Federal Reserve Chairman Ben Bernanke was subjected to journalists questions for the second time yesterday when he hosted the second post-FOMC press conference. As was expected going into the meeting, the Fed made no change to the Federal Funds rate or their plans to alter the second round of quantitative easing. This came as no surprise given the recent bout of bad economic numbers in nearly every sector.
Chicago Mayor Richard M. Daley describes the recent economic crisis as more of a restructuring than a recession and wants to “position the city of Chicago to reap the benefits of the better economic times to come.” To do that he has called on leaders of Chicago’s financial trading industry. Daley convened business leaders at CME Group’s headquarters on March 25 to discuss ways the city can continue to help support and grow the industry.
The press conference included a lot of backslapping and a warning that the industry was portable and could be at risk if it was put at a regulatory disadvantage.
While reading over Federal Reserve Board Chairman Ben Bernanke’s comments from the symposium in Jackson Hole, Wyoming last Friday a few things stick out. First, he follows a disturbing trend we have noted here for some time that dates the credit crisis to September 2008 instead of much earlier; next, he supports the popular notion that a slower rate of decline equals growth and throughout he is quite loose with details surrounding certain events. Most disturbing is he takes credit for avoiding a disaster but fails to take responsibility for anything. Bernanke pats himself and others on the back for averting a disaster that 1) he was at least partially responsible for creating and 2) he assured us was not going to happen. Both Bernanke and former Treasury Secretary Hank Paulson were on record as saying the worst of the credit crisis was behind us while it was staring us in the face.
The Wall Street Journal reported on Wednesday that the Treasury Department is planning to extend Troubled Asset Relief Program (TARP) funds to the life insurance industry. According to the story insurers who own Federally chartered banks would qualify for the program.
The news caused the stock of numerous life insurance companies to rally sharply this morning. It is hard to see how that is a good thing. But as one commenter to a wire story citing the WSJ article noted, “Failure is the new success.”
An often repeated saying is that the definition of insanity is to continue to do the same things and to expect different results. I know we have made this point several times here, but it is worth pointing out until it sinks in everywhere: We have a problem caused by easy credit and the solution our leaders have offered is more easy credit; we have a problem of “too large to fail” institutions and our leaders have encouraged even greater consolidation as a solution.
Now the debate is over nationalization of banks. Paul Krugman put it well in a recent column when he compared the government making a decision to nationalize underperforming banks to the Claude Rains line in Casablanca, “I am shocked shocked at the miserable state of their balance sheets.”
Remember the good old days when $25 billion was enough money to keep the wolves from your door for at least a couple of months? Well $25 billion doesn’t stretch the way it used to especially when you are a global bank with operations around the world and you are too busy to keep account of your exposures to the various new fangled financial instruments that have been all the rage.
The people at the Federal Reserve and Treasury Department are understanding folks though and what is a few hundred billion dollars of protection among friends. So on Sunday, these angels of the banking community passed out another $20 billion to Citigroup—on top of the $25 billion Citi received in October from the Troubled Asset Protection Program (TARP) and agreed to back $306 billion in questionable debt held by Citi.
Based on the Fed Funds futures traded at the Chicago Board of Trade, the market forecasts that the Federal Open Markets Committee (FOMC) of the Federal Reserve will cut the Fed funds rate 25 basis points to 2% at its April meeting, which concludes on April 30.
Based on the prices of distant Fed Funds contracts, this will be the last rate cut of the current easing cycle and the Fed will begin tightening rates beginning with a quarter percent increase back to 2.25% at the meeting ending on Oct. 29 or at the December meeting.
