Ben's Lectures IV

Moral: Wherein we continue with Ben's look at the crisis.

---                       Lecture 1, Lecture 2, Lecture 3, Lecture 4

Foreword: Today's lecture (03/28/2012) is the 4th in the series (Aftermath of the Crisis).

Well, it has been interesting, so far, especially seeing him talk in real-time for a couple of lectures. One can see the rationale behind his decisions. However, from the initial blink to the open spigot, the impact has been more for the financial side's benefit than for the common citizen (oh yeah, prevent a downturn -- Ben, you know there are real people hurting?), especially those who have saved (and are being robbed by banks, 0.25% (or less) for a CD - come on!). Ben seems to be after two things:

• evidently, he wants our attention (and money) to be put toward the ca-pital-sino (at our risk) rather than in more safe instruments (ah, ever-clever finance has seen to it that there is no such thing as safe?). 
• seems that he would rather that the consumer be in debt, to their eyeballs, than to have real assets accumulated (notice, please, that market advances are not 'gains' in any real sense, many time - they are? show me an accounting of when it's not near-zero; too, daily there is what is essentially pilfering, rationalized, many times, under the guise of stupidity).

Somehow, those who foster on us the things talked about in Lecture 3 seem to be after a perpetual-motion analog (is p-m ever to be? - what we see is near-zero in action). And, we know that won't work (oh yes, CEOs, you do not WORK!).

But, enough; as we said in the first post, we'll hear him out even if his role would be best done wearing the garb of a 'magical' wizard. Ah, happy talking, indeed. So, to the final Lecture. 

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Notes (italics, my aside, sometimes with links - times are clock - CDT):

~11:45 ... late start, on my part ...

~12:00 on QE, using chart
          2008 loans (blue), rose at first, then balance diminished
               as these got paid back
          LSAP  (red), larger area, added to the balance sheet

        why? lower long-term rates, for one thing
             inducement to move assets elsewhere

~12:04 how was this paid for?
          credit bank account of people who sold them
          showed the base light blue, currency
             not printing money (it's a metaphor, Ben)
             reserve balances go up (aeration, in any case)
                    not in circulation, not cash
          but, part of monetary base

       quantitative easing worked    30-year mortgage < 4%
            corporate credit became available
                 stock prices rose (ah, yes, to his good)
             confidence? up?
       not housing, though

~12:07 employment and inflation
            says inflation is low
               but not negative

       large-scale asset purchases, monetary
              fiscal: spending, taxation
           
       interest on LSAPs, profit to Treasury

       other tool, communication, open policy
         statement, such as defining price stability
                          which is, 2% inflation

      future, talk FOMC policy

~12:13 says recovery was mid-2009 (from 2007), GDP increase, 2 1/2 yr
          sluggish,compared to post WWII recoveries
             so unemployment still problematic
             housing, not recover
                vacancy rate high, continuing foreclosures
                    home prices going down

~12:18 too, tighter standards on mortgages
        higher credit scores needed (> 700)

        consumer less willing to spend, cautious
            new construction discouraged

        banking system is stronger
            expansion in lending

        European effect on financials

~12:23 structural issues not addressed by monetary policy

        the long run, abundant issues are still there
           headwinds, essentially

        so, now the (rah-rah) pitch
           growth, constant 3%, from 1900, Depression and recovery,
                 then at 2007+, a decline (permanent?)
 
           regulatory changes - for systemic+ issues
              Dodd-Fank, plus Consumer Protection Act of 2010

                = Financial Stability Oversight Council
                      Fed is a member
                = closes some of the gaps
                = too big to fail
                    more supervision, Volcker rule
                    stress tests (annually)
                    if keep from failing, ratifies the bad behavior
                          (moral hazard)
                       so orderly liquidation authority (FDIC)
                = require transparency for derivatives
                      get them out of the shadows
                = Consumer Financial Protection Bureau

~12:37 goal: being effective while controlling cost

          many thought stability was junior to monetary
            Fed's start was to prevent panics (full circle)
                 bubbles happen
            if can't prevent, can mitigate (ah, sounds like Alan)

         so, Fed prevented things from being worse

Questions:
-- Main versus Wall, monetary policy the latter, how
       to relate to the former:
    fed has done outreach, fed is accountable, does speeches
       complicated institution, not simple issues
         Americans don't like central banks

-- one the buy back from Fed balance sheet (unwind):
    pay interest on reserves (more than they will pay customers)
      drain, via other liabilities
        assets mature, or sell them elsewhere (Government backed)

-- help homeowners refinance at lower rate:
    harp program, for instance, FHFA (for underwaters)
      banks may not be part of all programs
        Fed not involved with those

-- deflation (japan's experience), cushion (2%) too small:
     international consensus around that
        must be above zero, but can't be too high
           research issue

-- monetary and structure problems:
    housing, white paper on the issues
        no recommendations, but did the research
    Europe - difficult, firewall to stop spread of contagion
    labor - training

-- other tools:
    give me an example, Ben says
         unemployment continuing, countries failing
     he has laid out the tools
          hopefully, F-D will help protect
    don't have other tools beyond what was said

-- key indicators, for tightening:
    jobs creation, unemployment claims
    demand and growth - consumer spending, sentiment, capital expenditures, etc.
    inflation, of course

Post the questions: Prof Fort talked about how the series came to be. Fed's initial query in Dec, 2011. Lots of coordination, since then, required on both sides. These four Lectures will be the basis for the rest of the class. Much to discuss. (ought to be interesting)

Remarks:

04/01/2013 -- Ben as the new Central Planner.

12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

04/03/2012 -- Response 1.

03/30/2012 -- Ben didn't mention student loans as his focus was on what had already happened. He carried on with Alan's short-sight. What about student loans? How can something so simple get so screwed up? Thanks, Sallie (cousin of Fannie and Freddie). 

Modified: 04/01/2013