Fed official alleges Geithner may have alerted banks to rate cut

By Alister Bull, Reuters

Sat Jan 19, 2013 1:28am EST

In the summer of 2007, as storm clouds gathered over the world’s financial system, then-New York Federal Reserve President Timothy Geithner allegedly informed the Bank of America and other banks about the possibility the U.S. central bank would lower one of its critical interest rates, according to a senior Fed official.

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According to transcripts of the call released by the Fed on Friday, Geithner at the time denied that banks knew the Fed was considering cutting the discount rate.

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Private disclosure of confidential, market-sensitive information by the central bank would be highly unusual, but it was not immediately clear if it would be illegal. It also was not clear if strict Fed internal rules governing confidential information would have been breached, or whether any internal or external investigation was mounted.

Not that I expect an orange jumpsuit, but clearly there should be (h/t Atrios).

Crossposted from The Stars Hollow Gazette

When Real Interest Rates Are Negative, Taxing Is More Costly Than Borrowing

By Matthew Yglesias, Slate

Posted Friday, Jan. 18, 2013, at 1:15 PM ET

A good article about public policy ought to be making some kind of non-obvious point about the world in order to get people to think about things differently. Simply responding by saying that the suggestion sounds funny is absurd.

You don’t say.

Let’s break this down. You’re the mayor of a city. A storm strikes and ruins a whole bunch of your police cars. Now you need to buy new ones. You have two options for paying for the cars-you can borrow the money and pay the bill ten years from now, or you can raise taxes and pay right now. The case for paying later is pretty clear. In ten years’ time your city’s overall economic output will be higher so the burden of paying off the loan then will be lessened. On the other hand, the case for paying now is also pretty clear-lenders generally expect interest payments in exchange for their loans so the total cost of the debt option is higher. But wait! The city’s accountants show up and point out that it’s currently possible for the city to borrow at a negative real rate. Suddenly the interest costs are off the table as a reason to prefer paying sooner.

So what’s left? Nothing. The city will be richer in ten years, so pay then. The logic becomes especially compelling when you recognize that the city’s income will grow more rapidly under the lower-tax regime that encourages more investment in residential and commercial property and more business activity.

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Perhaps Linker and I disagree about what kind of reductions in Medicare and Medicaid spending would be optimal, but I have no disagreement that they should be reduced to below their currently projected levels. That said, under any scenario the government is going to be spending money in 2013. The question on the table was should we finance that spending with taxes or should be finance it with borrowing. My view is that with real interest rates below zero, it makes sense to tax less and borrow more. This has literally no relationship to my view about the appropriate level of future government spending.

Moron.

Hat tip Dr. Duncan Black formerly of the London School of Economics, the Université catholique de Louvain, the University of California, Irvine, and, most recently, Bryn Mawr College.

Grown-Ups

It’s funny how the issues changes but the language stays the same. Liberals, in being perfectly right about many things, are silly and irresponsible children.

Our regular featured content-

• On This Day In History January 21 by TheMomCat
• Punting the Pundits by TheMomCat

And these featured articles-

• Austerity, Triple Dip Recessions and Economic Crisis by NY Brit Expat by: Anti-Capitalist Meetup
• Income Inequality and the Economic Recovery by: TheMomCat
• Santorum: Armor-Piercing Bullets Are ‘a Right in Our Country’ by: mishima

Write more and often.  This is an Open Thread.

Dallas, we have a problem.

How to Cut Megabanks Down to Size

By GRETCHEN MORGENSON

Published: January 19, 2013

On Wednesday, in a speech in Washington, Mr. (Richard W.) Fisher (the president of the Federal Reserve Bank of Dallas) laid out a compelling proposal for shrinking financial giants in order to protect taxpayers. He suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble.

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Why? Mr. Fisher argued that megabanks not only threaten taxpayers with bailouts, but that their continuing failure to lend is also thwarting the Fed’s efforts to jump-start the economy by keeping interest rates low. “I submit that these institutions, as a result of their privileged status, exact an unfair tax upon the American people,” he told his audience. “Moreover, they interfere with the transmission of monetary policy and inhibit the advancement of our nation’s economic prosperity.”

Smaller institutions, by contrast, have continued to lend in the post-crisis years, especially to the kinds of modest-size businesses that create so many jobs across the country. According to figures compiled by Mr. Fisher’s colleagues at the Dallas Fed, community banks – defined as those with no more than $10 billion in assets – hold less than one-fifth of the nation’s banking assets. Nevertheless, they hold more than half of the industry’s small-business loans.

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There are roughly 5,600 commercial banking institutions in the country, Mr. Fisher noted. Some 5,500 of them are community banks. While these organizations account for 98.6 percent of all banks, they hold only 12 percent of total industry assets. They are routinely allowed to fail if they get into trouble. Few of them did during the crisis.

Contrast these figures with those of the nation’s 12 largest banks, whose assets range from $250 billion to $2.3 trillion. They account for 0.2 percent of all banks but hold 69 percent of industry assets. These are the banks that enjoy all the perquisites of the federal safety net: significantly lower borrowing costs and a taxpayer backstop, for example.

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Understanding that it will be a tough battle to break up the megabanks, Mr. Fisher suggests that in the meantime, only commercial banking operations receive protection from the federal safety net in the form of federal deposit insurance. An institution’s other activities – securities trading, insurance operations and real estate, for example – should fall outside any backstop. Furthermore, he recommends that these banks require customers and trading partners to sign an agreement stating that they understand the business they are conducting is not covered by any federal protection or guarantees. That would begin to reduce the perception that all of these institutions’ counterparties would be protected in a disaster.

The American Conference Championship is an entirely different ball of wax.  Here you don’t have two teams that are mostly unremarkably objectionable, no better or worse than most, instead you have two positively hateful ones and the question is which evil is lesser?

Fundamentally the Carrion Crows and the Patsies are guilty of the same offense, robbing their host communities to fund huge empty white elephant eyesores that are basically unusable except for 8 days a year to the tune of hundreds of millions.

In the one case the thief, Art Modell, was not quite as successful as Robert Kraft and lost everything except his team contracts and The Bank ($314 million) and in fairness Kraft was able to raise the $420 million for Gillette privately, though it is not in any sense funded by his personal fortune any more than all those architectural monstrosities with Trump plastered on them.

And, if you like rooting for winners, the Ravens don’t even have a suspicion of victory today.  Unless Brady and about half the other Patsie players are suddenly stuck by mysterious illness and injury this is about as close to a sure thing as you get in Throwball.

Nope, as we head into the break week before the Super Bowl the question will be if the creaky old Patsies can stave off the new kids on the block ‘9ers and whether you should even be watching Throwball at all.

Part 213-

Why Boeing’s 787 Dreamliner was a nightmare waiting to happen

Dominic Rushe, The Guardian

Friday 18 January 2013 11.51 EST

The 787 was pitched as the airline of the future – a revolutionary plane that that would use new technology to bring aircraft design into the 21st century. The Dreamliner is made of carbon-fiber reinforced plastic composite. More radically still, pneumatic and hydraulic systems have been ditched for electric systems.

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Outsourcing parts led to three years of delays. Parts didn’t fit together properly. Shims used to bridge small parts weren’t attached correctly. Many aircraft had to have their tails extensively reworked. The company ended up buying some suppliers, to take their business back in house. All new projects, especially ones as ambitious as the Dreamliner, face teething issues but the 787’s woes continued to mount. Unions blame the company’s reliance on outsourcing.

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Arguably, it is not just Boeing’s fault that the Dreamliner wasn’t ready. Boeing is a powerful force in Washington.

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(T)he Dreamliner was passed under a very compressed schedule, said Mann. “And there was an electrical failure and an emergency landing during the test-flight programme,” he said. “That was blamed on a ‘foreign object’.”

Mann said the FAA’s mandate changed under administrator Marion Blakey, appointed by president George W Bush in 2008 as Boeing was working on the Dreamliner. “Blakey saw the FAA as a ‘customer services organisation,'” said Mann. The FAA was working with the airlines to cut regulation, not to impose it, he said.

The Falcons are an expansion team of no particular note.  There’s really no good reason to hate them except the team colors (red and black in case you’re interested) and Michael Vick.  They’ve been historically somewhat ineffective in post-season play relative to their overall winning percentage.

The ‘9ers on the other hand are a storied program tracing their origin back to the All-American Football Conference.  Their ascendancy in the ’80s was roughly co-terminant with the despised ‘boys, but their fans were nowhere near as loud, obnoxious, and arrogant.

Now there are those pointing to the investigation of Michael Crabtree for sexual assault as a reason to favor the Falcons, but I don’t see it.  For one thing they didn’t fly him to the Georgia Dome to ride the pine.  A late breaking development is a second witness that supports his version of events.

In any case this particular edition of the ‘9ers is not a one dimensional team dependent on him or even Colin Kaepernick for that matter.  What they have this year that they lacked last is a solid offensive line that can protect anyone they put in the pocket and open lanes for their rushing game.  It’s not impossible that they’ll lose, it’s just hard to see how.

Pretty Pictures-

All the Tea in China-