Fed and U.S. Treasury Betting on Banking Mojo
Kevin Warsh laid out much of the bad economic news as a result of the banking, finance and mortgage failure of the last year at the U.S. Department of the Treasury Press Conference. The Fed Governor spoke to Henry Paulson and bank supers, as poetic as a banker could be where innovation was concerned. It was what could be described as a banking innovation pep talk, an effort to drive inspiration for the latest money making banking creations while establishing a new securitized banking pool concept.
“the path to a new financial market architecture, however uneven and improvised, will not only be marked by the forces of retrenchment. The path should equally…be distinguished by the creative impulses that drive product and market innovation. It is perhaps too convenient to denigrate the attributes of …ingenuity…when the forces of innovation can disappoint and weaken the real economy. Policymakers and market participants alike should recognize that innovation–in our product markets, labor markets, and yes, our financial markets–is likely to prove a necessary net contributor to economic growth in the coming period. We should also be reminded that financial innovation need not be equated with product complexity.”
Creative impulses…market innovation…ingenuity…not…product complexity. Bankers just went through a peak period of massive banking innovation and have paid dearly…or rather some have paid dearly. On balance, the world has paid dearly with the exception of central bankers. Since the credit money isn’t real in their eyes anyway, nobody was really hurt. The insanity failed, apparently only because bankers weren’t financially literate enough. Warsh is ready to try a new kind of insanity again, fully recommending it as he pats his banker buds on the back and fully expecting a different result…or does the current Federal Reserve really care about the long-term results aside from their own corporate profits?
Warsh is suggesting research and testing for new banking innovation that can be exported to other economies to (gosh) profit bankers for rebuilding banking. This is a public admission that the morally bankrupt aren’t even hesitant to admit. They just cover it with big words and long sentences while the public ignore their public plans for profit at the expense of whole economies. But this time, the current crack Fed team is involved from the beginning and they are going to get it right.
The reality is that the Fed wants more of the same mortgage and bond medicine. They want a guaranteed bond framework to attract investors. They want greater access to mortgage credit created by “high quality assets” in a pool that banks will manage. These pools would rotate active mortgage securities. If a security were to become delinquent, it would be conveniently removed from the investment banking pool in a magic mojo shell game. “Newly issued covered bonds backed by high quality mortgage loans and issued by strong financial institutions may find a growing investor base in the United States.” Imagine that. Guarantee securitized bonds to make them desirable and they (the investors) will come in droves.
As if the United States and the world haven’t had enough banking innovation straight to economic disaster after years of banking abuse, the Federal Reserve is looking for new magic mojo banking prowess to bail out the world economy. Commercial bankers and financiers are thoroughly “unrepentant” of the past because there are no longer any ethics or morals in finance and banking. Bankers claim that if they had just done it a little differently, they would have succeeded.
This is all okay with Kevin and the Fed team because of “high quality” and properly understood financial innovation. The Federal Reserve seeks to encourage new and innovative sources of funding to secure its latest big mojo idea. Get ready for a brave new world of investment using a ball and golden shells on a table. You are sure to win the game over the bank, especially since they print the money anyway.
Who is going to guarantee the casino madness? Do you think the Fed is going to stand up as the guarantor on this one? ~ E. Manning