Audit the Fed? What would that accomplish?

The Central Scrutinizer said:
I'm sure you already know this, but the Fed doesn't need the "concent (sic) or knowledge of congress" in going about its daily business.

You realize that the Fed doesn't print money, right? So it's hard to imagine that the Treasury printed all this money without sanctioning it.
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My apologies concerning the printing of money.

Now then from the article...

First, only Congress is supposed to risk taxpayer dollars. The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself.
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The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed -- then run by Tim Geithner -- was very much in the center of the action.
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So are you maintaining the position this is not a concern?
 
Emperor_Gestahl said:
Political influence seems likely, and again we should rethink the role and structure of the Fed.
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Most of your entry is copy and paste from various kook sites but this caught my eye. You have it backwards. It is politically-motivated interests that are behind any efforts to rethink the role and structure of the Fed.

Please supply an alternate "role and structure" for a central banking system. Indicate which functions it will retain, modify, replace, or abandon. Any historical comparisons would be helpful.
 
The Central Scrutinizer said:
First we have to establish that it is/was a "core duty".
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Combating the boom/bust cycle is kinda the point of a central bank, is it not? Anyway, here's a Bernanke quote:

Ben Bernanke said:
Along with price stability, maximum employment is one of the Congress's two mandated objectives for the Federal Reserve.
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http://federalreserve.gov/newsevents/speech/bernanke20100508a.htm

They admit freely that one of their core mandates is "price stability", which I'm going to go out on a limb and say includes the price of real-estate not doubling in under a decade..
 
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stilicho said:
Most of your entry is copy and paste from various kook sites but this caught my eye. You have it backwards. It is politically-motivated interests that are behind any efforts to rethink the role and structure of the Fed.
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So "home loans for everyone" wasn't a political move by the govt? And the Fed's decision to forsake its duty and let the govt/banks get away with sparking asset price dislocation for 10+ years? It's either politics, incompetence, or Tippit-esque malevolence. Take your pick, without suggesting the Fed's job isn't really its job. To be fair, the FDIC has performed miserably as well.

I have to assume the "kook sites" you're referring to belong to economists who don't see a flowery economic recovery forthcoming? In that case it may take a few years to determine where the "kook" label should be pinned. After all Bernanke's assertions were all kookish in hindsight prior to Q4 2008.
 
Emperor_Gestahl said:
They admit freely that one of their core mandates is "price stability", which I'm going to go out on a limb and say includes the price of real-estate not doubling in under a decade..
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Interesting. So lets say my home is worth $100,000 in 2000. By 2010, it is worth $200,000. What do you propose the Fed do? Fine me? Force me to sell it and give them half the money? Force me to take on a roommate, so that my "half" is now back to being worth only $100,000? What? Let's have some answers.
 
Emperor_Gestahl said:
They admit freely that one of their core mandates is "price stability", which I'm going to go out on a limb and say includes the price of real-estate not doubling in under a decade..
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Well, you're welcome to go out on that particular limb, but it's very rickety and won't support the weight you want it to. "Price stability" in this context simply means low-and-predictable inflation (the usual expressed target is 2% per year). The Fed has no more reason to worry about a sudden spike specificaly in real-estate prices than it does to worry about a sudden doubling of Pringles' prices, except as it affects the overall economy.

(Which I admit real estate is more likely to do than some random snack food.)

But one of the effects, and take-away lessons, of the tech boom in the late 1990s is that growth in one sector of the economy doesn't necessarily mean a bubble or an impending disaster. Greenspan had it right when he let the party run in 1995-97 instead of pulling the interest rate trigger; the rise of the Internet and e-commerce really has made fundamental changes in the global consumer economy, and we're still working out some of the implications. Even factoring in the effects of the tech bust, the US (and world) economy is awesomely more productive now than it was in 1990, in part because anyone can now sell anything to anyone, which is changing equilibrium prices all over the place. (Video tapes and CDs are now mostly valueless, for example, but data mining algorithms are priceless, precisely because there is more data to mine. Traditional stockbrokers are losing their shirts; on-line trading portals are making mints. Et cetera.)

A more prosaic example is how average cell phone prices shot up when smartphones (and particularly the iPhone) were introduced. The smart phone was so clearly a better product that so clearly met some people's needs that they were willing to pay high-end PDA prices for a phone. This isn't a sign of price instability, but of a changing market (and a new product on the market that changes the game).

I don't think we've yet figured out where the new equilibrium price is on real estate; I suspect it will end up substantially higher than it was in 1995, precisely because the process of home selling has changed so much. It used to be that if you bought a house, you went to an agent, who showed you a dozen or so houses, and you picked the one you liked best. But he didn't often show you more houses than that, because showing houses was time consuming and expensive.

Now you do most of your own legwork; you can take virtual tours or virtual "open houses" of a hundred houses in a single evening, and then mail the agent for the particulars of your favorite in a much larger set. Each house is being viewed by many more buyers, which means there's a much better chance for a good fit and that you're more likely to find a house that you really want instead of one you will settle for, which in turn means you will be willing to pay more for the house. And because the houses are being viewed by more buyers, the sellers are having to put more work (and cost) into the houses they want to sell. "Curb appeal" is becoming less important than "page appeal" because the web page is where you make your first impression -- and if the house doesn't display well in IE, no one will even bother to do the drive-by and see if they like it.

So, basically, just because house prices are going up in an otherwise relatively stable economic environment doesn't mean that "prices" are unstable.
 
Emperor_Gestahl said:
So "home loans for everyone" wasn't a political move by the govt? And the Fed's decision to forsake its duty and let the govt/banks get away with sparking asset price dislocation for 10+ years? It's either politics, incompetence, or Tippit-esque malevolence. Take your pick, without suggesting the Fed's job isn't really its job. To be fair, the FDIC has performed miserably as well.

I have to assume the "kook sites" you're referring to belong to economists who don't see a flowery economic recovery forthcoming? In that case it may take a few years to determine where the "kook" label should be pinned. After all Bernanke's assertions were all kookish in hindsight prior to Q4 2008.
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You forgot to include this part of my post:

Please supply an alternate "role and structure" for a central banking system. Indicate which functions it will retain, modify, replace, or abandon. Any historical comparisons would be helpful.

What policy would you have the Federal Reserve employ, including the mechanisms by which it would do so, when it is determined that an economic and/or financial decision by government or private enterprise is wrong-headed? And who is to make this determination?

Take a look at the US economy right now and explain what decisions are presently wrong-headed and how you would have the Federal Reserve respond, intervene, withdraw, etc. Include the "role and structure" you claimed required rethinking. You have the podium.
 
The Central Scrutinizer said:
Interesting. So lets say my home is worth $100,000 in 2000. By 2010, it is worth $200,000. What do you propose the Fed do? Fine me? Force me to sell it and give them half the money? Force me to take on a roommate, so that my "half" is now back to being worth only $100,000? What? Let's have some answers.
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Why stop at the big ticket items? Why not something as simple as bread and grain prices?

http://www40.statcan.ca/l01/cst01/econ155a-eng.htm

Look at all that price instability! (Canadian statistics but you get the idea).
 
stilicho said:
Please supply an alternate "role and structure" for a central banking system. Indicate which functions it will retain, modify, replace, or abandon. Any historical comparisons would be helpful.

What policy would you have the Federal Reserve employ, including the mechanisms by which it would do so, when it is determined that an economic and/or financial decision by government or private enterprise is wrong-headed? And who is to make this determination?

Take a look at the US economy right now and explain what decisions are presently wrong-headed and how you would have the Federal Reserve respond, intervene, withdraw, etc. Include the "role and structure" you claimed required rethinking. You have the podium.
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For your last paragraph, I'd have to first imagine some decisions/policies if I wanted to analyze or critique them, since the point behind calling for an audit is that said decisions/policies are opaque.

As for the "role" of the Fed I'd suggest maybe that they at least mention when speculative/criminal forces are driving unsustainable asset inflation? The market tends to pay attention when the Fed speaks, a few frank words in 2005 or 2006 could have gone a long way toward mitigating the size and damage of the housing bubble.

If the Fed doesn't already have a mandate to require that the organizations under its purview conduct business in an honest and sustainable way, I suggest that it should. FRB members must have known that their own companies were writing loans without even basic proof of income, the Fed allowing this behavior is problematic in my view.

So suggestion 1 = "say things that are true, even if they are not pleasant, preferably into a microphone", suggestion 2 = "require non-destructive business practices from member banks". Glass-Steagal could have been a big help in affecting the latter, but that's more a legislative/lobbying issue.

The Fed clearly has the authority to enact my first suggestion, why they chose not to during the bubble is the main thing I'd like investigated. A mandate to warn publicly against wildly speculative or price-dislocating market conditions might be a nice thing to have added.


And to drkitten, I get your point about technological progress leading to sustainable jumps in various prices but I don't see how it relates to an asset bubble caused largely by widespread and sanctioned mortgage fraud. I don't consider fraud to be much of an innovation.. Sure the housing market may have been boosted by a better selection for buyers, but it doesn't explain the FDIC taking a 50+% haircut on most of the assets it eventually has to swallow. That's from inability of the borrower to pay, and that reality was clear to the banks involved before, during, and after the writing of the "liar loans". If the banks knew this (they did) then the Fed (being composed of those banks) should have known as well. Either they were oblivious as they seem to claim (problem), they knew but "saw no evil" worth mentioning (problem), or they both failed to speak up and lacked the will or authority or mandate to interdict (problem).

Also I'll add that households spend ~30% of income on housing, a massive run-up in the housing market is not an irrelevant contribution to overall "prices" regardless of how CPI is calculated.
 
The Central Scrutinizer said:
Interesting. So lets say my home is worth $100,000 in 2000. By 2010, it is worth $200,000. What do you propose the Fed do? Fine me? Force me to sell it and give them half the money? Force me to take on a roommate, so that my "half" is now back to being worth only $100,000? What? Let's have some answers.
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Not surprisingly, this remains unanswered.
 
Emperor_Gestahl said:
As for the "role" of the Fed I'd suggest maybe that they at least mention when speculative/criminal forces are driving unsustainable asset inflation? The market tends to pay attention when the Fed speaks, a few frank words in 2005 or 2006 could have gone a long way toward mitigating the size and damage of the housing bubble.

If the Fed doesn't already have a mandate to require that the organizations under its purview conduct business in an honest and sustainable way, I suggest that it should. FRB members must have known that their own companies were writing loans without even basic proof of income, the Fed allowing this behavior is problematic in my view.
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I doubt that is the mandate of the Federal Reserve nor should it be.

The issue is the lack of regulation of the banking industry. It appears you want to adopt the Canadian system. There are many fewer chartered banks here, the cost of borrowing is higher than it is in the US, and economic downturns don't cause banks to fail. It's a risk-averse system and there are a few reasons to think it would not be acceptable to Americans.

@The Central Scrutinizer: One option would be to require more collateral for any asset investment that has appreciated by N% over M months. I think that's what the emperor is trying to say but that wouldn't be the responsibility of the central bank to enforce.
 
stilicho said:
@The Central Scrutinizer: One option would be to require more collateral for any asset investment that has appreciated by N% over M months. I think that's what the emperor is trying to say but that wouldn't be the responsibility of the central bank to enforce.
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Ha! The chances of something like that passing are lower than the chances of me flying to Mars in the next 10 minutes.
 
The Central Scrutinizer said:
Ha! The chances of something like that passing are lower than the chances of me flying to Mars in the next 10 minutes.
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I'm just flying kites too but I think my alternatives are at least concrete. It dismays me to see people ready to blame or ditch an institution (central banking) whenever the economy turns sour. It's dressed up differently but you can see all the same features in the "audit the Fed" programme as you do in Nesta Webster or Eustace Mullins.
 
drkitten said:
So, basically, just because house prices are going up in an otherwise relatively stable economic environment doesn't mean that "prices" are unstable.
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Yes it does, when you can simply look and see that there was no similar run-up in rental prices. It was pretty damn obvious that there was a run-up in driven by the positive-feedback of easy money.
 
The Central Scrutinizer said:
Not surprisingly, this remains unanswered.
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That's because it's nonsensical. No one is suggesting that there should be any action limiting an increase in the price of a given piece of real estate per se. The point is that when a particular policy is causing all or most real estate to rapidly increase in price, that policy needs to be checked.
 
Free Thinkr said:
That's because it's nonsensical. No one is suggesting that there should be any action limiting an increase in the price of a given piece of real estate per se. The point is that when a particular policy is causing all or most real estate to rapidly increase in price, that policy needs to be checked.
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Checked by who?

If there is a policy which causes a rapid increase in the price of chewing gum, should that be checked too?
 
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