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Pastor:
Thanks for correcting my error about the Board of directors, you are
correct.
As others have pointed out the Fed represents the major banks, which is not
necessarily a bad thing. However this constituency is not the whole country.
Lionel
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of pastor_barr
Sent: Saturday, May 05, 2007 10:45 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: Re: [EquisMetaStock Group] the Federal Reserve Bank is not owned or
controlled b
I am going to amalgamate my response to a number of points in one post.
Lionel said:
> The only
> member of the board that is politically appointed in the Chairman.
The rest
> are selected by the member banks.
I don't know where you got that from but it is completely wrong.
"The seven members of the Board of Governors of the Federal Reserve
System are nominated by the President and confirmed by the Senate."
http://www.federalreserve.gov/bios/
Jose said:
> Pastor, there is a major fundamental difference between "appointing"
> someone to do a job, and having control of the situation.
This I readily concede in principle, but in that respect it is no
different from a regular corporate entity where a shareholder may vote
to appoint a director without any assurance whatsoever that he will
subsequently cast his board vote according to your wishes .
However, control or more properly oversight of the Fed resides with
both houses of congress through the twice annual Humphrey-Hawkins
testimony and subsequent committee grilling. You might also note that
the Fed's annual report is addressed to the Speaker of the House.
This is not a question of semantics at all, Jose, but of the essential
privileges of ownership and the available levers of control. Although
the Fed has what are known as private shareholders, they exercise and
receive absolutely no privileges normally associated with ownership
and instead have some extraordinary restrictions and potential
obligations imposed by their shareholding. Meanwhile the US
government calls all the applicable shots and gets the profits.
I agree with you completely that the overriding societal issue is
monetary integrity (although Joe is undoubtedly right from a trader's
perspective). But if you frame this discussion in terms where the
premise is fundamentally wrong (the claim that the Fed is in any
meaningful sense privately owned), legitimate concerns don't stand a
chance because that is so easily substantively dismissed.
It is just not serious, Jose, and I very much regret that particularly
coming from you because I have so much respect and admiration for the
selfless and brilliant work you tirelessly put into the Metastock
community.
I said:
>> 2) Who pays for the bill as the lender of last resort in the event of
>> disasters in the financial system.
Lionel said
> We the taxpayer do. This is what happened
> during the mass failure of banks only a very few years ago, and
after the
> stock market crash in 1987! It also happened indirectly in the 1930's.
If you are talking about the S&L debacle you are again conflating
separate issues.
The S&Ls were not regulated or supervised by the Fed, but were instead
part of a typically weak and entirely separate regulatory structure.
For this reason the bailout was nothing to do with the Fed but was
instead implemented as government legislation. As an aside it sounds
like there may currently be something similar in the pipeline in the
sub-prime lending market, where players typically did not fall under
Fed supervision. This is yet another stark illustration of the
piss-poor state of US financial services regulation.
I am not sure what you are referring to in the 1930s but it is
certainly true that the US banking system then was much weaker and
poorly capitalized than today. Nevertheless that situation was itself
a significant advance from earlier periods where bank runs and
bankruptcies where weekly (almost daily) occurrences in the US.
Indeed this was one of the key motivating factors behind the
establishment of the Fed in the first place, arising from the clear
need to protect depositors and savers as opposed to bankers wearing
top hats smoking fat cigars.
However, this does raise the key practical problem with the private
sector banks' ability to participate financially in the lender of last
resort role. If it is an isolated event no problem, but if a
financial shock hits the sector as a whole banks' capital may already
be so eroded as to make further commitments impractical. Indeed they
may not even have sufficient strength to maintain current lending
commitments, which means that the Fed might have to reduce reserve
requirements to dampen a potential negative spiral in the real
economy, where a contraction in lending would have knock-on effects on
the real economy, leading to a contraction in available credit, and so on.
There is no doubt that the lender of last resort function is tricky
for all sorts of reasons. Fortunately this has not really been needed
in modern times but if you are interested in historical background I
suggest you read Charles Kindleberger's excellent `Manias, Panics &
Crashes' featuring plenty of documentary evidence about the good old
days when the world was on the gold standard and market panics were a
regular occurrence.
On an in fact unrelated note, Jose posted a reference to a Cato
Institute report on LTCM. I only skimmed that briefly but I saw
nothing in there that surprised me coming from an organization in
large part founded and ideologically inflamed by Murray Rothbard.
It appeared to contain two central themes; first of all it claimed
that by bailing out LTCM, the Fed was guilty of regulatory overreach,
extending its oversight to all hedge funds. This is a wild
extrapolation based on a misrepresentation.
The Fed's direct role in the rescue of LTCM was confined to calling a
meeting of major investment banks at the New York Fed's offices where
they simply told the banks to sort the situation out. The Fed did not
inject any cash whatsoever into the subsequent buyout.
The reason it was of specific concern to the Fed is that whereas LTCM
were a major player in bonds and fixed income, the vast majority of
hedge fund capital is not.
LTCM had major positions in these markets, where member banks
generally invest their regulated capital (as opposed to in stocks) and
the wholesale liquidation of LTCM's positions was creating
destabilising misspricing in global fixed income markets. Indeed this
was the very situation LTCM's trading strategy was intended to
exploit, and as such the liquidation of their positions was clearly
having an adverse effect on market stability.
That is not to say there were not serious problems with LTCM's
strategy but it is worth pointing out that the eventual buyout
consortium made a lot of money on the deal. In any case to argue this
episode is a de facto extension of the Fed's regulatory oversight is
ridiculous. However, that is not to say proper regulation of the
hedge fund sector isn't both highly desirable and necessary for market
stability, which I believe is self-evident.
Cato's second point is superficially more telling but is in fact
equally nonsensical. They refer to an earlier proposal by a
consortium of Goldman Sachs/Berkshire Hathaway/ AIG to buy the LTCM
management company that was rejected, and postulate that the free
market - if only left to its own inherently superior devices - would
have effortlessly solved the problem of destabilised markets, without
unnecessary interference.
Unfortunately, as is so often the case with laissez-faire ideologues
they display an almost total lack of awareness of real-life market
mechanisms in reaching this laughably simplistic conclusion.
Goldman in fact played a highly dubious role in the whole episode.
They were one of two banks taken along by the NY Fed in their initial
damage assessment of LTCM's trading book when reports of trouble
started surfacing. However, it was not until much later that the
rival bid, and Goldman's role in it, emerged.
What is clear, however, it that as this preliminary due diligence was
underway, LTCMs positions started to haemorrhage, and reliable market
reports indicated that one of the prime known beneficiaries happened
to be Goldman's consortium partner AIG, who had the remarkable
foresight to orchestrate a squeeze in one of LTCMs core short hedging
positions and made a killing in the process as LTCM were forced to
unwind.
In other words the market heroes of Cato's fairly tale where not
knights in shining armour, but two-faced confidence tricksters using
what amounts to industrial espionage to gather competitive
intelligence they could use to ambush LTCM by front-running them in
the market. So unfair then that they then didn't get to pick up the
management company spoils at fractions of pennies on the dollar.
--- In equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com> , "Lionel Issen" <lissen@xxx>
wrote:
>
> I am resubmitting this reply because my comments did not come up in red.
> They are now separated from Pastor's comments and written in inclined
> letters
>
>
>
> From: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
[mailto:equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com> ]
> On Behalf Of Lionel Issen
> Sent: Friday, May 04, 2007 2:26 PM
> To: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> Subject: RE: [EquisMetaStock Group] the Federal Reserve Bank is not
owned or
> controlled b
>
>
>
> Pastor :
>
> I must politely disagree with you. My comments are in red below.
>
> Please don't mix up the official mission of an organization with its
actual
> behavior.
>
> Thanks for your comments.
>
> If you want to continue this thread please write me directly.
>
> Lionel
>
> From: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> [mailto:equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com> ]
> On Behalf Of pastor_barr
> Sent: Friday, May 04, 2007 11:56 AM
> To: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
<mailto:equismetastock%40yahoogroups.com>
>
> Subject: Re: [EquisMetaStock Group] the Federal Reserve Bank is not
owned or
> controlled b
>
> Lionel,
>
> With respect you are confusing two separate issues:
>
> 1) The independence of Central Banks to set monetary policy free from
> political interference (for example in the UK, past chancellors have
> been rightly suspected of easing interest rates with a view to
> sparking pre-election economic boomlets).
>
>
>
> This is a fact of life in the US
> too. No matter how independent the central banks are supposed to be
, the
> central government seems to be able to encourage them to follow certain
> national policies. President Carter was criticized for not leaning
on the
> Fed.
>
> 2) Who pays for the bill as the lender of last resort in the event of
> disasters in the financial system.
>
>
>
> We the taxpayer do. This is what happened
> during the mass failure of banks only a very few years ago, and
after the
> stock market crash in 1987! It also happened indirectly in the 1930's.
>
> The latter is more pertinent in the case of the present discussion.
>
> Fed member banks hold their stake in the form known as shares for a
> reason; this also explains why their shares carry not the right but
> the onerous obligation to buy as many more shares as the politically
> appointed board may unilaterally dictate.
>
>
>
> Consider the Fed Board members as
> the board of a super bank that controls all the member banks, then
they have
> full authority to impose this obligation on the member banks. The only
> member of the board that is politically appointed in the Chairman.
The rest
> are selected by the member banks.
>
> It is that this form embodies the principal of banks' collective
> responsibility for the banking system. In this way the banks' own
> capital represents the first financial line of defense against a
> financial disaster where the lender of last resort role would come
> into play.
>
>
>
> In this kind of crisis the banks seem to be unable to do much
> without the help of the Federal Government.
>
> If this were not the case, and the public finances were solely
> responsible, there would rightly be uproar that the tax payer was
> unilaterally footing the bill for reckless gambling by private sector
> financial institutions.
>
>
>
> The public uproar has been ineffective in this area.
> The present mess is in part due to removing the restrictions on US banks
> that were passed in the 1930s, that is separation of commercial
banking from
> regular banking.
>
> This gives banks an clear inbuilt incentive to watch over not only
> their own lending practices but also their competitors, since they
> could end up footing the bill if it all goes wrong.
>
>
>
> The banks should but
> they don't seem top be able to do this. As the record shows, when
banks are
> failing the Federal Government bails them out and passes the costs
onto the
> taxpayer.
>
> --- In equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com> , "Lionel Issen" <lissen@>
> wrote:
> >
> > After WW 2, I was astounded to earn that most central banks were
> privately
> > owned. ( I was young and naïve at the time.) There were several
> news items
> > that the Labor party in Britain announced that they were going to do
> away
> > with the archaic practice of the Bank of England being a private
> company
> > responsible to no one. Shortly after this the French government made a
> > similar announcement. I think that several other countries followed
> suit,
> > except of course the US. I'm not sure about Canada except that the
major
> > banks seem to approve the nominee for the Governor of the Bank of
> Canada,
> > but at least some of the directors do not have to be approved by the
> banks.
> >
> >
> >
> > This has been an interesting thread.
> >
> >
> >
> > My personal thanks to all the contributors.
> >
> >
> >
> > Lionel
> >
> >
> >
> > From: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> [mailto:equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com> ]
> > On Behalf Of Jose Silva
> > Sent: Friday, May 04, 2007 6:37 AM
> > To: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> > Subject: [EquisMetaStock Group] the Federal Reserve Bank is not
owned or
> > controlled by the US government
> >
> >
> >
> >
> > Lionel, the Federal Reserve Bank is NOT a US federal agency, anymore
> that
> > FedEx (Federal Express) or the Red Cross may be.
> >
> > There is no question that the Federal Reserve is a privately owned
and
> > controlled corporation, even if the greater majority of its
> paper-printing
> > profits (after expenses and dividends) end up in the US treasury. The
> > question is whether it may be owned, either directly or
indirectly, by
> > foreigners.
> >
> > If you have any doubt about the ownership and control of the federal
> > Reserve, search for "US+Government+ownership" within the The Federal
> > Reserve Act itself:
> > http://www.federalreserve.gov/generalinfo/fract
> >
> > From a seemingly reputable source, the American Monetary Institute
> (which
> > is not a US federal agency either):
> >
> > http://www.monetary.org/federalreserveprivate.htm
> >
> > ----------------------------------------------------
> >
> > The Federal Reserve Act
> >
> > Reading the Act with the question of control in mind, what one finds
> are
> > primarily an enumeration and description of vast powers over our
> monetary
> > system being ceded to the non - governmental Federal Reserve. Primary
> > among these are the powers necessary to administer a fractional
reserve
> > banking system in which the creation of money - what we use for
> purchasing
> > media ? is in private hands.
> >
> > One is struck by the general absence of governmental controls over
Fed
> > activity, and lack of requirements toward our elected representatives.
> >
> > One is struck by the lack of accountability of the Fed to our
> > governmental officials or bodies.
> >
> > One is struck by the lack of any specified penalties should the
> system be
> > found to not be promoting governmental public policy at all.
> >
> > One is struck by the lack of formal oversight procedures to determine
> > whether that is happening or not.
> >
> > ----------------------------------------------------
> >
> > Further reading:
> >
> > http://www.save-a-patriot.org/files/view/whofed.html
> > http://land.netonecom.net/tlp/ref/federal_reserve.shtml
> >
> > jose '-)
> > http://www.metastocktools.com/#USindex
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> > <mailto:equismetastock%40yahoogroups.com> , "Lionel Issen" <lissen@>
> > wrote:
> > >
> > > Pastor:
> > >
> > > Thanks for confirming my suspicions that the USD printing press
is not
> > > privately owned. It doesn't really matter much since so much of our
> > > "money" is electronically generated by the more irrational
elements of
> > > the private sector.
> > >
> > > About 10 +/- years ago there were a spate of postings on the
internet
> > > claiming that the IRS was a private company incorporated outside
> of the
> > > US, and thus we didn't have to pay any income taxes. These stopped
> after
> > > the IRS publicized several Supreme court rulings enabling the IRS to
> > > forcibly collect income taxes, and I think the Feds went after these
> > > fanatics and discouraged them from further spreading these
misleading
> > > falsehoods (aka lies).
> > >
> > > Lionel
> > >
> > >
> > >
> > >
> > > From: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> > <mailto:equismetastock%40yahoogroups.com>
> > > On Behalf Of pastor_barr
> > > Sent: Wednesday, May 02, 2007 1:01 PM
> > > To: equismetastock@xxxxxxxxxxxxxxx
<mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> <mailto:equismetastock%40yahoogroups.com>
> > <mailto:equismetastock%40yahoogroups.com>
> > > Subject: [EquisMetaStock Group] Re: Day of Week Function?
> performance for
> > > the specified day of the week.
> > >
> > >
> > > "The USD printing press is privately owned."
> > >
> > >> It's amazing the number of sites that try and point the above
> fact, and
> > >> disappear in the process...
> > >
> > > Hmmm.
> > >
> > > To use an - in this case unrepresentative - corporate analogy the
> > > executive branch appoints the Fed board that takes all strategic
> > > decisions.
> > >
> > > The US treasury owns the net profits of the Fed system and can
at its
> > > sole discretion transfer said profits to the treasury or leave
them in
> > > reserves.
> > >
> > > The "dividend" mentioned in the Fed's accounts are at a 5% fixed
rate
> > > on capital committed in cash to the reserve system (like a preferred
> > > dividend), that for the vast majority of history has not come
close to
> > > covering member bank's cost of capital. In accounting this
equates to
> > > interest expense, not an economic share of profits generated as
> > > accrues to shareholders in the ordinary sense; this is a distinction
> > > not lost on the Fed's auditors in their statement of departures from
> > > accounting convention, last time I checked.
> > >
> > > Further, member banks can not sell any shares if they wish to
retain a
> > > banking license. On the contrary, member banks are obliged to
> > > unconditionally subscribe for new issues as determined at the sole
> > > discretion of the politically appointed board of governors from time
> > > to time.
> > >
> > > So, while the Fed member banks are for archaic reasons known as
> > > "shareholders" they are not private owners of the Fed in any
> > > meaningful sense.
> > >
> > > Maybe that is why the sites you refer to disappeared; perhaps people
> > > realized they were peddling misrepresentations so egregious that
they
> > > can only be accurately described as a pack of lies.
> > >
> > > Nice indicator though ;-)
> >
> >
> >
> >
> >
> > [Non-text portions of this message have been removed]
> >
>
> [Non-text portions of this message have been removed]
>
>
>
>
>
> [Non-text portions of this message have been removed]
>
[Non-text portions of this message have been removed]
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