The Federal Reserve Open Market Committee (FOMC) issued its statement almost exactly as expected. The language on interest rates is remaining low for an extended period of time remained largely unchanged, and the decision was unanimous.

As I have mentioned earlier, the Fed continues to avoid any potential language which could disrupt the financial markets. Any potentially controversial ideas seem to be reserved for speeches by the Chairman and other government officials.

Continue reading The Fed decision: almost exactly as expected!

The Fed decision: almost exactly as expected! originally appeared on BloggingStocks on Wed, 04 Nov 2009 15:45:00 EST. Please see our terms for use of feeds.

The Federal Reserve Open Market Committee (FOMC) issued its statement today making its best attempt to be a non-event. The language on interest rates and quantitative easing remained largely unchanged, and the decision was unanimous.

This decision was designed to avoid any potential landmines which could disrupt the financial markets. The FOMC wanted this statement to be a non-event and seems to have largely succeeded.

Continue reading The Fed decision: Attempting to be a non-event

The Fed decision: Attempting to be a non-event originally appeared on BloggingStocks on Wed, 23 Sep 2009 16:45:00 EST. Please see our terms for use of feeds.

The Federal Reserve released its latest beige book report detailing economic conditions across the country based upon observed evidence and conversations. The 12 Fed district banks "indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level."

It indicates that retail activity is weak with essentially no wage pressure. This may be good news on the inflation front but is negative for the employment situation. There was some improvement in healthcare and technology.

Continue reading The Fed Beige Book: Maybe a bottom but where's the bounce?

The Fed Beige Book: Maybe a bottom but where's the bounce? originally appeared on BloggingStocks on Wed, 29 Jul 2009 16:45:00 EST. Please see our terms for use of feeds.

The Federal Reserve Open Market Committee (FOMC) issued its unanimous decision. The language on interest rates and quantitative easing remained unchanged. It indicated that inflation is not a problem despite a recent rise in oil prices and sees economic stabilization although continued weakness.

This decision was designed to avoid potential landmines which could disrupt the financial markets. In other words, the FOMC wanted this statement to be a non-event and seems to have largely succeeded.

Continue reading The Fed Decision: Avoiding Landmines!

The Fed Decision: Avoiding Landmines! originally appeared on BloggingStocks on Wed, 24 Jun 2009 16:30:00 EST. Please see our terms for use of feeds.

The Federal Reserve Open Market Committee (FOMC) issued its decision on interest rates. The market anxiously awaited the decision to determine if there would be any surprises like the previous decision in which the Fed announced a massive quantitative easing program.

This decision was quite different and can be summed up in two words: no change. There was virtually no change from the previous statement aside from an acknowledgment of recent economic news. In other words, it turned out to be a non-event.

Continue reading The Fed Decision: First rule is do no harm!

The Fed Decision: First rule is do no harm! originally appeared on BloggingStocks on Wed, 29 Apr 2009 16:30:00 EST. Please see our terms for use of feeds.

We are getting our first official information about the Bank Stress Test with the release of the White Paper detailing the assumptions behind how the stress tests were conducted. This is the initial step in a process culminating in the release of results for the individual banks.

In this case, the process may be more important than the result. We all know the results in advance. Secretary Geithner has already told us that most banks have already passed in previous speeches. I doubt that the government would announce with major fanfare that the American financial system is insolvent. There are two major issues regarding investor expectations that have to be addressed: credibility and panic.

Continue reading The real stress of the bank tests: Managing investor expectations!

The real stress of the bank tests: Managing investor expectations! originally appeared on BloggingStocks on Fri, 24 Apr 2009 17:40:00 EST. Please see our terms for use of feeds.

Several banks, including Wells Fargo & Company (NYSE: WFC), JPMorgan Chase & Company (NYSE: JPM), Goldman Sachs (NYSE: GS), and Citigroup, Inc. (NYSE: C), have reported earnings that beat expectations substantially. All earnings were down compared to last year but much less than what the experts were expecting. The stock market reacted to these earnings reports like gasoline on a fire and exploded to the upside.

Continue reading Bank news: Focus on the assets, not the earnings!

Bank news: Focus on the assets, not the earnings! originally appeared on BloggingStocks on Fri, 17 Apr 2009 17:45:00 EST. Please see our terms for use of feeds.

The G-20 summit was a true public relations success. There were no walkouts by France or any other country as had been previously feared. There were statements that protectionism should be avoided. It appeared that the world learned the lesson from Smoot Hawley Tariff Act during the Hoover administration. There was a commitment to fund the International Monetary Fund with additional capital. Despite low expectations, there appeared to be an international consensus by the G-20 nations.

President Obama was warmly received by all the G-20 nations. This was in sharp contrast to the chilly reception of the Bush administration at prior G-20 summits.

Continue reading The G-20 Meeting and the Financial Crisis: Victory declared but massive economic problems Remain!

The G-20 Meeting and the Financial Crisis: Victory declared but massive economic problems Remain! originally appeared on BloggingStocks on Wed, 08 Apr 2009 17:30:00 EST. Please see our terms for use of feeds.

• The bill may violate the Constitution which prohibits laws targeting specific people.
• The nature of the statute bothers the business community which is rightly concerned that similar statutes if this one is deemed legal could be enacted to confiscate wealth on an arbitrary basis.
• This bill does very little to establish a workable framework to address similar problems.
  

Thus, the bill may solve one problem but creates even more in the process.

Continue reading The bonus tax problem: Recognizing the insolvency is the first step!

The bonus tax problem: Recognizing the insolvency is the first step! originally appeared on BloggingStocks on Mon, 30 Mar 2009 15:20:00 EST. Please see our terms for use of feeds.

However, Paul Krugman, the liberal Noble Prize winner, wrote an editorial in The New York Times attacking the plan as "Cash for Trash." Subsequently, Newt Gingrich, the former Republican Speaker of the House, announced on Fox News that he agreed with Professor Krugman. When senior figures on both left and right agree, it may be wise to look past the euphoria.

Continue reading The Geithner Private-Public Partnership: The cure may be worse than the disease!

The Geithner Private-Public Partnership: The cure may be worse than the disease! originally appeared on BloggingStocks on Tue, 24 Mar 2009 15:20:00 EST. Please see our terms for use of feeds.

In my previous post on the Financial Stability plan presented by the Obama administration, I mentioned the dangers involved with dealing with some of the sharpest players on Wall Street. I used the analogy of not knowing who the sucker is when you sit down at the poker table because it turns out to be you!

It turns out that the taxpayer bailout money was used to pay bonuses of about $450 million to a small group of employees at the business unit that lost $40.5 billion last year at AIG and caused the crisis in the first place. Apparently, this appears to be a contractual obligation of AIG which cannot be abrogated.

Continue reading Bonuses in the AIG poker game: We stole it fair and square

Bonuses in the AIG poker game: We stole it fair and square originally appeared on BloggingStocks on Mon, 16 Mar 2009 17:50:00 EST. Please see our terms for use of feeds.

There has been discussion of the possibility of suspension of the "Mark-to-Market" accounting rule. This has contributed to the current euphoria surrounding financial stocks. The logic is that this would stop the death spiral in the capital base of many of the banks and other financial companies, an action that is at the root cause of our current financial crisis.

A suspension of "Mark-to-Market" accounting would definitely give breathing room to banks. However, there are other alternatives, such as suspending financial regulatory requirements, which could have the same effect.

Continue reading Suspension of Mark-to-Market: Rigging the scale is not losing weight!

Suspension of Mark-to-Market: Rigging the scale is not losing weight! originally appeared on BloggingStocks on Mon, 16 Mar 2009 16:50:00 EST. Please see our terms for use of feeds.

Federal Reserve Chairman Ben Bernanke spoke today to the Council on Foreign Relations in Washington, D.C. on the state of the economy and our financial system. In the speech, the chairman acknowledged that the financial system requires a total overhaul as opposed to just additional regulation for banks. He said, "We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components."

This vast overhaul would have to address the shadow banking system as well as the international ramifications associated with these activities. If this regulatory framework is not comprehensive, the activities that caused the current crisis could simply take another unregulated form or move offshore.

Continue reading The Bernanke speech: Regulate the system, not just banks!

The Bernanke speech: Regulate the system, not just banks! originally appeared on BloggingStocks on Tue, 10 Mar 2009 13:05:00 EST. Please see our terms for use of feeds.

During testimony to Congress by Federal Reserve Chairman Ben Bernanke, questions arose about the mortgage bailout plan proposed by the Obama administration. Several members of Congress were very concerned that this rewarded troubled borrowers who overpaid or took too much risk, with no assistance to those home buyers who are current with their mortgages.

Dr. Bernanke defended the plan strongly, "Some borrowers presumably knew what they were getting into. But from a public policy point of view, the large amount of foreclosures are detrimental not just to the borrower and lender but to the broader system. In many of these situations, we have to trade off the moral hazard issue against the greater good."

Continue reading The mortgage bailout plan: How to avoid rewarding bad borrowers!

The mortgage bailout plan: How to avoid rewarding bad borrowers! originally appeared on BloggingStocks on Thu, 26 Feb 2009 12:55:00 EST. Please see our terms for use of feeds.

There is a great deal of discussion about solving the current financial crisis by nationalizing the major money center banks, such as Citigroup and Bank of America. Every time this suggestion surfaces, Treasury Secretary Geithner issues a statement emphasizing that the Obama administration is committed to avoiding this outcome and keeping banks in private hands. We are now seeing discussions about an increase of the government's equity investment in Citigroup (NYSE: C).

Why is there such fear of bank nationalization? Some claim that this would mean the death of capitalism and the rise of socialism. However, this solution is being discussed by both Republicans and Democrats. In addition, no one expects the government takeover of the banks to be permanent like France, which eventually did take the banks private again. This would be only temporary in nature as during the Swedish banking crisis.

Continue reading The real fear about bank nationalization: It's not socialism!

The real fear about bank nationalization: It's not socialism! originally appeared on BloggingStocks on Mon, 23 Feb 2009 12:20:00 EST. Please see our terms for use of feeds.

The most sweeping fiscal stimulus in a generation is about to be signed into law by President Obama. It amounts to $787 billion and includes tax incentives, infrastructure projects, renewable energy developments, and payment to state and local authorities.

However, investors appear to be skeptical as indicated by the performance of the markets today for a variety of reasons:

• Some estimate that as much as 75% of the spending will not reach the economy until 2010.
• There are questions as to how many jobs in the United States will actually be created.
• People are uncertain as to how productive the spending bill will be and how much is actually just wasteful "pork."

Continue reading The fiscal stimulus plan: Where is the missing element that solved the Great Depression?

The fiscal stimulus plan: Where is the missing element that solved the Great Depression? originally appeared on BloggingStocks on Tue, 17 Feb 2009 16:39:00 EST. Please see our terms for use of feeds.

Treasury Secretary Timothy Geithner announced a broad outline of President Obama's multi-trillion dollar Financial Stability plan:

1. Financial Stability Trust
2. Public-Private Investment Fund
3. Consumer and Business Lending Initiative
4. Transparency and Accountability Agenda
5. Affordable Housing Support and Foreclosure Prevention Plan
6. A Small Business and Community Lending Initiative

He acknowledged the problems associated with the execution of TARP by the previous administration and pledged to rectify these issues. He also pledged increased public transparency with all details on a web site www.FinancialStability.gov .

Continue reading The Financial Stability Plan: Is the taxpayer the sucker at the poker table?

The Financial Stability Plan: Is the taxpayer the sucker at the poker table? originally appeared on BloggingStocks on Tue, 10 Feb 2009 14:02:00 EST. Please see our terms for use of feeds.

Harry Markopolos, the securities industry executive who almost a decade ago tried to alert the Securities and Exchange Commission about the Ponzi scheme allegedly perpetrated by Bernard Madoff, testified before Congress today. Mr. Markopolos testified how his evidence was repeatedly rejected by senior SEC officials who neither seemed to understand nor to care about the case that he presented. And other parts of his testimony were better than any spy thriller in the movies today.

Continue reading The Markopolos testimony on Madoff and the SEC

The Markopolos testimony on Madoff and the SEC originally appeared on BloggingStocks on Wed, 04 Feb 2009 14:14:00 EST. Please see our terms for use of feeds.

• A $500,000 cash cap on annual compensation for senior executives
• Requiring top executives at financial institutions to hold stock for several years before they cash out
• Requiring nonbinding "say on pay" resolutions giving shareholders more say on compensation

These provisions would only apply to firms receiving government funds and would be applicable until they are repaid to the government.

This is a dramatic intervention into corporate governance, but then again the government bailouts are also unprecedented as well. Several are claiming that this is another step into more socialist America.

Continue reading The Obama compensation limits: Fiscal responsibility, not socialism

The Obama compensation limits: Fiscal responsibility, not socialism originally appeared on BloggingStocks on Wed, 04 Feb 2009 12:31:00 EST. Please see our terms for use of feeds.

The Federal Open Market Committee issued its statement in which it indicated that it will keep short-term benchmark rates low for the foreseeable future. This was not really new and was expected. However, the bigger question was the Fed's stance on quantitative easing, the unconventional methods to keep credit flowing in the economy.

The Fed clearly indicated that it will continue to provide credit directly to those in need using the newly developed special programs, such as the Term Asset-Backed Securities Loan Facility, as the primary vehicles. It is focusing on the most effective means to keep credit flowing.

Continue reading The FOMC decision: Fed remains lender of last and only resort!

The FOMC decision: Fed remains lender of last and only resort! originally appeared on BloggingStocks on Wed, 28 Jan 2009 17:15:00 EST. Please see our terms for use of feeds.