THE WOLF STREET REPORT

Has the Fed Made a Deal with Trump?

Despite intense public pressure from President Trump, the Fed is getting increasingly hawkish on interest rates and the QE unwind. But in another, even more important area, the Fed has totally caved. Has the Fed made a deal with Trump? Like: We rule over here, and in return, you get what you want over there? (12 minutes)

Their “Everything Bubble” is being pricked “gradually,” and they don’t like it. Read…  Hilarious How Wall-Street Crybabies Whine about the Fed’s QE Unwind after a Decade of “Wealth Effect”  
 

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  84 comments for “THE WOLF STREET REPORT

  1. Bill Shortell
    Nov 11, 2018 at 8:35 pm

    I love your stuff, but I’d much prefer to read it than listen. It’s faster to read and I can skim…It doesn’t disturb anyone nearby.

    I’m saddened about your new format.

    • Howard Fritz
      Nov 11, 2018 at 8:48 pm

      It’s probably easier for him this way, who knows if he loses his mind one day he might start a live stream where his views can interact with him directly.

    • Javert Chip
      Nov 11, 2018 at 9:57 pm

      most videos have a control button at the bottom, allowing speech acceleration with only limited distortion

    • Nov 11, 2018 at 10:15 pm

      Bill Shortell,

      There is plenty to read on this site — 10-15 articles a week plus thousands of comments. Once a week, I get to talk. My gut feeling is that you’ll survive not knowing what I said. But if you think you don’t survive, you might have to listen for 12 minutes.

      And other people like it — so you can’t make everyone happy.

      • Nov 12, 2018 at 11:14 am

        I prefer to listen while I surf other sights. Certain articles are better suited to this, and I think so far Wolf knows which are better.

      • sierra7
        Nov 12, 2018 at 12:02 pm

        Keep up the good work, Mr. Richter! I like both formats. I read all your posts and now can listen occasionally. What’s not to like?? Your posts are educational; the commenters on this site are informative and entertaining. The most droll view is that with so many apparently well versed commenters on the subject how many different and controversial opinions there are. Makes me feel “normal”.

      • Alan Bachers, Ph.D.
        Nov 13, 2018 at 11:59 am

        As a marketing perspective here: How many have subscribed to your podcasts – listeners vs. readers? Do you know how many of them are unique to the podcasts – listeners ONLY? I’d guess the combined number (those who can never get enough!) is by far the largest. It will be interesting to see what the split is over time – commute listening vs. reading. As mostly a reader, I’d REALLY like to read a transcript of the podcast as Barry Ritholtz usually does.

      • Ro55
        Nov 19, 2018 at 6:03 pm

        Tell them Wolf!!

    • joel
      Nov 11, 2018 at 10:15 pm

      Yes please, let me just read it. By far my favorite econ blog

    • Nimesh Patel
      Nov 11, 2018 at 10:24 pm

      Beggars can’t choose their options.

      Perhaps you can find an app that converts speech to text? Or doesn’t youtube have a closed caption option?

      Or better yet, do what I do- listen to it while driving.

    • nick kelly
      Nov 12, 2018 at 12:21 pm

      Would all you guys wanting print (my preferred medium) realize that WR is providing us carefully researched FREE commentary. Remember all those pay walls everywhere else ?

      Doing a transcript is long hard work. That’s on top of doing the piece itself. (In a typical POS trial, the court room steno is one of the highest paid per hour in the courtroom. )

      Computer voice- to- text needs many corrections especially in a technical piece.

      I recently did one piece for WR, (about the over-hyped cannabis scene) and it took me a couple of days.

      He’s grinding out close to one per day of high quality researched stuff PLUS he’s responding to questions and corralling some wild hobby horses in the comments.

      To provide transcripts of all his interviews he would have to work overtime or hire someone.

      I prefer no pay wall.

    • wapiti
      Nov 12, 2018 at 11:19 pm

      Skim? How are you going to skim and grasp the entirety of the article? Slow down just a little and listen for 12 entire minutes.
      Wolf – I look forward to your audios. The Fed Made Deal With Trump is one of your recent best.
      …mute the Utah Jazz game… prop feet up next to pellet stove… turn up wolfstreet audio and cradle 3 fingers of Crown Royal. My favorite definition of multi-task.

    • Jaco
      Nov 13, 2018 at 2:21 am

      I actually prefer to listen to it because I often do a lot of driving inside the beltway. I can load up a ton of various shows and relax and listen. I for one hope your podcast continues.

  2. Howard Fritz
    Nov 11, 2018 at 8:45 pm

    You know according to online trackers Wolf Street gets close to a million hits per month and he still takes the time to interact with us, very nice.

    There’s an old saying you either need to make the people smarter or the tests easier, this is worse than that.

    The Fed has been complicit in a massive wealth transfer from the common citizen (of the world) to a plutocratic class through sky high asset prices caused by effectively negative interest rates in certain situations. That leads to the question, what happens next?

    • Unamused
      Nov 11, 2018 at 9:13 pm

      ->That leads to the question, what happens next?

      That should be obvious. Also who, where, and why. The real question is ‘when’.

      ->Has the Fed Made a Deal . . . ?

      You could call it that, but it wouldn’t matter either way.

    • JZ
      Nov 12, 2018 at 12:00 am

      Wealth transfer keeps going. When FED does ZIRP and QE, savers got squeezed out of interests and W2 got squeezed out of buying a house. When FED does QT and raise rates? Guess what? They will get inflations, REAL Consumer Prices, NOT asset prices. Did you notice the wall street landlords are jacking up rents? So W2 folks NOT only got priced out of buying, now they will suffer rent increase. What do you think CEOs will do if they can NOT borrow cheap and buy back their shares? Hey still have to lift share prices! They will actually start to invest and do R and D, manufacturing since share back back ain’t on the table any more. They will compete for labor and they will compete for commodities. I have no idea how to trade inflation and I am scared. The best case for W2 folks is house price come down while there is no recession. But that is a pipe dream. Every time, wealth got transferred to rent seekers, one way or another.

      • JZ
        Nov 12, 2018 at 12:11 am

        Oh I forgot, Trump will build that wall, roads, tunnels, and deficit will be easily over 1 trillion a year,
        and they will make sure there is enough jobs created.

      • sierra7
        Nov 12, 2018 at 12:22 pm

        Ever marvel at the way a “balloon” reacts when squeezed? A “bubble” appears on another part of the balloon. This is what has been happening. The rise in rates (the squeeze) will produce a “bubble” somewhere else. In the end a wealth bubble will present itself producing (stealing) more wealth from the public and the rich will get richer.
        There is only one solution to this mess: a return to some kind of “mean”. We have not addressed the lessening of regulations over the decades and we put too much reliance on the “markets” to solve our problems. “Markets” can be very destructive and destroy societal gains quickly. That’s what regulation is supposed to moderate. Once in a while someone sane mentions Glass-Steagal; I also mention it repeatedly. The destruction of that reg alone was HUGE! I understand why “mark to market” rules were suspended in 2009. But, at what costs?????
        Real purchase inflation for what matters most, food, continues to escalate. Wages are mostly “stagnant”. I don’t foresee wages to make any real advance in the near to medium term in real terms. We are living in a new, “norm”. Political and financial. This game needs rules. Or we will all go down in flames.

        • Setarcos
          Nov 12, 2018 at 4:35 pm

          Here’s a question to anyone who has dealt directly with regulations/regulators in their respective profession/industry. What is your assessment?

          I would put regulators in 3 categories. 1. Highest level, i.e. policy level, simply reflect the political winds and contacts of their day, which provided them with their positions. 2. Higher level staff, including the analysts, economists, etc… generally higher IQs, often academic types, who are not incented to produce insights that deviate from the prevailing political winds of their management. 3. Lower level, actually meet with industry participants on a daily basis where the rubber is hitting the road. They rarely have the skill level of the people they are charged with overseeing and almost never demonstrate an understanding of the nuances of the business. They are the cops on the beat.

          There are a myriad of of existing financial regulations that are confusing at best and often set in direct opposition to other regulations. Forget about asking a regulator for guidance with any degree of specificity. The answer is always the same “well it depends”.

          This is like 1. having a posted speed limit of 55 mph versus 2. a variable speed limit that depends on the make and age of your car, your age, your past driving record, the treadwear on your tires and the weather. Confused about your speeding ticket for driving 50 mph, you ask the officer where you went wrong. He shrugs and says the light on his meter flashed red, which prompts him to write a ticket. You don’t accept that so he is nice enough to call the analyst who has computed the probability of an accident as ranging from X to Y%, based on all the known variables, while acknowledging they haven’t yet received approval to consider the impact of cell phone usage in their models. The policy guy in a moment of honesty says, the kings and queens has rarely even driven a car but they gave us clear instructions to keep people drivers safe!

          Meanwhile, there are some folks standing on the side of the road cheering and holding signs saying there need to be more cops and more laws against speeding.

  3. Michael
    Nov 11, 2018 at 9:12 pm

    Drip, drip, drip. All floods start the same way, the assumption is the FED has any real control.

  4. Seen this all before, Bob
    Nov 11, 2018 at 9:51 pm

    Thank you, Wolf.

    Your articles and audio blogs are always very informative.

    Do you or does anyone know if the QE/QT and interest knobs have ever been tried before for an economic soft landing? Is this the first time?

    • Nov 11, 2018 at 10:03 pm

      Jim Rickards asked Ben Bernanke that question. Bernanke admitted that they had no idea and that it was all an experiment. Then he suggested that no-one would know if they succeeded or failed until some future economist/historian wrote about it 50 years from now.

      I agree that it is just an experiment but I expect we will not have to wait that long for the results.

      • Mean Chicken
        Nov 11, 2018 at 11:31 pm

        Not an experiment, it was the greatest managed transfer of wealth ever in human history. These crisis and bubbles don’t occur by some freak accident, they’re intentional setups.

    • Nov 11, 2018 at 10:22 pm

      Soft landings of asset prices have a history of turning ugly :-]

      No one has ever tried to unwind QE of this magnitude. It’s still all experimental.

    • MC01
      Nov 12, 2018 at 8:12 am

      In 2011 and again in 2014 the Chinese government started moving to arrange a soft landing for the overheated domestic real estate sector.
      We never got to know how successful this soft landing would be because in both cases the authorities in Beijing backpedaled furiously, causing an insane spike in prices which will make the present “stabilization” efforts really interesting.

      We don’t know how successful a steady and gradual pricking of such massive bubbles can be, nobody really knows, but China is a good indication for what happens when you cave in: the problem you attempted fixing in the first place, gradually and in orderly fashion, becomes a whole lot worse.

      Of course there’s another scenario, which is playing out right now in Europe: what happens when QE, whose end has been announced but which is still in full swing, and LIRP (Lunatic Interest Rate Policies) stop working their magic. I’ve never seen economic activity slow down this much outside of a recession but I am sure our central banks will simply do like you are supposed to do with any drug addict experiencing withdrawal symptoms: up the dosage.
      What? You say that’s incredibly dangerous and stupid and could kill the patient and end up in jail? Nonsense! That’s what 9 economists out of 10 recommend for any economy not growing full steam.

    • Petunia
      Nov 13, 2018 at 10:15 am

      It was done in Japan but I don’t remember the time frame and don’t know the duration. Could have been some time after their downturn and could be ongoing. I wasn’t interested enough to follow it and the Japanese don’t put out much news on BOJ, especial negative news.

  5. Charles
    Nov 11, 2018 at 10:23 pm

    The question is how much will the Fed allow the financial markets to fall before turning the liquidity faucets on again. If you are flush with cash like Warren Buffet is supposedly, I would think he would want the Fed to keep on hiking rates until things start breaking in the USA (not even talking about overseas stuff). When will stuff start to break in the USA? Has Blackrock and these other savvy money managers unloaded their real estate portfolio yet? If not, I don’t see the Fed hiking too much because it will interfere with these funds’ profit. I do know when Warren Buffet starts loaning out money at absurd rates with absurd terms, the Fed will be flooding the market with money again.

    • OutLookingIn
      Nov 12, 2018 at 11:56 am

      “the Fed will be flooding the market with money again”.

      You can bank on (pun intended) the Fed ALWAYS doing the right thing, at the wrong time.
      Hence, raising rates and tightening going into a downturn.

      We are in unknown financial/economic times. Historic. The world has not been here before. This is the first time. We are using flashlights with dim bulbs to navigate this financial jungle. The batteries are failing. The beam of light grows ever dimmer, as the central banks stumble along in the dark attempting to find their way.

      Its all experimental. The worlds central banks DO NOT KNOW what to do, or how to proceed. They are throwing darts at a board, then saying:
      “We haven’t tried that yet, lets try it and see what happens”!

  6. timbers
    Nov 11, 2018 at 10:56 pm

    Banks should be nationalized just like healthcare should be socialized.

    All the folks working in health insurance and banks should be rounded up and forced to replace migrant workers to pick tomatoes, strawberries, and apples. When these are not in season prisoners should be released from privatized prisons to make room for former health insurance and bank employees to take their place.

    Postal banking should eventually replace all banks, which are parasites to all society.

    Make Lloyd Blankfein and Jimmy Dimon get jobs delivering mail and take away all their property and retirement benefits and give allow them only Social Security and a Post Office retirement stipend.

    The rest of bank management should be treated like we treat Julian Assange – we should round them up, imprison all to them, and torture them for all eternity in the Ecuadorian consulate in London.

    • Mean Chicken
      Nov 11, 2018 at 11:35 pm

      Perhaps healthcare should be nationalized and banks socialized.

      Personally, I prefer the real unfettered market decide, not some bureaucrat with an special interest agenda.

      • nick kelly
        Nov 12, 2018 at 4:15 pm

        Re: ‘healthcare nationalized’: Just a reminder that doctors in Canada are not gov employees. Many are personally incorporated.
        The part that has been nationalized is the health care insurers.
        The doctor in the US bills one of many health care insurers, the Canadian doctor bills Medicare, the gov insurer.

        Harvard Medical has done a study of US costs and found that EVERYTHING costs more in the US from an aspirin on up.
        Health care admin runs 8 % compared to 3% average for the rest of the developed world which all have single payer.

        Note the 8% does not include the wasted time of the doctors, whose biggest beef is interacting with health care insurers.

        • IdahoPotato
          Nov 12, 2018 at 5:07 pm

          The Canadian system won’t work here. The U.S. is a country where a woman who proclaims “I do not support a livable wage” in a television debate goes on to win the election.

          We deserve the dreck we have. We enjoy being sucked dry by parasites. It makes us martyrs or something.

    • Art
      Nov 12, 2018 at 12:32 am

      The Obamacare individual mandate opened my eyes to how terrible socialism can get. My working-poor parents couldn’t afford a plan but couldn’t get medicaid, so they were paying the penalty. Lets just say I stopped voting Democrat after that fiasco.

      • nick kelly
        Nov 12, 2018 at 4:21 pm

        See above. The US medical system is exceptional but not good. If Democrats could they’d go to single payer, and your parents would be covered like they are in Canada.

        • Art
          Nov 12, 2018 at 10:20 pm

          Canadians pay a kings ransom in taxes. No thanks.

      • cambric finish
        Nov 12, 2018 at 10:14 pm

        So have the changes to ACA (Obamacare) helped your parents get medical coverage that meets their needs. What kind of health care did they have before ACA.

  7. nocte_volens
    Nov 12, 2018 at 1:19 am

    I enjoyed the podcast, but may I offer some constructive criticism? I think you need to improve your pacing..you are speaking a little too quickly. Also I would recommend a longer pause between sentences. It sounds like a lot of long run-on sentences due to your pacing.

    Just my opinion.

    • Bobber
      Nov 12, 2018 at 9:46 am

      I have an opposite opinion. The quick pace keeps things moving and reduces listening time for those who are already familiar with the concepts. I think this site draws those folks. The people learning the concepts can hit the pause button or rewind if necessary to digest the content. For this reason, I think the quick pace is good for just about everybody.

  8. Kasadour
    Nov 12, 2018 at 2:29 am

    Too Big To Fail (a stress test).

    So, instead of receiving those humiliating “conditional” passing grades by being tripped up by those pesky leverage ratios, banks receive passing grades with flying colors and secretly advised to reduce their risk, ya know, if it’s convenient. If it’s not, that’s ok too cause we all know shareholders come first.

    Meanwhile, the FED pretends to manage the everything bubble.

    What a world, what a world.

    • Unamused
      Nov 12, 2018 at 9:25 am

      ->we all know shareholders come first.

      Another myth, like the myth of the ‘free market’, for which there is no viable example.

      All shareholders are created equal, but some are more equal than others. Let me tell you a story.

      Once upon a time, executive compensation was tied to share price in the attempt to align the interests of corporate officers with those of the corporation. The attempt backfired. Instead, it motivated corporate officers to maximize share price, and their compensation, regardless of the cost to the corporation. Control of the corporation enables its officers to throw all other stakeholders under the bus, including other shareholders, while maintaining the pretense of operating in the interests of the corporation by ‘maximizing shareholder value’.

      Hawks do not share.

      • cambric finish
        Nov 12, 2018 at 11:07 pm

        I have been a Silicon Valley grunt for over 40 years. I was naive to believe we all got stock options and we were all equally invested in the company’s growth, working in a meritocracy. When I wanted to exercise those stock options and face huge tax payments, no problem the company would give you a loan. Oops, stock price collapsed, the loan is huge, well the company will just forgive it, but not for the grunts. When you gain the power to make the rules, either you are guided by some level of fairness(which I think many confuse with socialism) or if you see NO need to do that, then you are free to try to take it all. In the mid to late 80’s I realized there were a lot of execs in power who gravitated to the latter approach. I became alarmed.

        • bemused
          Nov 14, 2018 at 2:37 pm

          I received and exercised a lot of options during my 15-year run in Silicon Valley (1990-2005). I always did same-day sales, and while I did have large tax bills to pay, it was only on the profit of the sale (share price – option price). I think some taxes were taken out of the sale as withholding, but nowhere near enough. Nonetheless, I just had a big wad of cash from the sale and at the worst I think taxes were 35% or so of that. Why would you need a loan?

  9. Andre
    Nov 12, 2018 at 3:12 am

    I love this audio report! And i lough out loud every few minutes on intermittent sarcastic comments.

  10. hotairmail
    Nov 12, 2018 at 5:45 am

    There are two political imperatives.

    1. To restore ‘capitalism’ which one cannot have without an interest rate to help guide the allocation of scarce capital and real world resources in its wake.

    2. To protect the ‘home owning democracy’ whereby the majority of citizens have a stake in society, however small, thereby aligning their interests with the rich and powerful.

    If we don’t do this, the politics of the future become very much more unpredictable and unstable. I see Trump’s attacks on unfettered, unbalanced trade as part of protecting that domestic order by creating a shortage of domestic labour and rising wages. Basically, the labour share of profits need to rise from their historic lows. The alternative is trying to run an authoritarian state with slave workers to compete with China.

    • Unamused
      Nov 12, 2018 at 9:29 am

      ->The alternative is trying to run an authoritarian state with slave workers to compete with China.

      Oh darn, now everybody’s going to know.

  11. alexander
    Nov 12, 2018 at 6:32 am

    *the Fed is not, by my reading, becoming “increasingly hawkish”. in fact, i dont even see the Fed as “hawkish” at all. they are simply gradually and steadily edging rates up, in the context of an very strong economy.
    *a “tacit understanding” is NOT a “deal”.
    *the overall argument seems to go like this: Fed proposing to loosen stress tests; Trump et all would like that; it is not possible the Fed could have come to make these proposals on its own. ergo there is a ‘deal’.

    That, is a completely unsound argument. It dismisses the entirely credible possibility that the Fed simply thinks the tests are too stringent.

    • Nov 12, 2018 at 9:27 am

      “…. the Fed simply thinks the tests are too stringent.”

      The Fed spent years putting those rules on the banks and fine-tuning them, and SUDDENLY, from one moment to next, everything changes? Coincidentally, after Trump’s men Quarles and Powell get moved into position?

      How naive and credulous exactly do you want us to be?

      • Unamused
        Nov 12, 2018 at 9:51 am

        ->How naive and credulous exactly do you want us to be?

        About 30% has been shown to be sufficient, if you can get them riled up.

      • Setarcos
        Nov 12, 2018 at 1:01 pm

        Have the stress tests been effective thus far? If effective is improvement in safety and soundness, then no. If effective is centralized policy over bank capital plans, then yes. Much easier to just increase capital requirements to address safety and soundness, but that takes the politics out of it.

        Determining the hypothetical impact of an X point decline in the equities market, Y % change in unemployment, etc. where the X point decline is simply an independent variable – great example of paying people to dig holes and fill them back in.

        Lets attempt to model the real (not hypothetical) impact of 0% interest rates and the accumulating excesses over the course of many years. It cannot be modeled! To pretend it can be modeled is hubris. Heck, the Fed didn’t even consider prolonged house price declines a significant risk in their own models a decade ago.

        • Setarcos
          Nov 12, 2018 at 1:25 pm

          And just to add re: Stress Tests, please provide an example of where regulators have ever identified a significant bank failure in advance.

        • Nov 12, 2018 at 4:58 pm

          Setarcos,

          What do you mean, “identified a significant bank failure in advance?”

          Identifying a bank that will collapse before it collapses and then watching it collapse is not the job of a stress test.

          The job of a stress test is to pinpoint weaknesses in a bank and force it to take remedial action (raising capital levels, etc.) during good times before push comes to shove so that there won’t be a collapse.

          In the US, banks had to increase their capital levels so that they will not collapse when push comes to shove. And they did increase their capital levels. So in that respect stress tests were successful.

          We’re still in the good times, as far as banks are concerned. Push has not come to shove yet, and we don’t know how these banks will hold up during the next downturn when it starts hitting the banks, but one thing we DO know: they have a heck of a lot more good capital now than they had before the Financial Crisis, and will be able to withstand larger losses.

          But regulators differ – this is what I was talking about – over whether this capital buffer is now large enough to withstand whatever doomsday scenario may come down the pike, or whether some of the biggest banks will still collapse when that scenario arrives.

        • Nov 12, 2018 at 1:33 pm

          The stress tests have been reasonably effective in reigning in banks’ capital distributions and getting banks to build capital buffers. That’s why banks have been squealing so loudly about them. Banks hate them.

          Compared to European banks, US banks are now in much better shape. They’ve cleaned up their balance sheets and built up big capital buffers. Are they big enough? Maybe not. But they’re much bigger than they were, and they can take a pretty good hit.

          US banks were in terrible shape going into the Financial Crisis. Now they’re in much better shape, from a capital point of view. They’re also bigger – and that’s not good.

        • Setarcos
          Nov 12, 2018 at 7:51 pm

          You ask what I meant and then you wrote … “The job of a stress test is to pinpoint weaknesses in a bank…”

          Agreed, measuring the capital adequacy under various hypothetical scenarios can be a worthwhile exercise, but my point is that these types of regulatory tools have failed in the past and will continue to fail in the future.

          In the real world, large banks have actually failed and all of the supervisory tools such as “stress tests” failed to pinpoint weaknesses in advance in those cases. If there were examples of weaknesses actually being identified and remediated as a result of regulatory supervision, then someone could provide an example of regulatory success. In practice, it simply hasn’t happened. In fact, many banks had problems which were fairly obvious to external observers and those problems were allowed to persist for years, ultimately resulting in their failure.

      • Kasadour
        Nov 12, 2018 at 3:11 pm

        I don’t mean any disrespect, but how is it suddenly from a moment everything changes? These banks passed the stress test (tho “conditionally”) last year with outrageous leverage ratios- tests that the FED spent so much time working on. It seems like the FED never intended to enforce reasonable leverage ratios on mega banks in the first place. And now it’s official.

        • Kasadour
          Nov 12, 2018 at 3:30 pm

          Sorry – disregard my post above. I didn’t see your response in this sub thread.

  12. Setarcos
    Nov 12, 2018 at 8:32 am

    CECL will be/is a big negative to bank earnings/capital. Would like to know how these changes model out vs. CECL. Guessing this is only a partial offset.

  13. Marcus
    Nov 12, 2018 at 8:34 am

    One thing that will never come from a politician’s mouth:

    “We will persue an economic course of action that sacrifices maximum growth for sustainability. I’m even okay with intermittent recessions to pare back the excess risk that builds up during growth. This is normal. Also, I’m not an all-knowing. I’m just a citizen who ran for office and I’m doing the best I can for the long term health of our nation”.

    Instead we get:
    “That other party wants to ruin the USA by doing x, y, and z, but I can save you all and lead you to endless prosperity. Trust me. I won my high school debate club”.

    • IdahoPotato
      Nov 12, 2018 at 10:42 am

      There are some politicians who do give a thought to sustainability.

      “Bernie Sanders’ Senate bill, which has a companion bill introduced in the House of Representatives by Democratic Congressman Brad Sherman of California, would cap the size of the largest financial institutions so that a company’s total assets are no more than 3 percent of U.S. Gross Domestic Product (GDP), or about $584 billion.

      Mega Wall Street banks currently have in excess of a trillion dollars in assets. Under the bill, six of the largest Wall Street banks would be broken up: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. The bill would also impact mega insurance companies, which are counterparties to Wall Street’s derivatives, such as Prudential Financial, MetLife and AIG. ”

      http://wallstreetonparade.com/2018/10/senator-bernie-sanders-banking-bill-and-the-kavanaugh-confirmation/

      Of course, none of the swamp creatures in Washington or in the media want to even consider it.

      • Setarcos
        Nov 12, 2018 at 1:11 pm

        Idaho, that is good to know though the mainstream on both sides of the aisle favor continued bank consolidation, i.e. the opposite of this.

        Unsurprisingly, Dodd Frank has been crushing to smaller banks.

      • Erle
        Nov 13, 2018 at 9:26 am

        Let’s go exhume Wright Patman.

  14. Setarcos
    Nov 12, 2018 at 9:29 am

    It would be very simple to just require higher capital levels for safety and soundness. Why is this not done?

    It would minimize the influence of the lobbyists, political favors, i.e. the typical political machinations. The biggest culprits of past banking problems, many of the same banks who have failed repeatedly, essentially “buy” their chains and ensure they are weaker than the chains their less influential competitors are able to buy. Cronyism which people conflate with capitalism.

    This process is a very bipartisan exercise.

  15. judy Lawson
    Nov 12, 2018 at 9:46 am

    Great Post. Thanks!

  16. Nov 12, 2018 at 11:30 am

    I love a Quid Pro Quo! This one seems fairly informal. At the core of this is Congress role in regulating the banks and the Fed. The Fed doesn’t have the same powers that other central banks have, and Yellen lobbied specifically for those powers. It was an implicit guarantee made by then candidate Clinton, who wanted to appoint Brainerd as Fed chief. When markets break, the subject will come up again. Now the house has flipped back, and Tea Party obstructionists remain in place, probusiness Republicans are a minority. Gridlock will block the banking rollback, (along with all those failed stress tests Wolf mentioned as evidence) and the Fed will be forced to back away from the rate hikes. Trump will get what he wants and markets will crater.

  17. Matt
    Nov 12, 2018 at 11:33 am

    Any thoughts about putting this in podcast format?

    • Matt
      Nov 12, 2018 at 11:33 am

      By which I mean hosting it on itunes, google play, etc.

    • Nov 12, 2018 at 1:23 pm

      Eventually.

  18. Gerard Croce
    Nov 12, 2018 at 11:47 am

    It’s plausible that a working deal has been made. But the deal will fall apart as soon as Trump and the banks have what they want. Then Trump will deny there was ever a deal.

  19. Kreditanstalt
    Nov 12, 2018 at 11:49 am

    Wolf, a great summation!

    You didn’t, however, mention the inevitable conclusion that the Fed can’t keep all these balls in the air simultaneously.

    • Nov 12, 2018 at 1:25 pm

      Yes, eventually, there will be way too many balls in the air — to stick with your metaphor :-]

  20. subz
    Nov 12, 2018 at 3:27 pm

    Thank you, Wolf. Excellent podcast.

    The problem with raising interest rates by FED and stronger dollar is that it did more harms to the EM than DM.
    Could we see the possibility of de-dollarization in the near future to end this mess?

  21. Fred
    Nov 12, 2018 at 4:02 pm

    The more I think about it, the Fed has done everything it can do to engineer a soft landing. The problem has been the FedGov’s lack of conviction in using the tools it already has at its disposal to negate the giant rent-seeking horde of cash that sucking the lifeblood out of the real economy.

    punitive top level tax rates, estate tax, antitrust law, etc.

    • Gandalf
      Nov 12, 2018 at 5:08 pm

      Fred, you are describing the 30 year era of post Depression, post WWII America, which, ironically is both the Heavenly Paradise of social democrats like Bernie Sanders and also the Happy Days MAGA America of wingnut nationalists like Trump.

      I did a big post about this not too long ago. And unfortunately, if you actually read the fine print in American history, the parts left out in your high school textbooks, this 30 year period was a sharp deviation from the norm in America since its founding.

      We are merely reverting back to the way America always has been since its founding.

      • kitten lopez
        Nov 12, 2018 at 8:52 pm

        “We are merely reverting back to the way America always has been since its founding.”

        now that makes a lot of sense. i’ve got an old lady smile of “thank you, there it is…” i can feel on my own face.

        i just finished another of Elizabeth Hawes’ books, this one from 1940, and she talks about shoulder pads giving way to wanting to feel feminine… she talks about designing according to what the populace is feeling and she says she gets her hints from the painters like Picasso who painted about the upcoming fascisms and such. i read her like tea leaves of the future and as it was the at the beginning of the war, she says no one’s feeling peace time coming YET…

        i talked to James about this and he said, “–and there hasn’t been peace SINCE; we went right into korea and then vietnam and even now we’re still in afghanistan…”

        like Unamused said somewhere, they’re addicted to the profits of war as well as asset inflation and we’re screwed now that they’ve spent all they planned to make in the future. (horrifyingly brilliant observation, by the way).

        as i look at the history of slavery in this “all men are created equal” U.S. shtick and how it conveniently turned into the 13th amendment and we’ve got over 2 million in prison in the states… i’m trying to get used to the idea of getting used to feudalism and BEING a serf who’s worth far more to my country in a privately run for-profit prison than i am being free, working some crappy service job.

        when we were talking about india’s untouchables being more realistic about their predicaments so they could go about their business with a sense of reality, he said, “that’s why americans are strung out on fentanyl. we’ve been told our failures are our own personal failures to pick ourselves by our own bootstraps and go strike out and make it on our own while they’ve got their boot on your neck.”

        and i AM heartened by standing rock not because some judge decided to give a point to the losing side–the EARTH– but because they were able to suffer in the snow for MONTHS and collaborate and many broken hearted got off drugs by feeling useful for a change because they didn’t NEED it. addicts are not happy people or happy people are not addicts. however it goes. i’m heartened that while most of the population is strung out on magic phone worlds, some will and do know how to flip such painful ugliness of separation loneliness and despair into collective strength and beauty and yeah…power.

        thanks for that. that made me laugh inside harder than all the people who feel compelled to tell Wolf how he should do his work.

        as far as i’m concerned Wolf could write this stuff in lipstick on his stomach and bellydance or send carrier pigeons out with phrases we must puzzle together and we’d have to take it. as an artist, i’m saying nada. everything’s more perfect here than i even knew to ask for because i’ve had it with sheepy humanity and there are only a half dozen folks left i’d love to sit and have a beer with anymore.

        (smile)

        x

    • medialAxis
      Nov 13, 2018 at 2:51 pm

      Land value tax?

  22. Gandalf
    Nov 12, 2018 at 4:14 pm

    Actually, before Powell’s appointment I had read that one difference between him and Yellen was that Powell favored relaxing banking regulations, as does Trump.

    So I see this more as a foreordained action that was already in the works, not some sort of a new deal in the works

    We are back to the Gilded Age era of anything goes financial debauchery leading to regular cycles of increasingly worse financial busts, only at shorter intervals – 1987, 2000, 2008, 2019?

    • Nov 12, 2018 at 5:26 pm

      Yes, Powell had that tendency, though there was not a lot of public difference between him and Yellen on this issue. None of them were regulation hawks. But they didn’t feel like having to bail out the banks again, and so they did tighten their rules on capital, capital distributions, etc.

      The tough regulators used to be the FDIC folks, and they objected to a lot of the things the Fed allowed banks to do, such as moving derivatives over to the FDIC insured portions of the bank holding company, but they’re now totally secondary to the Fed.

      And yes, I think this is why Tump appointed him. Backing off on regulations was part of the deal.

  23. AdamMu
    Nov 12, 2018 at 7:52 pm

    Mr. Richter, is there any chance you would make your stuff available on Stitcher? That way i can listen to you in the car and while im walking your dog.

    Thanks

    • Nov 12, 2018 at 8:07 pm

      For now, I’m developing the “product.” It’s new, there is some work left to do to get it right. Once I have it to where I want it, I’ll make it available on different platforms as long as I can monetize it on that platform.

      Meanwhile, if you want to listen to it while you’re walking your dog (great idea!), you can take your smartphone with you and listen to it either from this site or from my YouTube channel.

  24. J.M.Keynes
    Nov 13, 2018 at 1:53 am

    – Nonsense. “Policy mistake” ?? As said many times before, the FED FOLLOWS the 3 month T-bill rate. If the FED determines short term raters then why did short term rates collapse to almost zero in the crisis of 1873 ? The FED opened its doors in 1913.
    – We don’t need MORE regulation (e.g. Dodd-Frank). Just start with enforcing the EXISTING rules that are already on the books. That was the reason of the housing bubble of the early 2000s. There were enough rules on the books but the US Treasury, the FED (Greenspan, Bernanke, Geithner (NY FED)), the SEC, the FBI all sat on their hands and did nothing or did something else.
    – The Savings & Loans scandal of the 1980s showed that regulation works. Then the damage was limited to about $ 80 billion.
    – Eliot Spitzer (Attorney General of the state of New York) and 49 other state AGs wanted to regulate (predatory) lending (between say 2003 and 2008) but they were blocked by the Treasury.

    • Nov 13, 2018 at 11:38 am

      “… the FED FOLLOWS the 3 month T-bill rate.”

      Priceless nonsense.

  25. J.M.Keynes
    Nov 13, 2018 at 2:08 am

    – The journalist David Cay Johnston thinks that the value of Trump’s assets are (heavily) inflated/overstated. Trump seems to fear that with rising rates his creditors might start to dig (much) deeper and find out that Trump has lied about the value of the collateral for his loans.

  26. KFritz
    Nov 13, 2018 at 9:21 am

    Another edition of “What could go wrong?!”

    Will Trump hold up his end of the bargain and allow the Fed to raise rates, or will he renege, now that he’s gotten the central bank to loosen the reins? Will he force Powell out and appoint someone who thinks that no interest is good interest?

    Stay tuned.

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