Friedman Resigns as NY Fed Chairman, Had Been Buying Goldman Stock in 2008-9

It just keeps getting more blatant and more brazen.

"And, with respect to Steve’s purchases of Goldman shares in December of 2008 and January of 2009, which have been the object of some attention lately, it is my view that these purchases did not violate any Federal Reserve statute, rule or policy."

Let's see, it is perfectly all right for a Fed Chairman to buy shares in one of the banks he is 'regulating' especially when he is helping to make critical policy decisions directly involving them.

Who writes the Fed's conflicts of interest policy, Alberto Gonzalez?

Yes the Fed would certainly make a very good systemic regulator...

Federal Reserve Bank of New York
Stephen Friedman Resigns as Chairman of the New York Fed’s Board of Directors
May 7, 2009

NEW YORK—The Federal Reserve Bank of New York announced today that Stephen Friedman, chairman of the board of directors of the New York Fed, has informed William C. Dudley, president and chief executive officer of the New York Fed, and the Board of Governors of his decision to resign effective immediately. Consistent with the Federal Reserve Act, Denis M. Hughes, deputy chair of the board, will exercise the powers and duties of the chair.

“My colleagues and I appreciate Steve’s vital service to the Bank during this time of great economic stress,” said Mr. Hughes. “We value his contributions and I know the Bank’s leadership acknowledges his unique perspectives on the economy and his financial market expertise. We all join in thanking him for his service and leadership.” Mr. Hughes added, “This is a remarkable organization at the center of helping the nation through the most difficult economic period since the 1930s. I have watched as the people of the Fed managed the unprecedented financial storms with creativity, energy and integrity.”

Thomas C. Baxter, Jr., executive vice president and general counsel, said, “There is no doubt that 2008 was one of the most challenging years in the New York Fed’s history. We were fortunate to have Steve as our chairman during that time, especially in view of Mr. Geithner’s decision to accept President Obama’s nomination to become Secretary of the Treasury. When the President announced his decision to nominate now-Secretary Geithner on November 24, 2008, Steve immediately stepped into action and formed a search committee of the New York Fed’s board of directors.

During the committee’s often intense deliberations over the next two months, I was privileged to observe closely Steve’s dedication, professionalism and work ethic. He was extraordinary. And, with respect to Steve’s purchases of Goldman shares in December of 2008 and January of 2009, which have been the object of some attention lately, it is my view that these purchases did not violate any Federal Reserve statute, rule or policy. I enjoyed working with Steve, and will miss his contributions in the boardroom.”

“I would like to thank Steve Friedman and his fellow directors on the New York Fed’s board for their service,” said Donald L. Kohn, vice chairman of the Board of Governors of the Federal Reserve System. “I particularly appreciate the very rigorous process Steve established to select the new president of the New York Fed.”

New York, NY 10022
May 7, 2009
Mr. Wiliam C. Dudley
President
Federal Reserve Bank of New York
33 Libert Street
New York, NY 10045

Dear Bill:

By copy of this letter to Chairman Bernanke, I hereby resign as a Class C Director and
Chairman of the Board of the Federal Reserve Bank of New York, effective immediately.
Last Fall, after Goldman Sachs Group, Inc. became a bank holding company, I agreed to
remain on the Board, pursuant to the waiver authority of the Board of Governors of the Federal
Reserve System, to provide continuity durng a time of financial market instability. Today,
although I have been in compliance with the rules, my public service motivated continuation on
the Reserve Bank Board is being mischaracterized as improper. The Federal Reserve System has
importnt work to do and does not need this distraction.

Please convey my appreciation and respect to my fellow Directors and the Reserve Bank
staff for their cooperation and their service. It has been a pleasure to work with you, your
predecessor, and our distinguished Board, as well as the dedicated, hard-working men and
women of the New York Fed. The New York Fed plays an extraordinary and vital role in
restoring stability to the financial system durng this very critical period, and it has been an honor
to be part of the institution's effort. I also am grateful to Chairman Bernanke and the other
Members and staff of the Board of Governors for their advice and support in connection with the
search for a new Chief Executive Officer for the New York Fed.


Stephen Friedman


cc: The Honorable Ben S. Bernane
Chairman
Federal Reserve Board of Govemors
Federal Reserve System
Washington, DC 20551

SP Futures Hourly Chart at the Close

The Problem With Our Regulatory Process

There have been and still are three obvious problems with our regulatory structure.

1. Influence Peddling

2. Conflicts of Interest

3. Corruption

Reorganizing to more fully centralize the regulatory process is exactly the wrong thing to do.

It was often individuals and the individual States, standing against the pressure of federal regulators, which exposed unethical and illegal practices.

And as for the idea that the Fed can take on more of these functions, just remember what will happen the next time a Greenspan gets in that position.

The Fed is a private organization owned by the banks, too often opaque, and with a highly questionable independence and objectivity.

Reorganization to centralize bad decision making and conflicts of interests is right out of the 1990's corporate playbook.


If Obama has a pair of his own he will appoint someone like Eliot Spitzer, Ron Paul, or Dennis Kucinich as the new Chairman of the SEC or the CFTC.

Red Pill or Blue Pill?

You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe.

You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes."

Morpheus in The Matrix

Blue Pill

Dick Bove was on Bloomberg Television this morning justifying a bullish outlook for the big banks, and the Bank of America in particular.

As you know, the story is that Bank of America has to raise many billions of dollars in additional capital according to the stress tests.

Dick Bove reasons that Bank of America will raise this additional capital, handwaving the costs and any contingencies a bit.

This additional capital will be leveraged, so Dick believes, in profitable transactions in trading, lending, and the extension of credit.

These transactions will generate a spectacular boom in bank profits. Mo' capital, mo' profits. Just do the math and including plenty of leverage.

And as we all know, more credit means economic growth and national prosperity.

Red Pill

The problem that the financial system has is an outsized financial sector with too much capacity for credit and financial assets. This excess capacity led to speculation and extension of credit in deals where the risk was not adequately balanced.

Hot money chases unreasonable risks. Too much capacity lowers the bars for deals which cannot possibly be profitable in any realistic model. Bubbles tend to distort the models for growth assumptions.

The only way to achieve a sustained recovery is to reform the financial system, break up the big banks, and return to a more balanced economy.

The elite and their acolytes seem to believe that by sustaining the illusion of the Financial Matrix that we create a confidence that will support a national economic system that is based on a credit bubble and a mass illusion of wealth based on paper.

The money center banks are the instruments of national policy, and the power to control not only the domestic economy but the nations of the world.

All we have to do is believe, and act as though it were true. After all, its so confusing, who can understand it? Better to just believe.

Can we delude ourselves to prosperity? Can a powerful nation and otherwise intelligent people be that venal, faithless and craven?

Yes we can. We have been doing it for years. And it can only continue if we gain more control over the real world and the people in it, and bend them to our increasingly irrational will.

The triumph of the will.

Nasdaq 100 Futures Hourly Chart at 2:30 PM

The artificial reflation aka short squeeze continues. It is centered on the financial stocks and in particular the SP futures. This is a classic Bob Rubin market fix technique from the 1990's. Don't fix the problems paint over them.

At times like these the stodgier Nasdaq100 performs the role of confirming moves up or down led by the SP 500. The broader indices are even more important.

This market is being slapped around in an effort to skin the overlevered small specs, so keep your positions small or even better, cash in your pocket. The banks are having a last gasp at manipulating nearly everything

.

Insiders Continue to Sell Aggressively Into This Rally

According to reports corporate insiders continue to sell agrressively into this rally, with sells outweighing buys at levels not seen since the market top in 2007.

SP Futures Hourly Chart Update at 2:30 PM

This may be a 'reflationary rally' such as we had seen off the market bottom in 2003 which precipitated the housing bubble. The rally in gold and silver with the falling dollar helps to reinforce that view. The Treasury and Fed are monetizing debt at a brisk pace. This is bullish for stocks from a nominal standpoint at least.

We are skeptical of an economic recovery, and prefer to think of this stock market action not as signalling a real bottom but as a sucker's rally in which insiders unload positions on the naive and unsuspecting who are taken in by false optimism. It is difficult to tell however, given the opaque nature of the US financial system.

The chart technicals say that if it is not a genuine renewal of the bull, then the rally will likely fail around 915-920. If it is, then it obviously may keep drifting higher along the diagonal trendlines until something dislodges its momentum.

The market will let us know which one it is reasonably soon. Try not to outguess it if you value your portfolio. This is still a "trader's market."

Our key short term indicators have not yet delivered a SELL signal.

The Cause of the Financial Crisis

Jamie Galbraith leaves out a couple of key component of the ramp up to this crisis.

The corruption of the political process, increasingly dependent on large campaign contributions, by the large corporate interests set the stage for the erosion of public regulation of markets and the rule of the law.

And of course, Alan Greenspan, without whom this disaster would almost certainly have not been possible.

Dr. Greenspan, at the Federal Reserve, with a bully pulpit and a printing press.


Texas Observer
Causes of the Crisis
James K. Galbraith
May 01, 2009

...This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts.

First, an idea.

The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners...; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

Second, a person.

It would not be right to blame any single person for these events, but if I had to choose one to name it would be... former Senator Phil Gramm. I’d cite specifically the repeal of the Glass-Steagall Act—the Gramm-Leach-Bliley Act—in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933.

I’d also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. ...

Third, a policy.

This was the abandonment of state responsibility for financial regulation... This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars’ loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance tells you what you need to know. ...

The consequence ... is a collapse of trust, a collapse of asset values, and a collapse of the financial system. That is what has happened, and what we have to deal with now.

Can “stimulus” get us out?

As a matter of economics, public spending substitutes for private spending. ... But it is not self-sustaining in the absence of a viable private credit system. The idea that we will be on the road to full recovery and returning to high employment in a year or so therefore seems to me to be an illusion.

And for this reason, the emphasis on short-term, “shovel-ready” projects in the expansion package, while understandable, was a mistake. As in the New Deal, we need both the Works Progress Administration ... to provide employment, and the Public Works Administration ... to rebuild the country. ...

The risk we run, in public policy, is not inflation. It is lack of persistence, a premature reversal of direction, and of course the fear of large numbers. If deficits in the trillions and public debt in the tens of trillions scare you, this is not a line of work you should be in.

The ultimate goals of policy are not measured by deficits or debt. They are measured by the performance of the economy itself. Here Leader Armey and I agree. He spoke with approval, in his remarks, of the goals of 3 percent unemployment and 4 percent inflation embodied in the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978. Which, as a 24-year-old member of the staff of the House Banking Committee in 1976, I drafted.

US Equity Rally in Context From the Start of the Bear Market

So far the rally appears to be 9/10ths short covering and momentum speculation.

In order to proceed further and break through some formidable overhead resistance real buying by insitutions and individuals must appear and the volume adjusted cash flows must turn more positive.

In other words, so far a typically impressive bear market rally that may be getting overextended without a serious revaluation of the ecoomic outlook. Next week's Jobs Report may help in that assessment.

The insiders and hedge funds still holding equities would greatly enjoy the stock piggies (institutions, 401k's and private investors) coming back into the markets so they can continue to unload their increasingly worthless assets.



Here is the big picture. It is 'possible' that this is not a bear market which we are experiencing.

However, there is a dramatic spread between 'possible' and 'probable' that even our mighty Fed and Treasury cannot easily diminish with their printing presses.

Silverton Bank of Atlanta Fails

Silverton Bank of Atlanta, Ga. fails; 30th of year
By Wallace Witkowski
4:17 p.m. EDT May 1, 2009

SAN FRANCISCO (MarketWatch) -- Silverton Bank, N.A., of Atlanta was closed Friday by the Office of the Comptroller of the Currency, according to the Federal Deposit Insurance Corporation, making it the 30th bank failure of the year and the 55th since the beginning of the recession.

FDIC said it created a bridge bank, Silverton Bridge Bank, N.A., to take over operations. The bank did not take deposits from the public or make retail loans, but was a commercial bank that had 1,400 client banks in 44 states. At the time of the closure, Silverton Bank had about $4.1 billion in assets and $3.3 billion in deposits.

Cracking Down on Naked Short Selling of Treasuries

The 'fails to deliver' statistics on debt instruments is almost as interesting, and a bit less opaque, than the naked short selling of equity instruments.

A "fail to deliver" occurs when someone sells an asset such as a Treasury note to another party and then does not deliver it within a reasonable period of time.

As you can see from the chart, this had become a pandemic fraud recently as investors flocked to Treasuries as a safe haven and the usual front running hedges started falling apart.

Let's see how this works, and if the 'financial charge' is more than a wristslap to the hedge funds and banks who engage in these practices.

Now, if someone could kindly turn some attention to the obvious naked short selling in commodities and equities, other than when their banking friends are in trouble, we might see a return to markets based on some reasonable approximation of the fundamentals and price discovery of value, rather than blatant manipulation of nearly everything as facilitated by the demimondes of Wall Street.

The banks must be restrained, and the financial system reformed, before there can be any sustained recovery in the real economy.


New York Fed Applauds Implementation of the TMPG's Fails Charge Recommendation
May 1, 2009

The Federal Reserve Bank of New York welcomes today’s implementation of the Treasury Market Practices Group’s (TMPG) recommendation that settlement fails in U.S. Treasury securities transactions be subject to a financial charge when short-term rates are low. The TMPG worked with both buy- and sell-side market participants to address a weakness in market practices that became apparent last fall when short-term market interest rates neared zero.

The New York Fed has adopted this new trading practice in its own market operations and continues to encourage its adoption by all market participants. (The New York Fed was frontrunning Treasuries and selling them naked short? LOL Maybe they were getting tired of the abusive insider trading since they were now in a position to support the bonds. - Jesse)

"We applaud the dedicated efforts of the TMPG in spearheading the development and implementation of this targeted solution to the settlement fails problem," said New York Fed President William Dudley. "This significant milestone in the evolution of Treasury market practice demonstrates that groups, such as the TMPG, are effective in addressing deficiencies in market functioning and facilitating market best practices."

The New York Fed acknowledges all of the market participants who joined this effort to develop this new trading practice guidance. In particular, the Securities Industry and Financial Markets Association, the Fixed Income Clearing Corporation, the Securities and Exchange Commission and the U.S. Treasury Department have provided critical support and guidance throughout this process.