US politics

Simone Baribeau


That’s the amount the Congressional Budget Office estimates the Federal Reserve’s credit programmes cost US taxpayers.

Of course, that’s not on a cash basis. The CBO has previously estimated that the Fed will be paying the Treasury around $70bn a year in 2010 and 2011 (compared to payments of between $18bn to $34bn from 2000 to 2008) because of the expected higher yields of the riskier-than-normal assets the US central bank bought to stabilise the economy during the crisis.

But, of course, there is risk. They might pay out less. They might not pay out at all. And, in many cases, the price the Fed paid for them wasn’t discounted for the associated risk. Now the CBO has estimated the amount the Fed overpaid – $21bn. Here’s there breakdown. Read more

Simone Baribeau

Ben Bernanke was sworn in today for his second term as Fed chief after last week’s controversial Senate vote. He ended up being confirmed with 70 votes, well over the number needed, but still far fewer than even unpopular central bankers are used to receiving.

So, are we looking at a new Fed chair, one humbled by his actions in the lead up to the financial crisis?

It’s hard to say. But he is willing to make at least one concession. Mr Bernanke called for the Fed to become more transparent.

The Federal Reserve is already one of the most transparent and accountable central banks in the world, providing voluminous information and explanation concerning all of its activities. However, I believe that we should be prepared to do even more, to become even more transparent. It is essential that the public have the information it needs to understand and be assured of the integrity of all our operations, including all aspects of our balance sheet and our financial controls.

Of course, he doesn’t want to go overboard. Read more

Simone Baribeau

The Senate banking committee briefly broke into rumblings about 20-somethings with clever ideas being able to subvert the intent of Congressional laws on complicated banking matters.

It’s no reason not to pass legislation to ban proprietary trading, Paul Volcker said. “Yes, banks have 26-year-olds with a whole lot of mathematical training and all the rest, but the supervisors need to hire some 28-year-olds.”

Paul Volcker, in both his written testimony and during the question and answer period, said: “Bankers know what proprietary trading is, don’t let them tell you otherwise.”

Mr Volcker was also questioned on whether the US could learn anything from Canada, which had been able to avoid the worst of the housing crisis, a topic explored by the FT last weekRead more

Simone Baribeau

According to Intratrade, pretty likely. After “shares” in Federal Reserve Chair Ben Bernanke’s confirmation dipped late last week, they’ve recovered almost to pre-Boxer/Feingold opposition levels. Here’s the graph:

Will Ben Bernanke win Senate confirmation for a second term as Fed Chairman?

Will Ben Bernanke win Senate confirmation for a second term as Fed Chairman?

Simone Baribeau

Two more Democratic Senators defected today, leaving Fed Chairman Ben Bernanke’s chances of being re-confirmed before his term ends less than a sure thing.

If Mr Bernanke isn’t confirmed by January 31, it’s unclear what will happen, but a likely outcome is that Donald Kohn (hardly more a populist champion of Main Street than Mr Bernanke) will step in as interim chair until Mr Bernanke (or another candidate) is confirmed by the Senate. Certainly Mr Kohn’s assent to Fed chair can’t be the goal of Mr Bernanke’s critics. So are they pushing the president to nominate someone else for the Fed chair? Are they even pushing Mr Obama to nominate candidates who represent a “clean break from the failed policies of the past” for the long-open seats on the Fed’s board of governors?

If so, they’re not doing so publicly.

And if the goal is to move the Fed in a new direction, why not? Read more

Simone Baribeau

Bloomberg has an interesting article about the Senate looking to hold a confirmation vote on Ben Bernanke before his term ends at the end of the month. The piece notes that a delay in the vote would probably result in Donald Kohn, the Fed’s Vice Chairman, serving as acting chair until the Senate confirms Bernanke (who would continue serving as a governor).

Mr Kohn’s temporary succession would hardly be a coup for Mr Bernanke’s Senate critics. The vice chairman, closely aligned with Alan Greenspan, showed no greater concern for the risk of a recession than did Mr Bernanke (he saw inflation as a greater worry in October 2006), nor was he faster to recognise the extent to which homes were overpriced (saying the evidence suggested that overbuilding in 2004 and 2005 would be worked off without a significant decline from 2006 building levels). Read more