October 5, 2022

Summers’s Opponents Must Overcome His Bond With Obama

The president’s preference: His former economic adviser, Lawrence H. Summers.

Mr. Obama, well aware of Mr. Summer’s love-him-or-hate-him reputation and the trouble he could face winning Senate confirmation, reasoned that it was hardly too soon to think about courting senators, even if a final decision on a nominee was nearly a year off. Shifting from his confidants — Treasury Secretary Timothy F. Geithner and the man who soon would succeed him, the White House chief of staff, Jacob J. Lew — the president gave Rob Nabors, then his liaison to Congress, the Summers project.

“He needs to do some work on the Hill,” Mr. Obama said, according to people with knowledge of the meeting. “You need to work with him, Rob.”

Months later, decision time is here, and Mr. Obama still has not finally settled on Mr. Summers or Janet L. Yellen, the economist he named to be Fed vice chairwoman in 2010. Yet as that Oval Office exchange shows, the president has long had Mr. Summers in mind to become the world’s most powerful central banker, based on their intellectual partnership that dates to the 2008 campaign and was “forged in the crucible of the financial crisis,” as the longtime Obama strategist David Axelrod put it.

And Mr. Obama still does have Mr. Summers in mind, associates say.

“It’s like the attachment you feel for your heart surgeon after he performs a quadruple bypass,” said a former administration official, who like most others did not want to be identified speaking of such a sensitive personnel matter.

But as that Oval Office meeting last year also suggests, Mr. Obama’s one concern about nominating Mr. Summers has been the potential for a Senate battle — not only from Republicans spoiling for fights, but also from liberal Democrats who view Mr. Summers as too friendly toward deregulating big banks when he was Treasury secretary late in the Clinton administration.

That concern about confirmation has been affirmed in recent weeks as bloggers and groups on the left have mobilized, either to oppose Mr. Summers outright or to urge Mr. Obama to pick Ms. Yellen to be the first female Fed chairman. Mr. Summers declined to comment for this article.

The president has already interviewed Mr. Summers and Ms. Yellen for the job, as well as Donald L. Kohn, a former Fed vice chairman, aides say. But administration insiders say they believe Mr. Obama remains inclined to nominate the man who, as his chief economic adviser through 2009 and 2010, helped him through the worst recession and global financial crisis since the Depression. Mr. Summers’s edge, they say, reflects that relationship, not any arguments against Ms. Yellen, whom Mr. Obama does not know well. And they do not rule out a fourth person emerging, though no other names are known to be in the mix.

Many current and former presidential advisers also favor Mr. Summers, including several who had run-ins with him on policy, or chafed at what many call his condescension and arrogance. But they say Mr. Obama knows Mr. Summers so well, he does not need their input.

Among the people the president is said to have consulted are Mr. Geithner, Mr. Lew and Mr. Axelrod. The list also includes Mayor Rahm Emanuel of Chicago, Mr. Obama’s first chief of staff and a Summers advocate, and Denis R. McDonough, the current chief of staff. (Aides say Mr. McDonough has stayed neutral.) Two of the most influential advisers on the nomination are the deputy chiefs of staff, Mr. Nabors and Alyssa Mastromonaco, given their knowledge of Senate confirmation politics.

Also influential — and described as the one insider pulling for Ms. Yellen — is Valerie Jarrett, the president’s close adviser and longtime Chicago friend, who had a cool relationship with Mr. Summers.

Article source: http://www.nytimes.com/2013/09/05/business/economy/in-fed-succession-obamas-favorite-faces-opposition.html?partner=rss&emc=rss

Hearings Begin on Treasury Nominee

In his opening remarks, Mr. Lew stressed his longstanding qualifications on budget issues and his ability to work with Republicans.

“Working across the aisle while serving under President Clinton, I helped negotiate the groundbreaking agreement with Congress to balance the federal budget,” he said. “And as budget director, I oversaw three budget surpluses in a row even as we pursued policies to speed economic growth and create jobs.”

He added that he has been involved in “almost every major bipartisan budget agreement over the last 30 years,” and that “the things that divide Washington right now are not as insurmountable as they might look.”

But as one of Mr. Obama’s main budget negotiators in the past few years, Mr. Lew has at times clashed with Republicans, particularly in the House. Former Treasury Secretary Timothy F. Geithner, not Mr. Lew, acted as a main negotiator during the talks over the automatic tax increases and spending cuts, the so-called fiscal cliff, that Congress cut a deal to avoid last month.

Mr. Lew, a longtime Democratic aide and recently departed White House chief of staff, is expected to win the support of the committee and ultimately the confirmation of the whole Senate. As a former State Department aide and budget director, Mr. Lew has already won Senate confirmation twice during the Obama administration.

But Republicans have promised to grill Mr. Lew over the government’s trillion-dollar deficits, the White House’s spending plans and the sluggish economy. They have also raised questions about his short tenure at Citigroup, where he received a $940,000 bonus before leaving to return to public service.

At the outset, Senator Orrin G. Hatch, Republican of Utah, stressed that the Treasury secretary’s responsibilities go far beyond the budget, and said he wanted to know more about Mr. Lew’s expertise in and thoughts about the financial system and its regulation. “We know very little about your knowledge of the activities and practices” at Citigroup, Mr. Hatch said.

In his opening remarks, Mr. Lew mentioned his financial markets experience just once. “During my time at Citi, I was part of the senior management team trying to drive organizational change at one of our nation’s largest banks,” he said.

In a statement before the hearing, Senator Max Baucus, Democrat of Montana and chairman of the Finance Committee, said: “Mr. Lew has been confirmed by the Senate three times already. I don’t expect there to be any reason why he should not be confirmed this time around as well. We have a tremendous amount of work to do over the next couple months to get our fiscal house in order.”

Mr. Lew — known as a low-key and bookish budget expert — would face a daunting set of issues as soon as he took over at the Treasury Department, if confirmed. In March, the so-called sequester, a trillion dollars in automatic spending cuts that Democrats and many Republicans hope to delay or avoid, is due to take effect. Soon after, the continuing resolution financing the government will run out, raising the specter of a government shutdown.

In addition to Mr. Lew’s time at Citigroup, where he worked in an alternative-investments unit that at one point profited from the housing collapse, Republicans have also brought up a Cayman Islands investment that Mr. Lew properly disclosed, and lost money on when he returned to government service.

“I’m hopeful that Mr. Lew will answer some remaining questions that I have,” Mr. Hatch said. “I will not decide whether or not to support his nomination until those questions are answered. Lest no one forget, Treasury secretary is no small position and the people of this country need to know Mr. Lew is qualified and able to perform the job.”

Democrats have largely dismissed the concerns about Mr. Lew’s tenure at Citigroup.

“Jack Lew paid all of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” said Eric Schultz, a White House spokesman. “There are no new facts that provide a basis for senators to reach a different conclusion about Mr. Lew’s nomination than they reached twice before in this administration.”

Some other senators — including Jeff Sessions, Republican of Alabama, and Bernard Sanders, independent of Vermont — have indicated that they might not support Mr. Lew. But it seemed unlikely that he would face a filibuster that might delay his confirmation or end his candidacy.

Article source: http://www.nytimes.com/2013/02/14/us/politics/hearings-begin-on-treasury-nominee.html?partner=rss&emc=rss

DealBook Column: Hold Your Applause, Please, Until After the Toasts

From left: Robert H. Benmosche of A.I.G., Marissa Mayer of Yahoo and Jamie Dimon of JPMorgan Chase.From left: Reuters; Chip Somodevilla/Getty Images; The New York TimesRobert H. Benmosche of A.I.G., left, Marissa Mayer of Yahoo and Jamie Dimon of JPMorgan Chase.

Gentlemen, ladies, please take your seats.

It is time for DealBook’s annual “Closing Dinner,” where we toast — and more important, roast — the deal makers of 2012 (and some of the still-hammering-out-the-fiscal-cliff-deal makers).

This year’s dinner is in Washington so that some of esteemed attendees can run back for negotiations.

We have a number of Wall Street deal makers at the front table: Jamie Dimon, Lloyd C. Blankfein and Warren E. Buffett. They may have an easier time negotiating than some of our elected officials because, as Mr. Buffett likes to say, “My idea of a group decision is to look in the mirror.”

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Across the way is Steven A. Cohen of SAC Capital. We sat him next to Preet Bharara, the United States attorney for the Southern District of New York, so they could get to know each other a little better. Steve, a little advice: don’t let Preet borrow your cellphone.

Greg Smith, the former Goldman Sachs banker who wrote a tell-all called “Why I Left Goldman Sachs,” is here. Mr. Smith managed to wangle a reported $1.5 million payday from his publisher, but his book sold poorly and his publisher was left with a huge loss. Nice to see you learned something from your years in banking, Greg.

Timothy F. Geithner and Ben S. Bernanke are sitting at the dais this year, as is Mario Draghi. Strangely, they are playing Monopoly under the table with real dollar bills. (I heard Mr. Bernanke tell Mr. Draghi, “We can always print more.”)

The board of Hewlett-Packard is at the table at the back. Senator Harry Reid and Senator Mitch McConnell, whatever you do, don’t ask Meg Whitman for pointers on how to make the numbers work.

Mario Draghi, the European Central Bank president, helped save the euro.Olivier Hoslet/European Pressphoto AgencyMario Draghi, the European Central Bank president, helped save the euro.

We’re pleased that Speaker John Boehner also decided to join us this year. We had asked him to invite some other senior members of his caucus, but as you can see from the empty seats at his table, none of them were willing to join him. So we’ve stuck him next to Vikram Pandit.

Mitt Romney just arrived and is sitting at the table sponsored by the Private Equity Growth Capital Council. He is with some of his supporters, among them Leon Cooperman of Omega Advisors and the Koch Brothers. And yes, Mitt, there is a hidden video camera in the floral arrangement in front of you.

Finally, a quick thank you to the folks from Barclays and UBS. Their teams who got caught up in the Libor scandal agreed to pay for tonight’s dinner. Apparently, there is some dispute with the caterer, however, because the bankers are trying to set the rate. (Rimshot.)

And now, before the humor runs out (if it hasn’t already), onto the official toasts and roasts of 2012:

Meg Whitman, the chief of Hewlett-Packard, has overseen a bad financial year at the company.Peter DaSilva for The New York TimesMeg Whitman, the chief of Hewlett-Packard, has overseen a bad financial year at the company.

TURNAROUND OF THE YEAR Robert H. Benmosche, A.I.G.’s chief executive, take a bow. The bailout of your company at the height of the financial crisis will probably never be popular, but it will be profitable. (And it should be a bit more popular, too.)

The Treasury Department sold its last shares in the company in 2012, racking up a profit of $22.7 billion for taxpayers. Mr. Benmosche, a tough-talking executive who at one point early in his tenure at A.I.G. threatened to quit because of efforts by the government to meddle in the business, revived a company that had been left for dead. Most of the media, the pundits and the speculators got it wrong. You got it right. We do all owe you a thank you.

LEADERSHIP LESSON: JAMIE DIMON Mr. Dimon, the biggest failure of your career happened in 2012 with the loss of more than $5 billion by a group of your traders, including one known as the “London Whale.” Many C.E.O.’s would have lost their jobs and certainly would not be given a toast.

But you did something most executives would not have done: you admitted to the mistake. In an age when it’s almost de rigueur on Wall Street to hide problems, obfuscate and shade the truth, you told it how it was: “We have egg on our face, and we deserve any criticism we get.”

That’s not to say the situation was handled perfectly; the lack of details about the loss and your continued pushback against regulations raised more questions than answers. But your insistence that “We made a terrible, egregious mistake” is a lesson in leadership for your peers.

CREDIT WHERE CREDIT IS DUE: MARIO DRAGHI Mr. Draghi, the economist and former Goldman Sachs banker turned president of the European Central Bank, nearly single-handedly saved the euro zone in 2012. In a master stroke, he said: “Within our mandate, the E.C.B. is ready to do whatever it takes to preserve the euro.”

That sentence will go down in history for the confidence it inspired in the markets and in countries like Greece, Spain and Italy that were thought to be on the precipice. Through behind-the-scenes shuttle diplomacy with leaders like Angela Merkel of Germany and Mario Monti of Italy, Mr. Draghi was able to convince reluctant politicians that it was in his purview to start buying up bonds if a country needed help — and requested it. So far, his comments alone have served as a remarkable backstop; no country has sought his help.

A BOARD IN NEED OF HELP, AGAIN Bashing the board of Hewlett-Packard is becoming boring. Its members, who have routinely turned over, had another tough year.

The company’s stock fell about 45 percent. H.P. disclosed that its $11.7 billion acquisition of Autonomy, in which it paid an 80 percent premium, had turned out to be a mess (which wasn’t exactly a secret) — or worse, a fraud. But in a strange twist, perhaps trying to remove some of the blame for the disaster of a deal, the board attributed at least $5 billion of the write-down of the deal simply to accounting chicanery.

Some have questioned H.P.’s math. Perhaps some of the write-down is the result of accounting problems, but $5 billion? C’mon. Hewlett’s board, however, still has some friends: It has paid an estimated $81 million to Wall Street to help orchestrate some its failed deals in recent years.

SEEKING FACEBOOK ‘FRIENDS’ Mark Zuckerberg, Facebook’s C.E.O., has been attending our “Closing Dinner” for years. (He wore Adidas flip-flops to his first.) Back then, he was the “It” boy — the one everyone in the room wanted to “friend.” This year, after Facebook pursued its I.P.O., some investors want to “unfriend” him.

As everyone knows, the market has not been kind to Facebook shares, which were sold at $38 a share and at one point this year dropped by half. The good news is that Facebook’s shares have rebounded and are now at about $26 a share; the bad news is that long-term shareholders are still down about 30 percent.

With questions about Facebook’s privacy policies and mobile strategy still at the fore, Mr. Zuckerberg has some work to do. Hopefully, when we reconvene next year, more investors will want to sit at your table. (My apologies for sticking you next to Andrew Mason of Groupon.)

YAHOO FINALLY GETS IT RIGHT For nearly the last five years, if not decade, Yahoo had clearly lost its luster. It went through a series of C.E.O.’s, its best engineers left to work at Google and Facebook, and its stock had tanked.

Enter Daniel S. Loeb, the activist investor. He saw value where others didn’t. He also used some clever powers of persuasion to get on the company’s board: He ousted Scott Thompson, Yahoo’s new chief (remember him?) for lying on his résumé by saying he had a computer science degree when, in truth, he had an accounting degree. That sleuthing, and the ensuing embarrassment for the board, gave Mr. Loeb an opening to get his slate of directors on the board.

But most important, once he got on the board, he did something nobody expected: He hired Marissa Mayer, a true Silicon Valley star from Google, to run the company. The jury is still out on the company’s future, but for the first time in ages, people are talking about the company as if it actually has a future. Kudos.

Article source: http://dealbook.nytimes.com/2012/12/31/hold-your-applause-please-until-after-the-toasts/?partner=rss&emc=rss

DealBook: A Third Option for Regulators in the Money Market Fund Fight

Timothy F. Geithner, the Treasury secretary, with Mary L. Schapiro, the Securities and Exchange Commission chairwoman.Alex Wong/Getty ImagesTimothy F. Geithner, the Treasury secretary, with Mary L. Schapiro, the Securities and Exchange Commission chairwoman.

The biggest battles are sometimes decided by the most arcane tactics.

That could turn out to be the case in a fierce fight between the mutual fund industry and top financial regulators.

At issue is whether to impose more regulations on the nation’s $2.6 trillion of money market funds.

Regulators think the funds pose a risk to the financial system. In the 2008 financial crisis, investors fled the funds in droves, which worsened the credit freeze that gripped the banking system. Money funds then received a big bailout.

In a bid to lessen the chances of such events reoccurring, the Securities and Exchange Commission proposed measures, including requiring the money funds to hold a capital buffer against losses. But the commission dropped the reforms last week, after it became clear that a majority of its commissioners weren’t going to vote for the reforms. This was a big win for the mutual fund industry, which says some reforms made in 2010 are sufficient. The industry also argues the latest reforms would needlessly damage a popular investment product.

The regulators, however, may be able to effectively override the S.E.C. They can do that by involving the Financial Stability Oversight Council, a special committee of senior regulators set up after the crisis by the Dodd-Frank financial overhaul legislation.

The council’s job is to spot big risks in the financial system and take action to address them, even if it means acting itself or pressuring individual regulators.

After the money fund reforms were blocked at the S.E.C., much speculation began on how the council might act. At first, there appeared to be two separate paths laid out in Dodd-Frank. But both had drawbacks for the regulators.

Now, a third option may exist. And it appears to get around the headaches involved in the other two.

The council, which is chaired by the Treasury secretary, Timothy F. Geithner, and has publicly backed the S.E.C.’s money fund reforms, is scheduled to meet toward the end of September.

Initially, one of the council’s perceived options was to designate fund companies or individual money funds as systemically significant, and give them to the Federal Reserve to regulate. The problem: This approach would remove money fund regulation from the S.E.C., a potentially wrenching move that could undermine the standing of that agency. This option could also lead to a two-tier, unevenly regulated money fund sector, where larger funds might come under Fed oversight and smaller ones wouldn’t.

The second option was to declare the general activity of money market funds as risky to the system. But if this route were taken, Dodd-Frank lays out a series of steps that puts the issue back to the S.E.C., where the majority of commissioners may still oppose reform. If that happened, Dodd-Frank then appears to move the issue to Congress, but it doesn’t define how the stalemate would be broken.

Enter option three.

With this, the council would use a part of Dodd-Frank, called Title VIII, that addresses regulation of the plumbing of the financial system. It refers to “utility” activities like organizing financial payments and processing transactions.

Using Title VIII, the council could take a two-step approach. It could designate a single activity or feature of money funds as a systemically important utility function. Next, it could then require reforms to buttress that function.

For instance, money funds have a special feature called a fixed net asset value, which allows them to say each share in a fund is worth $1 when in reality it may be worth slightly less. Regulators fear the stable net asset value could mask the risks of money funds from investors, who tend to use the funds like bank accounts.

The council could designate the stable net asset value as systemic and require that the funds hold capital.

The big apparent advantage for the regulators is that it avoids the pitfalls of the other options. It would keep money fund regulation at the S.E.C. And, unlike option two, this part of Dodd-Frank doesn’t map out steps that could lead to stalemate. Instead, it allows the council to require the S.E.C. to introduce the sort of reforms that the council favors.

But there is a weakness with this approach. While this part of Dodd-Frank does give the council a lot of leeway in determining a systemically important activity, opponents of reform may argue that money funds simply aren’t part of the payment functions of the financial system, which is what title VIII was written for.

“On the face of it, this is not what Title VIII was designed to regulate,” said Jay G. Baris, a lawyer at Morrison Foerster. “To me, it’s a last resort.”

Article source: http://dealbook.nytimes.com/2012/08/30/a-third-option-for-regulators-in-the-money-market-fund-fight/?partner=rss&emc=rss

DealBook: Bank of England Says New York Fed Gave No Warning on Rate-Rigging

Mervyn A. King, left, the Bank of England governor, and Timothy F. Geithner, the Treasury secretary, in Paris in 2011.Pool photo by Charles PlatiauMervyn A. King, left, the Bank of England governor, and Timothy F. Geithner, the Treasury secretary, in Paris in 2011.

LONDON – American authorities did not warn British officials about the rate-rigging scandal at the height of the financial crisis in 2008, according to documents released by the Bank of England on Friday.

The e-mails from the British central bank shed new light on conversations between Mervyn A. King, the Bank of England governor, and Timothy F. Geithner, who was head of the Federal Reserve Bank of New York at time of the discussions.

The documents will increase pressure on American and British officials, who have come under mounting scrutiny from politicians about why they did not respond more quickly to potential illegal activity at some of the world’s largest banks.

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Paul Tucker, the deputy governor of the Bank of England, talked to Barclays and a number of other global banks during 2008 about potential problems with how the London interbank offered rate, or Libor, was set, according to documents released on Friday. Despite the conversations, some traders and senior executives at Barclays continue to alter the rate until 2009.

The e-mails outline the Bank of England’s discussions with both the New York Fed and the British Bankers’ Association, the London-based trade body that oversees Libor. The conversations center on concerns about how the rate was set.

Libor Explained

The documents also called on the British Bankers’ Association to conduct a review, including input from international government agencies, to ensure the credibility of the rate.

“I don’t see that a group of junior bankers in London can decide this without a global debate,” Mr. Tucker wrote in an e-mail in May 2008.

The call for a review into Libor in 2008 came after Mr. King and Mr. Geithner had talked about potential problems with the rate during a meeting in Basel, Switzerland, in early May 2008.

This discussion was followed by a flurry of e-mails a month later in which Mr. Geithner, who is now the Treasury secretary, recommended changes to the rate, which is used as a benchmark for more than $360 trillion financial products worldwide.

The suggestions included ‘‘strengthen governance and establish a credible reporting procedure’’ and ‘‘eliminate incentive to misreport,’’ according to documents released by the New York Fed.

Mr. King told Mr. Geithner that he supported the suggestions. Yet the New York Fed did not make any allegations of wrongful behavior connected to Libor, according to documents released on Friday. Mr. King told a British parliamentary committee on Tuesday that Mr. Geithner’s suggestions did not represent a warning about the potential manipulation of Libor.

‘‘At no stage did he or anyone else at the New York Fed raise any concerns with the bank that they had seen any wrongdoing,’’ Mr. King said. ‘‘There was no suggestion of fraudulent behavior.’’

Other senior British officials also said that they did not believe that the New York Fed had raised concerns about possible illegal activity connected to Libor.

Mr. Tucker, who is a potential successor to Mr. King, held several conversations with the New York Fed in May and June, 2008 about the American suggestions for change the rate-setting process, according to the documents released on Friday.

Despite the discussions, the recommendations ‘‘didn’t set off alarm bells,’’ Mr. Tucker told British politicians on Tuesday.

In the wake of a public outcry against the Libor scandal, Mr. King wrote to central bank chiefs this week, inviting them to discuss Libor reforms at meeting scheduled for September.

Questions about the rate, however, had been raised as far back as 2007.

Barclays acknowledged to the New York Fed in April 2008 that it was reporting artificially low rates to mask its relatively high borrowing costs. The British bank also raised questions about whether other institutions were providing correct submissions to Libor. The concerns about the integrity of the rate were passed to Mr. Geithner and other top American officials, according to documents released last week.

American authorities began an investigation into potential manipulation of Libor at some of the world’s largest banks in 2008. The Financial Services Authority, the British regulator, opened its own inquiry in early 2010.

In the first settlement related to the international investigation, Barclays agreed to pay around $450 million to American and British authorities after some of the firm’s traders and senior executives were found to have altered the rate for financial gain.

Regulators’ failure to question the rate-setting process stemmed from a widespread view that Libor was a low-risk area of the financial services industry, according to parliamentary testimony from senior British officials.

The British Bankers’ Association continues to have receive minimal oversight from British authorities. The country’s government has started an investigation into how the rate is set.

‘‘There was no indication between 2005 and 2007 that the Financial Services Authority perceived the submission produced for Libor as a risk area,’’ the regulator’s chairman, Adair Turner, told a British parliamentary committee.

Mr. Turner did acknowledge that the chance of ‘‘deliberate manipulation was just waiting to happen.’’

The Federal Reserve chairman, Ben S. Bernanke, put it more bluntly during testimony before the Senate Banking Committee this week, saying he lacked ‘‘full confidence’’ in the accuracy of the rate-setting process.

Article source: http://dealbook.nytimes.com/2012/07/20/bank-of-england-says-new-york-fed-gave-no-warning-on-rate-rigging/?partner=rss&emc=rss

Economix Blog: Behind Closed Doors at the Fed

You may have wondered what exactly happens when the Federal Open Market Committee meets every six weeks to make policy decisions for the Federal Reserve — like the two-day meeting that is wrapping up Wednesday. And you are in luck, because earlier this month, the Fed released transcripts of the committee’s meetings in 2006, Year One in the chairmanship of Ben S. Bernanke.

Mr. Bernanke has tried to inject new life into the meetings, which became a formality under his predecessor, Alan Greenspan, who wanted little more from the committee than ratification of the decisions he had already reached.

Mr. Bernanke, by contrast, has sought to restore a sense that the Fed’s decisions about monetary policy emerge from these discussions.

“I will take the liberty of intervening occasionally and raising a question or asking for a comment,” he said at his first meeting in March 2006.

He encouraged the others to do the same, inviting them to raise both hands to indicate that they wished ask a question or inject a comment.

They would call it a “two-handed intervention,” he said.

Some members laughed at the idea, and most did not attempt any such interventions during 2006, according to the transcripts. But a few embraced the concept, including Timothy F. Geithner, then president of the Federal Reserve Bank of New York, who on several occasions pressed colleagues to clarify apparent inconsistencies in their positions.

Mr. Bernanke himself, however, remained by far the most frequent interlocutor, often gently seeking to extract a little more information.

The basic structure has not changed in years. The committee sits around a large table on the second floor of the Fed’s imposing marble headquarters. There are 17 members: five Fed governors, including Mr. Bernanke, and 12 presidents of the Fed’s regional banks. Two seats on the Fed’s board of governors are vacant.

Senior staff members open the meeting with presentations about the health of financial markets and the broader economy, both domestic and foreign.

Committee members ask questions, then make their own presentations.

Another Fed staff member presents the options for monetary policy, and the committee members again ask questions and then offer their own views.

At the end of the discussion, the committee votes.

The chairman historically has controlled the outcome, and Mr. Bernanke’s softer style has not changed this basic reality. Like Mr. Greenspan, he still speaks after everyone else, summarizing their views before offering his own.

“Chairman Bernanke is highly effective at leading the meetings from the back,” Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, said in an interview earlier this month published in the bank’s employee newsletter. “The chairman is remarkable at distilling what people have said – he can take nearly two hours of talk about the economy and effectively summarize the essence of that discussion.”

After that summary, it is Mr. Bernanke who suggests what the committee should do, and what it should say in the statement released after each meeting.

“So that is my proposal,” he said at the end of that first meeting in March 2006. “If there is anyone who particularly would like to comment, here’s your chance.”

Article source: http://feeds.nytimes.com/click.phdo?i=4d95598f196047389d67a476bd91ca3c

Economic Reports for the Week of Jan. 9

CORPORATE EARNINGS Those reporting will include Alcoa (Monday); Chevron (Wednesday); and JPMorgan Chase (Friday).

IN THE UNITED STATES On Monday through Jan. 22, the North American International Auto Show will be held in Detroit. On Tuesday through Friday, the International Consumer Electronics Show will take place in Las Vegas. On Wednesday, the Commodity Futures Trading Commission will vote on a Dodd-Frank proposal to ban proprietary trading by banks.

OVERSEAS On Monday, Chancellor Angela Merkel of Germany will meet in Berlin with President Nicolas Sarkozy of France to discuss the European debt crisis. On Tuesday through Thursday, Treasury Secretary Timothy F. Geithner will meet with officials in China and Japan. On Wednesday, Mrs. Merkel will meet in Berlin with Mario Monti, the Italian prime minister, to discuss the debt crisis. On Thursday, the European Central Bank and the Bank of England will issue their decisions on interest rates.

Article source: http://feeds.nytimes.com/click.phdo?i=2e47811ce1be12cc169f003dc16abf35

Economix Blog: Simon Johnson: No One Is Above the Law, Even Megabanks


Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

The American ideal of equal and impartial justice under law has repeatedly been undermined by attempts to concentrate power. Our political system has many advantages, but it also provides motive and opportunity for resourceful people to become so strong they can elude the legal constraints that bind others.

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Perspectives from expert contributors.

The most obvious example is the oil and railroad trusts at the end of the 19th century. A version of the same process is happening again today, but what has become concentrated is not a vital energy source or the nation’s transport arteries but rather something much more abstract – financial sector risk.

In early 2009, Treasury Secretary Timothy F. Geithner reportedly said to President Obama and senior members of the new administration, with regard to the financial system (as described by Ron Suskind on Page 202 of “Confidence Men”:

The confidence in the system is so fragile still. The trust is gone. One poor earnings report, a disclosure of a fraud, or a loss of faith in the dealings between one large bank and another — a withdrawal of funds or refusal to clear trades — and it could result in a run, just like Lehman.

Three years later, the megabanks are even bigger, as is the risk they concentrate (see my recent testimony to the financial institutions subcommittee of the Senate Banking Committee for details). Curiously, their precariousness, as much as their power, is shielding these behemoths from the enforcement of financial fraud laws.

Thankfully, this lawlessness – and it is that – nettles some regulators and prosecutors. The New York State attorney general, Eric Schneiderman, is mobilizing the resources for a long-overdue investigation of Wall Street practices that, I hope, will gather momentum.

But the Obama administration continues to dither, arguing behind the scenes that the financial system is still too weak. This inertia – a government at rest tends to stay at rest – has led to public protest and deeply shaken trust in the financial system.

In an important article in The Huffington Post this week, Jeff Connaughton (former chief of staff to Senator Ted Kaufman, Democrat of Delaware) asserts that the Department of Justice failed to concentrate the resources that might have built successful cases:

As The New York Times and New Yorker have reported, the department’s leadership never organized or supported strike-force teams of bank regulators, F.B.I. agents and federal prosecutors for each of the potential primary defendants and ignored past lessons about how to crack financial fraud.

We may never know exactly why the administration failed to organize effectively along these lines, but Mr. Geithner’s influence is likely to have played a role. For his part, President Obama, the few times he was asked, explained that past unethical Wall Street actions were “not illegal.”

Mr. Geithner may dispute details in “Confidence Men” (which was also quoted by Mr. Connaughton in his piece), but worry about system stability is part of the Treasury secretary’s job. Despite a lack of any supporting evidence, Mr. Geithner sees megabanks as essential to the functioning of the economy – and he gambled on bailing them out as a way to restart the economy.

So it would have been entirely logical for him to fear disclosures that would damage their business models and legal viability.

Whenever someone or a group of people is above the law, equality before the law is ended. This is how the megabanks, and the way they are treated, threaten to undermine democracy.

For your holiday reading, pick an example of power and accomplishment gone awry in American history. I suggest the bizarre tale in the new book “American Emperor: Aaron Burr’s Challenge to Jefferson’s America,” by David Stewart, or the classic account of the confrontation between President Andrew Jackson and the Second Bank of the United States in “The Age of Jackson,” by Arthur Schlesinger; or Teddy Roosevelt’s confrontation with the railroad trusts, described in Edmund Morris’s “Theodore Rex.”

Or, if you prefer something more modern, try Richard Reeves’s ultimately sad “President Nixon: Alone in the White House.”

The lesson of these books is that throughout American history, the ultimate constraint is not so much the courtroom but the polling place. And here the classic American feedback mechanism appears to be damaged.

President Obama’s campaigns have taken a great deal of money from Wall Street and, as Mr. Suskind’s book vividly illustrates, have proved consistently reluctant to take on this powerful vested interest. This is why Mr. Geithner is still Treasury secretary.

In “The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities,” Mancur Olson identified the rise of special interests as a problem for all societies – a form of sclerosis sets in. This is a perfect idea for those on the political right; they can cite Friedrich Hayek’s The Road to Serfdom,” no less, on the idea that powerful people seize the state and its ideology to insulate themselves from competition.

Unfortunately, Mitt Romney and Newt Gingrich – the current front-runners for the Republican nomination – are also presumed to have taken or to be seeking a great deal of money from Wall Street. (See this coverage of President Obama and Mr. Romney, and of Mr. Gingrich.)

Ron Paul has expressed concern about big banks. But his only policy recommendation is not to bail them out in the future – that is, just let them fail.

Unfortunately, this philosophy fails to appreciate the true nature of the big banks’ power and the damage they can cause.

Too-big-to-fail banks benefit from an unfair, nontransparent and dangerous subsidy scheme. This isn’t a market mechanism; it’s a government-backed distortion of historic proportions. And it should be eliminated.

Jon Huntsman, the only candidate with a credible plan to break up big banks, is currently polling 13 percent in New Hampshire (although Nate Silver sees hope).

Presidential elections matter, because the winner appoints those who protect – or promise to protect – the public interest. As Mr. Connaughton reminds us:

Repeat financial fraudsters don’t pay relatively paltry — and therefore painless — penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines.

We could replace these officials with people who are less sympathetic to the banks. But this sympathy comes from fear – the fear of what could happen if a big bank fails. New officials would soon share the old fears.

Our biggest banks pose a real threat; if you hold them accountable for their past actions, they will collapse. The only credible way to counter to this threat – and the only reasonable way to protect our democracy – is to break them up.

Article source: http://feeds.nytimes.com/click.phdo?i=cfb43f22456d32a5cc77e8c1250d61cf

Hints of Progress in Europe Cap a Week of Gains

The leaders took steps this week to show they were tackling the debt crisis, which has plagued markets for weeks, including coordinated central bank moves to give European banks greater access to financing in dollars.

Timothy F. Geithner, the Treasury secretary, urged European Union finance ministers to leverage their bailout fund to better tackle the debt crisis and to start speaking with one voice, but there was no agreement on what steps to take.

Still, the encouraging headlines out of Europe helped the S. P. 500 post a 5.4 percent gain for the week, its best since early July, and the five-day string of gains was the broad index’s strongest since the end of June.

The Nasdaq composite index registered its best weekly percentage advance since July 2009, reflecting strength in technology shares on Friday. The S. P. tech index rose 1 percent, while the S. P. consumer discretionary index also gained 1 percent.

“The market seems to be a little bit more reassured that support will not allow for a major disruption in Europe,” said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Md.

The Dow Jones industrial average finished up 75.91 points, or 0.66 percent, at 11,509.09. The Standard Poor’s 500-stock index was up 6.90 points, or 0.57 percent, at 1,216.01. The Nasdaq composite index was up 15.24 points, or 0.58 percent, at 2,622.31.

The Nasdaq gained 6.3 percent for the week while the Dow rose 4.7 percent.

Still, major obstacles must be overcome in solving the euro zone’s debt crisis.

Less than 75 percent of private sector creditors have signaled they will take part in a plan to buy back Greek debt, far less than the 90 percent target set by Greece. The shortfall could jeopardize the planned second bailout package for Athens.

Greece’s international lenders said on Friday they would delay a crucial visit to the country next week, and European finance ministers demanded that Athens fulfill its pledges to win further aid.

Among United States stocks, General Electric gained 1.6 percent to $16.33 after forming two new joint ventures in Russia that it said could generate $10 billion to $15 billion in new revenue over the next few years. One of the worst hit stocks, the BlackBerry maker Research in Motion, slid 19 percent to $23.93 a day after it reported a steep drop in quarterly profit and offered little hope of a quick turnaround.

United States economic data showed that consumer sentiment inched up in early September, but that Americans were gloomy about the future with their expectations for the economy falling to the lowest level since 1980.

Interest rates were lower. The Treasury’s benchmark 10-year note rose 8/32, to 100 20/32, and the yield fell to 2.06 percent from 2.08 percent late Thursday.

Article source: http://feeds.nytimes.com/click.phdo?i=5d220f3cf69f171197b162b0f780ef7d

Europe Struggles With Managing Its Support of Greece

That was the stay-the-course upshot of a conference call Wednesday evening in Europe by President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany with the Greek prime minister, George Papandreou.

With no new proposals issued, the conversation seemed mainly intended to send a message that Europe’s two richest countries do not intend to let Greece’s debt crisis spiral out of control.

The conversation came at the end of a day in which European stock markets took a breather from the recent spate of crisis-induced sell-offs, even shrugging off the credit-rating downgrade of two big French banks.

Stocks closed higher in the United States, too, as the Treasury secretary, Timothy F. Geithner, voiced confidence in Europe’s ability to “hold this thing together,” but indicated it was the Europeans’ problem to solve.

Mr. Sarkozy and Mrs. Merkel told Mr. Papandreou that he must meet deficit-cutting promises to the European Union and the International Monetary Fund in return for subsidized loans and a second bailout, according to the French and German governments. Mr. Papandreou, in turn, briefed them about Greek cabinet decisions on further state job cuts and other economic reforms, Greek officials said.

France and Germany also promised full support for Greece and for preserving the euro zone.

The French and Germans are pushing all euro zone states to rapidly ratify an agreement reached on July 21 to expand the bailout program known as the European Financial Stability Facility to 440 billion euros ($601 billion) and give it greater flexibility to protect Greece and other heavily indebted members as they work to stabilize their finances.

A Greek government spokesman, Ilias Mossialos, said that Germany and France had expressed confidence that new austerity measures announced by the Greek government over the weekend — chiefly a new property tax — would ensure that Athens meets deficit reduction goals set by foreign creditors, while securing a sixth installment of emergency funds on which its solvency depends.

Before the call, a French government spokeswoman, Valérie Pécresse, emphasized that France was determined “to do everything in order to save Greece.”

But France and Germany are also determined to save their own banks, which are heavily exposed to Greek debt. And analysts say the banks have not fully written down that exposure to a realistic level, given wide expectations that the Greek debt would need to be restructured yet again, forcing its creditors to absorb further losses.

France suffered a minor blow on Wednesday as two of its biggest banks, Société Générale and Crédit Agricole, were each downgraded a notch by Moody’s Investors Service — a move expected, but not as severe as some had predicted. Moody’s kept a third bank, BNP Paribas, under review, but said its profitability and capital base provided an adequate cushion to support its exposure to Greek, Portuguese and Irish debt.

French officials insisted that the banks were strong, and implied that Paris would do whatever was necessary to recapitalize them if necessary to cover any Greek losses.

Mr. Geithner also sought to soothe nerves over a possible Greek default in a CNBC interview Wednesday morning. Mr. Geithner, who plans to attend an informal meeting of European finance ministers on Friday in Poland, said “there is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market.”

But he added: “They recognize that they have been behind the curve. They recognize that it will take more force behind their commitments.”

Mr. Geithner was not specific about what needed to be done, but said the United States was concerned “because it adds to a lack of confidence.” But ultimately, he said, “this is their challenge.”

Nicholas Kulish reported from Berlin. Additional reporting was contributed by Liz Alderman in Paris, Stephen Castle in Brussels, Androniki Kitsantonis in Athens and Landon Thomas Jr. in London.

This article has been revised to reflect the following correction:

Correction: September 14, 2011

An earlier version of this article erroneously stated that the downgrade of Société Générale was related to its exposure to the Greek economy.

Article source: http://feeds.nytimes.com/click.phdo?i=27fd887ae1842e23603c6e42209d337c