Am I Next? Janet Yellen, Federal Reserve, Jackson Hole, Speech

The privately-owned Federal Reserve needs to keep the curtains closed lest you find that the great and powerful wizard is little more than a dwarf with a giant megaphone. 

In reality, the Fed implemented their ZIRP (Zero Interest Rate Policy), and it did little other than to recapitalize the financial institutions that were devastated (some being technically insolvent) by the previous mortgage meltdown and the spreading contagion of derivatives. The malaise of a low-growth recession continued, and the depositors and shareholders were truly and royally screwed out of any rate of return that exceeded the real rate of inflation.

So, let us take a moment a take a look at some of the remarks of Fed Chair Janet Yellen at their Jackson Hole, Wyoming bash hosted by the Federal Reserve Bank of Kansas City.

These are the type of self-serving speeches given to ease the justifiable fears a financially unsophisticated public and an uncaring financial community who know they are playing musical chairs and taking in each others washing – and whose executives are taking down profligate and unearned bonuses based on little more than self-arranged manipulative business practices. 

There are politicians who rant and rave about auditing the Federal Reserve; almost unmindful that it cost approximately $2 billion dollars to audit the smaller and less complex, Fannie Mae. And, that the audit was only for the purpose of restating a previous snapshot of Fannie’s financial health in the past years. There was demonstrable proof of criminal wrong-doing and financial crimes, but nobody went to prison, and a few had to sacrifice a tiny portion of their ill-gotten gains. As of yet, you do not hear any of the ravers and ranters demanding that the Federal Reserve disclose who actually owns the privately-held company and their proportion of ownership. 

Yellen ...

"A decade has passed since the beginnings of a global financial crisis that resulted in the most severe financial panic and largest contraction in economic activity in the United States since the Great Depression. Already, for some, memories of this experience may be fading--memories of just how costly the financial crisis was and of why certain steps were taken in response." 

"Today I will look back at the crisis and discuss the reforms policymakers in the United States and around the world have made to improve financial regulation to limit both the probability and the adverse consequences of future financial crises."

“A resilient financial system is critical to a dynamic global economy--the subject of this conference. A well-functioning financial system facilitates productive investment and new business formation and helps new and existing businesses weather the ups and downs of the business cycle. Prudent borrowing enables households to improve their standard of living by purchasing a home, investing in education, or starting a business. Because of the reforms that strengthened our financial system, and with support from monetary and other policies, credit is available on good terms, and lending has advanced broadly in line with economic activity in recent years, contributing to today's strong economy.”

One, we are living in a debt economy, where everybody is in debt. The truth is that we live in a self-imposed consumer economy which is prone to a catastrophic chain-reaction failure should consumers become satisfied with their current possessions and simply stop new purchases and pay down their existing debts. 

Two, we are seeing legislative actions that once again are forcing the financial community to put aside sound banking principles based on cash flow, collateral, capital, character, and conditions; and lessen the risk to lenders using various forms of federally-guaranteed loans.

Three, the government has nationalized educational loans. So educational institutions wildly inflated tuition knowing that relaxed NINJA (no income, no job, no assets) educational loan requirements would mean they would be paid regardless if the student graduated or graduated with a specious degree that is only valid in an academic or government job. 

More Yellen ...

“At the same time, reforms have boosted the resilience of the financial system. Banks are safer. The risk of runs owing to maturity transformation is reduced. Efforts to enhance the resolvability of systemic firms have promoted market discipline and reduced the problem of too-big-to-fail. And a system is in place to more effectively monitor and address risks that arise outside the regulatory perimeter." 

"Nonetheless, the scope and complexity of financial regulatory reforms demand that policymakers and researchers remain alert to both areas for improvement and unexpected side effects. The Federal Reserve is committed to continuing to evaluate the effects of regulation on financial stability and on the broader economy and to making appropriate adjustments."

More intrusive monitoring does not translate into safer and more resilient systems if little or no action is taken to check the size of the largest institutions that present the greatest systemic risk, to punish evildoers, and to reinstate the legislative prescriptives that keep systemic financial failures in check. Prescriptives for controlling the distribution and use of financially fatal derivatives, prohibiting brokerages from self-designating as financial institutions with access to the Fed’s credit facilities, to reinstate Glass-Steagall, and to demand that any product purporting to be insurance be actuarially sound and its promoters able to pay off on their side of the wager.

You may wish to read Yellen’s remarks on the Federal Reserve website; bearing in mind that like all political speeches, this one was crafted for a specific audience of financial professionals, but tailored for the financial media to spread the word that the Federal Reserve knows what they a

The big “stability” lie …

While the stated goal of the politicians and the financial community is stability, it is worthwhile to remember that serious money is not made by the brokers of this world in stable times; it is made during periods of rampant volatility where the brokers profit on every buy and sell order: win, lose, or draw. And that the financial specialists and special interests have always been able to explain why you were the loser with fanciful tales of market volatility and adverse news events. A story explaining why a missile launch in North Korea can tank a market and affect a company whose financials are exactly the same pre- and post-launch. It can’t be the public because they simply do not react with that degree of rapidity or a tidal wave of capital. So it must be the speculators and the specialists who are out of control as they fight for any return they can obtain (or manufacture) on any given situation.

Best practices demand that you reduce your debt, reduce your standard of living to a manageable degree, and start developing multiple independent income streams.