THE SOFTER SIDE OF THE FED (SCARY)

I encourage you to read the piece in Bloomberg this week on Bill Dudley, the President of the NYFED titled
"Not Your Father's New York Federal Reserve NY FED President - Bloomberg Article by Caroline Salas Gage

PR BLITZ INDICATES FED HATERS ARE WINNING
Are you getting the idea that the FED is putting the full court press on the public to encourage them to see the side of them that is benevolent and for the little guy?  Yes, me too.  I mean how on earth could we possibly believe that the Fed had anything but the common folk's best interest at heart as they engineered too major stock market collapses and one real estate implosion in the last decade?

Dudley is one of the 3 Fed chiefs that actually matter, the others are Fed Chairman Ben Bernanke and Janet Yellen who is the Vice Chair of the Federal Reserve Board.

The article notes how hard Dudley is trying to get out with regular people and explain how the Fed is helping them.  Clearly he hasn't internalized the criticism of the Fed and questioned if anything they have to say might be true as the Fed continues to squeeze investors that use fixed income investments or even savings accounts as part of their portfolio.  Dudley obviously believes that old ladies should need to take more credit risk or simply cut out medical coverage or incidentals like food or shelter rather than raise interest rates.

Dudley's moves highlight the growing importance of the public's view of the Federal Reserve given that it has now become politically acceptable to believe that the Fed is a part of the financial crisis.  Ron Paul has a book about Ending the Fed, Rick Perry also is quite wacky crying that the US needs to get rid of the Fed.  I've even seen a sign or two in the OWS demonstrations that actually reference the Fed.  A growing move to understand and dismantle the Fed is absolutely not in the Fed's best interest..... nor in the interest of the banks and uber-wealthy 1%ers.  I expect more concerted efforts to humanize the Fed and make Joe 6 Pack feel happy to have a benevolent Fed on our side.

INFORMATION FLOW OR BIG BROTHER?
Now, add this to the recent "rumored" request by the Fed to begin a project to scan and analyze references to the Fed in social media and the blogosphere in order to capture market sentiment, I think you have a situation that could be ultimately bad for all of us in the general public.
http://www.forbes.com/sites/mobiledia/2011/09/30/federal-reserve-wants-to-monitor-facebook-twitter/

http://info.publicintelligence.net/FRBNY-SocialMedia.pdf

Clearly the conspiratorial side of me feels like the Fed has sinister intentions when they move forward with this project, however, the NY Fed assures us that it is all good, why worry?
 
"The project reflects its (NY Fed's) commitment to “improving its communications and engagement with the public in order to enhance and improve the public’s understanding of its activities and the role it plays in supporting the U.S. Economy,” according to a Fed spokesman’s statement."

I'm sure the Fed's efforts will be passive and harmless and simply used for data collection.  Having said that, I'm sure it won't be long till a blogger or Facebooker is threatened with jail or lawsuit for disparaging the Fed and invoking some type of crisis of confidence relate to their posts.  Think it can't happen?  Look no further than the Eurozone's sovereign debt issues where investors and "evil speculators" are targeted for stating that the sovereign countries are broke and the bonds are a poor investment.  Give the US debt crisis a few more years and we'll see how "passive" this monitoring becomes.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

BANKS - WHO WANTS EM?

I've taken a bit of flak over the last several days from people suggesting that I'm over-focused on banks.  Yes, I look at them, and yes they are important, but I need us to be on the same page regarding the concerns I have and where I think we are in general.

ROBOGATE / FORECLOSURE GATE / FRAUD
Ok, I've written about how dirty this whole process has been where banks have tried to forge documents and attempt to create titles where they have been lost.  These are juicy details and this is exactly the kind of item that makes a good story for a blog, but this is not really why this issue is such a big one.  The more important issue is that when the big banks were wrapping these mortgages into huge pools and securitizing them (slicing and dicing them into parts so different pension plans and investors could buy based on credit rating), they represented to them that they actually had recorded all of the documents for clear title and guaranteed or warranted that the MBS buyers were getting a solid legal claim to mortgage backed assets. 

What the sub-prime collapse and the subsequent real estate implosion has shown us is that the banks and their clearing system (MERS) did not actually do what they promised they would do by filing all the paperwork and ensuring that the MERS trust actually owned the notes and had a claim as a lien holder on the real estate asset.  By NOT doing what they promised in the prospectus or security documents, they committed fraud.  In addition, they firms are claiming that the securitizers that packaged up the deals didn't actually put the quality of loans in the deals that they promised.  This is the issue, and this is the big problem.  What this means is that the buyers of the MBS now potentially have a claim to get 100% of their money back on the investment because the trustee or the servicer, or the originator didn't actually create the MBS in the manner that they stated.  Remember, the buyers of these securities are not Joe 6 Pack.  The buyers of these MBS securities were insurance companies, mutual fund companies, hedge funds, governments, and private equity funds.  The buyers of these deals were big money players that then often leveraged these bets 10:1 or 30:1.  The total amount of mortgages wrapped up in these deals is numbering in the trillions!  So, are any of the buyers of these asking the originators to take them back?  Yes! 

http://www.bloomberg.com/news/2010-10-19/pimco-new-york-fed-said-to-seek-bank-of-america-repurchase-of-mortgages.html

I hope this provides some clarity regarding the view of the banks.  In addition, it is important to look at the chart for a technical view.  It is so interesting to me as I look at this 200 day view of XLF (big banks) that it simply cannot push through $15.00.  Look at the 5 or 6 attempts since June of 2010 to go higher.  Even in the last week we could just touch $15.00 only to be rejected.

As I am typing this, the market is ripping higher after yesterdays 165 point Dow thrashing.  This is the environment we live in now.  I truly believe that the market will not be allowed to decline for more than a day or two until after the elections.  If there were a string of 5 or 6 down days that would certainly ensure a resounding Democratic defeat.  The ability of the market to stay positive gives the incumbents a chance to retain a glimmer of hope to retain power.  Please note, that if Republicans do win, I actually believe banks will rally as the street will believe it will be business as usual and the Republicans will assist the banks in getting through this mess.  Hopefully that belief is misguided as I'm sick of the corruption and bailouts at taxpayer expense.

Be careful!

GOATMUG