Will The Fed Drop The Hammer On Wells Fargo?

George Yacik - INO.com Contributor - Fed & Interest Rates


A few weeks ago Federal Reserve Chair Janet Yellen made some short – but very direct – comments about one of the big banks under the Fed’s oversight.

“Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable,” she said at her press conference following the Fed’s September monetary policy meeting. “We take our supervision responsibilities of the company very seriously. And we are attempting to understand what the root causes of those problems are and to address them.”

Now, for a person one of whose job requirements is to always speak cryptically, vague and ambiguously in public – Fedspeak, in other words – to call out one of the largest banks in the country and call its behavior “egregious and unacceptable” is pretty startling. That’s why I believe a major fine – at least $1 billion – against the Wells Fargo & Company (NYSE:WFC) by the Fed is coming.

Not only would it be justified, but certainly not out of line given past Fed penalties against other banks that committed far less “egregious” misdeeds. The fact that all of Wells’s transgressions were highly publicized and committed against consumers – millions of them – makes it even more imperative that the Fed let Wells have it between the eyes.

Let’s look at some recent big fines imposed by the Fed against the banks it regulates: Continue reading "Will The Fed Drop The Hammer On Wells Fargo?"

Want To Solve The Fannie-Freddie Quandary? Do Nothing

George Yacik - INO.com Contributor - Fed & Interest Rates


There have been lots of ideas about how to restructure Fannie Mae and Freddie Mac, the twin government-sponsored enterprises (GSEs) that purchase the vast majority of residential mortgage loans originated in the U.S. But the one idea that I haven’t heard mentioned, which seems to make the most sense, is: Don’t do anything.

The two agencies used to be hybrid public-private entities, their stock owned by investors but with an “implied” government backing of the mortgage-backed securities they sell. Both of them failed during the global financial crisis, burdened with billions of dollars of bad subprime loans, and were taken over by the government in 2008. Although they remain in conservatorship to this day, they remain the backbone of the American residential mortgage banking system. Continue reading "Want To Solve The Fannie-Freddie Quandary? Do Nothing"

What Happens When The Fed Starts Selling?

George Yacik - INO.com Contributor - Fed & Interest Rates


The financial markets have been fixated for years at the prospect of interest rate increases by the Federal Reserve but have largely ignored the $4.5 trillion elephant in the room, namely the Fed’s gargantuan balance sheet. But last week several members of the Fed began publicly discussing their support to finally start winding down that massive portfolio.

Way back before the global financial crisis, the Fed’s portfolio held pretty steady in the high $800 billion to low $900 billion range. Then, as the crisis hit full force in the last three months of 2008 after the Lehman Brothers collapse, the portfolio more than doubled, ending that year at slightly north of $2 trillion. While the worst of the crisis may have been reached at that point, that was only the beginning of the balance sheet’s growth.

Between the end of 2008 until the end of 2012, the Fed’s portfolio grew gradually by another $800 billion or so, before spiking again, adding another $2 trillion over the next two years as the Fed embarked on quantitative easing. Eventually the portfolio reached $4.5 trillion, including both Treasury and mortgage-backed securities, at the end of 2014, where it has held largely steady ever since. Continue reading "What Happens When The Fed Starts Selling?"

Revamping the Fed: The Time is Now

George Yacik - INO.com Contributor - Fed & Interest Rates


Last November, shortly after the election, I wrote a column that discussed the “claustrophobic, one-dimensional, group-think atmosphere” at the Federal Reserve. “With just a couple of exceptions, everyone on the Fed, voting or non-voting, is an economist, teaches economics, or worked in the banking industry on one side or the other,” I wrote then. No business people, no small business owners, no one “who lives and works in the real world, who has to deal with the edicts the Fed hands down.”

“Wouldn’t that perspective – even one – be a useful new voice to be considered when making monetary policy?” I asked. Continue reading "Revamping the Fed: The Time is Now"

Top Five Reasons Why the Fed Won't Raise Rates This Month

George Yacik - INO.com Contributor - Fed & Interest Rates


Eric Rosengren, the president of the Federal Reserve Bank of Boston, singlehandedly spooked the financial markets last Friday when he commented that “a reasonable case can be made” for the Fed to start raising interest rates soon, which traders and investors interpreted to mean as early as next week’s FOMC monetary policy meeting.

“If we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate,” Rosengren said. “A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

While I certainly don’t have any issue with what Rosengren said – I think the Fed should have started raising rates two years ago – I’m a little puzzled what exactly he said that put the markets to flight. He didn’t seem to say anything that other Fed officials, including Janet Yellen, hadn’t also said periodically recently, plus he didn’t offer any imminent schedule for raising rates. Yet that was apparently enough to get stock and bond traders to bail. Continue reading "Top Five Reasons Why the Fed Won't Raise Rates This Month"