Q&A: Ron Paul on His New Perch to Fight the Fed – Next month, Rep. Ron Paul (R., Tex.) will strengthen his place as a thorn in the side of the Federal Reserve when he becomes chairman of a House subcommittee that oversees U.S. monetary policy. That will give the longtime critic of the central bank an opportunity to question the Fed more aggressively about its role in the U.S. and the global economy. In an interview, Paul said he plans to use the position to gain more support for his movement to audit the Fed’s monetary-policy operations. A version of his measure made it into the financial overhaul-legislation last year, leading to recent details about the Fed’s emergency lending programs (with more to come down the road about who borrows from the Fed). But Paul calls the audit provision and the Fed’s releases “incomplete.” We talked with the author of “End the Fed” about his new role. (Read a previous Q&A on Mr. Paul’s views) Here are excerpts:
Dollar: National Currency With State Implications
– The Obama administration hopes to double exports within five years, and a weaker U.S. dollar would help lift foreign demand. But the dollar’s impact will not be equal on each state or region. That’s because, for instance, Texas ships more exports to Mexico while New York sends more exports to Canada. Understandably, then, the health of Texan exporters depends more on changes in the dollar-peso rate while New York exporters care more about the U.S.-Canadian exchange. To gauge the regional impact of exchange rates, the Federal Reserve Bank of Dallas has developed a real trade-weighted value of the dollar index for each state
. Foreign-exchange markets tend to focus on the dollar’s value versus the euro or yen. But for state exporters, the exchange rates in emerging nations and our NAFTA partners Canada and Mexico are probably more important.
The Obama-GOP Tax Deal May Be Bipartisan, But It Isn’t Stimulus and It Isn’t Smart
– A modest thought experiment: Here is a check for $858 billion. Your job is to boost short-term economic growth. What would you do with the money? President Obama and a huge bipartisan majority of the Senate have given us their answer (and the House is likely to add its support tonight or tomorrow): They’d extend
the Bush-era tax cuts, restore the estate tax but at an historically low level, cut payroll taxes for all, protect the middle-class from the Alternative Minimum Tax for another year, and continue jobless benefits for the long-term unemployed. But upon closer inspection, very little of this massive increase in the deficit over the next few years will actually boost growth
. If you care about the bang for the buck—and given our long-term fiscal mess, you should—this new law is a colossal waste of money. In fact, you’d be hard pressed to use $850 billion in a way that’s less effective than much of what’s in this package.
Bachus, Lucas Warn Regulators on Derivatives Rules
– In a warning shot from Republicans over putting the new financial overhaul law into practice, Reps. Spencer Bachus of Alabama and Rep. Frank Lucas of Oklahoma said they don’t like how new derivatives rules are turning out. In a letter
to Treasury Secretary Timothy Geithner, Commodity Futures Trading Commission Chairman Gary Gensler, Securities and Exchange Commission Chairman Mary Schapiro and Federal Reserve Chairman Ben Bernanke, the two lawmakers warned the regulators against forcing companies that use derivatives to hedge commercial risk to post margin -– money set aside to absorb some potential losses — saying a margin requirement would “move billion of dollars of capital onto the sidelines.” Mr. Bachus has been under fire
from Democrats this week for an interview with an Alabama newspaper, in which said, “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”
Misc: Mortgage Rate above 5%, House Vote on tax legislation likely later today
– On mortgage rates from Tom Lawler: This morning most major mortgage lenders were posting indicative quotes for a 60-day lock on a 30-year fixed-rate prime conventional conforming mortgage in the range of 5 1/8% and 1 point, reflecting the sharp runup in secondary mortgage market yields.
And some resources for following the House vote: U.S. House: Office of the Clerk
. This is a running account of what is happening on the floor. Watch for H.RES.1766 Providing for consideration of the Senate amendment to the House amendment to the Senate amendment to the bill (H.R. 4853) to amend the Internal Revenue Code of 1986 …
And a live video feed
from the House (currently in recess)While we wait for paint to dry …
Thoughts on Detroit
– Detroit and the Detroit metro area are a pathetic, decaying mess. The reasons are many, ranging from the decline of the Big 3 auto companies to rampant corruption. For almost 40 years corruption has been well known and wide spread. In a city where infrastructure is literally collapsing in front of peoples’ eyes the crooks were using city construction contracts to extort money to selected cronies who then funneled money to Kilpatrick. Kilpatrick is already in jail for perjury for a scandal involving wild sexual escapades, misuse of government funds, misuse of police security officers, and there is an on-going investigation of the murder of a stripper who may have been beaten by the Mayor’s wife when she came home to one of Kwame’s parties in the mayoral mansion (the investigation also focuses on possible official obstruction of the murder investigation). Corruption is nothing new, but this corruption was on a scale that was astounding, just based on the convictions thus far.
The cost of bailing out Frannie
– Let’s say I buy a $3,000 pair of handmade shoes but don’t have that kind of cash to hand, so I put them on my credit card. I then rack up another $2,000 in penalties and interest before I’ve paid them off. Then the total cost associated with my poor investment in footwear is $5,000. The credit card company bailed me out but charged through a lot of money for doing so, and the money is absolutely part of the total sum I end up paying for those shoes. Weirdly, Jeffrey Goldstein
, the under secretary for domestic finance at Treasury, doesn’t seem to think that way. Fannie and Freddie have already borrowed $151 billion from Treasury, and they’re set to borrow another $90 billion by the end of 2013. That’s hardly chump change. Yet Goldstein says, with a straight face, that “the GSEs have already absorbed the vast majority of costs associated with the poor investments they made during the housing boom”.
Rating structured bonds is impossible
– Re-remics are a regulatory arbitrage
with negative economic value — you take a bunch of bonds , and then spend lots of money on bankers and lawyers and ratings agencies in order to transform them into other bonds. The financial-services industry gets lots of lovely fee income, which ultimately comes out of the pockets of the beneficial owners of those bonds. And no one makes out more handsomely than the ratings agencies, without whom none of this would be possible: it’s their precious triple-A ratings which make the arbitrage attractive in the first place.The problem is that the ratings agencies, as we saw in the crisis, have no idea how to rate structured debt. And they also have no idea how to learn their lesson: the first big re-remic downgrades
happened almost immediately, and then they just kept on trickling out — there were 224 in September
, and another 129
have just arrived. S&P is the big villain in this story, both rating and downgrading many more re-remics than anybody else. They emailed their press release to the FT, where Tracy Alloway
reprints large chunks of it, but the only way you can find it is by paying $100 to Alacra
. Just because you’re releasing something to the press doesn’t mean you want it to be public, I guess, and neither does it mean that you want to talk about it:
The Fed’s bold move on debit interchange
– The Fed’s swipe-fee proposals are out
, and the market action in Visa
— both of them are down more than 10 percent today — tells you everything you need to know. Basically, big card issuers won’t be able to charge more than 12 cents per transaction for debit-card purchases, and under one alternative their fees might be kept as low as 7 cents per transaction. That’s a massive reduction from the levels we’re seeing right now, which can range as high as 2 percent. This is a victory for Dodd-Frank, a victory for consumers, and above all a victory for merchants over the financial-services industry. Assuming, that is, that the banks don’t find some way of killing, avoiding, or repealing it. Well done, Fed.