From The Oregonian/OREGONLIVE
By Brent Hunsberger
February 8, 2014
In basketball, there’s an undervalued statistic called the assist. A player earns one by passing to a teammate who’s well-enough positioned to make a quick basket.
myRA, President Obama’s new retirement savings initiative, isn’t an assist. It’s not even a lob into the paint.
It’s a pass on the perimeter of an increasingly crowded court. And the goal – financial security in retirement — is getting further away as the game of life ticks on.
Obama announced the initiative Jan. 28 during his State of the Union address. He then directed the U.S. Department of Treasury to use its authority to create a new savings bond with an add-on feature. It allows savers to incrementally increase their original bond purchase.
Yes, myRA, short for “My Retirement Account” will at least get you a ball on the court. It has some attractive, though limited, features. And it tries to address a serious problem – the fact that nearly half of all workers in the United States lack access to a retirement plan at work.
But it doesn’t go far enough. Its limitations, in some cases, could actually hurt your savings. And one of them seems made to head off the ire of Wall Street…
Read the full article at: oregonlive.com
From Voice of America
By Jim Randle
January 31, 2014
WASHINGTON — The Federal Reserve gave the improving U.S. economy a vote of confidence this past week, saying it no longer needs as much stimulus to keep growing. The Fed’s actions will raise key U.S. interest rates, but some economists say it has caused a drop in stock and currency values in some emerging markets.
The U.S. central bank has cut back economic stimulus efforts, which will push some U.S. interest rates higher.
The change prompted investors to move money from emerging markets to the United States in search of better returns, contributing to some stock and currency market turmoil.
William Cline, a scholar at the Peterson Institute for International Economics, says the worst is probably over.
“Markets tend to front-load [quickly make] the adjustment [to rising U.S. interest rates] anticipating what is going to happen down the road. Much of the impact of higher U.S. interest rates, I think we have already seen,” said Cline.
Years of U.S. low interest rate policies encouraged investors to put money in emerging markets where relatively higher interest rates gave them bigger returns.
Demand from foreign buyers propped up stock prices and currency values in those nations.
Adelphi University professor and Wall Street veteran Michael Driscoll says rising U.S. interest rates changed that.
“If rates in the U.S. do start to climb up a little bit, some of this liquidity and capital will come back to the United States to take advantage of capturing these higher rates, and exit these emerging markets around the world,” said Driscoll.
Boston University professor and former Fed official Cornelius Hurley says emerging nations are taking action to offer investors a better return in the hope of slowing the flight of capital.
“[They are] contemplating raising interest rates to protect their own currencies. Well, that slows down their economic activity,” said Hurley.
While raising emerging market interest rates attracts investors, it could slow economic growth by making it more expensive to borrow the money needed to buy homes or build factories.
Peterson scholar William Cline thinks there will not be a major cut to emerging market growth.
“The emerging markets will turn in an acceptable moderate year of growth now,” said Cline.
Growth in emerging markets will make it easier for U.S. companies to sell goods and services abroad.
Read the article at: VOAnews.com
From Financial Times
By: Kevin P Gallagher
January 29, 2014
Read the letter at: FinancialTimes.com
From Voice of America
By Jim Randle
January 30, 2014
WASHINGTON — U. S. Federal Reserve Chairman Ben Bernanke steps down Friday after guiding the world’s largest economy through years of tumult. Bernanke wins praise for crisis management and some criticism for unfinished reforms.
Bernanke says managing the economic crisis in 2008 was like driving a car that narrowly avoids a terrible crash.
“It is my nature, I think, to kind of focus on the problem,” he said. “You know, and I was so absorbed in what was happening and trying to find response to it that I wasn’t really in that kind of reflective mode. I mean, later on, you know, I was kind of like, you know, if you’re in a car wreck or something, you are mostly involved in trying to avoid going off the bridge; and then later on you say, ‘Oh, my God, you know.”
Bernanke and colleagues took unprecedented actions to slash interest rates. Lower rates were intended to pull the economy out of a dive by making it easier for businesses and families to borrow the money they needed to make major purchases.
The economy stopped shrinking and began growing.
Wall Street veteran and Adelphi University professor Michael Driscoll says Bernanke had to be courageous and creative to tackle new problems.
“The things Bernanke had to face … were so large, so big, and really I do not think it is an understatement to say … the future economic well being of the United States and the globe were hanging in the balance,” he said.
Critics say Bernanke failed to recognize that the U. S. housing market was growing in unsustainable ways. Severe problems in the housing market played a key role in the financial crisis.
Others say the Fed should have rescued Lehman Brothers, the failing financial firm that collapsed and shook markets.
And Boston University professor and former Federal Reserve official Cornelius Hurley says reforms intended to make the financial system less vulnerable to the collapse of any huge financial firm are inadequate and incomplete.
“That reform agenda does not even come close to addressing the too big to fail problem … perpetuating the systemic risk that is in the six largest banks in our country,” he said.
Bernanke, a former Princeton University professor, says his intense study of the history of the Great Depression helped him navigate this crisis. He says it will help critics and others understand his actions.
“We hope that as the economy improves and as we tell our story and as more information comes out about, you know, why we did what we did and so on, you know, that people will appreciate and understand that what we did was necessary, that it was in the interest of the broader public,” he said. “It was a Main Street set of actions aimed at helping the average American. “
That understanding may be helped by Bernanke’s drive to make the Federal Reserve’s actions easier to understand.
During his tenure he used clearer language to describe the Fed’s actions and goals, and started holding regular news conferences in the hope that better-informed investors could make better decisions with more information and less panic.
Read the full article at: VOAnews.com
From Money News
From: Michael Kling
January 25, 2014
Read the article at: MoneyNews.com
From The New York Times
From: Peter Eavis
January 24, 2014
JPMorgan Chase, after a year marred by scandal and stiff regulatory penalties, has decided to award its chief executive, Jamie Dimon, $20 million in compensation for 2013, an amount that will further inflame the debate over the accountability of senior bank executives.
The award, announced in a company filing on Friday, is 74 percent higher than the $11.5 million that Mr. Dimon earned in 2012. By approving a hefty raise, the bank’s board is signaling that it remains firmly behind Mr. Dimon after 12 months in which JPMorgan suffered several bruising legal setbacks, including a record $13 billion settlement with the Justice Department over soured mortgage securities.
In justifying the $20 million package, which includes $18.5 million of JPMorgan stock as well as a base salary of $1.5 million, the board said that JPMorgan had advanced in many ways under Mr. Dimon. And to many on Wall Street, as well as some other long-serving chief executives, Mr. Dimon wholly deserves the raise. “I think he’s worth more than that,” Warren E. Buffett, the chief executive of Berkshire Hathaway, said. “Over all, I think the shareholders of JPMorgan and the American people should be happy that Jamie Dimon has been running the bank over this period.”…
Read the article at: dealbook.nytimes.com
From Yahoo Finance
From: Lauren Lyster
January 23, 2014
Boston University economics professor Laurence Kotlikoff has thrown a counter-intuitive solution into the ring.
He writes in the New York Times: “What can workers do to mitigate their plight? One useful step would be to lobby to eliminate the corporate income tax.”
You may wonder how giving corporations a tax bill of zero would unleash investment when companies are already hoarding equity at the highest levels this century, with one-third of non-financial corporations sitting on 82 percent of the $2.8 trillion in cash in corporate coffers. This includes company’s like Apple (AAPL), Google (GOOG), and Exxon Mobil (XOM). Not to mention, many people may recall the story of General Electric (GE) already succeeding at paying no U.S. income tax a few years back…
Read more and watch the video at: Finance.Yahoo.com
“The Kudlow Report” Interviewing Laurence Kotlikoff
January 21, 2014
Watch the video at: CNBC.com
From Financial Times
From Prof Cornelius Hurley
January 17, 2014
Read the letter at: FinancialTimes.com
By Anna Louie Sussman and Emily Stephenson
January 14, 2014
(Reuters) – The U.S. Federal Reserve on Tuesday took a first formal step toward restricting the role of Wall Street banks in trading physical commodities, citing fears that a multibillion-dollar disaster could bring down a bank and imperil the stability of the financial system.
The Fed board voted to publish its concerns and potential remedies following months of growing public and political pressure to check banks’ decade-long expansion into the commodities supply chain. The Fed also questioned the initial rationale for allowing them to trade and invest in risky raw materials and lease oil tanks or own power plants.
The Fed “expect(s) to engage in additional rulemaking in this area,” according to prepared remarks of Michael Gibson, the Fed’s director of bank supervision and regulation, to a U.S. Senate banking committee hearing on Wednesday.
The new rules could include a cap on total assets or revenues from such trading, increased capital or insurance, or prohibitions on holding certain types of commodities “that pose undue risk.”
Facing a clearly uneasy regulator, some banks including JPMorgan Chase & Co are already quitting the business, a once-lucrative trading niche that has reaped billions of dollars of revenue for Wall Street over the years but is now facing diminished margins and stiffer capital rules.
But others, such as Goldman Sachs Group Inc, have stood firm, defending an operation they say benefits customers. Due to a grandfather provision in a 1999 banking law, the Fed has less leeway to restrict the activities of former investment banks Goldman and Morgan Stanley, Gibson said.
In a 19-page document that included two dozen questions, the Fed offered a host of reasons for imposing new restrictions in the interests of limiting potential conflicts of interest and protecting the safety and soundness of the banking system. It invoked disasters including BP’s oil spill in the Gulf of Mexico in 2010 and the derailment and explosion of an oil train in Canada last year.
“The recent catastrophes accent that the costs of preventing accidents are high and the costs and liability related to physical commodity activities can be difficult to limit and higher than expected,” the Fed said in its notice.
The “advance notice of proposed rulemaking,” which is an optional initial step in the sometimes years-long process of making new regulations, seeks comments until March 15.
CONFLICTS, RISKS AND CAPITAL
It is the Fed’s first detailed public comment since it shocked the banking industry last July by announcing a “review” of its 2003 authorization that first allowed commercial banks such as Citigroup to handle physical commodities.
U.S. Senator Sherrod Brown of Ohio, who led the first hearing last summer, said the measure was “overdue and insufficient”, warning that consumers and end-users risked paying higher commodity prices until new curbs are imposed.
But others saw it as a likely prelude to tough action that would curtail so-called “too big to fail” banks amid a wider political move to restore the historical division between commercial banking and riskier business. Eliminating that divide 15 years ago helped open the door to commodities trading.
“That was the Greenspan era, and it was anything goes as far as activities. Now, we realize that we made a lot of mistakes during the Greenspan era,” said Cornelius Hurley, banking law professor at Boston University and former assistant general counsel to the Fed Board of Governors.
Beyond the financial risks, the Fed is also seeking comment on potential conflicts of interest for banks, and the risks and benefits of additional capital requirements or other restrictions – measures that have been hinted at in the past.
The Fed said that new limits on the three ways in which banks may deal in physical commodities were up for debate: the authority to trade raw materials as “complementary” to derivatives; the investment in commodity-related business as arm’s-length merchant banking deals; and the “grandfather” clause that has allowed Morgan Stanley and Goldman Sachs much wider latitude to invest in assets than their peers.
The Fed also questioned several previously cited justifications for allowing banks to trade in physical commodities such as crude oil cargoes and pipeline natural gas — markets in which some banks such as Goldman Sachs and Bank of America’s Merrill Lynch are still active.
It said, for instance, that although most banks are not allowed to actually own infrastructure assets, those that lease storage tanks or own physical commodities held by third parties may nonetheless face a “sudden and severe” loss of public confidence if they are involved in a catastrophe.
They also said that several banks’ recent moves to sell all or parts of their physical trading operations “may suggest that the relationship between commodities derivatives and physical commodities markets…may not be as close as previously claimed or expected.”
While scoping out possible measures to tighten up commodity trading and merchant investment, the Fed offered little insight into how it might level the playing field by narrowing the grandfather exemption that Goldman and Morgan enjoy.
“Our ability to address the broad scope of activities specifically permitted by statute under the grandfather provision…is more limited,” Gibson will tell lawmakers.
Legal experts say the provision – which has long been a bone of contention with other banks who had never been allowed to invest in oil tanks and power plants – was widely written. It may require Congressional action to crack down – a seemingly unlikely outcome given the political divisions in Washington.
One legal expert at a private commodity trading firm said the tone of the Fed’s notice and mention of catastrophic risks made it almost certain that some form of regulatory action would follow.
“Given some of the things they’ve said, it would almost make them look bad if they ultimately decided not to do anything,” said the expert, who asked not to be identified because they were not authorized to speak to the media.
(Additional reporting Karey Van Hall and Patrick Rucker; Editing by Leslie Adler and Grant McCool)
Read the article at: Reuters