Explaining Southern California's economy

Tim Geithner discovers the shadow banking system

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US Treasury Secretary Timothy Geithner

Treasury Secretary Tim Geithner has an op-ed in the Wall Street Journal today in which he makes the case for financial reform based on a "It's déjà vu all over again" argument. We had "financial crisis amnesia" when the financial crisis struck in 2008 — and in 2012, we the amnesia has returned.

But Geithner has his own form of amnesia. Specifically, he's forgotten his role in bringing the financial crisis about in the first place. Here's an excerpt:

Regulators did not have the authority they needed to oversee and impose prudent limits on overall risk and leverage on large nonbank financial institutions. And they had no authority to put these firms, or bank holding companies, through a managed bankruptcy that wound them down in an orderly way or to otherwise adequately contain the damage caused by their failure. The safeguards on banks were much tougher than those applied to any other part of the financial system, but even those provisions were not conservative enough.
 
A large shadow banking system had developed without meaningful regulation, using trillions of dollars in short-term debt to fund inherently risky financial activity. The derivatives markets grew to more than $600 trillion, with little transparency or oversight. Household debt rose to an alarming 130% of income, with a huge portion of those loans originated with little to no supervision and poor consumer protections.

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Where's the inflation? It's Ron Paul versus Ben Bernanke

There's probably no more dogged critic of the Federal Reserve than Ron Paul, the Texas Republican congressman who's also running — and running, and running — for President. Paul had a halfway decent showing in the most recent primaries and caucuses. And there's a school of political thought that figures his staunch base and need to spend very little money to stay in the race will keep him hanging around long after more legitimate contenders had dropped out. Plus, he has an heir in his son Rand Paul, a Kentucky Senator. 

Ron Paul is the most economic of the current crop of Republican presidential candiates. There are times when his entire campaign seems based not on solving domestic problems, nor pursuing America's foreign policy, but on getting rid of the twin evils of paper money and the Federal Reserve. A lot of people find Paul sort of daffy. See the video I've embedded above, in which he meanders through a host of very Ron Paulist conspiracy theories, laconically foiled by the Fed Chairman, Ben Bernanke.

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Federal Reserve plans to monitor blogs and social media. But will it actually read them?

The times, they are a-changin' at the stodgy old Federal Reserve. We used to think of it a financial temple from which a priestly caste of economic policy makers would periodically emerge to make oracular pronouncements of the sort depicted in the video of Fed chairman Alan Greenspan bantering with Ron Paul. Now the Fed plans to keep track of social media and the blogosphere to better understand how it's perceived.

This is from a really great Neal Ungerleider story at Fast Company:

[T]he Fed is now evaluating bids for a social media analysis system that will mine data from Facebook, Twitter, YouTube, blogs, and web forums--beginning in December. In order to "handle crisis situations" and "track reach and spread of […] messages and press releases," the project will also identify a number of what they call "key bloggers and influencers" to target with their outreach, and presumably monitoring, efforts.

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