The Reformed Broker
Ben Bernanke, chairman of the US Federal Reserve, (shown here in 2009) raised the central bank's discount rate by a quarter point on Feb. 18. (Owen DB/Black Star/Newscom/File)
Do you remember where you were when the Fed raised the discount rate?
I love it!
The newswire/ blogosphere is going chocolate-covered bananas tonight over the fact that the Fed has at long last raised the discount rate by...wait for it...waaaaaiiitttt ffffoooorrrr ittt - 25 basis points. Seriously, from zero percent to just about zero percent.
After MONTHS of hints and winks and nudges that this would be necessary.
Futures and currencies and bonds and old guys at the horse track are all in a tizzy.
We'll see how this plays out overseas and revisit in the AM. Vix call buyers rejoice. Matt Phillips has the details below.
Read Also:
http://blogs.wsj.com/marketbeat/2010/02/18/fed-raises-discount-rate-buckle-your-seatbelt/
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Thrash metal band Testament appears at Sirius XM studios in New York. (NEWSCOM/FILE)
The resurrection of Sirius XM?
I hate this stock and have always hated this stock, but who cares what I think...Sirius XM ($SIRI) seems to be coming back from the grave right now:
Why has this ne'er-do-well just broken above a buck a share for the first time since September of 2008?
The story I'm hearing is that the most recent numbers from the company are showing an actual, real-life fundamental improvement in new subscribers (added 257,000 in Q4 2009) as well as some better-than-expected free cash flow.
I'm not a believer but as they say, the stock price doesn't lie ... there are buyers.
Worth keeping track of this potential turnaround, but I would need more evidence before holding my nose to buy this thing just just yet.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Their postings appear here on the Monitor's Money site as well as on their own individual blog sites. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the blogger's own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Treasury Dep’t: How the 'Former-Zombie Bank Tax' Will Work
This just hit my inbox, from the Department of the Treasury:
January 14, 2010
TG-506
Fact Sheet: Financial Crisis Responsibility Fee
Financial Crisis Responsibility Fee
Today, the President announced his intention to propose a Financial Crisis Responsibility Fee that would require the largest and most highly levered Wall Street firms to pay back taxpayers for the extraordinary assistance provided so that the TARP program does not add to the deficit. The fee the President is proposing would:
- Require the Financial Sector to Pay Back For the Extraordinary Benefits Received: Many of the largest financial firms contributed to the financial crisis through the risks they took, and all of the largest firms benefitted enormously from the extraordinary actions taken to stabilize the financial system. It is our responsibility to ensure that the taxpayer dollars that supported these actions are reimbursed by the financial sector so that the deficit is not increased.
- Responsibility Fee Would Remain in Place for 10 Years or Longer if Necessary to Fully Pay Back TARP: The fee – which would go into effect on June 30, 2010 – would last at least 10 years. If the costs have not been recouped after 10 years, the fee would remain in place until they are paid back in full. In addition, the Treasury Department would be asked to report after five years on the effectiveness of the fee as well as its progress in repaying projected TARP losses.
- Raise Up to $117 Billion to Repay Projected Cost of TARP: As a result of prudent management and the stabilization of the financial system, the expected cost of the TARP program has dropped dramatically. While the Administration projected a cost of $341 billion as recently as August, it now estimates, under very conservative assumptions, that the cost will be $117 billion--reflecting the $224 billion reduction in the expected cost to the deficit. The proposed fee is expected to raise $117 billion over about 12 years, and $90 billion over the next 10 years.
- President Obama is Fulfilling His Commitment to Provide a Plan for Taxpayer Repayment Three Years Earlier Than Required: The EESA statute that created the TARP requires that by 2013 the President put forward a plan "that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt." The President has no intention of waiting that long. Instead, the President is fulfilling three years early his commitment to put forward a proposal that would – at a minimum – ensure that taxpayers are fully repaid for the support they provided.
- Apply to the Largest and Most Highly Levered Firms: The fee the President is proposing would be levied on the debts of financial firms with more than $50 billion in consolidated assets, providing a deterrent against excessive leverage for the largest financial firms. By levying a fee on the liabilities of the largest firms – excluding FDIC-assessed deposits and insurance policy reserves, as appropriate – the Financial Crisis Responsibility Fee will place its heaviest burden on the largest firms that have taken on the most debt. Over sixty percent of revenues will most likely be paid by the 10 largest financial institutions.
How the Fee Would Work
While more complete details of the proposed Financial Crisis Responsibility Fee will be released in conjunction with the President's budget, the basic outline of the fee is as follows:
Levied on Only the Largest Financial Firms with the Most Leverage
- Applied Only to Firms with More Than $50 Billion in Consolidated Assets: The fee would only be applied to firms with more than $50 billion in consolidated assets. No small or community bank would be covered by the fee.
- Fee Would Cover Banks and Thrifts, Insurance and Other Companies That Own Insured Depository Institutions, and Broker-Dealers: Covered institutions would include firms that were insured depository institutions, bank holding companies, thrift holding companies, insurance or other companies that owned insured depository institutions, or securities broker-dealers as of January 14, 2010, or that become one of these types of firms after January 14, 2010.. These institutions were recipients and/or indirect beneficiaries of aid provided through the TARP, the Temporary Liquidity Guarantee Program, and other programs that provided emergency assistance to limit the impact of the financial crisis.
- Both Domestic Firms and U.S. Subsidiaries of Foreign Firms Subject to the Fee: The fee would cover the liabilities of all firms in these categories organized in the U.S. – including U.S. subsidiaries of foreign firms. Operations of U.S. subsidiaries of foreign firms in the areas cited above would be consolidated for the purposes of the $50 billion threshold and administration of the fee. For those firms headquartered in the U.S., the fee would cover all liabilities globally. The Administration will also work through the G-20 and the Financial Stability Board to encourage other major financial centers to adopt comparable approaches.
- Fee Assessed at Approximately 15 Basis Points (0.15 Percent) of Covered Liabilities Per Year
- How Liabilities Subject to the Fee Would Be Determined: Liabilities subject to the fee would be defined as:
Covered Liabilities = Assets - Tier 1 capital - FDIC-assessed deposits (and/or insurance policy reserves, as appropriate)
- Exempting FDIC-Assessed Deposits and Insurance Policy Reserves As Appropriate: The fee will exempt FDIC-assessed deposits because they are stable sources of funding covered by deposit insurance and already subject to assessment. Similarly, the base for the fee would be appropriately reduced based on insurance policy reserves.
- How the Fee Would Be Assessed: Covered liabilities would be reported by regulators, but the fee would be collected by the IRS and revenues would be contributed to the general fund to reduce the deficit. The Administration will also work with Congress and regulatory agencies in order to design protections against avoidance by covered firms.
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Droppin’ Knowledge: Volcker On America’s Ability To Compete
I just snatched this little exchange out of the transcript of Paul Volcker's recent interview with CNN. The greatest Fed Head in history gives us his take on the competitiveness of America and what we must figure out how to do to become great again.
Volcker and I share the contention that having the majority of our best and brightest off in a corner trading with each other is not a good long-term trend for society...
From CNN:
ZAKARIA: You feel that the longer term issue, the big issue is really this issue of how do we get real growth. How do we get exports, manufacturing -- not growth that's based on borrowing, not growth that's based on each of us selling each other our own houses in a kind of ascending spiral...
VOLCKER: Absolutely.
ZAKARIA: ... of asset inflation.
VOLCKER: We've got to produce something that somebody else wants to buy.
ZAKARIA: How do you do that? What should we be doing?
VOLCKER: Well, you really want to get -- fundamentally, I think we spent a -- more than a decade -- we spent 20 years inducing some of our brightest people, our most energetic people to go to Wall Street. And nobody wants to be a mechanical engineer or a chemical engineer or a civil engineer. They want to be a financial engineer.
If you go to a university graduation these days, and you get to the advanced degrees in mathematics, engineering, physics, you're rather hard pressed to find an American. There are Chinese, there are Indians, they're Taiwanese, they're from the Middle East.
Look, it's not easy to answer your question, because there's no easy answer.
ZAKARIA: When you look at American industry, making it more competitive again, do you think that when you compare it to industry in China, or in India or in South Korea, is part of the problem that there is -- our corporate tax rate is now the second-highest in the industrialized world?
We probably have more regulation. There's the issue of tort, you know, and the way in which the liability system...
VOLCKER: All of those things add up to some extent. And some of it is kind of a mystery, in a way. I hate to pick a particular industry, or whatever, and just anecdotally. But I understand that the cost of shipping a ton of steel from China to the United States, one ton, is about the same as the total labor cost to produce a ton of steel in the United States.
So, if, in effect, it's not all our labor costs, they're offset by the transport cost, why are we still importing so much steel?
The challenge is very substantial. I think we can do it. I mean, we used to be, not so long ago, the world's greatest manufacturer. And we haven't got any big cost disadvantage relative to Europe or other developed countries. But the emerging world certainly has a big competitive advantage.
It's a great interview, read the rest below:
Source:
Interview With Paul Volcker (CNN)
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Guest Bloggers are not employed or directed by The Christian Science Monitor and the views expressed are the blogger's own. Submissions are neither edited nor reviewed before they appear on CSMonitor.com. If you have any comments about a blogger, please contact us. To comment on this post, please go to the blogger's site by clicking on the link above.
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