(03/30) Grown Men Are Crying In Florida By B. Jones
(03/30) We're From the Government And We're Here to Help By Michael J. Panzner
(03/30) Inside Bear Stearns By D. Schechter
(03/30) Worst Ever Housing Market in California: The Numbers Revealed By AS
(03/30) More Media Reacts to Bear Protest By D. Schechter
(03/30) How About 3 for the Price of 1. Today we Salute you Riverside By Dr HB
(03/30) Spamaphobia - A Consideration of Deviant Behavior on the Internet By Jack Rooney
(03/26) Housing Market: Case-Shiller 10 City Index Worst Drop Since 1987 By AS
(03/26) Parallel Universe: Housing Still Hurting on Main Street while Wall Street Celebrates By Dr HB
(03/26) Thinking about disclosures By Fred Cederholm
(03/23) Latest Reuters/Zogby Poll Shows Americans In Foul Mood By Boom2bust
(03/23) E-Book - The Two Faces of Money By Geraldine Perry
(03/23) Bear Stearns & Dollar Death
(03/23) Gold and Commodities Teetering on the Brink of a Bear Market? By Nadeem Walayat
(03/23) Plundering the Public Purse By Patrick Wood
(03/23) The Failing Fed By Christopher E. Hill
(03/23) The Two Faces of Money - Slide Presentation By Geraldine Perry
(03/23) Today we Salute you Huntington Beach. If you Walk Away, you Still Have the Ocean By Dr HB
(03/19) Bear Stearns: The Rise and Fall of the Mighty Bear By AS
(03/19) Liquidity Traps: Myth And Reality By Mish
(03/19) Welcome to the Future By M. Nystrom
(03/19) Thinking about implosions By Fred Cederholm
(03/19) China is not a menace By Joost van Steenis
(03/16) The Fed Ropes Nothing - You All Hung Yourselves By HT
(03/16) Don?t Catch a Falling Guillotine By Dr HB
(03/16) Global systemic crisis – End of 2008: Pension funds go off the rails By leap2020
(03/16) Get Ready For More Banking Insolvency And Panic Selling On Wall Street By NY HB
(03/16) The Real Cost of Saving the Banks Adrian By Adrian Ash
(0/313) Fed's New Role as Pawnbroker By Mish
(03/13) Are Interest Rates fated to Rise? By Greg Silberman
(03/13) Whatever Hope You Have Now Will Be Taken Out Back And Shot By HT
(03/13) Ron Paul Third Party, 2008-2012: How to Do It By Nelson Hultber
(03/13) The Fed Invents a New Trick By M Nystrom
(03/09) Fed Official: Mistakes Were Made (No Kidding) By Michael J. Panzner
(03/09) Financial System Broken - Markets 'Utterly Unhinged' By Mish
(03/09) Learning to Love the Housing Bubble By Dr HB
(03/09) The debt load will destroy us By D. Schechter
(03/09) The Gift Economy - Receiving stimulates giving By Sepp Hasslberger
(03/09) Global Elites Gone Bonkers By SB Kayser
(03/09) Thinking about checkbooks By Fred Cederholm
(03/05) Is Belt Tightening a Threat? by Mish
(03/05) Trading the Dow's Inevitable Breakout by Michael Nystrom
(03/05) Digging into Countrywide: When Half Your Loans are in California and Florida By Dr HB
(03/05) Economy: 76 Trombones?, No, 76 Banks May Fail in Eco Crisis By D. Schechter
(03/01) The Death Of The Victim By HT
(03/01) Thinking about Sysiphus By Fred Cederholm
(03/01) Poole, Paulson, Bernanke on Bailouts and Bank Failures By Mish
(03/01) 5 Reasons Why The Housing Market Will Continue to Decline Until 2010 By DR HB
(03/01) The Early Innings of a Gold Boom By J. Rubino
(03/01) Where should you put Your Money? By AS

JPMorgan memo shows dirty tricks of mortgage trade
An internal JPMorgan Chase (JPM) memo titled "Zippy Cheats & Tricks" offers a peek into just the sort of dubious lending tactics that underpinned the housing market's deepening downward spiral. Originally obtained by reporters at The Oregonian newspaper, which published a story Thursday, the memo offers step-by-step instructions on how to beef up mortgage applicants' stated incomes in order to help them qualify for home loans....

They read as follows:
"1. Make sure you input all income in base income. DO NOT break it down by overtime, commissions or bonus.

2. If your borrower is getting a gift, add it to a bank account along with the rest of the assets. Be sure to remove any mention of gift funds.

3. If you do not get (the desired results), try resubmitting with slightly higher income. Inch it up $500 to see if you can get the findings you want. Do the same for assets." ...MORE
http://www.usatoday.com/money/economy/hous...ippy-memo_N.htm



Bernanke's Next Big Bail Out Plan
March 29 / 30, 2008
By MIKE WHITNEY
The Federal Reserve is presently considering an emergency operation that is so risky it could send the dollar slip-sliding over the cliff. The story appeared in the Financial Times earlier this week and claimed that the Fed was examining the feasibility of buying back hundreds of billions of dollars of mortgage-backed securities (MBS) with public money to restore investor confidence and clear the struggling banks' balance sheets. The Fed, of course, denied the allegations, but the rumors abound. Currently the banking system is so clogged with exotic investments, for which there is no market, it can't perform its main task of providing credit to businesses and consumers. Bernanke's job is to clear the credit logjam so the broader economy can begin to grow again. So far, he has failed to achieve his objectives....
more
http://www.counterpunch.org/whitney03292008.html

Waiting for Armageddon
Mar 27th 2008
The recent rise in corporate bankruptcies in America may well be a sign of much worse to come. CAPITALISM without bankruptcy, it is said, is like Christianity without hell. With recession looming, the air in America's bankruptcy courts is thick with brimstone and the coals are being heated in readiness for the many sad souls whose sin was to borrow too much. After several heavenly years, in which bankruptcies fell to record lows, going bust is back. How bad will things get? MORE
http://www.economist.com/business/displays...ory_id=10925548

3/30/2008
Free-market thinking takes hit from US economic crisis
- AFP 3/28/2008
More Bailouts to Follow Bear Stearns?
- St. Louis Post-Dispatch 3/28/2008
Economy Slows to Crawl
- Charlotte Observer 3/28/2008
Buyers Revenge: Trash the House After Foreclosure
- Wall Street Journal 3/28/2008
Welcome to Subprime's Ghost Town
- CNN Money 3/28/2008
Down $900M or More, the Chairman of Bear Sells
- New York Times 3/28/2008
Fed Policy Makers Voice Concern Over U.S. Economy
- International Herald Tribune 3/28/2008
Recession Fears Grow as Consumer Spending Slows
- Toronto Globe and Mail 3/28/2008
U.S. Now a Steal for Businesses
- Los Angeles Times 3/28/2008
Home Prices Unlikely to Rise Till 2010
- Seattle Times 3/28/2008
Parties Differ on Whom Economic Aid Should Help
- New York Times 3/28/2008
Fed Leaders Ponder an Expanded Mission
- Washington Post 3/28/2008
Credit Crunch Takes Heavy Toll on Debt Issuance
- Financial Times

Citigroup Separates Credit-Card Business, Overhauls Consumer Banking Unit Citigroup Inc., battling to restore profit after a record loss, will set up an independent credit- card unit and overhaul consumer banking along geographical lines.

New York Real Estate Market Slows as Wall Street Securities Firms Cut Jobs New York City's residential real estate market is showing the first signs of fallout as U.S. banks and securities firms cut the most jobs in seven years.

M&A Bankers Suffer 34% Drop in Fees as Takeovers Dry Up After Record Year Mergers and acquisitions bankers suffered a 35 percent drop in fees during the first quarter, just weeks after cashing bonuses from a record year.

Paulson Overhaul Formalizes Fed's Greater Power Since Bear Stearns Buyout Treasury Secretary Henry Paulson's plan to overhaul U.S. market regulation would officially endow the Federal Reserve with the broader authority that it has already accrued in the past two weeks.

Treasury Yield on Two-Year Seen Declining to 1.5% in Best Rally Since 1995 The most accurate forecasters of Treasury yields say it's too early to call an end to the rally that propelled U.S. bonds to their best annual start since 1995.

A Nervous Wall St. Seems Unsure Whats Next...
The New York Times Sun Mar 30 2008 18:42:04 GMT-0400 (Eastern Daylight Time)

CREDIT BUBBLE BULLETIN
End of an era
John Meriwether's latest efforts to hold on to investors a decade after the collapse of his Long-Term Capital Management signals the end of an era. The market will not soon grant such leveraged strategies another shot at displaying financial genius, and the implicit consequences are beyond the US Federal Reserve's control.
Doug Noland reviews the previous week's events each Monday.

FDR's dream comes
true as nightmare
As some people celebrate the advent of US$1,000 gold, they risk forgetting that it is a milestone in the fulfillment, 75 years on, of president Franklin Delano Roosevelt's design to deprive people of the liberty to shelter the fruits of their labor from the claws of the government. At present prices, few can buy gold to protect their fruits. - Antal E Fekete

A Brave New Federal Reserve - Jonathan Macey, Wall Street Journal

Reform Proposal Lacks Any Meaning - Paul Krugman, New York Times

Market Defenders Need to Stand Up - Roger Bootle, Daily Telegraph

Steps to Save the U.S. Economy - Lawrence Summers, Financial Times

The Last Days of Bear Stearns - Roddy Boyd, Fortune

Bailouts a Giant Excercise in Hypocrisy - Tim Ferguson, Forbes

Bear Bailout is Good for Everyone - Irwin Kellner, MarketWatch

The Dollar and the Credit Crunch - Ron McKinnon, Wall Street Journal

Let's Not Repeat Today's Credit Crunch - Roger Altman, Washington Post

Barack Obama is No Economic JFK - Editorial, Investor's Business Daily

Canada Must Defend NAFTA - Editorial, National Post

Let the Housing Chips Fall - Peter Schiff, Los Angeles Times

Capital flight puts Russia on the ropes


Careers vanish after subprime 'free fall'


It's time to rein in the Fed


The Dilbert Strategy


Stock market turmoil the worst in 20 years

30-Mar-2008 Why the Paulson Plan is DOA

29-Mar-2008 10 resumes a day, no takers

Financial Markets Need More Than a Patch-Up - Clive Crook, FT

Private Equity Boom Was Clumsy Trick - M. Gordon, Financial Times

USA 2008: The Great Depression
Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world's richest country faces economic crisis


GETTY

Disadvantaged Americans queue for aid in New York

• 

By David Usborne in New York
Tuesday, 1 April 2008



We knew things were bad on Wall Street, but on Main Street it may be worse. Startling official statistics show that as a new economic recession stalks the United States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families.

Dismal projections by the Congressional Budget Office in Washington suggest that in the fiscal year starting in October, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s.

The increase – from 26.5 million in 2007 – is due partly to recent efforts to increase public awareness of the programme and also a switch from paper coupons to electronic debit cards. But above all it is the pressures being exerted on ordinary Americans by an economy that is suddenly beset by troubles. Housing foreclosures, accelerating jobs losses and fast-rising prices all add to the squeeze.

Emblematic of the downturn until now has been the parades of houses seized in foreclosure all across the country, and myriad families separated from their homes. But now the crisis is starting to hit the country in its gut. Getting food on the table is a challenge many Americans are finding harder to meet. As a barometer of the country's economic health, food stamp usage may not be perfect, but can certainly tell a story.

Michigan has been in its own mini-recession for years as its collapsing industrial base, particularly in the car industry, has cast more and more out of work. Now, one in eight residents of the state is on food stamps, double the level in 2000. "We have seen a dramatic increase in recent years, but we have also seen it climbing more in recent months," Maureen Sorbet, a spokeswoman for Michigan's programme, said. "It's been increasing steadily. Without the programme, some families and kids would be going without."

But the trend is not restricted to the rust-belt regions. Forty states are reporting increases in applications for the stamps, actually electronic cards that are filled automatically once a month by the government and are swiped by shoppers at the till, in the 12 months from December 2006. At least six states, including Florida, Arizona and Maryland, have had a 10 per cent increase in the past year.

In Rhode Island, the segment of the population on food stamps has risen by 18 per cent in two years. The food programme started 40 years ago when hunger was still a daily fact of life for many Americans. The recent switch from paper coupons to the plastic card system has helped remove some of the stigma associated with the food stamp programme. The card can be swiped as easily as a bank debit card. To qualify for the cards, Americans do not have to be exactly on the breadline. The programme is available to people whose earnings are just above the official poverty line. For Hubert Liepnieks, the card is a lifeline he could never afford to lose. Just out of prison, he sleeps in overnight shelters in Manhattan and uses the card at a Morgan Williams supermarket on East 23rd Street. Yesterday, he and his fiancée, Christine Schultz, who is in a wheelchair, shared one banana and a cup of coffee bought with the 82 cents left on it.

"They should be refilling it in the next three or four days," Liepnieks says. At times, he admits, he and friends bargain with owners of the smaller grocery shops to trade the value of their cards for cash, although it is illegal. "It can be done. I get $7 back on $10."

Richard Enright, the manager at this Morgan Williams, says the numbers of customers on food stamps has been steady but he expects that to rise soon. "In this location, it's still mostly old people and people who have retired from city jobs on stamps," he says. Food stamp money was designed to supplement what people could buy rather than covering all the costs of a family's groceries. But the problem now, Mr Enright says, is that soaring prices are squeezing the value of the benefits.

"Last St Patrick's Day, we were selling Irish soda bread for $1.99. This year it was $2.99. Prices are just spiralling up, because of the cost of gas trucking the food into the city and because of commodity prices. People complain, but I tell them it's not my fault everything is more expensive."

The US Department of Agriculture says the cost of feeding a low-income family of four has risen 6 per cent in 12 months. "The amount of food stamps per household hasn't gone up with the food costs," says Dayna Ballantyne, who runs a food bank in Des Moines, Iowa. "Our clients are finding they aren't able to purchase food like they used to."

And the next monthly job numbers, to be released this Friday, are likely to show 50,000 more jobs were lost nationwide in March, and the unemployment rate is up to perhaps 5 per cent.

THE BEAR'S LAIR
Only the money is cheap
When money is excessively cheap, only the money is cheap. Everything else from assets to business ethics becomes horrendously expensive or unobtainable. Americans can only hope the next US president will appoint a Fed chairman who believes in sound money before they endure a decade of wasted resources and severe recession. - Martin Hutchinson
http://www.atimes.com/atimes/Global_Economy/JD02Dj02.html

A risk-free revolution

The US Federal Reserve-led rescue of Bear Stearns was a blatant example of moral hazard being rewarded. The US financial system, thought to be exemplified by rough and ready individualists and free marketers, now gleefully accepts the greatest government intervention in the financial markets in at least 70 years. One question - what comes next in this new risk-free model? - Julian Delasantellis

THE SHAPE OF US POPULISM Part 4: A panic-stricken
Federal Reserve
The recent moves by the US Federal Reserve, amid fears of an economic depression, to inject liquidity into the credit market and to bail out banks and brokerage houses are looking more like fixes for drug addicts in advanced stages of abuse. But for neo-liberal market fundamentalists, the fear is not of an economic depression, but the populism that may follow it. - Henry C K Liu

Part 1: A rich free-market legacy - for some

Part 2: Long-term effects of the Civil War

Part 3: The progressive era

The voyage of the Economic Enterprise
Nowhere in the history of Earth, nowhere even in this entire galaxy, is there an instance of a healthy economic boom that started after the biggest orgy of speculation and debt creation the planet had ever seen. We are done for - except of course for those who steered us into the mess in the first place.
http://www.atimes.com/atimes/Global_Economy/JD02Dj01.html

CREDIT BUBBLE BULLETIN
End of an era
John Meriwether's latest efforts to hold on to investors a decade after the collapse of his Long-Term Capital Management signals the end of an era. The market will not soon grant such leveraged strategies another shot at displaying financial genius, and the implicit consequences are beyond the US Federal Reserve's control. (Mar 31, '08)
Doug Noland reviews the previous week's events each Monday.

Doubts Greet Treasury Plan on Regulation...
The New York Times Tue Apr 01 2008 08:46:48 GMT-0400 (Eastern Daylight Time)

UBS to Write Down Another $19 Billion...
The New York Times Tue Apr 01 2008 08:46:47 GMT-0400 (Eastern Daylight Time)

Doing Something About the Financial Mess
Christopher Chantrill
The Bush administration launched Part Three of the Bush administration's plan to Do Something. Part One is to have the Federal Reserve System print lots of lovely money. More

Manufacturing in U.S. Contracts Less Than Forecast, Helped by Export Gains Manufacturing in the U.S. contracted less than forecast in March, easing concern that less consumer spending and business investment woul cause a deeper economic slump.

Commodities Tumble on Concern U.S. Recession Will Erode Oil, Copper Demand Commodities fell for a third day, led by oil, copper and soybeans, on mounting concerns over the slowdown in the U.S. economy.

Banks Face Biggest Crisis in 30 Years, Morgan Stanley, Wyman Report Says Credit market turmoil poses the most severe crisis for banks in 30 years, surpassing Black Monday in 1987, the Asia currency crisis and the bursting of the dot-com bubble, Morgan Stanley and Oliver Wyman said in a joint report.

Banks and the Recession

Why Paulson's Plan Falls Short
By PETER MORICI

The regulatory framework proposed by Treasury Secretary Henry Paulson will not address fundamental problems in the banking sector that contributed significantly to the recession and that must be fixed to rescue the U.S. economy from recession and avoid future crises.

The banks and securities companies, essentially, created overly complex and risky securities when bundling subprime mortgages and other loans into bonds. The banks became engaged in bogus, off books operations and credit default swaps that proved less than worthy. Ultimately, the value of these bonds collapsed, as investors could not adequately evaluate those bonds and discount for their risks.

Now fixed income investors no longer trust the credibility of the banks and securities companies, and these firms can no longer bundle mortgages, consumer loans and business loans into bonds, giving rise to the current credit shortage.

Even with a lower fed funds rate and beefed up access to the discount window, banks lack the credibility to raise funds in the fixed income market to make loans adequate to power the economy out of recession.

The regulatory reform and reorganization proposed by Secretary Paulson would enhance the Federal Reserve's access to information about investment bank and securities companies activities, and subject many to stricter prudential financial standards; however, it does little to constrain the banks and securities from the kinds of abuses that gave rise to the current crisis. Nor does his plan provide adequate safeguard to avoid future credit crises and recessions from a recurrence of securitization abuses.

Further, Paulson's plan does not address the problem of the bond rating agencies. Rating services are paid by the banks and securities companies to rate the bonds created by those companies. This has proven a flawed model that Paulson seems unwilling to address.

Peter Morici is a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission.

If It's Not Dead on Arrival, Someone Should Shoot It Quick
Paulson's Fixit Plan for Wall Street

By MIKE WHITNEY

It is being billed as a "massive shakeup of US financial market regulation", but don't be deceived. Treasury Secretary Henry Paulson's proposals for broad market reform are neither "timely" nor "thoughtful" (Reuters) In fact, its all just more of the same free market "we can police ourselves" mumbo jumbo that got us into this mess in the first place. The real objective of Paulson's so called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. Same wine, different bottle. Paulson's motive is to preempt any regulatory sledgehammer that might descend on the entire financial industry following the 2008 election. There's growing fear that an incoming Democrat may tote a firehose down to Wall Street.

If Paulson's plan is approved in its present form, Congress will have even less control over the financial system than it does now and the same group of self-serving banking mandarins who created the biggest equity bubble in history will be able to administer the markets however they choose without the inconvenience of government supervision. That's exactly what Wall Street, the Treasury Secretary and the folk at the Fed want; unlimited power with no accountability.

Paulson is expected to lay out guidelines and principles that are intended to help regulators supervise the financial markets. According to AFP:

"The President's Working Group on Financial Markets said the current regulatory structure is working well despite calls by some US lawmakers."

In other words, the failing banking system, the housing meltdown, and the frozen corporate bond market are all signs of a robust financial system? This may be the most ludicrous statement since "Mission accomplished". The system is imploding and people are being hurt by the fallout. Thirty years of industry-led lobbying has dismantled the (admittedly frail ad porous) regulatory regime which made US financial markets the envy of the world. Whatever credibility and transparency once existed were washed out in the Clinton era, as with Glass-Steagall and government oversight of the explosive growth of over-the counter derivatives instruments. Now the system is prey to all types of dodgy debt instruments, suspicious "dark pool" trading and off-balance sheets operations which further reinforce the belief that cautious investment is no better than casino gambling.

"The regulatory line of sight today is by the counterparties," the official said, adding that the guidelines should be "beneficial to industry." (AFP)

How is that different than saying, "Caveat emptor"? That's not a motto that inspires confidence. Many people still naively believe that planning their retirement should not have to be a Darwinian tussle with a crafty junk-bond salesman.

Under Paulson's plan, the Federal Reserve will be granted new regulatory powers, but whatever for? The Fed doesn't use the powers it has now. No one stopped the Fed from intervening in the mortgage lending fiasco, or the ratings agency abuses or the off-balance sheets shenanigans. They had the authority and they should have used it. The folks at the Fed knew everything that was going on---including the mushrooming sales of derivatives contracts which soared from under $1 trillion in 2000 to over $500 trillion in 2006---but they decided to cheerlead from the sidelines rather than do their jobs. The fact is, they were worried that if they got involved they might upset the gravy-train of profits that was enriching their bankster friends.

Former Fed chief Greenspan used to croon like a smitten teenager every time he was asked about subprime loans or adjustable rate mortgages. And, as New York Times columnist Floyd Norris points out, (Greenspan) "praised the growth in the derivatives market as a boon for market stability, and resisted calls to use the Fed's power to increase regulation." Of course, he did. It was all part of Maestro's "New Economy"; trickle-down Elysium, where the endless flow of low interest credit merged with financial innovation to create a Reaganesque El Dorado. There are no regulations in this version of Eden, not even "Don't bite the apple". Anything goes and to heck with the public, they can fend for themselves.

Now its Paulson's job to keep the neoliberal flame lit long enough to make sure that government busybodies and bureaucratic do-goodies don't upset the cart. That means concocting a wacky public relations campaign to convince the public that Wall Street is not just a pirate's cove of land-sharks and bunko artists, but a trusted ally in maintaining a strong economy through vital and efficient markets.

The Times' Norris summed up Paulson's sham reforms like this:

"The plan has its genesis in a yearlong effort to limiting Washington's role in the market. And that DNA is unmistakably evident in the fine print. Although the proposal would impose the first regulation of hedge funds and private equity funds, that oversight would have a light touch, enabling the government to do little beyond collecting information - except in times of crisis. The regulatory umbrella created in the 1930s would grow wider, with power concentrated in fewer agencies. But that authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis. ("In Treasury Plan, a Reluctant Eye over Wall Street", Floyd Norris, New York Times)

What nonsense. The house is on fire and hyperventilating Hank is still wasting our time with this rubbish. The real problem is that Paulson and his buddies at the Federal Reserve think of the financial system as their personal fiefdom so they refuse to loosen their \ grip even though the economy is listing starboard and the water is flooding into the lower decks.

Once again, the New York Times:

"All the checks and balances in the plan reflect the mindset of its architect, Treasury Secretary Henry Paulson, who came to Washington after a long career on Wall Street. He has worried that any effort to substantially tighten regulation could hamper the ability of American markets to compete with foreign rivals."

No one elected Paulson to do anything. He has no mandate. He is an industry rep. who has worked exclusively for a small group of wealthy investors who have put the entire country at risk with their toxic mortgage-backed bonds, their reckless Ponzi-type speculation, and their off-book chicanery. Paulson should be removed immediately and returned to his wolf's lair at G-Sax. If Bush is serious about straightening out Wall Street, then bring in Eliot Spitzer. He's probably available, at least in daytime hours. And he'll do what it takes to clean house, that is, put a truncheon-wielding robo-cop in every trading-pit at the NYSE, and dispatch government accountants to every office of every CFO making sure they have a Big Red Pen in one hand and a taser in the other. That's the only way to get the attention of the bandit-class.

"I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil," says Paulson.

Paulson is wrong. The current turmoil is all about the lack of regulation and he'd better prepare himself for some big changes. The pendulum is already in motion and tighter regulations will soon follow. There needs to be an accounting process for all transactions and capital requirements for every financial institution that creates credit. No exceptions. All of these businesses pose a real danger to the overall system and, therefore, must conform to clearly articulated and strictly enforced rules; no off-balance sheets operations, no dark pool trading, no unregulated derivatives contracts, no level 3 assets, no "mark to model" garbage bonds where CFOs unilaterally decide what they are worth by picking a number out of a hat. Its time to restore order to the markets so retirees and working class families can feel safe investing in their futures. They are the ones who are most hurt by Wall Street's endless trickery.

Paulson's plan is a non starter. The era of sandbagging, supply-side banditry is over. Good riddance.

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com
http://www.counterpunch.org/whitney03312008.html

Paulson the plumber
An ambitious plan to mend America’s cracked system of financial regulation

BUSINESS: Bankruptcies in America
Waiting for Armageddon
The recent rise in corporate bankruptcies in America may well be a sign of much worse to come

Keeping U.S. Markets Competitive & Orderly - Paul Maidment, Forbes
Paulson's Reform Plan Long Overdue - Gerard Baker, Times of London
Treasury Secretary Responds to Wrong Crisis - Clay Risen, New Republic

Opposition To Treasury's Blueprint Gains Steam

Adam Smith Does What Paulson Can't - Editorial, Wall Street Journal
Paulson's Plan Is Wall Street's Gift - Susan Antilla, Bloomberg
Treasury Sec'y Responds to Wrong Crisis - Clay Risen, New Republic
Good Proposals, But We Have Concerns - Editorial, Investor's Bus. Daily
Why Fed Reform Won't Work - Nomi Pins, Slate
Why the Reforms Won't Pass in 2008 - Paul Farrell, MarketWatch
The Irony In Wall Street - Thomas Sowell, RealClearPolitics
What's Wrong With Wall Street - Shawn Tully, Fortune

America's Problem with Bankruptcy - James Surowiecki, The New Yorker

Peak credit and a
flight to simplicity
The financial seizure arising from the US subprime mortgage crisis arose as banks outsourced through derivatives and other tools the one thing of economic value they provide - a guarantee to depositors that the credit of borrowers is good. Simpler asset-based property finance is now required, with Hong Kong already half way there. - Chris Cook

CHAN AKYA
A conspiracy against gold
The global conspiracy against gold has been gathering steam, with central banks rallying around the US Federal Reserve to prevent a full-scale economic collapse. This will succeed over the near term, but as the US runs out of things to sell, so will the latest bout of risk-taking in global markets.

The Fed and the
stagflation specter
For much of the past decade, the US Federal Reserve has defiantly followed an aggressive expansionary policy by reducing interest rates and disregarding credit risks. There is now no alternative to choking off inflation. Merely carrying on with the present stance will aggravate the crisis. - Hossein Askari and Noureddine Krichene

Financial humor isn't funny
The US may pay a steep price to free itself of its present woes: bigger government, faster inflation and a poorer country. That's the good news. Savers - and that is a lot of people - are losing money to prop up the big Wall Street brokerage houses. And that's only part of the bad news.

http://www.atimes.com/atimes/Global_Economy/JD03Dj01.html

Bernanke Says Economy May Contract in First Half, Defends Bear Rescue Plan Federal Reserve Chairman Ben S. Bernanke acknowledged for the first time that the economy may contract as homebuilding weakens further, unemployment rises and consumer spending slumps.

Stocks in U.S. Retreat as Bernanke's Remarks Overshadow Best Buy Earnings U.S. stocks fell after Federal Reserve Chairman Ben S. Bernanke's prediction that the economy may contract overshadowed better-than-estimated earnings at Best Buy Co.

Best Buy Profit Falls Less Than Estimated on Sales of Laptops; Shares Rise Best Buy Co., the largest U.S. electronics retailer, said fourth-quarter profit fell less than analysts estimated on higher sales of more-expensive laptops and video-game consoles.

Paulson Says Treasury Is `Flexible' on Efforts to Ease U.S. Housing Crisis Treasury Secretary Henry Paulson indicated the Bush administration is willing to consider congressional plans to stem foreclosures by expanding government guarantees for mortgages.

Factory Orders in U.S. Fall More Than Forecast as Companies Limit Spending Orders to U.S. factories fell more than forecast in February, as companies scaled back investment plans on concern the economy was already in a recession.

UBS, Lehman Capital Raisings May Signal Rout in Equity Markets Nearing End Securities sales by UBS AG, the world's largest money manager, and Lehman Brothers Holdings Inc. underpinned a rally in financial stocks that may signal an end to eight months of market turmoil.

KISS Rule for Markets, Regulation - Lawrence Lindsey, Wall Street Journal
Henry Paulson's Starting Point - Editorial, Washington Post
Fed Should Clarify Link to Bear Assets - Caroline Baum, Bloomberg
The Castration of Bear Stearns - Martin Sosnoff, Forbes
UBS: A Hard Lesson in Bank Management - Editorial, Financial Times
Oil Is Not Expensive, the Dollar Is Cheap - Editorial, New York Sun
'90-'91 Recession Has Me Optimistic Now - James Stewart, SmartMoney
Trading in Recklessness - Richard Rahn, Washington Times
Food Stamps and Media 'Depression' - Editorial, Investor's Business Daily
Playing the Housing Blame Game - David Leonhardt, New York Times
The Radical Mortgage Solution - Holman Jenkins, Wall Street Journal
How Not to Save the Housing Market - Robert Samuelson, Newsweek

Investment Outlook: When I'm 64 - Bill Gross, Pimco Investment
ISM Higher Than Expected - Bear Stearns
Dollar Strengthens on Writedown News - Brown Brothers
Job Losses and Trade: A Reality Check - Brink Lindsey, Cato Institute

Paulson’s Fixit Plan for the Financial Markets: Less Regulation, More Power to the Fed
by Mike Whitney / April 2nd, 2008

It is being billed as a “massive shakeup of US financial market regulation,” but don’t be deceived. Treasury Secretary Henry Paulson’s proposals for broad market reform are neither “timely” nor “thoughtful”. (Reuters) In fact, it’s all just more of the same free market “we can police ourselves” mumbo jumbo that got us into this mess in the first place. The real objective of Paulson’s so-called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. Same wine, different bottle. Paulson’s real motive is to preempt the regulatory sledgehammer that is set to descend on the financial industry following the 2008 election. There’s growing fear that President Obama will take his firehose down to Wall Street and flush out some of the cobwebs that have collected in the market’s dark corners. (Full article …)

Bernanke Faces Bear Stearns Queries
By STEVEN R. WEISMAN WASHINGTON — Long before taking office as chairman of the Federal Reserve, Ben S. Bernanke wrote an article with some other academics calling for the Fed to demystify its actions and pronouncements.

“The ‘just trust us’ approach may work in a period when the chair and the board of governors command widespread support,” he and three colleagues wrote in Foreign Affairs. “But the happy state of affairs will not last forever.”

It certainly did not survive beyond last month. That was when the Fed played midwife in JPMorgan Chase’s absorption of the investment firm Bear Stearns, while accepting $30 billion worth of questionable mortgage-related assets as collateral for a Fed loan that enabled the deal.

The Bear Stearns arrangement, brokered amid fears of a global financial disaster, was accompanied by many other steps, including establishment of a new lending facility for investment banks and efforts to pump liquidity into the turbulent financial markets.

Taken together, most experts say that what the Fed has done in the last several months is unparalleled in modern times. Indeed, the Bear Stearns deal relied on a provision of the Federal Reserve Act not used since the 1930s. As a result, investment experts, many Americans and most members of Congress are bursting with questions.

Mr. Bernanke has yet to explain, for example, exactly how he negotiated the Bear Stearns deal, how he decided to accept the $30 billion in dubious collateral, who set the share price for Bear Stearns and what role was played by Treasury Secretary Henry M. Paulson Jr., a former Goldman Sachs executive.

On Wednesday the Fed chief begins two days of testimony, his first opportunity to answer some of these questions. They are certain to focus not only on Bear Stearns but also on why the Fed and others let things deteriorate to the point of crisis, and whether their actions should serve as a precedent or guideline for the future of regulation of the financial sector.

“There’s a lot of concern that this was done ad hoc,” said Senator Charles E. Schumer, Democrat of New York and the chairman of the Joint Economic Committee, which is to hold the hearings on Wednesday, referring to Bear Stearns. “The irony is that very few people are saying, ‘You shouldn’t have done it.’ A lot of people have questions about the before and after.”

Senator Christopher J. Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, has also signaled that at his panel’s hearing on Thursday he will ask Mr. Bernanke about Bear Stearns and why the financial sector’s problems were allowed to fester.

The nation’s trust in the Fed and the administration, Mr. Dodd said this week, “has been shattered — not because regulators did too much, but because they did too little.”

Both Mr. Bernanke and Timothy F. Geithner, president of the New York Federal Reserve Bank, who worked on the Bear Stearns deal, have an unusually delicate challenge at the hearings, many specialists say.

On the one hand, they are expected to be quite explicit, detailing the enormous risks they saw in the global financial system if they did not act. On the other hand, they are said to be extremely concerned about not stoking anxieties further; both are known to think that the situation remains perilous.

“I think he’s going to get more praise than criticism,” said Alan S. Blinder, an economics professor at Princeton and a former Fed vice chairman, referring to Mr. Bernanke.

“But what nobody’s done yet, because Secretary Paulson has been unwilling to, and the Fed is too taciturn, is to explain clearly to the public what they saw happening and the time and why they acted as they did,” Mr. Blinder added.

Mr. Bernanke and Mr. Geithner have also not commented specifically on Mr. Paulson’s proposals to overhaul the regulatory superstructure that is charged with overseeing the American financial landscape.

Many expect them to steer clear of specifics but to warn that if the Fed were given greater authority, it should also be given tools to exercise it, possibly including ways to ensure that financial institutions like investment banks adhere to tough standards of safety and solvency.

Fed lawyers argue that the agency’s actions were consistent with Section 13(3) of the Federal Reserve Act, which gives it authority to lend not just to banks, but to any corporation or partnership that cannot get credit elsewhere.

The statute was last used in the 1930s, when the Fed lent small sums in the range of a few hundred thousand dollars to companies with good balance sheets that were engulfed in the banking crisis of the Great Depression. It was revised in the 1960s to provide funds to troubled savings and loan concerns, but was not used at that time.

The Bear Stearns action may have been consistent with the Fed’s mandate, but it also is widely seen to have thrust the Fed into a new world, for the first time making it a holder of a package of mortgage assets, the value and even the content of which have not been disclosed. Much has been made in Congress about the possibility of the Fed taking a loss at the taxpayers’ expense.

To avoid a conflict of interest, the Fed has tapped BlackRock Financial Management, a private company that manages more than $1 trillion in assets, to assess the value of the securities and secure the best value for them.

“The Fed has been active, innovative and aggressive, but there are questions about its transparency,” said Lawrence H. Meyer, an economist and former Fed governor. Its actions, he said, “go against a longstanding principle of the Fed not taking on such an explicit credit risk.”

A final question that Mr. Bernanke is certain to be asked is whether the Fed’s actions in shoring up one financial institution conflicts, at least potentially, with its other goal of keeping inflation under control.

“The key theoretical question is whether the lender of last resort should also supervise monetary policy,” said Martin Mayer, author of several books on the banking system. “Monetary policy really has to be made for the sake of the country and the economy, not one piece of it.”

But others say that the Fed is accustomed to balancing the goals of preserving economic growth while curbing inflation by raising interest rates.

“At times those goals are in conflict,” said Robert E. Litan, a senior fellow at the Brookings Institution and longtime economic policy adviser. “The old saying is, you can’t hit two targets with one arrow. You can’t hit two targets at the same time, always and all the time. Clearly they’ve put aside inflation concerns for the moment, because they don’t want the economy to tank.”

Stephen Labaton contributed reporting.

http://www.nytimes.com/2008/04/02/business...agewanted=print

Bernanke warns US economy could shrink
By Krishna Guha in Washington

Published: April 2 2008 15:37 | Last updated: April 2 2008 15:37

The US economy will not grow much if at all during the first half of this year and "could even contract slightly", Ben Bernanke said on Wednesday.

The Federal Reserve chairman's comments, in testimony to Congress, mark the closest he has yet come to admitting that the US may already be in recession.

EDITOR'S CHOICE
In depth: US recession - Apr-02

US manufacturing contracts for second month - Apr-01

Paulson says overhaul could take years - Apr-01

Lawrence Summers: Steps to safeguard US economy - Mar-30

US consumers cautious despite rise in incomes - Mar-28

Video: Julie MacIntosh on JC Penney and consumer concerns - Mar-28
Mr Bernanke said the Fed's recent actions – big interest rate cuts and emergency measures to support market liquidity – "appear to have helped stabilise the situation" in financial markets "somewhat."

But he offered no indication that he believed that the worst of the market turmoil was now over. Instead, he said "financial markets remain under considerable stress."

He defended the central bank's decision to intervene to stop Bear Stearns, the investment bank, from going bankrupt amid aggressive questioning from senior Democrats who claimed there was a "dichotomy" in policymakers' willingness to risk public funds to stabilise financial markets while not intervening to support distressed homeowners.

The Fed chairman said the US economy is "going through a very difficult period." The growth outlook had "weakened" since the Fed meeting at the end of January when the US central bank last issued economic forecasts.

The Fed still expects growth to strengthen in the second half of the year, in part due to the effect of rate cuts and tax rebates, he said. But "the uncertainty attending this forecast is quite high and risks remain to the downside."

At the same time, Mr Bernanke said, inflation "has also been a source of concern." He noted some recent improvement in the core inflation rate, which had moved up late last year, and said the US central bank continued to expect inflation to moderate.

But he acknowledged that some measures of inflation expectations had risen and "uncertainty about the inflation outlook as increased."

Reviewing market developments, Mr Bernanke said pressures in short-term money markets, which had eased around the turn of the year, "have increased once again."

Many lenders are reluctant to provide credit to financial counterparties, especially leveraged investors such as hedge funds, and have increased collateral requirements for these loans.

To meet these demands "investors have reduced their leverage and liquidated holdings of securities, putting further downward pressure on security prices."

Credit availability has also been "restricted" due to balance sheet strains at many of the big banks plus Fannie Mae and Freddie Mac, the government-sponsored enterprises that support housing finance.

Mr Bernanke said financial market stress has "weighed on real economic activity".

Copyright The Financial Times Limited 2008

http://www.globalresearch.ca/index.php?con...va&aid=8518
Federal Reserve is a Private Financial Institution Text of court ruling and analysis


Global Research, April 2, 2008 http://www.save-a-patriot.org/files/view/frcourt.html
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[b]Court Rules Federal Reserve is Privately Owned[/b]

Case Reveals Fed's Status as a Private Institution


Below are excerpts from a court case proving the Federal Reserve system's status. As you will see, the court ruled that the Federal Reserve Banks are "independent, privately owned and locally controlled corporations", and there is not sufficient "federal government control over 'detailed physical performance' and 'day to day operation'" of the Federal Reserve Bank for it to be considered a federal agency:



<h3 align="justify">Lewis v. United States, 680 F.2d 1239 (1982)</h3> John L. Lewis, Plaintiff/Appellant,
v.
United States of America, Defendant/Appellee. No. 80-5905
United States Court of Appeals, Ninth Circuit.
Submitted March 2, 1982.
Decided April 19, 1982.
As Amended June 24, 1982.

Plaintiff, who was injured by vehicle owned and operated by a federal reserve bank, brought action alleging jurisdiction under the Federal Tort Claims Act. The United States District Court for the Central District of California, David W. Williams, J., dismissed holding that federal reserve bank was not a federal agency within meaning of Act and that the court therefore lacked subject-matter jurisdiction. Appeal was taken. The Court of Appeals, Poole, Circuit Judge, held that federal reserve banks are not federal instrumentalities for purposes of the Act, but are independent, privately owned and locally controlled corporations.

Affirmed.

1. United States

There are no sharp criteria for determining whether an entity is a federal agency within meaning of the Federal Tort Claims Act, but critical factor is existence of federal government control over "detailed physical performance" and "day to day operation" of an entity. . . .

2. United States

Federal reserve banks are not federal instrumentalities for purposes of a Federal Tort Claims Act, but are independent, privately owned and locally controlled corporations in light of fact that direct supervision and control of each bank is exercised by board of directors, federal reserve banks, though heavily regulated, are locally controlled by their member banks, banks are listed neither as "wholly owned" government corporations nor as "mixed ownership" corporations; federal reserve banks receive no appropriated funds from Congress and the banks are empowered to sue and be sued in their own names. . . .

3. United States

Under the Federal Tort Claims Act, federal liability is narrowly based on traditional agency principles and does not necessarily lie when a tortfeasor simply works for an entity, like the Reserve Bank, which performs important activities for the government. . . .

4. Taxation

The Reserve Banks are deemed to be federal instrumentalities for purposes of immunity from state taxation.

5. States Taxation

Tests for determining whether an entity is federal instrumentality for purposes of protection from state or local action or taxation, is very broad: whether entity performs important governmental function.



-------------- Lafayette L. Blair, Compton, Cal., for plaintiff/appellant.

James R. Sullivan, Asst. U.S. Atty., Los Angeles, Cal., argued, for defendant/appellee; Andrea Sheridan Ordin, U.S. Atty., Los Angeles, Cal., on brief.

Appeal from the United States District Court for the Central District of California.

Before Poole and Boochever, Circuit Judges, and Soloman, District Judge. (The Honorable Gus J. Solomon, Senior District Judge for the District of Oregon, sitting by designation)

Poole, Circuit Judge:

On July 27, 1979, appellant John Lewis was injured by a vehicle owned and operated by the Los Angeles branch of the Federal Reserve Bank of San Francisco. Lewis brought this action in district court alleging jurisdiction under the Federal Tort Clains Act (the Act), 28 U.S.C. Sect. 1346(. The United States moved to dismiss for lack of subject matter jurisdiction. The district court dismissed, holding that the Federal Reserve Bank is not a federal agency within the meaning of the Act and that the court therefore lacked subject matter jurisdiction. We affirm.

In enacting the Federal Tort Claims Act, Congress provided a limited waiver of the sovereign immunity of the United States for certain torts of federal employees. . . . Specifically, the Act creates liability for injuries "caused by the negligent or wrongful act or omission" of an employee of any federal agency acting within the scope of his office or employment. . . . "Federal agency" is defined as:



the executive departments, the military departments, independent
establishments of the United States, and corporations acting
primarily as instrumentalities of the United States, but does not
include any contractors with the United States.
28 U.S.C. Sect. 2671. The liability of the United States for the negligence of a Federal Reserve Bank employee depends, therefore, on whether the Bank is a federal agency under Sect. 2671.

[1,2] There are no sharp criteria for determining whether an entity is a federal agency within the meaning of the Act, but the critical factor is the existence of federal government control over the "detailed physical performance" and "day to day operation" of that entity. . . . Other factors courts have considered include whether the entity is an independent corporation . . ., whether the government is involved in the entity's finances. . . ., and whether the mission of the entity furthers the policy of the United States, . . . Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations.

Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. Sect. 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. Sect. 341, and appoint officers to implement and supervise daily Bank activities. These activites include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. Sub-Sect. 341-361.

Each Bank is statutorily empowered to conduct these activites without day to day direction from the federal government. Thus, for example, the interest rates on advances to member banks, individuals, partnerships, and corporations are set by each Reserve Bank and their decisions regarding the purchase and sale of securities are likewise independently made.

It is evident from the legislative history of the Federal Reserve Act that Congress did not intend to give the federal government direction over the daily operation of the Reserve Banks:



It is proposed that the Government shall retain sufficient power over
the reserve banks to enable it to exercise a direct authority when
necessary to do so, but that it shall in no way attempt to carry on
through its own mechanism the routine operations and banking which
require detailed knowledge of local and individual credit and which
determine the funds of the community in any given instance. In other
words, the reserve-bank plan retains to the Government power over the
exercise of the broader banking functions, while it leaves to
individuals and privately owned institutions the actual direction of
routine.
H.R. Report No. 69 Cong. 1st Sess. 18-19 (1913).

The fact that the Federal Reserve Board regulates the Reserve Banks does not make them federal agencies under the Act. In United States v. Orleans, 425 U.S. 807, 96 S.Ct. 1971, 48 L.Ed.2d 390 (1976), the Supreme Court held that a community action agency was not a federal agency or instrumentality for purposes of the Act, even though the agency was organized under federal regulations and heavily funded by the federal government. Because the agency's day to day operation was not supervised by the federal government, but by local officials, the Court refused to extend federal tort liability for the negligence of the agency's employees. Similarly, the Federal Reserve Banks, though heavily regulated, are locally controlled by their member banks. Unlike typical federal agencies, each bank is empowered to hire and fire employees at will. Bank employees do not participate in the Civil Service Retirement System. They are covered by worker's compensation insurance, purchased by the Bank, rather than the Federal Employees Compensation Act. Employees travelling on Bank business are not subject to federal travel regulations and do not receive government employee discounts on lodging and services.

The Banks are listed neither as "wholly owned" government corporations under 31 U.S.C. Sect. 846 nor as "mixed ownership" corporations under 31 U.S.C. Sect. 856, a factor considered is Pearl v. United States, 230 F.2d 243 (10th Cir. 1956), which held that the Civil Air Patrol is not a federal agency under the Act. Closely resembling the status of the Federal Reserve Bank, the Civil Air Patrol is a non-profit, federally chartered corporation organized to serve the public welfare. But because Congress' control over the Civil Air Patrol is limited and the corporation is not designated as a wholly owned or mixed ownership government corporation under 31 U.S.C. Sub-Sect. 846 and 856, the court concluded that the corporation is a non-governmental, independent entity, not covered under the Act.

Additionally, Reserve Banks, as privately owned entities, receive no appropriated funds from Congress. . . .

Finally, the Banks are empowered to sue and be sued in their own name. 12 U.S.C. Sect. 341. They carry their own liability insurance and typically process and handle their own claims. In the past, the Banks have defended against tort claims directly, through private counsel, not government attorneys . . ., and they have never been required to settle tort claims under the administrative procedure of 28 U.S.C. Sect. 2672. The waiver of sovereign immunity contained in the Act would therefore appear to be inapposite to the Banks who have not historically claimed or received general immunity from judicial process.

[3] The Reserve Banks have properly been held to be federal instrumentalities for some purposes. In United States v. Hollingshead, 672 F.2d 751 (9th Cir. 1982), this court held that a Federal Reserve Bank employee who was responsible for recommending expenditure of federal funds was a "public official" under the Federal Bribery Statute. That statute broadly defines public official to include any person acting "for or on behalf of the Government." . . . The test for determining status as a public official turns on whether there is "substantial federal involvement" in the defendant's activities. United States v. Hollingshead, 672 F.2d at 754. In contrast, under the FTCA, federal liability is narrowly based on traditional agency principles and does not necessarily lie when the tortfeasor simply works for an entity, like the Reserve Banks, which perform important activities for the government.

[4, 5] The Reserve Banks are deemed to be federal instrumentalities for purposes of immunity from state taxation. . . . The test for determining whether an entity is a federal instrumentality for purposes of protection from state or local action or taxation, however, is very broad: whether the entity performs an important governmental function. . . . The Reserve Banks, which further the nation's fiscal policy, clearly perform an important governmental function.

Performance of an important governmental function, however, is but a single factor and not determinative in tort claims actions. . . . State taxation has traditionally been viewed as a greater obstacle to an entity's ability to perform federal functions than exposure to judicial process; therefore tax immunity is liberally applied. . . . Federal tort liability, however, is based on traditional agency principles and thus depends upon the principal's ability to control the actions of his agent, and not simply upon whether the entity performs an important governmental function. . . .

Brinks Inc. v. Board of Governors of the Federal Reserve System, 466 F.Supp. 116 (D.D.C.1979), held that a Federal Reserve Bank is a federal instrumentality for purposes of the Service Contract Act, 41 U.S.C. Sect. 351. Citing Federal Reserve Bank of Boston and Federal Reserve Bank of Minneapolis, the court applied the "important governmental function" test and concluded that the term "Federal Government" in the Service Contract Act must be "liberally construed to effectuate the Act's humanitarian purpose of providing minimum wage and fringe benefit protection to individuals performing contracts with the federal government." Id. 288 Mich. at 120, 284 N.W.2d 667.

Such a liberal construction of the term "federal agency" for purposes of the Act is unwarranted. Unlike in Brinks, plaintiffs are not without a forum in which to seek a remedy, for they may bring an appropriate state tort claim directly against the Bank; and if successful, their prospects of recovery are bright since the institutions are both highly solvent and amply insured.

For these reasons we hold that the Reserve Banks are not federal agencies for purposes of the Federal Tort Claims Act and we affirm the judgement of the district court.

AFFIRMED.



It is clear from this that in some circumstances, the Federal Reserve Bank can be considered a government "instrumentality", but cannot be considered a "federal agency", because the term carries with it the assumption that the federal government has direct oversight over what the Fed does. Of course it does not, because most people who know about this subject know that the Fed is "politically independent."

The only area where one might disagree with the judge's decision is where he states that the Fed furthers the federal government's fiscal policy, and therefore performs an important governmental function. While we would like to think that the federal government and the Fed work cooperatively with each other, and they may on occasion, the Fed is by no means required to do so. One example is where Rep. Wright Patman, Chairman of the House Banking Committee, said in the Congressional Record back in the '60s, that depending on the temperament of the Fed's Chairman, sometimes the Fed worked with the government's fiscal policy, and other times either went in the complete opposite direction, or threatens to do so in order to influence policy.

The common claim that the Fed is accountable to the government, because it is required to report to Congress on its activities annually, is incorrect. The reports to Congress mean little unless what the Chairman reports can be verified by complete records. From its founding to this day, the Fed has never undergone a complete independent audit. Congress time after time has requested that the Fed voluntarily submit to a complete audit, and every time, it refuses.

Those in the know about the Fed, realize that it does keep certain records secret. The soon-to-be-former Chairman of the House Banking Committee, Henry Gonzales, has spoken on record repeatedly about how the Fed at one point says it does not have certain requested records, and then it is found through investigation that it in fact does have those records, or at least used to. It would appear that the Fed Chairman can say anything he wants to to Congress, and they'll have to accept what he says, because verification of what he says is not always possible.

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