U.S. Fed’s balance sheet dips in latest week
(Reuters) – The U.S. Federal Reserve’s balance sheet fell slightly in the latest week, Fed data released on Thursday showed. The Fed’s balance sheet — a broad gauge of its lending to the financial system — decreased to $2.313 trillion in the week ended April 28 from $2.320 trillion in the previous week. For a graphic on the Fed’s balance sheet data, see link.reuters.com/vuq99j
Former Fed Staff on 2011 Rate Hikes, Balance Sheet Woes – The Wall Street Journal had a chance to moderate a panel on the outlook for Federal Reserve policy at the Milken Institute’s global conference in Los Angeles yesterday with a group of astute Fed watchers. Here are the highlights and a link to a video of the full discussion: IN SUM: Tightening policy is going to be enormously complicated. The path of least resistance for the Fed is to sit still for as long as it can. The economy might give it reason to do just that. Futures markets are pricing in a Fed rate increase by the end of the year, but the smart money inside the Beverly Hills Hilton had its doubts. We asked the audience — filled with money managers and bankers — for a show of hands on when the Fed was likely to raise rates. Fewer than a third shot up for 2010 and much of the rest went up for 2011 or later.
FDA wants your advice on food labeling – This week the FDA asked for comments and information from the public about what is effective with front-of-package labeling and shelf tags on food products now in stores. The FDA wants to develop a front-of-pack nutrition label that consumers will notice and that is driven by sound nutrition criteria, consumer research and eye-catching design, said FDA spokeswoman Siobhan DeLancey. The labels will enhance nutritional awareness but will not replace the nutritional facts panel already on products. There is not a standardized system for front-labeling at this time, said Kim Stitzel, the director of nutrition and obesity at the American Heart Association. The AHA supports an FDA-regulated unified system to help clear up confusion about the meaning of the various icons and labels now used by food companies.
The Feds vs. Goldman – Goldman isn’t dead – far from it. But this new SEC suit officially places it at the center of a raging national discussion about the hopelessly fucked state of American business ethics. As a halting, first-step attempt at financial regulatory reform makes its way toward a vote in the Senate, the government has finally thrown open the door and let a few of the rottener skeletons tumble out. On the surface, the failure-to-disclose rap being leveled at Goldman feels like a niggling technicality, the Wall Street equivalent of a tax-evasion charge against Al Capone. The bank will try and – who knows – might even succeed in defending itself in a court of law against these charges. But in the court of public opinion it was doomed the instant the SEC decided to put this ghastly black comedy of a fraud case on the street for everyone to see
Legislating a Conscience on Wall Street
– Lloyd Blankfein
doesn’t seem to feel responsible for anything beyond Goldman Sachs’s bottom line
. Nor should he, according to the meager mores of Wall Street. Goldman
, you see, is a "market maker," as Blankfein loves to repeat. This absolves the firm of any fiduciary responsibility for the deals it sets up for its clients. Creating "liquidity" in the markets, Blankfein believes, is Goldman’s only social responsibility
. At a hearing of the Senate’s Permanent Subcommittee on Investigations on Tuesday, Chairman Carl Levin
repeatedly tried to get Blankfein to concede that Goldman was morally wrong to bet on the sly against securities that it had touted as solid investments to its clients. No, no, no, the Goldman CEO demurred, that’s not how the financial system works any more. "There’s been a change in the sociology of the business in the last 10 to 15 years," Blankfein explained
Foreign Central Bank Custody Holdings At $3.066 Trillion As of Wed –Fed –
The U.S. Federal Reserve’s balance sheet contracted slightly in the latest week as discount window borrowing by commercial banks posted yet another decline. The Fed’s asset holdings in the week ended April 28 slid to $2.334 trillion from $2.341 trillion a week earlier, the Fed said in a report released Thursday.Total discount window borrowing slipped to $78.37 billion on Wednesday from $ 78.42 billion a week earlier.Borrowing by commercial banks through the Fed’s discount window fell to $5.51 billion on Wednesday from $6.11 billion a week earlier.U.S. government securities held in custody on behalf of foreign official accounts rose to $3.066 trillion from $3.052 trillion in the previous week. Treasurys held in custody on behalf of foreign official accounts as of Wednesday climbed to $2.277 trillion from $2.267 trillion in the previous week.Holdings of agency securities rose to $789.18 billion from the prior week’s $ 785.60 billion. Further data on the Fed’s balance sheet, including a breakdown of district-by- district discount window borrowing, can be found at http://www.federalreserve.gov/releases/h41/Current/h41.pdf
When You Lie Down With Them Dept: Morgan Stanley Has 69% Tier 1 Capital Exposure to the PIIGS
– That statistic about Morgan Stanley was an eye opener in terms of percent of capital exposure. No wonder Angie Merkel is playing hard to get, holding out for more than another back rub. Morgan Stanley looks like it done slipped in the pig wallow. Gentlemen, start your presses.
JPMorgan Has Biggest Exposure to Debt Risks in Europe (Bloomberg) — JPMorgan Chase & Co., the second- biggest U.S. bank by assets, has a larger exposure than any of its peers to Portugal, Italy, Ireland, Greece and Spain, according to Wells Fargo & Co. JPMorgan’s exposure to the five so-called PIIGS countries is $36.3 billion, equating to 28 percent of the firm’s Tier-1 capital, a measure of financial strength, Wells Fargo analysts including Matthew Burnell wrote today. Morgan Stanley holds $32.4 billion of debt in the region, which equates to 69 percent of its Tier 1 capital, Burnell wrote. “Regulatory data suggests JPMorgan’s exposure is largest in aggregate, but Morgan Stanley held the largest aggregate exposure to the PIIGS relative to Tier 1 capital,” the analysts wrote. Overall U.S. bank “exposure to Greece is lower than exposure to Ireland, Italy and Spain.”
Help is on the way – SPEAKING of Greece, it’s worth noting the latest developments from Europe:An emergency multi-annual loan programme for Greece from its eurozone partners and the International Monetary Fund would be concluded in the next few days, the European Commission said on Thursday. In a statement apparently aimed at reassuring financial markets that eurozone governments and the IMF were aware of the need to act swiftly, Olli Rehn, the monetary affairs commissioner, said the rescue package would give Greece “breathing space from the pressure of financial markets to decisively restore the sustainability of its public finances”.It’s a little disturbing that euro zone governments and the IMF felt the need to reassure markets that they got how serious things have become. Doesn’t say much for their policy reactions to date.
Will a Greek Bailout Stop the Contagion?
Greek debt has rallied
on the news that the EU and the IMF are close to agreement on a €120 billion ($159 billion) rescue package. Other PIIGS sovereign debt is also getting a breather. This has been the pattern throughout the crisis: there’s some positive development, there’s a rally, and then everyone remembers that Greece is still anchored right smack in between of Scylla and Charybdis, and yields shoot back up again. The idea of the bailout is to prevent contagion to other countries. But will it? In a way, the Greek rescue package makes it less likely that anyone else is going to get help from their eurobrethren. The IMF and the constituent governments only have so much money that they can pour into Club Med, and Greece is taking really quite a lot of it. Forget Spain, which is too large for anyone to launch a Greek-style rescue; even Portugal will be a stretch.
The End of Euroland?
– Like Paul Krugman, I was swayed–if not convinced–by Barry Eichengreen’s argument that leaving the euro would trigger catastrophic bank runs in any country that did so, and was therefore unlikely. Perhaps, I thought, my earlier euroskepticism had been overdone. But today Krugman makes a very good point
: the countries now at risk of leaving the euro are going ahead and having the financial crisis anyway (to varying degrees). Which may mean all bets are off. Once Greece has to place "emergency" restrictions on bank withdrawals in order to halt runs, bolting the currency union starts to seem much more thinkable. And allegedly, the runs have already started
. In fact, the euro is making them worse, because you can move your money to another country’s banks without taking any currency risk (to the downside, anyway. Depositors who are sensible enough to stash their cash in Germany will get a nice boost if Greece devalues). I now think it’s much more likely than not that Greece will ultimately leave the euro–if not this year, then soon.
Greece: Deja Vu All Over Again
– I blogged yesterday about the disaster in Greece, and its rapid spread to other European countries. Today the fish-eye is turning on countries outside of the PIIGS, including Japan, Britain . . . and us. According to the Financial Times
, "The Fund has calculated that almost all advanced economies need to tighten fiscal policy significantly
in the coming decade in order to stabilise debt at 60 per cent of national income by 2030 and the tightening needed in the US, Japan and the UK is just as bad as that required in Greece, Spain, Ireland and Portugal." So perhaps naturally, I’ve been thinking more about the parallels to the Great Depression that I talked about yesterday.
How to sell without selling? – FELIX SALMON links to an interesting bit of writing from someone at Goldman Sachs’ European sales desk: Real bad feeling across European sales about some of the trades we did with clients. The damage this has done to our franchise is very significant. Aggregate loss of our clients on just these 5 trades along is 1bln+. In addition team feels that recognition (sales credits and otherwise) they received for getting this business done was not consistent at all with money it ended making/saving the firm. Mr Salmon adds: Clearly Goldman’s clients aren’t buying what Lloyd Blankfein is selling: the idea that they’re just arm’s length counterparties who know what they want to buy and are just looking for the best price. Fair enough. I’m not really sure what else Goldman was supposed to do, however.