“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Wednesday, August 01, 2007

What Banks are Too Big to Fail? Bernanke at Bat.

Play ball.

So the head of the St. Louis Fed, William Pool, said the Fed won't do much for now. Just words. Just words. Let the cracks in the ice reach under some of the major consolidated merged financial mega-structures and then we will see the Fed twitch. Shortly, we will find what the rookie new fed chief Bernanke will do.

Fed won't ride to rescue of markets: Poole
By Greg Robb, MarketWatch
Last Update: 1:52 PM ET Jul 31, 2007

WASHINGTON (MarketWatch) - Financial markets understand that the Federal Reserve won't respond quickly to a typical market upset such as last week's sharp stock sell-off, St. Louis Fed President William Poole said Tuesday.
The Fed should only act "in due time" if evidence accumulates that the market drops could undo price stability or low unemployment, or when financial market developments threaten market processes themselves, Poole said.
Last week's cumulative drop was the worst in four years for the Dow Jones Industrial Average. At the same time, trading in credit markets and Treasurys led to concerns about a possible credit crunch. See Market Snapshot.
Analysts are now debating how the Fed will address the turmoil in its policy statement, to be released after its meeting next Tuesday.
In his speech, Poole said the best policy for the Fed is to be cautious and try to understand the reasons for the market turmoil.
If the Fed is "overactive" in responding to market developments, this would set precedents to destabilize markets in the future, he said.
"If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second-guess the Fed than trying to understand what is happening to business and household behavior," Poole said in a speech prepared for delivery at the University of Missouri. Read the full text.
Poole said he was speaking only for himself, but his views add to the growing sense that the Fed under new chairman, Ben Bernanke, is trying to move away from the so-called "Greenspan Put."
That phrase was coined after Bernanke's predecessor, Alan Greenspan, pumped up the money supply in order to stabilize the markets after the stock crashes of 1987 and 1989, the demise of Long Term Capital Management in 1998, and the bursting of both the tech and the stock bubbles back in 2000. Read Kellner commentary on 'Greenspan put'
Poole said that his philosophy about the Fed's relationship with markets was grounded in the teachings of Milton Friedman.
But Poole said that well-anchored inflation expectations play a key role. This allows long-term rates to move in response to new information while short-term rates stay constant.
"The central bank can hold its policy rate relatively steady and rely on market adjustments in long rates to do much of the stabilization work," Poole said.
"When new information arrives, most of the time the central bank can wait for market responses and the passage of time to clarify what is happening," Poole said.
Poole said last week's volatile trading "was a perfect illustration" for the market. "The Fed doesn't know, and market participants do not know either, the full implications of last week's stock market declines and increases in risk spreads," Poole said.
"Market reactions last week may be overdone, or perhaps not," he said. "I'm not saying that the Fed should ignore what happened last week - we need to understand what is happening."
But Poole added that the Fed must not let uncertainty over policy to add to existing uncertainty.
"The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate," he said.
In some cases, like the terrorist attack of 9/11, a quick Fed policy response would be helpful, he said, but added that "a typical market upset, such as last week's, is not at all like 9/11."

Greg Robb is a senior reporter for MarketWatch in Washington.


  1. In memorium of what would have been Milton Friedman's 95th birthday yesterday,Friedman on Libertarianism and a joint CATO/Heritage memorial service at Heritage.

  2. Steyn is Filling in for Laura Ingraham

  3. Much ink has been spilled of late about the strength of foreign currencies versus the dollar, but in truth, many of the major currencies have been weakening too; just not as much as the dollar. The problem with measuring the paper concepts that are currencies against each other is that they can all move in tandem relative to the value of real things.

    When we factor in the constant that is gold, a different story emerges. While gold has risen 145 percent in U.S. dollars since June of 2001, it has also risen 45 percent in Australian dollars, 52 percent in Euros, 65 percent in Canadian dollars, and 73 percent in British pounds. When H.C. Wainwright principals David Ranson and Penny Russell wrote in a recent Wall Street Journal op-ed of “another classic ‘run’ on paper currencies,” they were talking about the gold price of currencies.
    Prosperity and economic productivity don’t create liquidity, they work against it. Growing economies require more money, meaning rising employment and production by definition sop up excess liquidity. While the major business media continue to wring their hands over a global boom that will in their view cause inflation, they misunderstand its true nature. The better question to ask would be how liquid and inflationary the world economy would be absent the expansion they speak of.

    Somewhat scarily for the excess liquidity picture, the Fed continues to view inflation as the result of strong resource utilization and too many people working. U.S. shares frequently sell off on good economic news given the understandable investor fear that the Fed will use its funds rate to slow the very growth that has kept the dollar’s weakness from turning into a rout.

    It is easier to understand Mr Maliki and his path forward than it is to divine the course of the Fed.

    Even the name denotes its undemocratic roots.

    Anyway, the story is in The American.

  4. At least they did it on the first day of their month vacation. No telling how great a set back their departure would have been while the Parliment was in session.

    These are the politicians that represent Anbar, quitting on US strategic goals, for their own selfish purposes.

    But they will expect US largess to continue to flow to their illegal militias, those that General P now appaulds.

    There will be thoose that say that the Sunni are now doing our bidding, that the US is trying to collapse the Iraqi Government. That the Sunni are acting upon US instructions.

    Mr Maliki and his Team will see it that way, what with the US already switching sides, militarily, in the middle of the War.

  5. Does anyone understand patent law well enough to comment on this?
    The Globalists' Plan To Give Away U.S. Patents

    by Phyllis Schlafly, August 1, 2007

    In extraordinary Senate-House coordination, the two Judiciary committees in the same week voted out a bill (S.1145 and H.R.1908) which, if it becomes law, will spell the end of America's world leadership in innovation. Called the Patent Reform Act, it is a direct attack on the unique, successful American patent system created by the U.S. Constitution.

    Prior to 1999, the U.S. Patent Office was required to keep secret the contents of a patent application until a patent was granted, and to return the application in secret to the inventor if a patent was not granted. That protected the legal rights of the inventor, who could then go back to the drawing board to perfect his invention and try again.

    A mischievous congressional "reform" in 1999 authorized the U.S. Patent Office to shift to the Japanese and European practice of publishing patent applications 18 months after filing whether or not a decision is yet made on granting a patent. Congress allowed a patent application, under certain conditions, to be exempt from the publication requirement, but the default procedure is to publish.

    The 2007 Patent bill would delete this exemption and require publication of all patent applications 18 months after filing even though a decision has not yet been made on granting a patent.

    By 2006, the U.S. Patent Office had placed 1,271,000 patent applications on the internet, giving access to anyone anywhere in the world. This foolish practice created a gold mine for China to steal U.S. innovations and get to market quickly.

    Chinese pirates don't roam the high seas looking for booty but sit at their computers, roam the internet, and steal the details of U.S. inventions that the U.S. Patent Office loads online. This practice became China's R&D program, and it is even more efficient than China's network of industrial and military spies.

    U.S. policy has always been to grant a patent to the first one who actually invents something. But the new Patent bill would change to the foreign system which grants patents to the first one to file papers.

    First-to-file would be a windfall to the megacorporations and a big disadvantage to the small-entity inventor. First-to-file would invite an avalanche of applications from the big companies that have the resources to grind out multiple filings, and the small inventor would be lost in the shuffle.

    The new Patent bill offers yet another way for patent pirates to steal our technology. It's called post-grant review: a plan to make it easier to challenge patents during the entire life of the patent.

    Another provision of the new Patent bill would shift decision-making about damages for patent infringement from market valuations to judgments by judges and juries. This would increase litigation and limit the ability of independent inventors and small companies to enforce their rights or to win just compensation from those who infringe their rights.

    The new Patent bill would also transfer unprecedented rule-making authority to the Patent office. That's an abdication of congressional responsibility.

    Add it all up, and it is clear that the new Patent bill is a big attack on the constitutional property rights of individual inventors and small enterprises, the very kind of entrepreneurs who give us our most important innovations. About a third of all patent applications are filed by individual inventors, small companies, universities, and non-profit groups.

    The common thread in the changes to be made by the new Patent bill is that they favor big companies like Microsoft and hurt individual and small-entity inventors.

    Microsoft has thousands of patents, and recently argued that the free GNU/Linux operating system infringes over 200 of them. Microsoft wants to be able to use its huge patent portfolio to intimidate potential competitors, and at the same time it wants it to be easier to knock out individual patents.

    If Congress wants to do something constructive for our patent system, Congress should reinstate the rule that the Patent Office may not publish a patent application until a patent is granted, and if it is denied the application must be returned to the inventor with his secrets intact.

    Congress should also give back to the Patent Office the flow of fees paid by inventors, which Congress took away in 1999 to spend on other projects. Then the Patent Office can hire more examiners and reduce its backlog of 800,000 applications.

    The U.S. patent system is the vital factor in the technological lead that gives us the edge over competitors and enemies. We must not let the globalists destroy it.