The New York Fed’s latest quarterly report on household credit conditions is quite upbeat and somewhat at odds with the latest senior lending officers survey.
Especially interesting are the data on ‘transitions’, which show fewer new mortgages going bad, and some bad mortgages getting better.
One of the big debates in US economic and financial circles amid the sluggish recovery has centered around this question : are small businesses suffering, and not hiring, mainly because of a lack of demand for their products and services and uncertainty about the future, or is lack of available credit also constraining them in a significant way?
The Federal Reserve Bank of New York weighed in on this question today, releasing a new survey of small businesses conducted during the summer. “Prudent lending to creditworthy small firms who contribute to the recovery is in our collective interest: it’s good for our communities and it’s good for the American people,” said Kausar Hamdani, community affairs officer at the New York Fed. Read more
US central bank officials have become increasingly worried about the contraction in spending by state and local governments, which is offsetting and undermining the remnants of the $862bn fiscal stimulus passed last year – and – to a certain degree, also their own efforts to boost the economy through easy monetary policy.
In this context, it is no surprise that staff at the New York Fed today released their own report on the budget crises in two states in their distrcit: New York and New Jersey, which are each grappling with multi-billion dollar deficits and are having to make tough choices on spending cuts.
The most interesting part of the study comes towards the end, when authors, Richard Deitz, Andrew Haughwout and Charles Steindel, come up with a series of policy recommendations for state government officials in Albany and Trenton. Read more
Talf is dead ! Long live Talf !
As of Wednesday, the Federal Reserve’s main programme to prop up consumer credit markets during the financial crisis – the Term Asset-Backed Securities Loan Facility - no longer exists.
There was relatively little of it left by the end of June, since many of its components, including the programmes designed to boost credit card loans, auto loans, small business loans and student loans, had already expired at the end of March. But one of its elements, the commercial real estate portion, had been kept alive until the end of June in order to further support that troubled sector.
Talf seems to have served its purpose well, at least according to an internal Treasury email (the Fed did not put out a release to mark the occasion, but Brian Sack, executive vice-president of the NY Fed, did give this speech on the topic on June 9). Read more
What’s causing the foreclosure crisis? Is it the correction in home prices across the US from bubble-induced highs or is it, as many claim, a result of lax lending standards and predatory subprime loans?
The distinction isn’t just splitting hairs. Governors of the Federal Reserve and other policy makers have put quite a bit of effort into blaming failures of mortgage regulation (rather than market failures) for the crisis. But are no-income McMansion moms really the ones feeding the foreclosures? Or are otherwise credit-worthy homebuyers defaulting as they realise they owe hundreds of thousands more than their home is worth? After all – I can afford to pay back a loan of $500, but if I’ve used it to buy a tulip bulb that’s now worth $1.50, I might just decide to cut my losses and give it to the bank to garden.
Crunching the numbers leads to some interesting, if inconclusive, results. Read more
We’re in the last throes of the battle over financial regulatory reform, and Barney Frank, the chief congressional negotiator on the legislation and chairman of the House financial services committee, today suggested a possible compromise on the Federal Reserve – one that would strip the three banker board members of the right to select regional bank presidents, but would safeguard the position of NY Fed president from political appointment.
It still needs to be voted on by the conference of lawmakers charged with reconciling the Senate and House versions of the bill, so nothing is etched in stone. But his proposal merits attention because it could be an elegant way to resolve the remaining differences.
Gone would be the controversial proposal to make the president of the Federal Reserve Bank of New York a political appointee – which was seen by some critics of the measure as a misguided attempt to politicise the US central bank. Read more
A plan to place the appointment of the New York Federal Reserve president under the jurisdiction of the White House and Senate, which the central bank fears will lead to its politicisation, could be abandoned on Wednesday.
The House financial services committee, chaired by Barney Frank, announced on Tuesday that it would seek to remove the proposal – which was included in a bill passed by the Senate last month – and replace it with an alternative that removes banks’ say in Fed appointments. Read more
By Gillian Tett Read more
Why no public/private solution?
The Congressional Oversight Panel convened a hearing to speak with the lawyers from the Federal Reserve and NY Fed (and others) about the decision to bail-out AIG.
By all accounts, the Fed was blindsided by AIG’s liquidity situation. Though Michael Finn, the Office of Thrift Supervision’s northeast regional director, said there had been an OTS/NY Fed staff meeting to discuss the OTS’s concerns about AIG’s liquidity, representatives from the Fed and the NY Fed said they were unaware of the risks AIG posed to its counterparties until the Lehman Brothers weekend. Sarah Dahlgren, an executive vice president of the NY Fed, said that, until a couple days before the group’s collapse, it was not believed to be one of the top ten risks to counterparties.
And even then, AIG seemed to be a problem with a private sector solution. Read more
By Michael Mackenzie in New York
The two big clearing banks in the US tri-party repurchase or “repo” market will no longer bear significant credit risk to dealers under proposals made by an industry taskforce and endorsed by the Federal Reserve Bank of New York. Read more