Friday, September 9, 2016

Today's links

Today's quote: "We are not watching an otherwise just banking system get corrupted by a single, tainted credit card scheme. Rather, we are watching what we might call "extreme capitalism" at work. Banks don't make money by creating value; they make money by extracting funds from anyone who wants to build a business or even just make transactions" Douglas Rushkoff, CNN

1--Fed chair Janet Yellen's speech at Jackson Hole; Fed preparing to spend another $2 trillion on QE if economy slumps (How the Fed would respond to a " would respond to a set of highly adverse shocks ")

(More gobbledygook supporting QE) "Figure 2 in  your handout illustrates this point. It shows simulated paths for interest rates, the unemployment rate, and inflation under three different monetary policy responses--the aggressive rule in the absence of the zero lower bound constraint, the constrained aggressive rule, and the constrained aggressive rule combined with $2 trillion in asset purchases and guidance that the federal funds rate will depart from the rule by staying lower for longer.21 As the red dashed line shows, the federal funds rate would fall far below zero if policy were unconstrained, thereby causing long-term interest rates to fall sharply.i But despite the lower bound, asset purchases and forward guidance can push long-term interest rates even lower on average than in the unconstrained case (especially when adjusted for inflation) by reducing term premiums and increasing the downward pressure on the expected average value of future short-term interest rates. Thus, the use of such tools could result in even better outcomes for unemployment and inflation on average.

Despite these caveats, I expect that forward guidance and asset purchases will remain important components of the Fed's policy toolkit...

(The push for fiscal stimulus)

Beyond monetary policy, fiscal policy has traditionally played an important role in dealing with severe economic downturns. A wide range of possible fiscal policy tools and approaches could enhance the cyclical stability of the economy.25 For example, steps could be taken to increase the effectiveness of the automatic stabilizers, and some economists have proposed that greater fiscal support could be usefully provided to state and local governments during recessions...

On average, the FOMC reduced rates by about 5-1/2 percentage points, which seems to suggest that the FOMC would face a shortfall of about 2-1/2 percentage points for dealing with an average-sized recession. But this simple comparison exaggerates the limitations on policy created by the zero lower bound...

(anything goes: inflation targeting or buying corporate bonds, ETFs, REITs or stocks)  On the monetary policy side, future policymakers might choose to consider some additional tools that have been employed by other central banks, though adding them to our toolkit would require a very careful weighing of costs and benefits and, in some cases, could require legislation. For example, future policymakers may wish to explore the possibility of purchasing a broader range of assets. Beyond that, some observers have suggested raising the FOMC's 2 percent inflation objective or implementing policy through alternative monetary policy frameworks, such as price-level or nominal GDP targeting. I should stress, however, that the FOMC is not actively considering these additional tools and policy frameworks, although they are important subjects for research.

2--Real reason Wells Fargo scandal should scare you

It's not hackers breaking into your bank account that should scare you; it's the banks themselves. Details are now surfacing about more than 1.5 million unauthorized Wells Fargo bank and credit card accounts created on behalf of unwitting customers by bank employees hoping to cash in on new account bonuses.

I'm finding it hard to take comfort in the fact that more than 5,300 employees have just been fired for engaging in the practice. 5,300 employees? That's not a few bad actors, but an indication of the systemic, institutionalized extraction that has been guiding banking for the past

Neither is this yet another story of digital technology gone awry. Yes, digital technology amplified employees' ability to create fake accounts in volume, while also distancing them just a bit from the abstracted names and numbers in the company's spreadsheets.
But the real driving force here are incentives, the incentives given to employees to open new credit card accounts, no matter the impact on customers, as well as the incentives given to the banks themselves to further financialize our economy, no matter the impact on our lives and world.

We are not watching an otherwise just banking system get corrupted by a single, tainted credit card scheme. Rather, we are watching what we might call "extreme capitalism" at work. Banks don't make money by creating value; they make money by extracting funds from anyone who wants to build a business or even just make transactions. ...

We are not watching an otherwise just banking system get corrupted by a single, tainted credit card scheme. Rather, we are watching what we might call "extreme capitalism" at work. Banks don't make money by creating value; they make money by extracting funds from anyone who wants to build a business or even just make transactions...

The only real solution here is for banks, like any business, not to be required to grow. Banks, particularly savings banks, are more like utilities than businesses. With their monopoly power on the ability to issue currency, they are in a unique role to enable business of every other kind. This makes them at least as responsible to the public good as their shareholders.

By seeking to extract a higher percentage of our economic activity to pay for their financial services, they don't help anyone. Rather than promoting business, they serve as drag.
No, banks don't get to grow all the time, no matter what's happening in the real world. It is they who have hacked the economy to all of our detriment, and it's time to reject the premise of growth on which they are based.

The Consumer Financial Services Protection Bureau, the Los Angeles City Attorney, and Office of the Comptroller of the Currency fined Well Fargo a total of $185 million for opening unauthorized customer accounts, which the bank then used to charge fees. The bank has also agreed to make restitution to the defrauded customers. As the New York Times reports:
Wells Fargo employees opened roughly 1.5 million bank accounts and applied for 565,000 credit cards that may not have been authorized by customers, the regulators said in a news conference. The bank has 40 million retail customers.
This was an astonishingly brazen, large-scale effort, clearly a systematic, institutionalized campaign. It is virtually impossible for senior executives not to have known what was going on. The big reason that Wells has managed to cultivate the myth that it is better managed than other large banks is that it is largely a traditional bank, as in it is not seriously involved in free-wheeling, high-risk, hard to manage investment banking activities...

there is no way to defend the lack of punishment of executives in a fraud of this scale that extended over five years. Either they were in on it, or somehow lower level employees cooked this up and were able to hide it from the top brass. The latter would represent a massive control failure. Under Sarbanes Oxley, the CEO and CFO are required to certify the adequacy of financial and operational controls. There is no way the Wells Fargo’s can have it both ways. Either they were in on the ripoff or they were not even remotely on top of what was happening. But, in keeping with the half-hearted enforcement culture that has become normal in the US, the executives were allowed to get away with crooked conduct that unquestionably was their responsibility, whether by omission or commission. ....

This sorry incident is yet another proof that we live in the best of all possible worlds for the top 1%, where no unseemly questions about who knew what when are pursued seriously. It’s routine for CEOs, as justification for their stratospheric pay, to claim they are responsible for every aspect of corporate success yet are never challenged when they descend into the ritual “I know nothing” denials over misconduct that took place on their watch. If anyone wants to understand why non-traditional candidates like Bernie Sanders and Donald Trump are getting traction, it’s the refusal of the elites to police their own ranks. Even in a year when the Democrats are under pressure and there have been more and more calls for individual bank executives to be punished, the powers that be can’t bring themselves to do the right thing.

6--Homeowner bailouts benefited lenders far more than homeowners

On Wednesday, The Washington Post published an article saying the White House is at its wits' end, and has issued the Kremlin an ultimatum on Syrian peace. The paper noted that the Obama administration "expects a decision from Moscow in the next several days." The question now is whether the Kremlin will allow itself to be bullied into agreement

(US economy is near full employment, but numbers can be deceiving. Droopy tax receipts and historic low participation rate suggests, that unemployment is much higher than the data shows. But rather than get into a tedious fight over "whether we can trust the numbers or not", let's look at it like this: Whether people are employed or not makes no difference if they are not earning enough to consume at levels that will improve growth. Can we at least agree about that?

So if the vast majority of people who were hired after the great financial crisis are working shitty, part-time,  low-paying, service sector jobs, because that's all that's available, then  the economy's not going to grow, demand is going to stay weak, business investment is going to flag, corporate earnings are going to tank, and the economy is going to plunge into another recession. Right or wrong?

(From the video) Unemployment is at 4.9% (Full) but what's not growing is wage growth, average work week, GDP, participation rate, auto sales, worker productivity, business investment, ISM manufacturing and ISM non-manufacturing

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