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EDITOR’S COMMENT: The Federal Reserve is a hazy system whose ownership and management is about as clear as mud. About the only thing you can say for sure comes from their conduct. This mess could have been cleaned up with homeowners, investors, and investment banks at the table — addressing the reality of the historic economic fraud perpetrated by Wall Street under the names of derivatives and securitization. As the New York Times and many economists have pointed out, the FED is simply not doing the job is was created to do, and as a result, the problems and facts of the fraud continue to accumulate and multiply.

They’ve Got to Fix Their Priorities

The banks may have weathered the financial crisis, but the rest of the country hasn’t. Taxpayers are still on the hook for federally guaranteed bank debt. Homeowners’ equity continues to erode. Small businesses still have trouble getting loans, and savers are still getting hammered by near zero interest rates. Joblessness remains high. State budgets are ravaged.

So whom have Washington policy makers singled out for help? Bank shareholders, including bank executives who are invariably big holders of stock in their banks.

The Federal Reserve recently gave the all-clear for several banks to increase dividends and expand share buybacks, among them JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs. That’s good news, at least in the short run for bank investors, but it is a dubious development for everyone else.

The dividend-boosting banks that were too big to fail before the crisis are even bigger now, while reforms to rein them in are under political attack even before they have been implemented. Sheer size and inadequate regulation — the combination that led to the crisis — argue for banks to use their earnings to build bigger capital cushions, not to pay dividends and repurchase shares.

Yet Fed officials have concluded that many banks are safe and sound enough to pay out cash and still withstand a severe shock should one occur again. It’s hard to share their confidence. Before it approved new dividends, the Fed required banks to test their crisis-readiness against several criteria, like elevated unemployment, but it did not release detailed results of the tests. Public data do not inspire confidence either. There is much debate over whether banks are valuing their mortgage assets correctly, and, by extension, whether they are adequately capitalized.

What is known is that recent bank profits have been boosted not by increasing revenues, but by downward revisions to expected future losses. With house prices falling anew, further reducing the value of mortgage assets, how reasonable is that?

Even if banks were ready for anything, more dividends and buybacks still would be premature. Big banks that plan to increase payouts still hold nearly $120 billion in government-backed debt under a crisis-era program from the Federal Deposit Insurance Corporation. The subsidized bonds come due between now and the end of 2012. Paying shareholders before the bonds are retired puts bank investors before taxpayers — talk about skewed priorities. Banks also face potentially huge fines in court cases and in settlement talks with government officials over mortgage and foreclosure practices that have harmed both homeowners and mortgage investors. It is irresponsible for the Fed to allow bolstered dividends before the penalties are known and paid. It is also a disturbing omen. Regulators are part of the settlement talks over the banks’ wrongful practices. Are they assuming that banks can afford both stiff penalties and bolstered dividends? Or are they assuming that the penalties will be weak?

When it comes to redress and reward, bank shareholders should be at the back of the line, behind taxpayers who stand behind too-big-to-fail banks and behind homeowners who are bearing the brunt of a housing debacle for which banks bear considerable responsibility. For the Fed to allow new dividends and bigger buybacks before these issues are settled is a display of the same type of “banks first” favoritism that got us into this mess to start.

11 Responses

  1. Download ALL the FEDS released documents here ==>

  2. Since the discussion here seems to be mostly FED related ,, here’s the latest headline story from Drudge ,, Seems the biggest FED borrowers were FOREIGN banks ..

  3. Found this article this morning and I do not know about you but my pay sure has not raised!

    Through the Crisis, Average Bank Pay Grew at Pre-Downturn Clip

  4. So Goldman sacks even get their petty cash there just one million. Why such a small amount
    maybe they were off to buy coffee or something

    BLOOMBERG | Goldman Sachs Borrowed From Fed Window Five Times [ZIP DOCS]
    Posted on31 March 2011. Tags: borrower, documents, Fed, five time, Gary D. Cohn, goldman sachs, tim geithner, Treasury

    Goldman Sachs Group Inc. (GS) tapped the Federal Reserve’s discount window at least five times since September 2008, according to central bank data that contradict an executive’s testimony last year.
    Goldman Sachs Bank USA, a unit of the company, took overnight loans from the Federal Reserve on Sept. 23, Oct. 1, and Oct. 23 in 2008 as well as on Sept. 9, 2009, and Jan. 11, 2010, according to the data released today. The largest loan was $50 million on Sept. 23 and the smallest was $1 million on the most recent two occasions.

  6. The A man
    YES about 3 yrs ago. Sharp learnin curve ok Also, discovered rude fuks like u. ( just kidfin like ur posts) I try I really do.

  7. what you discovered America?

  8. I think here lies the deepest darkest secret
    who owns the federal reserve
    so I started to research and my computer froze and my virus protection kicks in I try again to listen to u tube stuff and same thing.
    Ron Paul talks Henry Kissinger talked, then it stopped so I couldn’t research how about ithat maybe “the new world order ” those guys are in charge , who ever they are, own the federal reserve the government are the puppets.

  9. Get rid of the Federal Reserve.

  10. Well how about this then just had a quick read. Will try to digest it later.

  11. URGENT!

    All matters related to consumers are with SERVICER! There are no complaints before Attorney Generals involving banks!

    The secret wholesale pipeline selling discounted loans are secret unsecuritized transactions banks are allowed to engage in under bank secrecy act.

    The matters before the COURTS in Complaint of Foreclosures and Bankruptcy’s are with the SERVICER!

    The SERVICER has rules and regulations in which they are not subjected to the same rules and regulations.

    The SERVICER masks who they really are doing business as allowing all agents, dealers, brokers, distributors to do business as ‘Wells Fargo Bank NA’ for example.

    Wells Fargo & Co/MN
    Foothills Group Inc. acquired 92/93 (GMAC Mortgage – Residential Funding – Norwest)
    who married former Wells Fargo and Norwest 11/2/98 and all former registrations and agreements survived.

    SERVICING continued thru Wells Fargo & Co/MN.

    Consumers when they sign loan, mortgage, notes, are in agreement with SERVICER only.

    Loan Modifications presented by Aurora Loan Servicing as LENDER obviously they are not the lender and never were the lender are the SERVICER always, so why are the Loan Modifications presented by the SERVICERS?

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