Federal Reserve Joins Vendetta Politics of Obama Regime

Steve Forbes discusses the Federal Reserve action on its latest stress tests of the nation's 18 largest banks in his Fact & Comment in the 6 May issue of Forbes.  Of the 18 biggest banks, the Federal Reserve claimed four had serious problems which it said must be cleared up.  Ally Financial is the present name for GM's bankrupt and reorganized financial services arm.  It is in real trouble.  But Steve Forbes claims that JPMorgan Chase, Goldman Sachs, and BB&T were named as having problems purely for small-minded political reasons.

JPMorgan's Jamie Dimon has expressed displeasure with the Obama administration, but it is a well-run company with a good balance sheet.  Goldman Sachs was too close to Romney and Lloyd Blankfein also made it clear he is not happy with Obama.  So, the Federal Reserve concocted reasons to fault these two institutions.

Most troubling was the claim that the best run major bank in the entire nation had serious problems because it uses its own economic models and judges its own loan portfolio differently than the Federal Reserve wants it to.  Independent thinking is discouraged, even when a company's track record justifies it to any rational observer.  In fact, if all banks work on one model, the risks of a systemic banking failure go up.  This is especially true when the dictated model is designed by bureaucrats for their purposes, not those of the private sector.  It is even more true when the appointments to the Federal Reserve are poisoned by Obama appointees.

Steve Forbes notes that the Basel Accords required banks to have heavy reserves for loans to even the best commercial companies, but none for loans to Greece or Iceland or Ireland.  Those government accords also enshrined mortgages for special low reserve treatment.  Look where these imposed government models led the world financial institutions in 2008 and 2009.

BB&T bank CEO John Allison IV, now retired and heading the Cato Institute, opposed the TARP program and was most forcefully forced to take that money in 2008-2009.  His bank was so well run it had no need for the money.  The Federal Reserve wanted to hide the worst banks by making sound banks take the money and it was hiding potential losses on its loans by making a forced profit in interest from sound banks that did not want the money in the first place.  Allison further earned the enmity of the Federal Reserve and the Obama Regime by writing The Financial Crisis and the Free Market Cure - Why Pure Capitalism is the World Economy's Only Hope, published in 2013 by McGraw Hill.

Government thugs cannot stand the heat of criticism, especially when it is well-stated.  In the Obama Chicago style, they strike back brutally with the misuse of government power.  You do as they say, or they will breaka you knee caps.

A Bank Without Bad Loans Criticized

The Boston Business Journal reports that the East Bridgewater Savings Bank has no bad loans. One might think that this is a good thing, especially at this time. A review by the FDIC, however, criticized the East Bridgewater Savings Bank for not making enough loans in its Community Reinvestment Act area. It was urged to replace its careful loan evaluations and to make more and more risky loans. This really does happen!

Walter Williams - Congress's Financial Mess

Walter E. Williams, professor of economics at George Mason University, has written another interesting commentary on the current financial crisis called Congress's Financial Mess. He notes that the new media have repeatedly insisted that the current financial crisis was caused by deregulation and free markets. He goes on to show that this is not at all the case.

Professor David Henderson, research fellow at the Hoover Institution of Stanford University, studied how regulation has grown in general over the last few decades. He published his results in "Are We Ailing From Too Much Deregulation?" in Cato Policy Report (Nov/Dec 2008). He examined the Federal Register for its lists of new regulations.

• 1977-1980, Carter, annual average of 72,844 pages of new regulations
• 1981-1988, Reagan, annual average of 54,335 pages
• 1989-1992, Bush, annual average of 59,527 pages
• 1993-2000, Clinton, annual average of 71,590 pages
• 2001-2008, Bush, annual average of 75,526 pages

Employees in government regulatory agencies:

• 1980, 146,139 employees
• 2007, 238,351 employees, an increase of 63%

[How do you measure the efficiency of a regulatory agency employee? Is it by the number of new pages of regulations per employee? If so, in 1980 there were 0.50 pages of new regulations per employee and this had dropped by 2007 to about 0.32 pages per employee! Apparently, the more employees, the less efficient they become.]

Regulatory spending by the banking and finance industries:

• 1980, $725 million
• 2007, $2.07 billion, an increase of 286%
  

Under the recent George Bush, there was no hesitation at all in creating new regulations. In fact, the Bush administration specifically wanted to tighten down on risky mortgage and other loans by banks, but Congress would not allow it. The most outspoken critics of tighter credit controls in Congress were Democratic leaders and committee chairmen, including Rep. Barney Frank and Senator Harry Reid.

The Clinton administration made a concerted effort to force Fannie Mae to expand mortgage loans to low and moderate income people in 1999. They used the 1977 Community Reinvestment Act to make the banks make high-risk loans they otherwise would not make. Banks not submitting were fined and their mergers and branch expansion plans were denied or held-up.

In 2008, about $5 trillion of mortgages outstanding were owned or securitized by Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing, and the Veterans Administration. This was one-third of all such mortgages.

[Government also encouraged the inflation of home and property values with extremely low interest rates through inflation of the money supply by the Federal Reserve Board over the last several years.]

To make matters still worse for us taxpayers, Bush gave the auto industry a bailout of $17 billion in addition to about $700 billion in bailouts to banks and financial institutions. Now, the presidents of 36 state government universities are asking for a bailout. State governors and local governments are readying proposals for bailouts, with California $15 billion in the red, Florida $5 billion negative, and Michigan shutting down a prison to save money.

Williams notes that the news media is insulting our intelligence! Unfortunately, they appear to be right about the intelligence, or at least the attention span, of the average voter.