How do you regard the Federal Reserve?

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I have the same problem with the Federal Reserve that I have with most major unions today - ie the power to accountability ratio is completely out of whack.

The members of the Board of Governors are nominated by the President of the United States and confirmed by the U.S. Senate. By law, the appointments must yield a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country," and no two Governors may come from the same Federal Reserve District.

The full term of a Governor is 14 years; appointments are staggered so that one term expires on January 31 of each even-numbered year. A Governor who has served a full term may not be reappointed, but a Governor who was appointed to complete the balance of an unexpired term may be reappointed to a full 14-year term.

Once appointed, Governors may not be removed from office for their policy views. The lengthy terms and staggered appointments are intended to contribute to the insulation of the Board--and the Federal Reserve System as a whole--from day-to-day political pressures to which it might otherwise be subject.

In addition to serving as members of the Board, the Chairman and Vice Chairman of the Board serve terms of four years, and they may be reappointed to those roles and serve until their terms as Governors expire. The Chairman serves as public spokesperson and representative of the Board and manager of the Board's staff. The Chairman also presides at Board meetings. Affirming the apolitical nature of the Board, recent Presidents of both major political parties have selected the same person as Board Chairman.

The Congress sets the salaries of the Board members. For 2012, the Chairman's annual salary is $199,700. The annual salary of the other Board members (including the Vice Chairman) is $179,700.

I have the same problem with the Federal Reserve that I have with most major unions today - ie the power to accountability ratio is completely out of whack.

Are you talking about something he said? I'd need a quote. He's just a guy who has authority over the interest rates in the economy. Nothing in his position entails advocating second mortgages.

Greenspan: Housing Market Bubble Bursting 'Most Unlikely'
Realty Times
by Broderick Perkins

WASHINGTON, D.C. - Most homeowners -- 75 percent of them -- have a 20 percent or greater equity stake in their homes and that's plenty to cover a significant drop in home prices.

However, the vast majority of homeowners needn't fear big price drops because such an event will likely occur only locally. Economic diversity holds sway over statistical models that predict a nationwide home price drop.

That's according to Federal Reserve Chairman Alan Greenspan who in a recent speech repeated a refrain that punches holes in theories that the housing market is an overinflated bubble about to burst.

"These concerns cannot be readily dismissed. Debt leverage of all types is often troublesome when one judges the stability of the economy. Should home prices fall, we would have reason to be concerned about mortgage debt; but measures of household financial stress do not, at least to date, appear overly worrisome," he said in a speech before the America's Community Bankers Annual Convention this week.

Greenspan said 75 percent of all outstanding first mortgages were originated with a loan-to-value ratios of 80 percent or less and when all mortgages are considered the loan-to-value ratio is about 45 percent, giving the nation, as a whole, a 55 percent equity stake in residential real estate.

"It would take a large, and historically most unusual, fall in home prices to wipe out a significant part of home equity," he told conventioneers.

Greenspan said housing price bubble theories also assume there is too much speculation in the market and that home buyers are looking at homes as get-rich-quick investments, but in reality expensive buying and selling fees and the need to have a roof over one's head prevent such conditions.

He said investors accounted for only 11 percent of the total home mortgage originations in 2003 and represent a small fraction of the overall housing market.

"Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity," Greenspan said.

He did voice concerns about the rapid run up in household indebtedness which has outpaced income growth. And the chairman does agree that home price appreciation will slow down from its frenetic pace of recent years.

"Most analysts, even those who do not foresee a mounting bubble, anticipate a slowdown in both home sales and the rate of price increase...If house turnover and price increases both slow, and presumably mortgage debt extensions on new homes do as well, increases in home mortgage debt will slow. Outright declines in mortgage debt seem most unlikely. Home mortgage debt has increased every quarter since the end of World War II."

He also said:

One percent of the average annual growth of home mortgage debt comes from renters who have become homeowners since the early 1990s.
Information technology-driven lending improvements has enabled more underserved borrowers to buy homes without significantly increasing the number of households with over-extended indebtedness.
Recent higher debt-to-income ratios "some of which is more statistical than real" has only modestly increased the level of financial strain on households.
Persistently elevated levels of bankruptcy indicates pockets of distress in the household sector, but only to a minimum.
Most households are financially stable. The Federal Reserve's measures of financial stability, the debt-service ratio and the financial obligations ratio rose during the 1990s, but the debt-service ratio stabilized in the past three years and the financial obligations ratio has dropped since 2002. Much of that is due to low mortgage rates which allow homeowners with equity to buy more for less.
"Indeed, the surge in cash-out mortgage refinancings likely improved rather than worsened the financial condition of the average homeowner. Some of the equity extracted through mortgage refinancing was used to pay down more-expensive, non-tax-deductible consumer debt or to make purchases that would otherwise have been financed by more-expensive and less tax-favored credit," Greenspan said.

"In addition, a significant decline in consumer incomes or house prices could quickly alter the outlook; nonetheless, both scenarios appear unlikely in the quarters immediately ahead. If lenders, including community bankers, continue their prudent lending practices, household financial conditions should be all the more likely to weather future challenges," he concluded

I think that people may have taken his words as advertising and encouragement to take out debt. Refinancings may have been beneficial to homeowners, if they were able to lower their interest payments, or consolidate debts and gain tax advantages through mortgage payments. Just prior to the bust, home equity was being tapped for consumer spending, as many expected their home prices to rise forever.

http://archive.newsmax.com/money/archiv ... 144347.cfm

It appears that this tapping of home equity was feeding a booming economy, although most people probably shouldn't have gambled on their homes.

Since the housing bubble was making a lot of people feel artificially rich, which stimulated quite a lot of economic activity, what would be a superior and more sustainable way of making people feel rich while stimulating economic activity?

I have the same problem with the Federal Reserve that I have with most major unions today - ie the power to accountability ratio is completely out of whack.

WILLIAMS: “Would Ben Bernanke have a job in your administration?”

ROMNEY: ” No, I’d be looking for somebody new. I’m — I think Ben Bernanke has — has over-inflated the amount of currency that he’s created. QE2 did not work. It did not get Americans back to work. It did not get the economy going again. We’re still seeing declining numbers in prior quarter estimates as to what the — the growth would be. We’re growing now at 1 percent to 1.5 percent.”

“From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial ‘boom’ followed by a recession or depression when the Fed-created bubble bursts.”

“The Federal Reserve wasn’t set up to bail out banks and to cut deals, and to hang out with people in New York City. The Federal Reserve was set up to maintain the value of the dollar… We have an agency which is supposed to be an elitist agency, protecting the value of the dollar, which uses its elitism as an excuse to avoid being held accountable.”

“Our government’s spending and printing money like it’s being used for a board game, and we’re bailing out Wall Street and Detroit to the tune of billions of dollars, the least the Federal Reserve can do is open up their doors a crack so taxpayers can take a peek at what they’re doing with our money. As it stands now, the Federal Reserve has very little, if any, accountability to the taxpayer. In the wake of Enron, Congress required corporate America to open its books to their shareholders, yet the Federal Reserve keeps the taxpayers in the dark. They need to be held to the same standard. It’s simply common sense.”

“If this guy [Fed Chairman Ben Bernanke] prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous – or treasonous in my opinion.”

‘Jon Huntsman supports a strong and stable dollar. As president, he will appoint Federal Reserve Board Governors and a Chairman who believe in sound money. The United States cannot devalue our way to prosperity and efforts to do so risk a “beggar thy neighbor” round of devaluations, which will ultimately harm American exporters and risk the dollar’s privileged position as the primary global reserve currency.

The main risk to the dollar is that the Federal Reserve will feel empowered to create more money in order to provide bailouts to troubled large firms and deal with the unemployment levels caused by major financial crises. Eliminating “too big to fail” has consequences in terms of making the macroeconomy more stable because it removes a major incentive for the Federal Reserve to run a loose monetary policy.’

Do you think the CBO might have it in them to be analytical enough to grade their performance at least?