How Can Anyone Title A News Story ” Fed Should Play a Central Role in Preventing Future Crises ? “

Was the Fed not partially responsible for this and all other financial debacles ?

Does the media think we are cattle or something ?

WASHINGTON – The Federal Reserve should play an expanded, “central role” in preventing future financial crises like the one now gripping the country, the U.S. central bank and the Treasury Department said Monday.

The joint statement from the agencies now leading the United States’ efforts to end the crisis and lift the country out of recession came as the Obama administration and Congress seek to overhaul the nation’s financial structure to avoid future meltdowns.

The Fed — already the lender of last resort to troubled financial companies — could end up with a much larger role once a regulatory revamp is finalized.

Congress created the Fed in 1913 in large part in response to the periodic panics and crises that plagued the U.S. financial system in the 19th and 20th centuries.

“For these reasons, it is natural and desirable that the Federal Reserve should play a central role, in cooperation with the Department of the Treasury and other agencies, in preventing and managing financial crises,” according to the joint statement.

Michael Feroli, economist at JPMorgan Economics, said he viewed the statement as giving “the Fed a leg up in the contest to become the financial `super regulator.’ “

The Fed will work closely with Treasury and other agencies to improve the functioning of credit markets and help prevent the failure of huge financial institutions that could cause major damage to the economy, the statement said.

Both Treasury and the Fed once again called on Congress to set up a system that would allow a failure of a single major financial institution to be handled in such a way to minimize fallout to the national economy — similar to how the Federal Deposit Insurance Corp. deals with bank failures.

Looking ahead, the Treasury said it will seek to “liquidate” or “remove” from the Federal Reserve’s balance sheet billions of dollars worth of risky assets it now holds because of last year’s bailout of Bear Stearns and American International Group. It didn’t provide details on the timing of such a move, other than to say it would be in the “longer term.”

Comments »

It is simple sell a closing break of 805 S&P and ad some hedges above 840, & then 880

Parabolic – Parabolic Uptrend Stock

A stock moves parabolic at the end of extreme uptrends, and is seen when panic buying sets in and prices are driven vertical. During a parabolic uptrend, there is almost a complete absence of sellers, which creates a vacuum of buying. This occurs only in momentum stocks as traders rush to just get into the stock regardless of price, in fear of being left behind. Parabolic moves can make the largest price moves in the shortest amount of time, but are dangerous places to buy stock when you overstay your welcome. When a stock moves parabolic, it often marks the end of a move with prices not returning to the ultimate highs again for a long time.

Comments »

Business Insider is by Far Geithners Biggest Critics

If you think you understand how Tim Geithner’s public-private partnership plan will work, you are probably mistaken. It’s a horrendously complicated program with a range of confusing treatments of various types of capital, including equity matching, loans from the government and guarantees of loans from banks.

If we were more cynical, we’d say that the entire point of this complexity was to promote public ignorance. Complexity is an ally of bureaucracy because anything that the public cannot figure out is effectively autonomous and removed from public scrutiny. But let’s not jump to the conclusion that the regulators have set out to confuse us.

Instead, it seems more likely that this is a budget dodge by the Obama administration. Politicians love guarantees because they don’t require current expenditures. In fact, they often pretend a guarantee or a loan is free money—as if a guarantee something that probably won’t ever have to be paid off and all loans from the government will get paid back. As we’ve learned throughout this crisis, that’s a dangerous fiction. If you say you have a bazooka in your pocket, eventually the market will demand you produce it and start blowing things up.

Felix Salmon explains that this seems to be what is happening with the program by the Obama administration to mix small government equity contributions with huge government guarantees and loans to “private investors.”

It decrees the TARP money to be “equity”, and then goes off to the FDIC to provide “debt”. Both of these sources of funds are US government risk capital which will be used to buy up toxic legacy assets. There’s no economic reason to make the debt/equity distinction. But there is a political reason: Congress would have to approve any more equity spending, but FDIC guarantees can be issued to an unlimited degree without Congressional approval.

We explained the underlying dynamic in this space seven weeks ago:

We’d guess that the program to purchase assets turned out to be horrifyingly expensive. Banks are unwilling to shed the assets at steep discounts. Many bankers still believe that a lot of their troubled portfolios will be worth more once the “market dislocation” clears up. That assumption that these debt linked securities will be worth far more than current market pricing indicates we’re calling the Dislocation Ideology.

But even if they were willing to give up on this Dislocation Ideology, they wouldn’t sell their bad assets to the government at market prices because this would render them insolvent. When the government got around to figuring out what it would cost to overpay enough for the troubled assets that banks would come clean, the number was almost certainly beyond anything they had contemplated.

How big could that bill be? Senator Charles Schumer has said that the bad bank could cost $3 trillion to $4 trillion. We’ve heard estimates even higher. One banker we spoke to said the bad bank would have to be prepared to spend as much as $8 trillion.

Insurance provides a much more politically palatable way of bailing out the banks. Politicians won’t have to spend a dime on day one. They’ll claim that much of the insurance will prove unnecessary because the asset values will recover. We’re sure someone will say that taxpayers could even make money on the insurance, if the premiums charged to banks wound up being higher than the pay outs on the insurance. The budget makers will come up with a rose-tinted estimate of eventually payouts, and that estimate will be based on the idea that the troubled assets will recover their value. The Dislocation Ideology will become the official policy of the United States.

Related Article

Comments »

Uncle Sam can not do all the heavy lifting; we need private capital to get involved

WASHINGTON (Reuters) – The Obama administration on Monday offered a raft of incentives for private investors to help rid banks of up to $1 trillion in toxic assets that plunged the world economy into crisis.

U.S. stock prices shot up, led by bank shares, as Washington ended weeks of speculation about details of its attack on the heart of the credit crisis, offering generous government financing to underpin the public-private plan.

The U.S. Treasury said it will launch the program with $75 billion to $100 billion from existing financial rescue funds aimed at thawing the market for mortgage-backed securities and other hard-to-sell assets.

President Barack Obama said the plan was critical to a U.S. economic recovery, but added, “We still have a long way to go and we have a lot of work to do.”

Major U.S. share indexes, which recently scraped 12-year lows, jumped about 7.0 percent on optimism over the plan. The Dow Jones industrial average closed up nearly 500 points.

Public fury over big bonus paid to executives at bailout recipient American International Group has made some investors wary of partnering with the government. But some of the world’s most powerful investors said the plan could work and indicated interest in participating.

In an effort to spur participation, Treasury Secretary Timothy Geithner said private investors will not face executive pay restrictions.

Analysts cautioned that success would depend on whether banks are prepared to sell assets cheaply or want to wait in the hope of getting a better price when the economy recovers.

CRITICS SEE INVESTORS FAVORED OVER TAXPAYERS

Nobel Prize-winning economist and New York Times columnist Paul Krugman slammed Geithner’s plan.

In his Monday column, Krugman said it was a rehash of a “cash-for-trash” proposal the Bush administration floated last fall, and that the incentives meant investors could profit if asset values increase but “walk away” if they fall.

Some Republican lawmakers also expressed concern over the incentives offered by the government, which could end up providing more than 90 percent of the funds to buy the assets.

“The plan seems to offer little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer,” said Representative Eric Cantor of Virginia, a member of the House of Representatives Republican leadership.

Geithner, who sent markets plunging on February 10 by releasing only a bare-bones sketch of the plan, said it was needed to get the private sector involved in cleaning up the banking mess.

“The great risk that we face now is that after a long period of irresponsibility and excessive risk-taking, that the system will not take enough risk now,” he said.

The plan is the latest step in a series of aggressive actions to restore credit flows and combat a virulent recession. Less than a week ago, the Fed ramped up its efforts, vowing to pump an additional $1.15 trillion into the economy.

Geithner said investors will set the price for toxic assets through the degree of interest they show in buying them, sparing the government from having to make that decision.

One aim is to restart markets for securities not currently trading and, in the process, tamp down investor fears that some form of bank nationalization might have to be considered.

TAPPING OTHER FINANCE SOURCES

The Treasury and private investors would combine their capital and turn to the Federal Deposit Insurance Corp, a U.S. banking regulator, or the Federal Reserve for loans.

Under one part of the plan focused on sopping up bad loans, the Treasury will provide up to 80 percent of the initial capital and the FDIC would offer debt financing for up to six times of the combined public-private capital pool.

A separate component, aimed at toxic securities, will have the Federal Reserve broaden its Term Asset-Backed Securities Loan Facility. That $200 billion program will be bumped up to $1 trillion and will begin accepting older mortgage-related and other securities as loan collateral.

In addition, the Treasury will approve up to five investment managers and match their money one-for-one. It will then offer debt financing for 50 percent of the combined capital to buy securities banks want to unload.

“My hope would be that you’ll see … the first actual loans within the next 60 days, perhaps sooner than that,” Lawrence Summers, head of the White House National Economic Council, told Public Broadcasting’s “NewsHour with Jim Lehrer.”

The plan aims to help set prices for poorly performing debt left over from the U.S. housing market bust, while involving the market to avoid the risk taxpayers will overpay.

Geithner’s future may partly ride on its success. He has faced harsh scrutiny over whether he could have stopped the AIG bonuses, and some lawmakers have called for his resignation.

Two major U.S. money managers, BlackRock and Pimco, expressed interest in participating.

“From Pimco’s perspective, we are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer,” Bill Gross, Pimco’s co-chief investment officer, told Reuters.

Comments »

New Fiat Wanted

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.

Comments »

With a close above the 50 day ma this rally could find some more legs

March 23 (Bloomberg) — U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the Obama administration’s plan to rid banks of toxic assets will spur growth and investor Mark Mobius said a new bull market has begun. Treasuries and the dollar fell.

Bank of America Corp. and Citigroup Inc. both soared at least 19 percent as the U.S. Treasury said it will finance as much as $1 trillion in purchases of distressed assets. Exxon Mobil Corp. and Chevron Corp. jumped more than 6.7 percent after oil rose to an almost four-month high. The Standard & Poor’s 500 Index extended its rebound from a 12-year closing low on March 9 to 22 percent as all 10 of its main industry groups advanced.

“You have to be careful not to miss the opportunity,” said Mobius, who helps oversee about $20 billion of emerging- market assets as executive chairman at San Mateo, California- based Templeton Asset Management Ltd. “With all the negative news, there is a tendency to hold back,” he said in a Bloomberg Television interview from Hong Kong.

The S&P 500 gained 7.1 percent to 822.92, its biggest increase since Oct. 28. The Dow Jones Industrial Average jumped 497.48 points, or 6.8 percent, to a five-week high of 7,775.86. The MSCI World Index climbed for the ninth time in 10 days, adding 5.4 percent. Twenty-one stocks rose for each that fell on the New York Stock Exchange, the broadest rally since at least July 2004.

Public-Private Investment Program

The Treasury’s Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion. The Treasury said the program may double “over time.”

Benchmark indexes extended gains in early trading after an industry report showed home sales unexpectedly increased in February.

The MSCI World, a gauge of 23 developed nations, has added almost 21 percent since March 9 as Citigroup, Bank of America and JPMorgan Chase & Co. said they made money in the first two months of 2009 and the Federal Reserve agreed to buy $300 billion of government bonds to combat the financial crisis.

The MSCI Emerging Markets Index of 23 developing nations gained 5.1 percent today, erasing its 2009 drop. Mobius, who was voted among the “Top Ten Money Managers of the 20th Century” by the Carson Group, said emerging markets are in “better shape” than developed economies.

‘Helluva Rally’

“This is a helluva rally,” Myles Zyblock, the Toronto- based chief institutional strategist for RBC Capital Markets, said in a note to investors. The U.S. stock market has moved “through the 50-day moving average and then the 800 area like a hot knife through butter.”

Bank of America, the largest U.S. lender by assets, surged 26 percent to $7.80. Citigroup, whose biggest shareholder may soon be U.S. taxpayers, soared 19 percent to $3.13. JPMorgan added 25 percent to $28.86. The three banks led gains in all 30 Dow average companies.

Deutsche Bank AG, Germany’s largest bank, rose 8.5 percent to 30.70 euros. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, advanced 4.7 percent to 512 yen.

Treasury Secretary Timothy Geithner has crafted an approach to spur investment funds to purchase the illiquid securities and loans that have caused credit to dry up. Because the program depends on private investors, it may be months before it’s clear if it will work. The plan relies on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees.

‘Very, Very Positive’

“With the government taking most of the downside, that is basically what’s going to entice bids,” Jeremy Siegel, finance professor at the University of Pennsylvania’s Wharton School of Business, told Bloomberg Television. “This is a very, very positive thing for the credit markets.”

The S&P 500 Financials Index of banks, insurers and investment firms has surged 58 percent from its March 6 low including an 18 percent rally today, its steepest since Nov. 24.

Treasury 10-year notes fell, driving yields higher, following Geithner’s plan. The U.S. prepared to sell $98 billion of two-, five- and seven-year notes this week.

“Stocks are up and tomorrow starts a big supply week,” said Raymond Remy, who heads fixed income at Daiwa Securities America Inc. in New York, one of the 16 primary dealers that trade with the Federal Reserve. “Treasuries are under pressure.”

Yields Rise

The yield on the 10-year note rose four basis points, or 0.04 percentage point, to 2.67 percent at 3:55 p.m. in New York, according to BGCantor Market Data. The 2.75 percent security due in February 2019 fell 11/32, or $2.19 per $1,000 face amount, to 100 22/32.

The yield on the two-year note increased three basis points to 0.89 percent, while the yield on the five-year note advanced five basis points to 1.69 percent.

The yen and dollar fell against most of their major counterparts on speculation additional U.S. government steps to help banks dispose of toxic assets will reduce demand for the currencies’ safety.

“It looks like it’s a story that speaks more to a recovery in risk appetite,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It plays more to the strengths of the Aussie and the kiwi.”

The yen depreciated 1.7 percent to 132.44 per euro at 4:07 p.m. in New York, from 130.29 on March 20. It touched 132.48, the weakest level since Oct. 21. The yen declined 1.2 percent to 97.08 per dollar from 95.94. The dollar lost 0.4 percent to $1.3642 per euro from $1.3582. The U.S. currency reached $1.3738 on March 19, the weakest level since Jan. 9.

Four-Month High

Crude oil rose to the highest in almost four months as the U.S. stock market advanced, signaling that fuel use in the world’s biggest energy-consuming country will rebound.

Oil climbed 3.3 percent after equities increased on speculation that the Obama administration’s plan to rid banks of distressed assets will spur growth. Stock and commodity markets extended gains after a report showed that U.S. sales of previously owned homes unexpectedly climbed in February.

“Oil is moving higher with the stock market today on the announcement of a plan to buy toxic assets,” said Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington.

Crude oil for May delivery rose $1.73 to $53.80 a barrel at 2:43 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 28. Prices are up 21 percent this year.

Cattle prices rose to the highest in almost three weeks after a government report showed the supply of U.S. animals is shrinking.

‘Losing Money’

Feedlots cut purchases of young cattle by 2.6 percent in February from a year earlier to 1.678 million head, the U.S. Department of Agriculture said March 20, after the close of futures trading in Chicago. Analysts had predicted a 0.7 percent increase. So-called placements dropped as beef demand slowed and high grain costs led to 21 straight months of feedlot losses.

“The trade seemed to be pretty impressed with the placements in the cattle-on-feed report,” said Dennis Smith, a senior account executive at Archer Financial Services Inc. in Chicago, referring to purchases of young animals. “There was no reason to want to place large numbers of cattle because everybody is losing money.”

Cattle futures for June delivery increased 0.55 cent, or 0.7 percent, to 83.4 cents a pound on the Chicago Mercantile Exchange. Earlier, the price touched 83.825 cents, the highest for the contract since March 4. The contract is down 3.2 percent this year. Feeder-cattle futures for May settlement rose 0.675 cent, or 0.7 percent, to 96.05 cents a pound.

[youtube:http://www.youtube.com/watch?v=KPvt1ko4ZzU 450 300]

Comments »