Egypt’s Mubarak refuses to quit

Egypt’s President Mubarak defies protesters by insisting he will stay in office and transfer all power only after September’s presidential election.

Fed’s Lockhart: U.S. Can’t Grow Out Of Debt Problems

(Reuters) The Federal Reserve’s monetary stimulus plan can play a role in bringing down unemployment, even if the country’s jobless rate is unlikely to fall below pre-crisis levels, a top Fed official said.

The Fed in November announced a controversial plan to purchase an additional $600 billion in bonds to keep down long-term borrowing costs and stimulate the recovery.

Critics of the program have argued much U.S. unemployment may be due to “structural” factors such as skill mismatches, so monetary policy might be powerless to address the problem.

However, Atlanta Federal Reserve Bank President Lockhart pushed back against that notion.

“There is scope for reducing the unemployment through sensible monetary policy but that will leave probably a higher level of ‘natural’ unemployment … than maybe we enjoyed before the recession,” he said during a panel hosted by the Consulate General of Switzerland in Atlanta.

The U.S. jobless rate fell to 9 percent in January from 9.8 percent in November, the biggest two-month decline in more than 50 years. However, hiring remains anemic, Labor Department data show, with only 36,000 jobs added last month.

Asked about the problem of debt, the focus of the meeting, Lockhart said the United States needs a credible long-term plan to address bloated budget deficits expected to reach a record $1.48 trillion this year.

He said the country cannot expect to simply grow its way out of the problem, arguing the current rate of economic expansion of around 2.5 percent to 3 percent is not nearly fast enough to catch up with the debt.

“Although we are in recovery at the moment and we are seeing growth, the economy is expanding, until we have dealt with the underlying fiscal issues we are not growing on absolutely sound foundations,” Lockhart said.

Lockhart did cite some encouraging signs for small businesses, saying he was seeing fresh evidence that banks’ reluctance to lend was abating.

“What we get in our surveys of lending officers in recent months is some indication of the relaxation of lending terms,” Lockhart said.

Copyright 2010 Thomson Reuters. Click for Restrictions.

Read more: Business News, US Economy, US Debt Problems, Federal Reserve, US Growth, US Debt, President Lockhart, Business News

Peter Schwartz: Complexity Theory and the Failure of Financial Reform: Part One

This is a two-part essay about the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a 2,300-page piece of legislation now making its way through the federal rulemaking mill in 21 different federal agencies, via nearly 250 rulemaking initiatives and 70 special reports. The Dodd-Frank legislative process was both hurried and complicated, and as one examines the resulting proposed rules, it is clear that the rulemaking stage has done little to clarify matters. Many issues remain definitionally murky and the rule makers in many cases are left with no alternative but to punt interpretation of these matters to enforcers at specific agencies post-implementation.

In Part One of this essay, we parse the politics surrounding the implementation of this complicated and tentacular piece of legislation. We start with politics – the interests that influence electoral, legislative, and regulatory outcomes – because that is where our minds naturally locate a zone of comfort. The politics is what seems real.

Part Two of the essay, however, will explode the idea that the politics actually matter, and focus our attention on the deeper dynamics of complexity theory as it applies to financial reform. We will descend into the rabbit hole of barking dogs, fat tails, and the conclusion that implementation of Dodd-Frank will in no way reduce the risk of catastrophic failure built into our financial markets.

The Politics of Financial Regulation

Dodd-Frank receives bland praise for its earnest efforts to reach some low common denominator of consensus about how to manage financial risk without tearing apart banking institutions. A political process watered down the legislation so it could sufficiently clear partisan hurdles to pass Congress. However, the real question is whether the forthcoming rules do anything more than kick the can further down the road.

It is generally tempting to continue to focus on the politics of financial reform, and to wonder about the meaning for financial reform of such events as the return of the House of Representatives to Republican control. In reality, the dynamics of legislative process are predictable bargaining games. And shifts in power are akin to changes in the weather, outputs of the bi-annual election cycle that grip the media imagination but that fail to do more than scratch the surface of the relationship between finance and regulation.

With the shift to Republican control in the House of Representatives, the ubiquitous and garrulous Barney Frank, co-author of the Dodd-Frank legislation, is now irrelevant. Spencer Bachus, Republican from a wealthy district surrounding Birmingham, Alabama, now presides over the House Committee on Financial Services, and he is determined to bring Dodd-Frank to its knees.

Bachus is a wily and pragmatic politician, who benefits in a conservative state from the absence of any serious opposition to his seat. Bachus is no moderate, however. When it comes to financial matters, Bachus worships both God and Mammon. It is an article of faith for him that the purpose of government is to serve and protect banking interests. Bachus also has gained notoriety for rapid-fire market trades – rare for elected federal officials – that netted him more than $160,000 in 2007.

Bachus does not pull his punches on the new HCFS website. As redesigned by the Republican majority, the website is no longer merely an information resource for policy wonks. The HCFS website is now closer to a Predator drone taking deadly aim at all “job-killing” Democratic financial reform measures associated with Dodd-Frank.

Enter the Volcker Rule

Demolition of Freddie Mac and Fannie Mae remains the top priority for Chairman Bachus. However, Bachus and the HCFS also don’t mince words about their distaste for the Volcker Rule and their determination to obstruct its implementation.

The Volcker Rule prohibits banking entities from engaging in proprietary trading and from sponsoring or investing in private equity or hedge funds. This prohibition matters because many investment banks became bank holding companies in 2008 to gain shelter from the financial storm under the TARP of the federal government.

The Volcker Rule promotes the quaint idea, associated with the Glass-Steagall Banking Act of 1933, that the government should protect banks that responsibly provide credit to consumers and businesses, but that banks receiving such protection should not engage in risky or speculative behavior associated with proprietary trading and the sponsorship of hedge funds.

Bachus has opposed the Volcker Rule, arguing that proprietary trading was unrelated to the financial crisis and that the prohibition on proprietary trading would limit banking profits, eliminate an important source of income diversification, undermine the global competitiveness of U.S. banks, and harm the ability of non-financial companies to engage in legitimate hedging of commodities for business purposes.

In Part Two of this essay, we will explore interesting ideas about fat tails and barking dogs, and consider the hard choices we need to make to avoid succumbing to the pitfalls of complexity as they apply to financial reform.

Read more: Complexity Theory, Dodd-Frank Act, Commercial Banks, Wall Street, Spencer Bachus, Dodd-Frank, Investment Banks, Barney Frank, Federal Regulation, Congress, Black Swan, Dodd Financial Reform Bill, Dodd Financial Reform, Glass-Steagall, Paul Volcker, Volcker Rule, Dodd-Frank Bill, Politics News

Stephen Herrington: Egypt: New Home of the Brave?

There are two types of tyranny, political and economic. Relief from one means relief from the other in practical terms in practical times. So why not roll the dice and make over a government?

For 50 years the U.S. has been supporting the existence of the Jewish homeland island in a stormy sea. A substantial part of that support has been to prop up effective dictatorships in the Middle East with aid and diplomacy. Because of this in part, Egyptians have been subjected to thirty years of suspension of their civil rights. A police state has kept the “peace” by oppressing both left and right of Egyptian political thought. Goon squad security forces, on par to those of Saddam Hussein in Iraq, have ravaged the intellectual and religious communities from top bottom and left to right, a political tyranny. That may be about to change.

Economic tyranny knows no national boundary, though. In a long list of subsistence economies, Egypt is not an exceptionally poor nation. But it’s just poor enough, and it’s educated enough to suspect that there is an alternative to the track of deepening privation and unemployment. Food prices have spiked along with joblessness, a condition Egyptians share with two thirds of the world. Governments from the U.S. to Karachi stare into the same abyss of economic decline. Did all the world’s governments become unable to see to the needs of their publics on the same day and in the same ways?

Political tyranny and economic tyranny do go hand in hand. One does not preclude or precede the other. Corruption and political patronage are a practical fact of many of the world’s governments. Governments at their most corrupt use economic oppression to subjugate, and the unrest resulting therefrom elicits more oppression. It’s a dance with which the world should be now familiar, even if we do not yet know how to stop dancing.

To the Egyptians, political and economic oppression are seen as one, inseparable. To peoples suffering doubt about the future worldwide, and particularly now the Middle East, the solutions to their tribulations are focused on the political. Seemingly glossed over by the protesters is that the government to whom you might affix blame may not have the power to fix that for which you blame them.

If personal economic conditions for Egyptians, or Tunisians, or any of the other peoples executing or planning insurrections, improve as a result of protest and revolution it will be surprising. Governments are losing the ability to shepherd their economies worldwide. Those that retain control are mercantilists that are displacing workers and damaging the economies of the more open-market nations. Multinational business holds an increasing share of the economic policy making process in even the industrialized Europe and America. Those businesses use that power more to enhance profits than to husband nations.

The net outcome of having business at the helm of governments is that the needs of the peoples are secondary to the profits of business. Food and energy prices are buffeted by speculation in commodity markets and the labor market is brutalized by outsourcing of labor. What is happening in America is happening in Egypt, to the dismay of the respective publics. America, as a model of democracy, seems to fare about as well as any other form of government in terms of controlling the predations of business on publics. In short, we in the democratic West and they in the Middle East have the same problem, and changing governments doesn’t seem to help. It will not help as long as the interests of the people are crowded out of policy-making by the interests of corporations and global monopolies.

To be successful then, a new Egyptian government must rededicate itself to the welfare of its people. It must not only root out local corruption but also address the economic stresses pressed upon it from global finance and business. A tall order. But, if successful, Egypt may then truly earn the title of “land of the free and home of the brave.”

Read more: Egypt Protests, Unemployment, Jordan, Tunisia, Middle East, Egypt, Financial Reform, Financial Crisis, Diplomacy, Israel, Syria, World News

The Truth About The Financial Crisis, Part II

Last week, I began musing here, about mining the Financial Crisis Inquiry Report to confront the top ten urban myths about the Financial Crisis. Expecting to dash off a blog series in a day or so, I found that my eyes were bigger than my brain capacity. Though I had read a good portion of the Report, it took many days longer to digest all 530 or so pages.

Read more: Business News, US Economy, Financial Crisis Truth, Dodd-Frank, Financial Crisis Inquiry Report, Financial Crisis, Business News

Kevin Warsh Stepping Down — Key Fed Board Out In March

WASHINGTON — Federal Reserve board member Kevin Warsh, who helped engineer the central bank’s strategy during the financial crisis, will step down near the end of March.

Warsh has served at the Fed since 2006. President George W. Bush tapped him for the post when he was 35 years old, making him the youngest person to serve on the Fed’s seven-member board.

Read more: Fed Board, Obama Fed Appointments, Peter Diamond, Fed, George W. Bush, Kevin Warsh, Federal Reserve, Ben Bernanke, Kevin Warsh Stepping Down, Business News

Asian travel sites, American VC backing

The online travel industry had a bumpy ride in 2010. American and Delta pulled their flights from some travel websites following disagreements over fees. Google purchased a firm called ITA Software, the proprietor of a much-coveted search algorithm, provoking outrage and an antitrust case filed by the titans of the online travel industry. As if to highlight the stakes of this showdown, Priceline was recognized in 2010 for being the single best-performing stock in the S&P 500 over the past five years.

Mubarak says he will transfer power but won’t resign

CAIRO (Reuters) – Egypt’s President Hosni Mubarak looked likely to step aside on Thursday after the military high command took control of the nation in what some called a military coup after two weeks of unprecedented protests.