What Really is the Job of the Federal Reserve?

The Federal Reserve already has a full-time job, which it is doing poorly, despite kudos from political hangers-on. That job is primarily to maintain a sound currency. A minor political function is to keep an eye on “full employment” whatever that means out of the context of the Fed’s main function.

The Fed’s handling of the economy has gotten the country into the financial meltdown because of too-low interest rates early in the 21st century. The Fed’s ineptitude is being rewarded with added duties far beyond the original legislation that created the system..

I repeat: Keeping the currency sound, not chasing systemic risk, is the Fed’s main job. Regulating other institutions will further unfocus the Fed.

The upshot of the proposed new regulation:
The Treasury could be asked to seize any financial institution deemed to be posing a systemic risk. Mind you, the Treasury does this. It’s headed by a political appointee of the President. Politics thus raises its ugly head in the whole process of arbitrary regulation.

The government could then cancel company contracts with customers, lenders and employees. Or sell company assets, make loans. take equity and so on. Company shareholders would have nothing to say.

Have government takeovers and bailouts been successful? Should they become a feature of the regulation?

Are Derivatives Bad?

Are derivatives that bad?

The politicians who love to point fingers have painted derivatives bad, and have designated it a major cause of the recent financial meltdown.

But silently, derivatives are back, as they ought to be, because they perform an important function as a financial instrument.

What people don’t know, by the way: Timothy Geithner, the Secretary of the Treasury, used to overlook meetings to see how the trading of derivatives were coming along, when he headed the New York Federal Reserve. So, the mysterious workings of derivatives should not have been so foreboding for him prior to the meltdown.

There is now a bill being introduced for derivatives trading to have tougher regulations. In effect, more collateral will be needed by traders. But they will be back, as they should be.

Disregard Media-Suggested Investment Portfolios

Disregard Media-Suggested Investment Portfolios

You constantly get suggestions in the financial media of portfolios, especially for various types of future economic possibilities. I just saw another. And it made me laugh. However, I guess it really is not a laughing matter, because you can get burned if you follow the advice.

I have a theory of how they appear. They usually come with an advisor mentioned, making the recommendations. That advisor has been singled out from among tens of thousands of such pros.

Financial advisors seeking publicity would give their eye teeth to have pet portfolio ideas published in public view. So why this mention in the column? Is it a friend or relative of the columnist? Who knows?

Secondly, the portfolios shown never, never identify objectives by investor age or risk capacity or psychological sensitivity. It makes the column more than useless. Laughable. And dangerous.

Fees on Risky Transactions

Transaction Fees on Risky Transactions

What is a risky transaction?

Soon our smart bureaucrats in Washington, who can’t seem to get us out of a recession, and in fact are getting us mired into a deeper depression, are going to tell us they will tax us more with possibly a fee on transactions on trades they think are risky.

But what is risk? Buying stocks in a depression? Going for broke with spending we won’t be able to pay back without cheapening the dollar? Has anyone truly decided what it is?

When the White House carries on about risky investments and it seems no one there is qualified to really understand the term, it’s time to hold on to your pocketbooks.

You cannot easily quantify the term, especially in the political vacuum of the White House and the halls of Congress. When securities transaction fees become a no man’s land, head for the hills for cover.

The Government’s Intended New Financial Rules

The Government’s Intended New Financial Rules

The Government’s new rules intend to give regulators unlimited powers to do what corporate experts themselves have always found difficult. Let alone political-oriented bureaucrats to attempt to undertake.

A Treasury committee would determine which financial entities pose systemic risk to our economic system. These companies would then be subjected to added regulation by the Federal Reserve.

This cannot be easily done in the real world. Determining potential systemic risk is 100% conjecture. What steps to take, and when to take them, in order to eliminate systemic risk is not a practical matter.

Few real experts in the business world have the foresight to make the decisions. Rarely do bureaucrats or politicos at the Fed or Treasury have the ability or objectivity.

Besides: The Fed and the Treasury already have done a rotten job with the financial meltdown and their bailout functions up to now. Why expect better of them in the future?

Proposed Government Suggestions of Consumer Finance.

Proposed Government Suggestions of Consumer Finance.


The Administration feels they have a behavioral concept, to provide the consumer with what is best when shopping for complex financial products.

Such as shorter-term mortgages or those longer-term, or adjustable-rate versus standard term mortgages. Or whether to choose an option despite prepayment penalties. Or the question of which down payments on mortgages.

So the Administration is proposing that there be a simplified version of financial choices for simpleton consumers, that takes the burden away. It takes the term plain-vanilla to a new level, by suggesting a preferred option for all.

I can see having everything on one or two sheets of paper, in large print and in plain English for non-lawyers. The problem, however, is that such an standard option would soon become the only one available.

You can be sure that the threat of a lawsuit from an enterprising lawyer would drive away any other product from being sold by a provider or financial institution.

Remind you of the old Soviet Union type of shopping? You got what the government thought was good for you.

Big Government Approaches to Simple Money Problems- Financing Costs

Big Government Approaches to Simple Money Problems- Financing Costs

Those on the left in politics identify themselves principally by their tendency to rely on Big Government to remedy ills that beset a relatively small percentage of the population. With a sledge hammer.

To cure the ills of a small, sometimes tiny population percentage, they seek remedies that affect and often hurt the majority. The result is the same: Bigger Government. Often with no apparent assistance or aid to the objects of the original assistance.

That is why critics feel the sole original objectives is merely to create bigger and bigger government and not to offer practical help.

Example: Many borrowers who use credit cards, or take out mortgages and loans, make stupid decisions. The Big Government folks will tell you we need more regulations and financial product safety. Yet you cannot legislate or regulate against all stupidity without consequences. Those merely translate into more costly government bureaucracy.

Larger print in consumer contracts will surely help. Along with better schools we already are paying for, so the public can understand basic financial everyday contracts before them .