Progressive Breakfast for August 21

Morning Message

The Fed Should Be Meeting In Ferguson, Not Jackson Hole

Finally, residents in Ferguson, Mo., this morning are waking up to a violence-free night, 13 days after the shooting death of Michael Brown sparked days and nights of demonstrations and rage. Meanwhile, members of the Federal Reserve and other global central bank leaders are also waking up from a peaceful night’s sleep in Jackson Hole, Wyo., where two days of meetings about U.S. and world economic conditions are scheduled to begin. The central bankers and the Ferguson residents would do well to switch places. Ferguson is actually a much better place from which to understand the consequences of the past six years of economic policies.

Fed Debates End of Stimulus

Fed officials to debate ending monetary stimulus sooner at retreat. NYT: ” An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly from its stimulus campaign, arguing that the bank has largely exhausted its ability to improve economic conditions … Fed officials are convinced that the economy is gaining strength after the years of false starts, but a majority of policy makers, led by the chairwoman, Janet L. Yellen, favors a slow retreat from the Fed’s efforts to encourage job creation. They note that millions of people still cannot find jobs, while inflation remains relatively weak … however, a number of officials described a growing risk that the Fed’s control of inflation is being loosened by its focus on job creation.”

More from Bloomberg: “Federal Reserve officials pledged to reduce the size of the central bank’s record balance sheet as they continued to map out a strategy to exit from the most aggressive monetary stimulus in its 100-year history … The Fed will need … to put a floor under market rates until the central bank achieves its long-term goal of returning the $4.43 trillion balance sheet to a more normal size, a process that could take 10 years.”

France President blames EU austerity for weak growth. NYT: “After months of insisting that a recovery from Europe’s long debt crisis was at hand, President François Hollande on Wednesday delivered a far bleaker message. He indicated that the austerity policies France had been compelled to adopt to meet the eurozone’s budget deficit targets were making growth impossible. Paris officials say that France — the eurozone’s second-largest economy after Germany — will no longer try to meet this year’s deficit-reduction targets, to avoid making economic matters worse … [But] France was unlikely to recover soon from its long period of stagnation or quickly reduce its unemployment rate, which exceeds 10 percent.”

Bank of America Nears Settlement

Bank of America prepares to settle for $16.65B. NYT: “The Justice Department is poised to announce a $16.65 billion settlement with Bank of America over accusations that it duped investors into buying troubled mortgage securities … the single largest government settlement by a company in American history … The deal would resolve more than two dozen investigations from prosecutors across the country … To settle those varied investigations, some of which have not been previously reported, the bank is expected to pay a $9.6 billion cash penalty and $7 billion in so-called soft-dollar payments to aid struggling consumers … [The deal] has already drawn criticism for what it lacks. In lieu of lawsuits from various United States attorney offices, the deal will include a statement of facts that outlines the bank’s misconduct in only the broadest of terms.”

G20 moves to curtail “too big to fail.” Reuters: “Government leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue … The bonds, known as ‘gone concern loss absorption capacity’ or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being ‘too big to fail’ … [A] G20 source poured cold water on [giving banks leeway], saying regulators believe all the world’s top 29 banks earmarked for tougher supervision will need a significant cushion…”

TNR’s Dean Starkman slams settlements: “These settlements are wan consolation. The sums being surrendered, for starters, are large only until compared with the $13 trillion or so the public lost in the financial crash—or, for that matter, with the banks’ own coffers … the money won’t be paid by any parties actually responsible, but by the banks’current shareholders, who pretty much had nothing to do with the misdeeds in question. And the bulk of the settlements will be tax deductible. For destroying trillions in wealth and thousands of jobs, banks will get a write-off.”

Countrywide Faces Prosecution

Federal attorneys prepare to sue Countrywide founder. Bloomberg: “The last-ditch effort comes three years after the Justice Department abandoned a criminal probe of Mozilo. In 2012, public anger over the lack of prosecutions stemming from the financial crisis spurred the Obama administration to create ateam devoted to investigating fraud in mortgage-backed securities. The group has wrestled at least $20 billion from Wall Street banks using a law with a relatively low threshold for suing and a long period to bring cases. Relying on the same anti-fraud law … the U.S. attorney’s office in Los Angeles is preparing to sue [Angelo] Mozilo and as many as 10 other former Countrywide employees…”

Mozilo’s attorneys plead ill health. NYT: “…Mr. Mozilo’s lawyers have cautioned the prosecutors in Los Angeles that their client has a serious illness. The prosecutors have sought Mr. Mozilo’s health records, the people said, though for now the case remains on track.”

Breakfast Sides

Rep. Paul Ryan says any September shutdown will be the Democrats’ fault, in Roll Call interview: “Ryan predicted: ‘We will pass a clean [continuing resolution], and if for some reason the Democrats don’t take that, then they will clearly have shut the government down … it will be patently obvious … that they are playing politics with this, and trying to trigger a shutdown so they can blame us, but we’re really blameless in this particular situation.’ Ryan’s confidence that his conference will cooperate in passing a stop-gap spending bill free of controversial policy riders — ‘until Dec. 11 is what we’re thinking,’ said Ryan.”

Warren student loan bill to get another Senate vote. The Hill: “Sen. Elizabeth Warren (D-Mass.) said that the Senate will give her student loan bill a second vote in September, as Democrats look to push the issue ahead of November’s midterm elections … Warren’s bill would allow more than 25 million people to refinance student loans acquired before 2010 to a lower interest rate under 4 percent.”

Claim solar power harms birds debunked. Bloomberg: “Solar-thermal power plants in the U.S. are less likely to kill birds than automobiles, cats or communication towers, despite reports that say the facilities pose a significant threat to avian life … The environmental group National Audubon Society said solar power is not a major threat to birds. ‘Birds face a lot of threats all over the U.S.,’ said Garry George, Audubon California’s renewable energy director and chapter network director. ‘I wouldn’t say solar plants are a threat.’”