Fed Spent Last Nine Years Sleeping on the Job

Even if it's too late, it's good to know that the U.S. Treasury, other Government agencies, and the Federal Reserve are able to do what they were supposed to do all along, i.e. monitor the health of the U.S. banking system. This Federal Reserve white paper amply demonstrates their know-how by detailing the accounting verification procedures they applied in their infamous "stress test" of 19 major U.S. banks, the results of which they now hesitate to divulge to the public for fear of instigating another wave of panic.

This fear harks back to my growing list of examples of government running amuck through inappropriate intervention. Instead of intervening too late, they should have been minding the barn back when it might have turned up some loose beams and posts and kept the horses inside.

What makes this tragic situation worse is that since 2001 the BIS (Bank of International Settlements) has been discussing what to do about what central bank representatives had clearly identified as imbalances in international bank leveraging (e.g. assets vs. capital ratios) and as excessive fiat credit creation.

So where have our central bankers been? Why did it take so long?

Unfortunately, I have no answer to this question.

[T]he Federal Reserve Board has regulatory and supervisory responsibilities over banks that are members of the System, bank holding companies, international banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member banks, and the U.S. activities of foreign-owned banks. The Board also sets margin requirements, which limit the use of credit for purchasing or carrying securities.

[Source. See also this and this.]

Looks like the Fed has spent the last nine years sleeping on the job. Maybe we should start a class action suit for negligence? (Just joking, I think.)

Comments

[paulsjj:]

>(Just joking, I think.)<
Not a joke. The Fed, Treasury, & Wall Street Complex is still there geting bailed out again by us stupid citizens.

Apr 27 08:39 AM

[john s. gordon:]

katy you are telling us what we already knew. 'regulators' were told by the bush white house to not regulate anything.
> jack

Apr 27 08:44 AM

[Ferdinand E...:]

I worked in Switzerland for three years, and since I was interested in and occasionally worked with macro at the time, and later wrote an international finance textbook, I know something about the BIS (and also the Federal Reserve).

Everything is relative in this old world of ours, and the economists of the BIS are completely outclassed by the economists of the (US) Federal Reserve. Please believe me on that point. If you are present when the economists and executives of the BIS start discussing something, head for the doors or the toilets, but under no circumstances listen to what they are saying

Apr 27 09:19 AM

[flow5:]

The FED is not asleep. Economists and politicians are ignorant.

It doesn't matter whether you use bank debits, demand deposit turnover, plug in M1, or M1 less currency [in Irving Fischer's equation of exchange (MVt) = PT]

It is an incontrovertiable fact that it is impossible to hide bubbles, or miss economic forecasts.

Apr 27 10:31 AM

[kelm:]

I think they have been asleep in a sense but I also think there has been a great willingness to ignore the elephant in the room. We are seeing the same behavior on the part of congress still.

The IMF conducts studies on all economies in the world every year or so and publishes the results. But they have not been allowed to do the same for the US. One has to assume that we ensured that there would be no independent study performed that could indicate how badly our fiscal predicament had become.

Every effort appears to have been taken to ensure that data that would demonstrate the US was on a fiscal path of no return and hence call into question the governments credibility and legitimacy, was suppressed. From my experience in corporate America I know that such behavior does not require an organized conspiracy. It requires only that those in the position to reveal the truth put "playing the game" for the sakes of their own careers ahead of unvarnished truth. That collective, but uncoordinated, undirected action yields the results we are seeing.

Apr 27 11:04 AM

[fireball:]

katy i like your articles and agree to a point.
i think the purpose of the fed is to drain the wealth from this country into the international banking cartel which seems to own the stock.
it is a private company and has never submitted to an audit that i know of. now their answer is to give a solution which in the long-term makes things worse. their purchase of assets has increased dramatically as part of the solution. how much "u.s." gold sits in federal reserve vaults?
the fed stockholders will be further enriched as this once free market and strong middle class society is brought down to equality with the rest of the world.
the very few statesmen that have stood up to this process were soon in an arkancide or plane crash. the rest of our politicians are either to (the majority) stupid to grasp what is happening or they are in compliance.
under the guise of democratic socialism a system of corporate fascism is being installed.
it must be human nature, the philosophers thought we should be ruled by philosopher kings, the scientists think we should be ruled by scientist kings, the economists.... and so on. the difference is the corporate/banking kings weild real power in moies and finance.
i believe only i am my king.
i wish it was something so harmless as being asleep at the wheel.
obama is a statist, bush was a statist, clinton was a statist, bush sr. was a statist, reagan compled to statism, carter was a statist in sheeps clothing, ford was on the warren commission-the only unelected president as far as not even being on the executive ballot....the further you look the more consistent the stench.

Apr 27 12:11 PM

[Allan Frain:]

The Fed has not been asleep, but put America to sleep with an EZ-Credit elixer while the wealth of the productive sector was channeled into Banking profits.

Apr 27 01:41 PM

[Did U Think...:]

I wish people would stop cutting the fed breaks with headlines such as "sleeping on the job". That implies incompetence and those people are far from incompetent. A more accurate title would be "spent 9 years sleeping with the enemy".

These are well educated, well motivated, well paid people. They do what they do for a reason. Just like moody's and other credit raters had their reasons for putting the AAA stamp on a steaming pile of horse dung MBS: PURE CORRUPTION.

The fed is a corrupt, criminal organization which hides behind fancy suits, marble walls, and "fed speak" in order to rob us all blind. They are very happy to take the criticism of those who call them lazy or incompetent because those are not crimes. We are talking about criminals laughing in our faces as they feign contrition.

They planned this. They knew it was coming. Greenspan let the credit monster grow HUGE in size because he and the rest of the federales have an agenda and that agenda is not good for freedom or the constitution. The sooner people figure this out and get behind the only congressman who is overtly attacking them in their home - RON PAUL - the better off we will all be. Dr. Paul is trying to cram a much needed audit down Bernanke's throat and it appears to be getting some traction in Congress.

Apr 27 02:07 PM

[Gedankonomist:]

Kate, do you know what the FED's primary function is? It's printing money and loaning them out to banks at interest rates they set themselves. And as far as I know, they have been happily doing that, fully awake, since 1913.

If someone gave you the power to print money or change the balance in your bank account at whim, would you be "asleep," or would you not be elated, to tinker and play around with your new powers? So what makes you think these people are asleep?

Apr 27 03:13 PM