell? It seems the entire planetary banking system has been asked to participate in a global elevated-risk CSFT event. And the violations of old-fashioned accounting principles: as if pirates want that? Of course not! As for the 'reputational risks of CSFTs': HAHAHA. I do believe the reputation of our banking system is akin to Mr. Coyote at the end of the cartoon above: flatter than a pancake. Run over by their own CSFTs steam roller.

Debt Services

The Reserve Banks auction, provide safekeeping for, and transfer Treasury securities. Reserve Bank operating expenses for these activities totaled $31.1 million in 2006, compared with $23.6 million in 2005. The Banks processed 148,000 commercial tenders for Treasury securities, compared with 169,000 in 2005. They originated 12.9 million transfers of Treasury securities in 2006, a 1.8 percent increase from 2005. The Reserve Banks are developing a new Treasury auction application and infrastructure that will provide increased functionality and security. The application will be operational in late 2007.

And this new application certainly was made operational in late 2007...in hysterical haste starting in August and then moving onwards, rapidly during the fall until November when it was a total 10 alarm fire. Hundreds of billions of dollars were hosed onto the blazing CSFT bonfire of vanities. The fires still burn. And the many billions are still flowing over these fires that seem to barely notice this flood of liquidity from the Federal Reserve and the Treasury.

Monetary Policy Provisions

Authority to Pay Interest on Balances Held at Reserve Banks and Greater Flexibility in Setting Reserve Requirements

For monetary policy purposes, federal law obliges the Board to establish re- serve requirements on certain deposits held at depository institutions and mandates that the Board set the ratio of requi red reserves on t ransact i on accounts above a certain percentage (8 percent for amounts above the so- called low reserve tranche, and 3 per- cent for amounts within the low reserve tranche). Because the Federal Reserve does not pay interest on balances held at Reserve Banks to meet reserve requirements, depositories have an incentive to reduce their reserve balances to a mini- mum. To do so, they engage in a variety of reserve-avoidance activities, including using “sweep” arrangements that move funds from accounts that are subject to reserve requirements to accounts and money market investments that are not. These sweep programs and similar activities absorb resources and therefore diminish banking system efficiency. Depository institutions also may voluntarily hold contractual clearing balances and excess reserve balances at a Reserve Bank. These balances also do not explicitly earn interest, although contractual clearing balances implicitly earn interest in the form of credits that may be used to pay for Federal Reserve services, such as check clearing.

The Regulatory Relief Act gives the Federal Reserve the authority, effective as of October 1, 2011, to pay explicit interest on all types of balances (including required reserves, excess reserves, and contractual clearing balances) held by or for depository institutions at a Reserve Bank. Paying interest on required reserve balances, once authorized, will remove a substantial portion of the incentive for depositories to engage in reserve-avoidance measures, and the resulting improvements in efficiency should eventually be passed through to bank borrowers and depositors. Moreover, if the Board were to deter- mine to pay explicit interest on contractual clearing balances, once authorized to do so, the action could provide a stable enough supply of voluntary balances to allow the Federal Reserve to effectively implement monetary policy using existing procedures without the need for required reserves. Importantly, the Regulatory Relief Act gives the Board the discretion, effective as of October 1, 2011, to lower the ratio of reserves that a depository institution must maintain against its transaction accounts below the ranges currently established by law, including potentially establishing a zero reserve ratio. Thus, once these authorities become effective, the Board could reduce or even eliminate reserve requirements if it determined that such action was consistent with the effective implementation of monetary policy.

Such action, if taken, would reduce a significant regulatory burden for all depository institutions. Having the authority to pay interest on excess reserves also will enhance the Federal Reserve’s monetary policy toolkit. If the Board were to determine to pay interest on such balances at some point in the future, the rate paid would act as a minimum for overnight interest rates and, thus, could help mitigate potential volatility in overnight interest rates. to the Federal Reserve as required reserve balances. These amendments, once implemented, will enable national and state member banks to take advantage of the same type of pass-through reserve arrangements previously available only to state nonmember banks.

And here we are: after a long circuitous route, we learn what this Regulatory Relief Act really is: THE ELIMINATION OF RESERVES!!!! HELL'S BELLS!!!! Are they insane? Help! My god! Talk about totally insane and utterly irresponsible.

The US has negative savings. Interest rates are well below the rate of inflation. Wild overspending is bankrupting our banking system and our government. Wild over-importation is killing our national worth. America is being destroyed from within and without due to NO SAVINGS. Our national banking system has the lowest reserves ON EARTH. We are a dead whale on the economic beach and we stink. And sea gulls are tearing out our eyes as we lay helpless on the beach. And we need LIQUIDITY and what the hell is that?

SAVINGS!!! We had fake savings & loans that were not required to hold or offer savings. Now our entire banking system from top to bottom has no savings. And this is the problem, Wiley E. Bernanke! The Roadrunner can out run you because you have no savings, not a lack of liquidity. And dropping rates to Japanese levels will make this WORSE, not better. As Volker obviously understands.

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Comments

[Paul S]

This may be a tad off topic here, but while reading this post, I recall the presidency of that great Republican, Ronald Reagan. I WILL admit, he did cut taxes--for the rich. AND: Ronnie almost tripled the national debt, from $1 Trillion when he entered office to about $2.6 Trillion when he left office. It just floors me that people think of Reagan as a conservative, let alone a fiscal conservative. No wonder the country is going bankrupt. Sorry if I am veering off topic, but there is such a disconnect between fact and reality. WHEN will people wake up?

[mad mike]

there is no limit to human greed and folly. (tm)

[Elaine Meinel Supkis]

Paul, you are right.

Before Reagan was shot by a Bush family friend [HAHAHA how many people know THAT???] he used to tool around DC in this big motorcade. He loved this and would wave to everyone.

I was in DC on business, visiting Senator Kennedy, with two children. The first time they saw Reagan they waved back. But as the day wore on and we kept running into Reagan AND the SS forced us aside, the children began to grumble.

Then, outside the Senate, we ran into him AGAIN! This time, one of the children said, 'I hope we never cross paths again!'

A month later, Reagan was shot. After that, he didn't tool around DC much anymore.

[Teddy]

Larry Summers, secretary of treasury for the last year and a half of the Clinton regime after Robert Rubin left, was on 60 Minutes last Sunday when the topic was foreign wealth funds. He said it was paramount that we have foreign investment in this country otherwise the dollar would go down in value and interest rates would rise dramatically. Actually Larry, that, in effect, is what will happen anyway when we ultimately are forced to pay back our foreign debts. The money that's coming in from foreign sources is from a huge US trade deficit that destroyed our manufacturing base and is now destroying by outsourcing our white collar jobs. That money is not being used for productive things in this country since it goes to Wall Street which loads the nation with debt and gives itself an unconscionable bonus for doing so.

[Teddy]

I see that Bill Clinton has been exposed for collecting big money while promoting the free trade agreement with Columbia, the same agreement that Hillary just fired her campaign advisor Mark Penn for being involved in. Both Clintons made big money by selling out their country with NAFTA and then WTO. And Obama's economic advisor is Bill Daley, Mayor Daley's brother, who was a major force in Clinton's cabinet when NAFTA was passed. Mayor Daley has sold the Chicago Skyway, a tollroad, to foreign interests who are increasing tolls at a 12.5% yearly rate. Mayor Daley is now planning on selling Midway Airport to possibly the same foreign group to pay for major shortfalls in his budget.

[Ed-M]

"Mayor Daley has sold the Chicago Skyway, a tollroad, to foreign interests who are increasing tolls at a 12.5% yearly rate. Mayor Daley is now planning on selling Midway Airport to possibly the same foreign group to pay for major shortfalls in his budget."

12.5% yearly rate increases! How long before the foreign interests decide to sell because everyone is taking the Dan Ryan X-way instead of the tollway?

[Dutch]

Thats right! We have the best government money can buy! It really doesnt matter who runs for office!

[Dutch]

This presidential election is about banks fighting over drug money revenue. Take your pick, New York or Chicago?

[Dutch]

Cocaine that's worth $1 million on the street weighs about 44 pounds (20 kg), while a stash of U.S. dollars worth $1 million weighs about 256 pounds (116 kg).

Hyper-Inflation is GOOD!!!! HAHAHA (Now if helicopter Ben can just print us some 10,000 dollar bills.........)

[Dutch]

money.howstuffworks.com/money-laundering.htm

[Dutch]

And the common citizen wants to fight over the slush run off from this? This is financial cannibalism at its finest. Look at the misery index this has created, it will destroy us all at the very least. When hard times hit, the government looks to Pharmakeia (free trade in columbia). All it takes is for people to get off of the dope. To legalize it ,is to waive the white flag of surrender.

[OC]

Dutch,

Cocaine prices goes up with inflation, USD don't - it falls in value daily.

[Elaine Meinel Supkis]

Drug costs go up according to what the cops are doing. If they look the other way, it is cheap. If they crack down, it gets very profitable. This is why all these drugs are kept very illegal. The money just flows and flows.

[Elaine Meinel Supkis]

Testing

[Teddy]

Ed-M, maybe the foreigners will then buy the Dan Ryan to create a monopoly. The Indiana Toll Road was bought by the same group.

[OC]

Elaine,

Seems like it's hyperinflation that Ben has chosen for us; why are we not surprise??

Who Will Bail Out the FED?

http://www.safehaven.com/article-9920.htm

[Elaine Meinel Supkis]

They [our stupid rulers] hope the pirates will bail out our sinking ship. Isn't that pathetic?

[Ed-M]

It IS pathetic, Elaine! Those stupid pirates won't be able to bail us out, they're sinking as well and need someone to bail THEM out! (Their hallucinated "wealth" is all dollar denominated, I believe.)

[Paul S]

I read the article linked to the Safehaven site. Who will Bail out the Fed? Of COURSE we the taxpayers will. The question is, why will this be allowed to happen? IMHO, all you have to do is listen to the morons on talk radio. In particular those two corporate fascists Rush Limbaugh and Sean Hannity. (Question: which of these two is the bigger idiot?) It just galls me when these two have a heart attack over talk of raising the minimum wage,but write a check to JP MOrgan for $280 billion? No problem. Amazing. Absolutely amazing.

[Elaine Meinel Supkis]

JP Morgan writes their checks, of course.

[Ed-M]

Elaine, it appears to me, then, that JP Morgan doesn't write any checks for the ultranationalist Michael Savage. Of all the right-winged fascist talk show hosts, he is the only one I know who has denounced these kinds of corporate buyouts. Which is why in my town, he's usually preempted for "sports."

[Ed-M]

I meant bailouts. But buyouts is also an appropriate word even though they're really grand larcenies. Like that of Bear Stearns by JPMorgan's pirates.

[Elaine Meinel Supkis]

Probably right.