Posts Tagged ‘Great Depression’
Tuesday, May 25th, 2010
In a rare moment of bipartisanship, the Senate voted 96 - 0 to attach a modified version of an amendment proposed by Sen. Bernard Sanders (I-VT) to the financial regulatory bill to investigate transparency in emergency lending practices by the Federal Reserve during the financial crisis. “This amendment begins the process of lifting the veil of secrecy of perhaps the most powerful federal agency,” Sanders said. The vote also is a nod to public frustration with the government’s Wall Street bailout.
President Barack Obama has asked Congress to enact reform legislation that will make capital markets less susceptible to crises. The Senate’s vote will clarify the Fed’s emergency lending practices during the crisis when it put hundreds of billions of dollars into the financial markets to stabilize the economy. The proposal marks the first time the Fed has been investigated this thoroughly by Congress.
The Senate wants to scrutinize the Fed’s role in the time leading up to and during the financial crisis to determine if there were any regulatory gaffes. Passage of the amendment allows a one-time audit of the Fed’s emergency lending since December 2007. Additionally, the Fed will have to publicly disclose detailed data about which financial institutions it has lent money to by December 1. Although the Fed initially was uneasy about the audit, its comfort level has now improved. According to Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, “I’m comfortable with the modified Sanders amendment.”
Tags: bailouts, Ben Bernanke, Bernie Sanders, Bipartisanship, capital markets, central bank, Federal Reserve, Federal Reserve Bank of Richmond, financial crisis, Great Depression, house of representatives, Jeffrey Lacker, President Barack Obama, Senate, Wall Street
Posted in Economics, Financing | 1 Comment »
Thursday, March 11th, 2010
Federal Reserve Chairman Ben Bernanke may get all the headlines, but the retirement of Vice Chairman Donald L. Kohn is giving President Barack Obama the historic opportunity to reshape the nation’s central bank. Kohn is one of seven Fed governors who set U.S. monetary policy and regulate the financial system.
The change comes at a time of historic transformation and intense examination of the Fed and its mission. Over the past 18 months, the Fed has taken extraordinary steps to recue the nation from the worst financial crisis since the Great Depression and stabilize the economy. The Fed has now reached the point where it must decide how and when to relax some of its emergency actions. The Fed’s governors also must transform their regulatory approach to prevent future financial crises. They also must avert attempts by Congress to enact greater monetary policy oversight and take away the Fed’s ability to supervise banks.
Potential candidates for the job include Christina Romer, Council of Economics Advisers Chairman, and Janet Yellen, President of the Federal Reserve of San Francisco. Kohn, who has been with the Fed for 40 years, will take with him much of the central bank’s institutional memory. Additionally, Kohn received high praise from his boss. According to Bernanke, “The Federal Reserve and the country owe a tremendous debt of gratitude to Don Kohn for his invaluable contributions over 40 years of public service.”
“It’s a pivotal point in the history of the Fed,” says Diane Swonk, chief economist at Mesirow Financial. “You need somebody who has credibility and can defend the Fed’s independence in a way that doesn’t offend Congress. They need finesse on regulatory policy. There will be a lot on their plate.”
Tags: Ben Bernanke, central bank, Christina Romer, congress, Diane Swonk, Donald Kohn, Federal Reserve, Great Depression, Janet Yellen, Mesirow Financial, President Barack Obama
Posted in Economics | No Comments »
Monday, February 1st, 2010
David Tepper’s shrewd bet that the nation would avoid a second Great Depression inspired him to buy bank shares at rock-bottom rates, a move that has earned his Appaloosa Management hedge fund an estimated $7 billion worth of profit during 2009. Last winter, Tepper invested heavily in Bank of America stocks selling for $3 a share, as well as Citigroup, Inc. preferred stock, then priced at a bargain-basement $1 per share.
Tepper, a philanthropist who funded the Tepper School of Business at Carnegie Mellon University, made a gamble that is paying off in a big way - surprising skeptics who insisted that he was making a costly error. “I felt like I was alone,” Tepper said. There were days when “no one was even bidding.” An improving market has seen Appaloosa Management earn a 120 percent return. As a result of those gains, Tepper now manages approximately $12 billion, making his company one of the world’s largest hedge funds.
In general, hedge funds had a bad year in 2008, when they experienced a 19 percent decline. Approximately 1,500 funds - 16 percent of the total - went out of business in 2008. The funds had a far better year in 2009. According to Hedge Fund Research, Inc., they are seeing a 19 percent return, the best annual gains in 10 years.
Alan Shealy, a long-time Tepper client, says “Investing with David is like flying, with hours of boredom followed by bouts of sheer terror. He’s the quintessential opportunist, investing in any asset class, but you have to have a cast-iron stomach.”
Tags: Bank of America, Citigroup, David Tepper, Goldman Sachs, Great Depression, hedge fund, recession
Posted in Economics, Financing | No Comments »
Monday, December 28th, 2009
Time magazine has settled the much-anticipated question of its choice for “Person of the Year” for 2009. It’s Ben Bernanke, the scholarly chairman of the Federal Reserve, and “the most important and least understood force shaping the American - and global - economy.” A former Princeton professor well versed in the causes and cures of the Great Depression, the 56-year-old Bernanke reinvented the Federal Reserve once global markets imploded in the fall of 2008. Bernanke also has a compelling personal history, having been raised Jewish in small-town South Carolina during the Civil Rights era.
Time, commenting on Bernanke’s achievements over the last year, notes that “He knew how the passive Fed of the 1930s helped create the calamity - through its stubborn refusal to expand the money supply and its tragic lack of imagination and experimentation. Chairman Bernanke of Washington was determined not to be the Fed chairman who presided over Depression 2.0. So when turbulence in U.S. housing markets metastasized into the worst global financial crisis in more than 75 years, he conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed’s balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. He didn’t just reshape U.S. monetary policy; he led an effort to save the world economy.”
What’s remarkable is that Bernanke has achieved all of this in slightly more than one year.
Throughout 2009, Bernanke deposited unprecedented amounts of money into the banking system in entirely new ways, while charting a framework for the Fed’s ultimate return to normality. He oversaw the financial stress tests that calmed the markets, and launched a ground-breaking public relations campaign to make the Fed more comprehensible to ordinary people. According to Time, Bernanke’s “creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world.”
Tags: Ben Bernanke, central bank, Civil Rights era, Federal Reserve, financial stress test, Great Depression
Posted in Economics | No Comments »
Thursday, December 17th, 2009
The world’s central banks are easing up slightly on the generosity they have shown over the past year when the financial crisis threatened to destroy the global economy. After European Central Bank president Jean-Claude Trichet said his bank would withdraw some liquidity operations, the euro rose. Similarly the pound went up after the Bank of England started purchasing bonds at a slower rate. The Federal Reserve detailed the conditions in which it would raise interest rates - though it hasn’t acted on that yet.
Juergen Michels, chief European economist at Citigroup, Inc., in London, says that “As soon as the first exit measures are put in place, there’s the risk that the market overreacts. We’ll probably see a tightening of financing conditions, and hard-fought-for improvements will be in jeopardy.”
These actions mean that investors will have to operate without the liquidity that has been propping up the world’s economies, even as new concerns about additional asset bubbles grow. Mistiming the withdrawal of support could spoil the fragile recovery. Central banks are changing course at a time when factories are restocking inventories, and the price of commodities like gold and sugar are climbing. The MSCI All-Countries World Index has soared 66 percent since March and sugar has increased 90 percent this year.
“There are all kinds of risks,” said Jim O’Neill, chief global economist at Goldman Sachs Group, Inc., in London. “We don’t know how much of the improvement in markets is due to the central banks’ largesse, and neither do they. They’re pretty nervous, but they’ve got to get out of it at some stage.”
Tags: Bank of England, Ben Bernanke, Citigroup, euro, European Central, Federal Reserve, Goldman Sachs, Great Depression
Posted in Economics, Financing | No Comments »
Monday, December 14th, 2009
With the national unemployment rate at 10.2 percent, President Barack Obama is focusing on job creation - the American public’s number one concern. The administration’s “White House to Main Street” summit and tour is gathering advice from a variety of stakeholders, including business executives, small-business owners, economists, union officials and Ed Pawlowski, the mayor of hard-hit Allentown, PA.
The stakes are high because the Obama administration finds itself in the difficult position of wanting to create millions of new jobs without adding to the national debt. “There’s one group that says we need to do more about the economy, more to create jobs,” according to political analyst Charlie Cook. “And then there’s the other side that’s saying we’re blowing the heck out of the budget deficits. And so they’re getting squeezed.”
“If we keep on adding to the debt, even in the midst of this recovery, at some point people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession,” the President said in an interview with Fox News.
In the meantime, Congress is considering job stimulus legislation that could combine extensions of COBRA, unemployment compensation and food stamps. Because the Democrats have very little money to spend right now, they know that a successful second stimulus will have to pack a powerful punch. Senator Mark Warner (D-VA) wants to use $50 billion in leftover TARP funds to provide loans to small businesses. Yet another proposal from Senator Jack Reed (D-RI) would use $600 million to subsidize employees who volunteer to have their hours cut to help companies avoid layoffs. This approach has worked spectacularly well in Germany, which has not seen an uptick in unemployment this recession.
Tags: Charlie Cook, Clinton administration, COBRA, Concord Coalition, congress, democrats, Economic Policy Institute, Ed Pawlowski, food stamps, Great Depression, Great Recession, job stimulus, President Obama, Senator Jack Reed, Senator Mark Warner, TARP, unemployment, unemployment compensation
Posted in Economics, General | No Comments »
Wednesday, September 2nd, 2009
Federal Reserve chairman and Great Depression scholar Ben Bernanke will stay in his job for another four years if President Barack Obama gets his way. There likely will be some contentious moments during the reconfirmation hearings as Senators grill him about bailing out Wall Street institutions deemed too big to fail. He is expected to stay on.
Former Fed governor Randall Kroszner, who resigned his post to return to the University of Chicago, believes that the president has made the right choice and that Bernanke’s “amazing and steady” leadership rescued the nation from a second Great Depression. Mark Calabria, a policy scholar at the libertarian Cato Institute, disagrees and opines that Bernanke’s renomination “sends the worst possible message”. Still, most experts think that retaining Bernanke is a smart move, especially now that the economy and financial markets are stabilizing. “Love him or hate him, there’s strength in continuity,” says money manager Douglas Nardi of Legg Mason Investment Counsel. “Things are going pretty well, and you don’t want to rock the boat.”
Bernanke faces some rough months ahead. He will have to start pulling money out of the system that he flooded with cash last fall. This is a judgment call full of political peril, because it could mean slowing economic growth to control inflation - even if unemployment is still hovering around the 10 percent mark. In Kroszner’s opinion, Bernanke is significantly farther along in this process than the general public realizes. The Fed provided approximately $1.5 trillion in short-term loans as of the end of last year, which helped keep swaps, commercial paper and other institutional markets from shutting down completely.
Tags: Ben Bernanke, economy, Fed, Federal Reserve, financial market, Great Depression, President Obama, unemployment, Wall Street
Posted in Economics, Financing | No Comments »
Friday, June 19th, 2009
Hollywood’s Blockbuster Year
“Hooray for Hollywood”, said the 1937 lyric by Johnny Mercer, sung during the depths of the Great Depression. It appears the one industry that’s recession proof has done it again. While the world’s economy has gone into free fall, Hollywood is in a state of euphoria right now, buoyed by a box-office surge that has stumped even the experts. Suddenly, everyone is going to the movies, with ticket sales spiking 17.5 percent, to $1.7 billion, according to Media by Numbers, a box-office tracking company.
“Star Trek,” director JJ Abrams’ take on sci-fi’s most enduring franchise, is the biggest hit this year with a total gross of $223 million (it remained in the Top 5 with $8.4 million last week). Medium-budget films also performed well this year with “Taken”, starring Liam Neeson, bringing in more than $80 million, and “Gran Torino”, starring the 79-year-old Clint Eastwood, topping $130 million. The appropriately titled “Up” may give Hollywood even more wind in its sails this summer. The latest film from Pixar (a division of Apple, and easily Hollywood’s most consistent studio) brought in $44.2 million in its second week, with a 10-day take of $137.3 million. An interesting counterpoint to this is that movie merchandising sales are down. Thinkway Toys, whose range of products related to Pixar’s 2006 film “Cars” helped the film to a merchandise sales record of $5 billion, is not creating a single toy based on the new movie. Disney stores will offer only limited merchandise to promote “Up.”
The conventional wisdom would say that all this is obvious since people seek out escapism during a recession, particularly the type that’s priced right. However, Hollywood’s splendid performance is actually an anomaly and all the more remarkable when we consider history. Contrary to popular mythology, the film industry was not “Depression-Proof” in the 1930s but suffered a steep decline: attendance soared after the 1927 introduction of “talkies” (Al Jolson’s “The Jazz Singer” was the first sound film). But weekly viewership peaked at 90 million tickets in 1930, then declined by more than a third by 1933. Part of the problem was sound: to equip their theaters and sound stages, the studios tripled their debts during the mid- and late-’20s to $410 million. By 1933, attendance and revenues had fallen by forty percent. To hold on, the studios cut salaries and costs, and closed a full third of the nation’s theaters.
Tags: budget films, Cars, Clint Eastwood, costs, Depression Proof, Disney, economy, euphoria, films, Gran Torino, Great Depression, Hollywood, JJ Abrams, Johnny Mercer, Liam Neeson, Pixar, recession, recession proof, sound stages, Star Trek, studios, summer hits, Taken, Talkies, The Jazz Singer, theaters, ticket sales, tickets, Up
Posted in General | No Comments »
Tuesday, April 21st, 2009
The Obama administration has proposed the most comprehensive overhaul of the nation’s financial industry since the Great Depression. The measures, as outlined by Secretary of the Treasury Timothy Geithner, 
will require regulation of hedge funds for the first time and give government wide-ranging powers to seize and take apart companies that are perceived as threats to the overall economy. The proposals are strong medicine indeed.
The measures, which require Congressional approval, are structured to entice private buyers by offering the similar supercharged leverage that prevailed during the financial boom-but one where oversight is de rigueur. While the private sector is cutting back on its debt, the government believes that providing inexpensive financing is the best way to free up the market for illiquid debt.
The proposals give the Federal Reserve the authority to oversee the nation’s economy for signs of “systemic risk”. The legislation will include significantly stronger requirements regarding the cash reserves and assets that institutions must have on hand to endure economic downturns. Hedge funds, private-equity firms, derivatives and other private investment funds will be required to register with the Securities and Exchange Commission and will be subject to strict regulation. Additionally, the government will establish a central clearinghouse to closely monitor trades in these markets. Lastly, the administration will develop stricter requirements for money market funds so withdrawals don’t threaten the broader financial system.
Harsh medicine indeed, but the old system failed us all. Secretary Geithner sees his proposals as a price worth paying to clean out banks’ balance sheets. If the plan fails, it will be because banks were not willing to risk of taking a write-down and depleting precious capital.
Tags: assets, capital, cash reserves, Congressional approval, debt, economy, Federal Reserve, financial boom, financial industry, financial system, Great Depression, hedge funds, money market funds, Obama, Obama administration, private-equity firms, Secretary Geithner, Securities and Exchange Commission, systemic risk, Timothy Geithner
Posted in Development, Economics, Financing, General | No Comments »