stockmarketinvestmentstrategy1

Any student in any beginning economics class soon learns that the way a nation or a society creates wealth is by making things or building things other people want to buy and are willing to pay for.

The Financial Elite figure out one way for them to maximize their wealth and power is to use poor people with no power in places like China and Indonesia to build things and sell them back to America.

To re-create Middle Class jobs, to get back to creating wealth by making things, to stop the Financial Elite from forcing American workers to compete with slave labor in China and child labor in parts of Latin America and Asia we have to restore common sense rules governing imports and exports. Our government must provide incentives for investments in domestic manufacturing and disincentives for oppressing workers in America and across the developing world.

We have to get back to creating wealth again not by manipulating money in ways that only benefit the Financial Elite.

American workers are some of the most skilled and productive workers in the world. We can build what we need here, what we use here. We can build and make here what other people need. We don't have to import cheap goods and export good jobs.

But it will take government and action by all of us. It will take a government willing to negotiate trade deals that protect workers rights and freedoms, that honor unions, that outlaw exploitation of workers here and abroad. If our government can negotiate trade deals that protect the investments of the Financial Elite, it can negotiate trade deals that protect the economic security of the United States and its people.

Our government also needs to provide incentives to re-develop manufacturing in the United States. Countries with a strong Middle Class and higher wages than we have and lower unemployment have government policies to encourage domestic or home-grown manufacturing and production and discourage worker exploitation. Countries like Canada and Germany and Sweden and Denmark and Brazil and South Africa are growing or maintaining a Middle Class by investing in and providing incentives for domestic manufacturing. These governments work with businesses and unions to protect Middle Class jobs and to protect investment internally.

When Europe came together to create a unified economic system, the European Union, they did it in a way to raise the standard of living in Portugal and Spain, not lower the standard of living in Germany and Sweden. We have been doing just the opposite.

When the United States entered World War II we took the manufacturing capacity that had been created in Chicago and Detroit and Flint and Toledo and Akron and Pittsburgh and turned it to manufacturing the munitions and tanks and rifles and planes that the allies used to defeat Nazism, Fascism, and Japanese Imperialism.

Not just our economic security but our national security demands we re-build our ability to create wealth and to protect the economic and national security of the United States.

25 Responses to “Ben Bernanke Has Ways of Making Banks Lend”

1. Th Says:
   

   January 28th, 2010 at 10:56 am

   Math challenged as well as spelling challenged. 7% not 0.7%

2. Matt Says:
   

   January 28th, 2010 at 10:57 am

   Great post, and I really like the information you’ve been providing about the ability to increase lending by lowering rates. 1 small thing though – I think you mean 7% of GDP though – not 0.7%

3. Stephan T. Lavavej Says:
   

   January 28th, 2010 at 10:58 am

   $1 trillion is 7% of GDP ($14.2 trillion), not 0.7%.

4. Paulie Carbone Says:
   

   January 28th, 2010 at 11:03 am

   In hip-hop terms, this is Drum taking the side of Hayek against Keynes

   Oh, that clears everything up. WTF does that have to do with this. MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.

5. Shooter242 Says:
   

   January 28th, 2010 at 11:04 am

   fiddling with an easy-to-access alternative can swiftly and systematically alter perceptions of what kinds of loans make sense.

   Except for the part where Federal regulators tell banks what kind of loans to make. Tight lending parameters make the cliche true… Shaky companies need credit, Solid companies don’t.

   But hey, advocating sub par loans with low interest rates, will make Greenspan a fan of this blog.
   Keep up the good work.

6. Jasper Says:
   

   January 28th, 2010 at 11:11 am

   Can somebody remind me again why Obama wants this guy to stay on? Should we take this as a sign he doesn’t want to run for reelection?

7. DMonteith Says:
   

   January 28th, 2010 at 11:15 am

   MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.

   Well, first of all, Hayek is a generic right-wing bad guy. Also, this.

8. Ed Marshall Says:
   

   January 28th, 2010 at 11:54 am

   Shaky companies need credit, Solid companies don’t.

   Is that a cliche from the bar down the street about running tabs or something? It doesn’t translate *at all* to things like the commercial paper market.

9. Thomas Says:
   

   January 28th, 2010 at 12:09 pm

   Two things:

   1. I think Matt needs to distinguish between Bernanke and the Fed. Note that Bernanke didn’t even get a unanimous vote yesterday on what is, in my view and Matt’s, a pretty weak forward looking statement on interest rates.

   2. I don’t think Matt really takes this position seriously. Matt believes the mainstream Obama line, which is that the crisis began on Wall Street and was the result of regulatory failures. If Sumner is right, the Fed’s failures were not regulatory failures but failures in its monetary policy, and the solution to that is to get the monetary policy right, not give the Fed additional regulatory authority to compensate for the fact that it’s doing an incompetent job at its main task.

10. Haiti, State of Nature, and Birth Control | Conservative Heritage Times Says:
    

    January 28th, 2010 at 12:25 pm

    the current debate about Haiti (here, here, and here), I would like to add a few

11. Max424 Says:
    

    January 28th, 2010 at 12:54 pm

    Western central bankers have lost control of their fiat currencies, and they know it. Total world money supply now exceeds $70 trillion.

    Having raced by annual world GDP last year, the pace of monetary expansion continues to accelerate. Out of control money is constructing another in a long series of chart classics — the exponential mountain.

    http://goldseek.com/news/2009/1-12mh/11.png

    That’s not the worst part, not even close. The most conservative estimate of worldwide bank exposure to shadow derivatives is $600 trillion. Many estimates are much, much higher. China believes the true level of exposure lies closer to $1.4 quadrillion. –Yup, $1.4 quadrillion.

    If you take the conservative figure, $600 trillion, and put an absurdly low failure rate on these derivatives, of say 10%, the banks of the world stand to lose, AT MINIMUM, 60 trillion dollars over coming decade.

    You can see why Ben wants to tighten up and pack the toolkit. When Ben makes his move, he want to be fully prepared. Soon, an all effort on his part will be required to slow the advance of the inevitable two-front onslaught, a hyper-inflationary event in conjunction with -or leading to- the total failure of the worldwide banking system.

12. rapier Says:
    

    January 28th, 2010 at 1:04 pm

    The banks in fact do not have excess reserves. They have excess reserves only to the extent their required reserves are actually pegged at an inadequate level by the Fed, on an absolute basis and on the basis of accounting legerdemain which allows them to overstate or ignore the likely real value and likely losses on their book of loans.

    The entire excess reserves thing is a canard. Then there is the problem that it is loan demand that is the driving force behind the shrinkage of private sector borrowing. Since every sector of the economy is over leveraged it stands to reason more debt is being rejected by so many. After all it was excess debt which got us into this mess.

    One can always hope I suppose
    http://julianaheng.com/wp-content/images/DollDivinePony_MagicPop.jpg

13. OGT Says:
    

    January 28th, 2010 at 1:11 pm

    Drum’s got a point, I think. Sumner (and hence Matt) look at this entirely from a supply side of credit. But there is an effective demand side as well, banks are looking for credit worthy borrowers. The return on a defaulted loan is not good at any interest rate. True if they all lent at once NGDP would skyrocket, but individual banks have an incentive to not be the first mover.

    Maybe Drum’s siding with Minsky and endogenous credit.

    That said, it’s clear that giving banks interest on reserves is contractionary for lending and NGDP. The only reason I can think to support it is a back door recapitalization of the banks.

14. rapier Says:
    

    January 28th, 2010 at 1:23 pm

    Nation state dysfunction is a function of the growing power of corporations. Most if they buy into this sort of argument tend to think of the growing power of corporations as a derivative of the waning of governance. I myself usually like to think of the trends as complimentary but putting a thumb on the scale in favor of corporate/private power over government/public/communal power going to have to be the hook needed to move public and government perceptions of the issue going forward.

    The ceding of governmental power to private/corporate power is widely perceived in the case of GS but of course it runs far deeper. In that case however the politicians in their guts understand the threat to their own power. Their interests however are too diffuse to concentrate on this usurpation of their power. Largely due to their antagonists propaganda campaign which put so many of them on their side. The greatest Trojan Horse of all time.

15. Pete Says:
    

    January 28th, 2010 at 1:29 pm

    Drum:

    “Lowering the interest rate on excess reserves won’t change this, it will just eat into bank earnings, and right now the Fed is eager for banks to recapitalize as quickly as possible.”

    Isn’t Obama’s fee on the top 50 banks eating into their earning? Which way is better? Do both?

    I agree the financial sector needs to be shrunk and regulated, but it also is the avenue to allocate credit and reduce unemployment, like it or not. How well it does this is debatable.

    Obama was great on the need for regulation last night and threatened to veto bills that didn’t go far enough. He has Bernanke and Geithner there to lend establishment cred. (plus to lend credence to his bipartisan rhetoric.)

    The housing bubble provided a huge amount of demand, and that is gone.

    It’s entirely possible we slip back into crisis. If that happens he can let go Summers and them and bring in some new faces.

16. kafka Says:
    

    January 28th, 2010 at 1:37 pm

    Making banks lend = making people borrow. Got any ideas, Matt?

17. Ape Man Says:
    

    January 28th, 2010 at 1:50 pm

    Banks don’t lend out reserves to private entities, they lend out reserves to each other.

    There’s not much more to say. The described calculation is imaginary. If a bank has $1 in excess reserves, its two choices are to hold them at the fed in some way (either in a security or just as a cash balance) or to loan them to another bank at the fed funds rate.

    It can’t lend reserves to a private entity. Banks don’t do that. You can look it up!

    Another way of saying this is that a bank lends money without regard to its reserve position. You can ask a bank manager “hey, how often each day do you check your reserve position to make sure you have money to lend out?” and he will laugh at you because he has no idea what his bank’s reserve position is and he never checks it ever.

18. Colatina Says:
    

    January 28th, 2010 at 1:54 pm

    “MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.”

    No he’s referring to a very specific set of claims that Hayek made about business cycles, which are believed by only a small number of academic economists, even on the right.

    Hayek was too smart to be viewed as some generic, right-wing standard-bearer who can’t be called straighforwardly wrong about anything by anyone but a left-wing hack.

19. DTM Says:
    

    January 28th, 2010 at 2:20 pm

    It is hard to tell, but I think in Matt’s mind, excess bank reserves deposited with the Fed take the form of cash sitting in a vault somewhere. This is incorrect. The Fed can then use those reserves to purchase securities, which it has been doing at longer terms in an attempt to lower longer-term interest rates, which in turn is intended to stimulate more investment and consumption.

    The more the Fed can borrow short and lend long, the better that will work. Paying interest on excess reserves helps that happen. Another way to put this point is that the Fed is trying to get banks to put their short-term money with the Fed instead of somewhere else, because the Fed knows that at least it is going to lend that money out at longer-terms, as opposed to other potential holders of short-term money.

    By the way, all this just applies to excess reserves. With required reserves, you aren’t changing bank behavior at all, of course, just basically providing them with a little back-door recapitalization.

    Anyway, here is an article touching on this, which I would urge Matt to read.

20. Paulie Carbone Says:
    

    January 28th, 2010 at 2:26 pm

    No he’s referring to a very specific set of claims that Hayek made about business cycles

    Which ones? How does that relate to his disagreement with Drum about interest on Fed reserves? How is Drum “taking the side of Hayek” by advocating high interest rates on central bank reserves?

21. H-Bob Says:
    

    January 28th, 2010 at 2:42 pm

    Let’s see … refusing to use monetary policy to improve the economy won’t undermine confidence in the effectiveness of monetary policy going forward because that will reassure the public that the central bank will use monetary policy will be used to resist further upward shifts in inflation.

    How asinine ! If the Fed refuses to use monetary policy to fix the worst recession in 80 years then why should the public be confident that the Fed actually will use monetary policy to fight future inflation ? Then I suppose my doctor shouldn’t treat my broken leg because I will be less confident that he would be willing to perform a knee replacement if I needed one 10 years from now ?

22. Bob Says:
    

    January 28th, 2010 at 2:47 pm

    All of this is besides the point. What we should have learned is that when the Fed tries to help us by keeping the interest rates low is that we loose. We loose baddly, and it will get worse. Low interest rates only lead to bad decisions by everyone. And there is no good way to figure out what to do. Quit playing tinker toys with interest rates.

23. Paulie Carbone Says:
    

    January 28th, 2010 at 2:52 pm

    Low interest rates only lead to bad decisions by everyone. And there is no good way to figure out what to do. Quit playing tinker toys with interest rates.

    Now that’s taking the side of Hayek. It’s also completely wrong…

24. Max424 Says:
    

    January 28th, 2010 at 4:17 pm

    The Fed is currently attempting to break the Guinness Book of World Records for having the most balls in the air at the same time.

    They got the legal scam thing going on, where they lend the big banks money, the big banks buy T-bills, make the spread, then pay back the loans. That’s a good one.

    The Fed also did A LOT quantitative easing in 2009. By August of last year, they had lent out $2.3 trillion at essentially zero percent interest, $500 billion of that money, shipped off to Europe. No quantitative easing was available for American small-businesses, however. The small business sector in 2009 experienced the greatest credit crunch United States history.

    Let’s see, what else. Oh, the Fed bought 80% of the debt issued by the Treasury Department in 2009. Oh yeah, this was an unprecedented event, and a clarion call, a dire and ominous warning, that few Americans want to hear (la..la..la), nobody wants American dollars. NOBODY.

    The magic debt buying moves of the Fed worked out nicely for their balance sheet, though. The Fed paid themselves interest for printing the money to buy the debt and made a tidy little profit in doing so.

    And then there’s the housing industry. The Fed took it over completely in 2009. It owns it. The Fed, with help from Fanny and Freddy, became the terminal buyer of 100% of the mortgages issued last year. If you include all the other mechanisms the Fed employed to prop the real estate market in 2009, the bailouts totaled $1.25 trillion.

    But, they’re getting out. The Fed started pulling out the props in December and has announced it will have nothing more to do with American housing after March. The immediate reaction, existing home sales in December took their biggest month to month plunge in 40 years.

    The good news? Once less ball in the air.

25. The Desert Lamp » The Bureau Abroad » Fed Superstar Bernanke Returns for a Second Try Says:
    

    January 28th, 2010 at 11:19 pm

    Some have suggested that if increasing the excess reserve interest rate would curb inflation by encouraging banks to hold on to their money, then decreasing the rate would be an expedient move now, making it easier for banks and individuals alike to obtain loans. This much is true. However, conflating an increased money supply with growth would be a mistake. Just because small businesses and individuals have easier access to funds, that does not necessarily mean that growth will increase. In order for this to happen, there has to be a corresponding increase in demand, consumer confidence, and, of course, employment. Until the Administration addresses these fundamental issues, any moves by the fed to manipulate the excess reserve rate would necessarily be short-sighted and ineffectual. Share It:

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The relief and recovery effort in n Haiti, immediate and long term, dominated the Sunday conversation, as President Obama’s point men explained and defended the administration’s response and his two immediate predecessors discussed their new joint effort to raise money and awareness for the long haul.

“We’re going to be here as long as we are needed,” was Army Lt. Gen. P.K. Keen’s message from Port-Au-Prince.

“Our goal and our metric of success is to be able to do more every single day,” was the standard set by Dr. Rajiv Shah, the administrator of the U.S. Agency for International Development.

Seated side-by-side in the Map Room of the White House where each worked and lived for eight years, former Presidents Bill Clinton and George W. Bush promised to keep attention on Haiti’s reconstruction long after media attention moves on.

“We’re a safe haven,” Mr. Bush said of their fund-raising effort, warning Americans to beware of scams and brushing aside the irony of the fact that the man politically scarred by the government’s response to Hurricane Katrina was returning to the spotlight to help deal with a natural disaster. “People love to point fingers.”

For his part, Mr. Clinton said the goal of the longer-term effort had to be to help Haiti escape its legacy of poverty and corruption. “I won’t feel successful if all we do is get them back to where they were the day before the earthquake.”

While Haiti dominated the day, there were reminders of the new political climate at home. One year after Washington prepared for the Obama inaugural, the talk in Washington was of Republican momentum in the Massachusetts special Senate election – and of what message the race would send to frame the early midterm year mindset.

“This is, in effect, a referendum on the national health care bill,” said Senate Republican leader Mitch McConnell, and most Democrats conceded there was little arguing with that, even as they grumbled about their candidate and her campaign.

On now to the Sound of Sunday, and forgive the repetition: the show lineups were remarkably familiar because of the administration’s push to make the case it was responding aggressively to the Haiti crisis.

THE NUTS AND BOLTS
Lt. Gen. P.K. Keen, Deputy Commander, U.S. Southern Command, on CNN’s “State of the Union” responding to complaints that some planes with food, water and medical equipment weren’t being permitted to land.
“It's a matter of balance between getting relief supplies on the ground, and getting the people on the ground that is necessary to get the relief supplies distributed, and getting the logistical operation on the ground so we can get it out by ground as well as by air.”

Rajiv Shah, USAID Administrator, on CNN’s “State of the Union”
“We have 30 teams from around the world on the ground. Each of the teams have 70-plus individuals. They have dogs and assets and specialized equipment and are working around the clock. And we set up a center that will allow the others to know where to go. You always want more, and we have a number of teams on stand by here in the United States. But we were even told by the Haitian government that - that we need to balance the degree of that versus food and rations.”

Rajiv Shah, USAID Administrator, on CNN’s “State of the Union”
“Our goal and our metric of success is to be able to do more every single day, and more in the sense of delivery of commodities. As we get greater capabilities and as we secure a real partnership and cooperative working relationship with the range of partners.”

Lt. Gen. P.K. Keen, Deputy Commander, U.S. Southern Command, on CNN’s “State of the Union”
“We are going to be here as long as we are needed. What I have on the ground right now is 1,000 - approximately 1,000 military personnel. I have more coming today. Two more companies out of the 82nd airborne decision. In the coming days I will have Marines coming up, and we will have critical enablers to clear roads.”

USAID Administrator Rajiv Shah on NBC’s “Meet the Press”
“We're aware that we're racing against the clock, and that is why when the President asked us to have a swift and coordinated response, we didn't hesitate. We immediately began, at the U.S. Agency for Regional Development and with partners from across the government, FEMA, DHS and a number others, we immediately mobilized resources, food items, commodities, like health and medical kits, and started sending those down to Haiti as soon as we possibly could.”

Rajiv Shah, USAID Administrator, on ABC’s “This Week”
“There are not a lot of supplies piling up at the airport things that are getting there are going out. The challenge is we are talking about three and half million people in need.”

Lt. Gen. P.K. Keen, Deputy Commander, U.S. Southern Command, on “Fox News Sunday”
“We had a very good day yesterday. Paratroopers from the 82nd Airborne Division who have only arrived within the last day or two delivered over 70,000 bottles of water and 130,000 rations and we’re going to be able to increase that every day.”

THE LONGER VIEW
Former President George W. Bush, on CNN’s “State of the Union”
“For me success is helping save lives in the short term and then we can worry about the long term after the situation has been stabilized. But I think it's a legitimate question. Do we want to put money into a society that hasn't benefited after we've stabilized? And the answer is I think we do, just so long as we work with the government to develop a strategy that makes sense. To say the country can't succeed is too defeatist as far as I’m concerned.”

Former President Bill Clinton, on CNN’s “State of the Union”
“I would define success as setting up a network quickly to get the food, water, medicine, security, and information people need. And then, as quickly as possible, resuming the path they were on before the earthquake to build a strong, modern country. I think they can do it. I agree with you. I won't feel successful if all we do is get them back to where they were the day before the earthquake.”

Former President George W. Bush, on CNN’s “State of the Union”
“One of the things I am concerned about is that on these - during these crises, all kinds of fake charities spring up, that, you know, take advantage of people's goodwill, and we're safe haven. We will make sure the money is accounted for and there's transparency and properly spent.”

Former President George W. Bush, on ABC’s “This Week”
“I think it's important for the Haitian government, once the initial stage of the crisis passes, explain a clear strategy that means the money will be well-spent. It's one thing to save lives. It's going to be another thing to make sure that the long-term development project has a reasonable plan.”

Former President Bill Clinton on CBS’ “Face the Nation”
“I’ve already talked to a lot of these donor nations. And keep in mind, they pledged a lot of money before this happened. We in the United States, as we always do, have given a higher percentage then what we pledged. So a lot of these countries have money set aside they can put there. I think we can afford it. I don’t think we can afford not to do it.”

Eleanor Holmes Norton (D-DC Delegate) on CNN’s “State of the Union
“Having taken the leadership, having seen the devastation, the road ahead is how can we rebuild the country of Haiti with the kinds of resources it’s not had in 300 years?”

ODD COUPLE?
Former President Bill Clinton, on CNN’s “State of the Union”
“I think when people see us together, look, they know we have differences even though we're friends, and what I - the only political thing I hope that comes out of this is that people keep their differences of conviction but treat their neighbors as friends.”

Former President George W. Bush, on CNN’s “State of the Union”
“My brother calls him my stepbrother and my mother calls him my stepbrother.”

Former President George W. Bush, on CNN’s “State of the Union”
“I frankly don't miss the limelight. I'm glad to help out, but there's life after the presidency is what I’ve learned, and I'm going to live it to the fullest, and this is part of living it to the fullest, to help other people.”

Former President Bill Clinton, on CNN’s “State of the Union”
“I think that once you've been president, you shouldn't gratuitously offer any advice to your successor. If somebody asked you what you think, you tell them. Otherwise you just show up when you're asked to help.”

Former Presidents George W. Bush and Bill Clinton on CBS’ “Face the Nation” on whether they consider themselves friends

BUSH: “Yeah I do.”

CLINTON: “Me too.”

BUSH: I called him. He didn't call me because he knows how busy a president is. I called him and we chatted on occasion.”

CLINTON: “I was always pleased when he called me. I'd try, I make it a practice never to bother the president. I don't call President Obama either. I don't think it's, you know, they've got plenty to do. But I, we have developed a very honest, good friendship. And we've made our disagreements respectful and we've had a good time doing it.”

THE MASSACHUSETTS MESSAGE
Senate Minority Leader Mitch McConnell (R-KY) on “Fox News Sunday”
“Regardless of the outcome Tuesday, we know in the most liberal state in America you're going to have a close election for the United States Senate because people in Massachusetts don't want this health care bill to pass.”

Republican strategist Mary Matalin on CNN’s “State of the Union”
“If we win a seat in a state that’s 12 percent Republican on the signature issue of the Obama agenda – health care – this will change the way politics tastes. Even if we don’t win. If we win it will be apocalyptic for the Democrats. That we got this close is nothing short of cataclysmic. This agenda is going to change.”

Democratic strategist James Carville on CNN’s “State of the Union
“I was involved in one of these things in 1991 in Pennsylvania. And it could happen. And if it does happen, the last place that I’d want to be is at the Wednesday morning staff meeting at the White House.”

Senior White House Correspondent Ed Henry on CNN’s “State of the Union”
“I was told very reliably that a couple of the president’s top advisers have told senior Democrats they think Coakley’s going to lose.”

Eleanor Holmes Norton (D-DC Delegate) on CNN’s “State of the Union on whether Democrats should rush to get final approval on a health care bill because of the tight Massachusetts senate race
“I don’t think you should rush, but I don’t think you should put aside regular order either. If we get it finished, we shouldn’t wait for somebody to come and kill it.”

Enjoy the rest of your Sunday and the week ahead,
John King

The CNN Washington Bureau’s morning speed read of the top stories making news from around the country and the world.

WASHINGTON/POLITICAL
For the latest political news: www.CNNPolitics.com

CNN: Union leaders: Deal reached on taxing 'Cadillac' health care plans
Union leaders, the White House and congressional Democrats have agreed to limit the reach of a tax on high-end health insurance plans that would help pay for a proposed overhaul of the U.S. health care system, union leaders involved in the talks said Thursday.

CNN: Poll: Most prefer House's tax on rich over Senate's high-end policies
As House and Senate Democrats try to merge two separate health care reform bills, a new national poll suggests that when it comes to paying for the legislation, Americans favor provisions in the House bill over those in the Senate version.

The Hill: Reid: Senate has time for climate bill
Majority Leader Harry Reid (D-Nev.) on Thursday said that there is room on the busy Senate calendar to bring up a sweeping energy and climate change bill this spring.

Politico: GOP: We'll take back the House
GOP leaders have privately settled on a strategy to win back the House by putting the vast majority of their money and energy into attacking Democrats — and turning this election into a national referendum on the party in power.

New York Times: Cuomo’s War Chest Is Five Times as Big as Paterson’s
Attorney General Andrew M. Cuomo has not formally announced his candidacy for governor, but he is already running ahead in the fund-raising race.Mr. Cuomo is to report on Friday that he has more than $16 million in his campaign account, dwarfing Gov. David A. Paterson’s war chest of more than $3 million.

CNN: Massachusetts Senate race now a toss-up, analysts say
The Massachusetts Senate race between Democrat Martha Coakley and Republican Scott Brown is now a tossup, according to two respected, non-partisan analysts.

New York Times: 3rd-Party Candidate Named Kennedy Could Tip Senate Race in Massachusetts
In most elections, a politician calling himself the Tea Party candidate would cheer Democrats, raising hopes that he would siphon votes from Republicans by attracting some of the disaffected anti-Washington, anti-Obama electorate.But when the election is being held to fill a seat that was left vacant by the death of Senator Edward M. Kennedy, and the Tea Party candidate happens to be named Joe Kennedy, things get a little murkier.

Boston Globe: Brown’s run may be model for GOP
National GOP strategists say that the unexpected tightening in the Massachusetts Senate race has demonstrated the potency of the electorate’s antipathy for the Democratic health care legislation, and that Republican Scott Brown’s campaign could become a template for Republican challengers across the country in this year’s midterm elections.

San Francisco Chronicle: Campbell could reshape Senate race
Unable to compete against much wealthier candidates, former San Jose Rep. Tom Campbell will reshape the U.S. Senate race that he jumped into Thursday more than the governor's campaign he just abandoned, analysts said.

NATIONAL
For the latest national news: www.CNN.com

CNN: Source: Terror threat by 'viable operatives' extends beyond aviation
Information gained since the attempted airplane bombing on Christmas Day has U.S. officials concerned that al Qaeda in Yemen has “trained and equipped … viable operatives” to strike U.S. targets - including targets unrelated to aviation, a reliable source familiar with the investigation told CNN Thursday.

CBS News: Alleged Quake Scams Popping Up Already
Less than 24 hours after Tuesday's devastating earthquake hit Haiti, the FBI received complaints of charity fraud.”The Early Show” has learned that the bureau is considering criminal charges against one Web site soliciting donations for victims of the temblor.

Los Angeles Times: Handling of Ft. Hood shooting suspect could bring discipline
Between five and eight Army officers are expected to face discipline for failing to take action against the accused Ft. Hood shooter, Maj. Nidal Malik Hasan, over a series of behavioral and professional problems in the years leading up to the November rampage.

CNN: Wizards' Gilbert Arenas charged with felony gun violation
Washington Wizards point guard Gilbert Arenas has been charged with a felony gun violation after admitting he drew guns in the team locker room in a highly publicized December 21 incident.

USA Today: Thousands of high-risk kids missing 2nd H1N1 flu doses
Hundreds of thousands of children are overdue for a second dose of H1N1 vaccine that's needed to fully protect them from swine flu, a USA TODAY review of data from 10 states shows.

INTERNATIONAL
For the latest international news: http://edition.cnn.com

CNN: Haitians dig themselves out as quake damage slows outside aid
Haitians took recovery efforts into their own hands Thursday as aid workers trickled into the quake-battered capital where impassable roads, damaged docks and clogged airstrips slowed the arrival of critically needed assistance.

New York Times: Cuba Agrees to U.S. Medevac Flights
The United States has struck an agreement with the Cuban government to send medical evacuation flights with victims from the Haiti earthquake through restricted Cuban airspace, an official said, reducing the flight time to Miami by 90 minutes.

Christian Science Monitor: Marines to aid Haitian earthquake relief. But who's in command?
Some 5,700 US marines and soldiers are expected to join Haitian earthquake relief efforts this weekend. The UN says its peacekeeping force should be in command. The US says no.

Wall Street Journal: A Revolutionary Idea in Mexico: Don't Have One This Century
The arrival of 2010 is spurring looks backwards and fears of history repeating itself. That's because in the past two centuries, there have been revolutions in Mexico—both in years ending in 10.

New York Times: Iraqi Commission Bars Nearly 500 Candidates
Iraq’s independent electoral commission on Thursday barred about 500 candidates from running in parliamentary elections in March, among them an influential Sunni Muslim politician, in a decision that could stoke sectarian tensions here and deprive the vote of crucial legitimacy in the eyes of part of the electorate.

London Times: UK banks face $10bn bill from US over bailouts
Three British banks may have to pay more than $10 billion (£6 billion) to the US Government as part of its crackdown on financial institutions bailed out by taxpayers.

BBC News: Gene map of anti-malaria plant could boost supply
Global supply of a key, plant-based, anti-malaria drug is set to be boosted by a genetic study, scientists say. Researchers have mapped the genes of Artemisia annua to allow selection of high-yield varieties.

BUSINESS
For the latest business news: www.CNNMoney.com

CNNMoney: Obama calls for bailout tax
President Obama on Thursday called on Congress to tax the largest banks to ensure that U.S. taxpayers don't lose a penny from the federal bailout of the financial, auto and insurance industries over the past year.

Wall Street Journal: Banks Set for Record Pay
Major U.S. banks and securities firms are on pace to pay their people about $145 billion for 2009, a record sum that indicates how compensation is climbing despite fury over Wall Street's pay culture.

Wall Street Journal: Concern About Fees Threatens to Delay Olympic Bidding
After years of bidding up fees for the rights to televise sports, U.S. media companies are putting on the brakes. Richard Carrion, a member of the International Olympic Committee's executive board, said the organization is seriously considering delaying until next year the bidding for the U.S. media rights for the 2014 and 2016 Olympics because of the ongoing struggles of broadcasters hurt by a rocky advertising market.

Bloomberg: Wall Street May Reduce Compensation Costs to Avoid More Outcry
Wall Street firms, facing pressure from lawmakers and shareholders to rein in pay, may report smaller bonus pools because of lower fourth-quarter revenue and mounting public outrage, analysts say.

Bloomberg: Google Said to Have Tried to Get Support Over Attack
Google Inc. approached other companies to seek their help drawing attention to a cyber attack from China last month and was frustrated by their reluctance to come forward, according to a person familiar with the matter.

In Case You Missed It

CNN's Chris Lawrence interviews a USAID worker who describes the rescue efforts in Haiti

President Obama says he wants a quick and coordinated response from U.S. agencies in providing aid to Haiti.

Subscribe to the CNN=Politics DAILY podcast at http://www.cnn.com/politicalpodcast

And now stay posted on the latest from the campaign trail by downloading the CNN=Politics SCREENSAVER at http://www.CNN.com/situationroom

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The relief and recovery effort in n Haiti, immediate and long term, dominated the Sunday conversation, as President Obama’s point men explained and defended the administration’s response and his two immediate predecessors discussed their new joint effort to raise money and awareness for the long haul.

“We’re going to be here as long as we are needed,” was Army Lt. Gen. P.K. Keen’s message from Port-Au-Prince.

“Our goal and our metric of success is to be able to do more every single day,” was the standard set by Dr. Rajiv Shah, the administrator of the U.S. Agency for International Development.

Seated side-by-side in the Map Room of the White House where each worked and lived for eight years, former Presidents Bill Clinton and George W. Bush promised to keep attention on Haiti’s reconstruction long after media attention moves on.

“We’re a safe haven,” Mr. Bush said of their fund-raising effort, warning Americans to beware of scams and brushing aside the irony of the fact that the man politically scarred by the government’s response to Hurricane Katrina was returning to the spotlight to help deal with a natural disaster. “People love to point fingers.”

For his part, Mr. Clinton said the goal of the longer-term effort had to be to help Haiti escape its legacy of poverty and corruption. “I won’t feel successful if all we do is get them back to where they were the day before the earthquake.”

While Haiti dominated the day, there were reminders of the new political climate at home. One year after Washington prepared for the Obama inaugural, the talk in Washington was of Republican momentum in the Massachusetts special Senate election – and of what message the race would send to frame the early midterm year mindset.

“This is, in effect, a referendum on the national health care bill,” said Senate Republican leader Mitch McConnell, and most Democrats conceded there was little arguing with that, even as they grumbled about their candidate and her campaign.

On now to the Sound of Sunday, and forgive the repetition: the show lineups were remarkably familiar because of the administration’s push to make the case it was responding aggressively to the Haiti crisis.

THE NUTS AND BOLTS
Lt. Gen. P.K. Keen, Deputy Commander, U.S. Southern Command, on CNN’s “State of the Union” responding to complaints that some planes with food, water and medical equipment weren’t being permitted to land.
“It's a matter of balance between getting relief supplies on the ground, and getting the people on the ground that is necessary to get the relief supplies distributed, and getting the logistical operation on the ground so we can get it out by ground as well as by air.”

Rajiv Shah, USAID Administrator, on CNN’s “State of the Union”
“We have 30 teams from around the world on the ground. Each of the teams have 70-plus individuals. They have dogs and assets and specialized equipment and are working around the clock. And we set up a center that will allow the others to know where to go. You always want more, and we have a number of teams on stand by here in the United States. But we were even told by the Haitian government that - that we need to balance the degree of that versus food and rations.”

Rajiv Shah, USAID Administrator, on CNN’s “State of the Union”
“Our goal and our metric of success is to be able to do more every single day, and more in the sense of delivery of commodities. As we get greater capabilities and as we secure a real partnership and cooperative working relationship with the range of partners.”

Lt. Gen. P.K. Keen, Deputy Commander, U.S. Southern Command, on CNN’s “State of the Union”
“We are going to be here as long as we are needed. What I have on the ground right now is 1,000 - approximately 1,000 military personnel. I have more coming today. Two more companies out of the 82nd airborne decision. In the coming days I will have Marines coming up, and we will have critical enablers to clear roads.”

USAID Administrator Rajiv Shah on NBC’s “Meet the Press”
“We're aware that we're racing against the clock, and that is why when the President asked us to have a swift and coordinated response, we didn't hesitate. We immediately began, at the U.S. Agency for Regional Development and with partners from across the government, FEMA, DHS and a number others, we immediately mobilized resources, food items, commodities, like health and medical kits, and started sending those down to Haiti as soon as we possibly could.”

Rajiv Shah, USAID Administrator, on ABC’s “This Week”
“There are not a lot of supplies piling up at the airport things that are getting there are going out. The challenge is we are talking about three and half million people in need.”

Lt. Gen. P.K. Keen, Deputy Commander, U.S. Southern Command, on “Fox News Sunday”
“We had a very good day yesterday. Paratroopers from the 82nd Airborne Division who have only arrived within the last day or two delivered over 70,000 bottles of water and 130,000 rations and we’re going to be able to increase that every day.”

THE LONGER VIEW
Former President George W. Bush, on CNN’s “State of the Union”
“For me success is helping save lives in the short term and then we can worry about the long term after the situation has been stabilized. But I think it's a legitimate question. Do we want to put money into a society that hasn't benefited after we've stabilized? And the answer is I think we do, just so long as we work with the government to develop a strategy that makes sense. To say the country can't succeed is too defeatist as far as I’m concerned.”

Former President Bill Clinton, on CNN’s “State of the Union”
“I would define success as setting up a network quickly to get the food, water, medicine, security, and information people need. And then, as quickly as possible, resuming the path they were on before the earthquake to build a strong, modern country. I think they can do it. I agree with you. I won't feel successful if all we do is get them back to where they were the day before the earthquake.”

Former President George W. Bush, on CNN’s “State of the Union”
“One of the things I am concerned about is that on these - during these crises, all kinds of fake charities spring up, that, you know, take advantage of people's goodwill, and we're safe haven. We will make sure the money is accounted for and there's transparency and properly spent.”

Former President George W. Bush, on ABC’s “This Week”
“I think it's important for the Haitian government, once the initial stage of the crisis passes, explain a clear strategy that means the money will be well-spent. It's one thing to save lives. It's going to be another thing to make sure that the long-term development project has a reasonable plan.”

Former President Bill Clinton on CBS’ “Face the Nation”
“I’ve already talked to a lot of these donor nations. And keep in mind, they pledged a lot of money before this happened. We in the United States, as we always do, have given a higher percentage then what we pledged. So a lot of these countries have money set aside they can put there. I think we can afford it. I don’t think we can afford not to do it.”

Eleanor Holmes Norton (D-DC Delegate) on CNN’s “State of the Union
“Having taken the leadership, having seen the devastation, the road ahead is how can we rebuild the country of Haiti with the kinds of resources it’s not had in 300 years?”

ODD COUPLE?
Former President Bill Clinton, on CNN’s “State of the Union”
“I think when people see us together, look, they know we have differences even though we're friends, and what I - the only political thing I hope that comes out of this is that people keep their differences of conviction but treat their neighbors as friends.”

Former President George W. Bush, on CNN’s “State of the Union”
“My brother calls him my stepbrother and my mother calls him my stepbrother.”

Former President George W. Bush, on CNN’s “State of the Union”
“I frankly don't miss the limelight. I'm glad to help out, but there's life after the presidency is what I’ve learned, and I'm going to live it to the fullest, and this is part of living it to the fullest, to help other people.”

Former President Bill Clinton, on CNN’s “State of the Union”
“I think that once you've been president, you shouldn't gratuitously offer any advice to your successor. If somebody asked you what you think, you tell them. Otherwise you just show up when you're asked to help.”

Former Presidents George W. Bush and Bill Clinton on CBS’ “Face the Nation” on whether they consider themselves friends

BUSH: “Yeah I do.”

CLINTON: “Me too.”

BUSH: I called him. He didn't call me because he knows how busy a president is. I called him and we chatted on occasion.”

CLINTON: “I was always pleased when he called me. I'd try, I make it a practice never to bother the president. I don't call President Obama either. I don't think it's, you know, they've got plenty to do. But I, we have developed a very honest, good friendship. And we've made our disagreements respectful and we've had a good time doing it.”

THE MASSACHUSETTS MESSAGE
Senate Minority Leader Mitch McConnell (R-KY) on “Fox News Sunday”
“Regardless of the outcome Tuesday, we know in the most liberal state in America you're going to have a close election for the United States Senate because people in Massachusetts don't want this health care bill to pass.”

Republican strategist Mary Matalin on CNN’s “State of the Union”
“If we win a seat in a state that’s 12 percent Republican on the signature issue of the Obama agenda – health care – this will change the way politics tastes. Even if we don’t win. If we win it will be apocalyptic for the Democrats. That we got this close is nothing short of cataclysmic. This agenda is going to change.”

Democratic strategist James Carville on CNN’s “State of the Union
“I was involved in one of these things in 1991 in Pennsylvania. And it could happen. And if it does happen, the last place that I’d want to be is at the Wednesday morning staff meeting at the White House.”

Senior White House Correspondent Ed Henry on CNN’s “State of the Union”
“I was told very reliably that a couple of the president’s top advisers have told senior Democrats they think Coakley’s going to lose.”

Eleanor Holmes Norton (D-DC Delegate) on CNN’s “State of the Union on whether Democrats should rush to get final approval on a health care bill because of the tight Massachusetts senate race
“I don’t think you should rush, but I don’t think you should put aside regular order either. If we get it finished, we shouldn’t wait for somebody to come and kill it.”

Enjoy the rest of your Sunday and the week ahead,
John King

The CNN Washington Bureau’s morning speed read of the top stories making news from around the country and the world.

WASHINGTON/POLITICAL
For the latest political news: www.CNNPolitics.com

CNN: Union leaders: Deal reached on taxing 'Cadillac' health care plans
Union leaders, the White House and congressional Democrats have agreed to limit the reach of a tax on high-end health insurance plans that would help pay for a proposed overhaul of the U.S. health care system, union leaders involved in the talks said Thursday.

CNN: Poll: Most prefer House's tax on rich over Senate's high-end policies
As House and Senate Democrats try to merge two separate health care reform bills, a new national poll suggests that when it comes to paying for the legislation, Americans favor provisions in the House bill over those in the Senate version.

The Hill: Reid: Senate has time for climate bill
Majority Leader Harry Reid (D-Nev.) on Thursday said that there is room on the busy Senate calendar to bring up a sweeping energy and climate change bill this spring.

Politico: GOP: We'll take back the House
GOP leaders have privately settled on a strategy to win back the House by putting the vast majority of their money and energy into attacking Democrats — and turning this election into a national referendum on the party in power.

New York Times: Cuomo’s War Chest Is Five Times as Big as Paterson’s
Attorney General Andrew M. Cuomo has not formally announced his candidacy for governor, but he is already running ahead in the fund-raising race.Mr. Cuomo is to report on Friday that he has more than $16 million in his campaign account, dwarfing Gov. David A. Paterson’s war chest of more than $3 million.

CNN: Massachusetts Senate race now a toss-up, analysts say
The Massachusetts Senate race between Democrat Martha Coakley and Republican Scott Brown is now a tossup, according to two respected, non-partisan analysts.

New York Times: 3rd-Party Candidate Named Kennedy Could Tip Senate Race in Massachusetts
In most elections, a politician calling himself the Tea Party candidate would cheer Democrats, raising hopes that he would siphon votes from Republicans by attracting some of the disaffected anti-Washington, anti-Obama electorate.But when the election is being held to fill a seat that was left vacant by the death of Senator Edward M. Kennedy, and the Tea Party candidate happens to be named Joe Kennedy, things get a little murkier.

Boston Globe: Brown’s run may be model for GOP
National GOP strategists say that the unexpected tightening in the Massachusetts Senate race has demonstrated the potency of the electorate’s antipathy for the Democratic health care legislation, and that Republican Scott Brown’s campaign could become a template for Republican challengers across the country in this year’s midterm elections.

San Francisco Chronicle: Campbell could reshape Senate race
Unable to compete against much wealthier candidates, former San Jose Rep. Tom Campbell will reshape the U.S. Senate race that he jumped into Thursday more than the governor's campaign he just abandoned, analysts said.

NATIONAL
For the latest national news: www.CNN.com

CNN: Source: Terror threat by 'viable operatives' extends beyond aviation
Information gained since the attempted airplane bombing on Christmas Day has U.S. officials concerned that al Qaeda in Yemen has “trained and equipped … viable operatives” to strike U.S. targets - including targets unrelated to aviation, a reliable source familiar with the investigation told CNN Thursday.

CBS News: Alleged Quake Scams Popping Up Already
Less than 24 hours after Tuesday's devastating earthquake hit Haiti, the FBI received complaints of charity fraud.”The Early Show” has learned that the bureau is considering criminal charges against one Web site soliciting donations for victims of the temblor.

Los Angeles Times: Handling of Ft. Hood shooting suspect could bring discipline
Between five and eight Army officers are expected to face discipline for failing to take action against the accused Ft. Hood shooter, Maj. Nidal Malik Hasan, over a series of behavioral and professional problems in the years leading up to the November rampage.

CNN: Wizards' Gilbert Arenas charged with felony gun violation
Washington Wizards point guard Gilbert Arenas has been charged with a felony gun violation after admitting he drew guns in the team locker room in a highly publicized December 21 incident.

USA Today: Thousands of high-risk kids missing 2nd H1N1 flu doses
Hundreds of thousands of children are overdue for a second dose of H1N1 vaccine that's needed to fully protect them from swine flu, a USA TODAY review of data from 10 states shows.

INTERNATIONAL
For the latest international news: http://edition.cnn.com

CNN: Haitians dig themselves out as quake damage slows outside aid
Haitians took recovery efforts into their own hands Thursday as aid workers trickled into the quake-battered capital where impassable roads, damaged docks and clogged airstrips slowed the arrival of critically needed assistance.

New York Times: Cuba Agrees to U.S. Medevac Flights
The United States has struck an agreement with the Cuban government to send medical evacuation flights with victims from the Haiti earthquake through restricted Cuban airspace, an official said, reducing the flight time to Miami by 90 minutes.

Christian Science Monitor: Marines to aid Haitian earthquake relief. But who's in command?
Some 5,700 US marines and soldiers are expected to join Haitian earthquake relief efforts this weekend. The UN says its peacekeeping force should be in command. The US says no.

Wall Street Journal: A Revolutionary Idea in Mexico: Don't Have One This Century
The arrival of 2010 is spurring looks backwards and fears of history repeating itself. That's because in the past two centuries, there have been revolutions in Mexico—both in years ending in 10.

New York Times: Iraqi Commission Bars Nearly 500 Candidates
Iraq’s independent electoral commission on Thursday barred about 500 candidates from running in parliamentary elections in March, among them an influential Sunni Muslim politician, in a decision that could stoke sectarian tensions here and deprive the vote of crucial legitimacy in the eyes of part of the electorate.

London Times: UK banks face $10bn bill from US over bailouts
Three British banks may have to pay more than $10 billion (£6 billion) to the US Government as part of its crackdown on financial institutions bailed out by taxpayers.

BBC News: Gene map of anti-malaria plant could boost supply
Global supply of a key, plant-based, anti-malaria drug is set to be boosted by a genetic study, scientists say. Researchers have mapped the genes of Artemisia annua to allow selection of high-yield varieties.

BUSINESS
For the latest business news: www.CNNMoney.com

CNNMoney: Obama calls for bailout tax
President Obama on Thursday called on Congress to tax the largest banks to ensure that U.S. taxpayers don't lose a penny from the federal bailout of the financial, auto and insurance industries over the past year.

Wall Street Journal: Banks Set for Record Pay
Major U.S. banks and securities firms are on pace to pay their people about $145 billion for 2009, a record sum that indicates how compensation is climbing despite fury over Wall Street's pay culture.

Wall Street Journal: Concern About Fees Threatens to Delay Olympic Bidding
After years of bidding up fees for the rights to televise sports, U.S. media companies are putting on the brakes. Richard Carrion, a member of the International Olympic Committee's executive board, said the organization is seriously considering delaying until next year the bidding for the U.S. media rights for the 2014 and 2016 Olympics because of the ongoing struggles of broadcasters hurt by a rocky advertising market.

Bloomberg: Wall Street May Reduce Compensation Costs to Avoid More Outcry
Wall Street firms, facing pressure from lawmakers and shareholders to rein in pay, may report smaller bonus pools because of lower fourth-quarter revenue and mounting public outrage, analysts say.

Bloomberg: Google Said to Have Tried to Get Support Over Attack
Google Inc. approached other companies to seek their help drawing attention to a cyber attack from China last month and was frustrated by their reluctance to come forward, according to a person familiar with the matter.

In Case You Missed It

CNN's Chris Lawrence interviews a USAID worker who describes the rescue efforts in Haiti

President Obama says he wants a quick and coordinated response from U.S. agencies in providing aid to Haiti.

Subscribe to the CNN=Politics DAILY podcast at http://www.cnn.com/politicalpodcast

And now stay posted on the latest from the campaign trail by downloading the CNN=Politics SCREENSAVER at http://www.CNN.com/situationroom

ABC <b>News</b> Jumps On Hulu Bandwagon

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Halo Wars and Fable II now Classics <b>News</b> | Xbox 360 | Eurogamer

Read our Halo Wars and Fable II now Classics <b>News</b> for Xbox 360.

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25 Responses to “Ben Bernanke Has Ways of Making Banks Lend”

1. Th Says:
   

   January 28th, 2010 at 10:56 am

   Math challenged as well as spelling challenged. 7% not 0.7%

2. Matt Says:
   

   January 28th, 2010 at 10:57 am

   Great post, and I really like the information you’ve been providing about the ability to increase lending by lowering rates. 1 small thing though – I think you mean 7% of GDP though – not 0.7%

3. Stephan T. Lavavej Says:
   

   January 28th, 2010 at 10:58 am

   $1 trillion is 7% of GDP ($14.2 trillion), not 0.7%.

4. Paulie Carbone Says:
   

   January 28th, 2010 at 11:03 am

   In hip-hop terms, this is Drum taking the side of Hayek against Keynes

   Oh, that clears everything up. WTF does that have to do with this. MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.

5. Shooter242 Says:
   

   January 28th, 2010 at 11:04 am

   fiddling with an easy-to-access alternative can swiftly and systematically alter perceptions of what kinds of loans make sense.

   Except for the part where Federal regulators tell banks what kind of loans to make. Tight lending parameters make the cliche true… Shaky companies need credit, Solid companies don’t.

   But hey, advocating sub par loans with low interest rates, will make Greenspan a fan of this blog.
   Keep up the good work.

6. Jasper Says:
   

   January 28th, 2010 at 11:11 am

   Can somebody remind me again why Obama wants this guy to stay on? Should we take this as a sign he doesn’t want to run for reelection?

7. DMonteith Says:
   

   January 28th, 2010 at 11:15 am

   MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.

   Well, first of all, Hayek is a generic right-wing bad guy. Also, this.

8. Ed Marshall Says:
   

   January 28th, 2010 at 11:54 am

   Shaky companies need credit, Solid companies don’t.

   Is that a cliche from the bar down the street about running tabs or something? It doesn’t translate *at all* to things like the commercial paper market.

9. Thomas Says:
   

   January 28th, 2010 at 12:09 pm

   Two things:

   1. I think Matt needs to distinguish between Bernanke and the Fed. Note that Bernanke didn’t even get a unanimous vote yesterday on what is, in my view and Matt’s, a pretty weak forward looking statement on interest rates.

   2. I don’t think Matt really takes this position seriously. Matt believes the mainstream Obama line, which is that the crisis began on Wall Street and was the result of regulatory failures. If Sumner is right, the Fed’s failures were not regulatory failures but failures in its monetary policy, and the solution to that is to get the monetary policy right, not give the Fed additional regulatory authority to compensate for the fact that it’s doing an incompetent job at its main task.

10. Haiti, State of Nature, and Birth Control | Conservative Heritage Times Says:
    

    January 28th, 2010 at 12:25 pm

    the current debate about Haiti (here, here, and here), I would like to add a few

11. Max424 Says:
    

    January 28th, 2010 at 12:54 pm

    Western central bankers have lost control of their fiat currencies, and they know it. Total world money supply now exceeds $70 trillion.

    Having raced by annual world GDP last year, the pace of monetary expansion continues to accelerate. Out of control money is constructing another in a long series of chart classics — the exponential mountain.

    http://goldseek.com/news/2009/1-12mh/11.png

    That’s not the worst part, not even close. The most conservative estimate of worldwide bank exposure to shadow derivatives is $600 trillion. Many estimates are much, much higher. China believes the true level of exposure lies closer to $1.4 quadrillion. –Yup, $1.4 quadrillion.

    If you take the conservative figure, $600 trillion, and put an absurdly low failure rate on these derivatives, of say 10%, the banks of the world stand to lose, AT MINIMUM, 60 trillion dollars over coming decade.

    You can see why Ben wants to tighten up and pack the toolkit. When Ben makes his move, he want to be fully prepared. Soon, an all effort on his part will be required to slow the advance of the inevitable two-front onslaught, a hyper-inflationary event in conjunction with -or leading to- the total failure of the worldwide banking system.

12. rapier Says:
    

    January 28th, 2010 at 1:04 pm

    The banks in fact do not have excess reserves. They have excess reserves only to the extent their required reserves are actually pegged at an inadequate level by the Fed, on an absolute basis and on the basis of accounting legerdemain which allows them to overstate or ignore the likely real value and likely losses on their book of loans.

    The entire excess reserves thing is a canard. Then there is the problem that it is loan demand that is the driving force behind the shrinkage of private sector borrowing. Since every sector of the economy is over leveraged it stands to reason more debt is being rejected by so many. After all it was excess debt which got us into this mess.

    One can always hope I suppose
    http://julianaheng.com/wp-content/images/DollDivinePony_MagicPop.jpg

13. OGT Says:
    

    January 28th, 2010 at 1:11 pm

    Drum’s got a point, I think. Sumner (and hence Matt) look at this entirely from a supply side of credit. But there is an effective demand side as well, banks are looking for credit worthy borrowers. The return on a defaulted loan is not good at any interest rate. True if they all lent at once NGDP would skyrocket, but individual banks have an incentive to not be the first mover.

    Maybe Drum’s siding with Minsky and endogenous credit.

    That said, it’s clear that giving banks interest on reserves is contractionary for lending and NGDP. The only reason I can think to support it is a back door recapitalization of the banks.

14. rapier Says:
    

    January 28th, 2010 at 1:23 pm

    Nation state dysfunction is a function of the growing power of corporations. Most if they buy into this sort of argument tend to think of the growing power of corporations as a derivative of the waning of governance. I myself usually like to think of the trends as complimentary but putting a thumb on the scale in favor of corporate/private power over government/public/communal power going to have to be the hook needed to move public and government perceptions of the issue going forward.

    The ceding of governmental power to private/corporate power is widely perceived in the case of GS but of course it runs far deeper. In that case however the politicians in their guts understand the threat to their own power. Their interests however are too diffuse to concentrate on this usurpation of their power. Largely due to their antagonists propaganda campaign which put so many of them on their side. The greatest Trojan Horse of all time.

15. Pete Says:
    

    January 28th, 2010 at 1:29 pm

    Drum:

    “Lowering the interest rate on excess reserves won’t change this, it will just eat into bank earnings, and right now the Fed is eager for banks to recapitalize as quickly as possible.”

    Isn’t Obama’s fee on the top 50 banks eating into their earning? Which way is better? Do both?

    I agree the financial sector needs to be shrunk and regulated, but it also is the avenue to allocate credit and reduce unemployment, like it or not. How well it does this is debatable.

    Obama was great on the need for regulation last night and threatened to veto bills that didn’t go far enough. He has Bernanke and Geithner there to lend establishment cred. (plus to lend credence to his bipartisan rhetoric.)

    The housing bubble provided a huge amount of demand, and that is gone.

    It’s entirely possible we slip back into crisis. If that happens he can let go Summers and them and bring in some new faces.

16. kafka Says:
    

    January 28th, 2010 at 1:37 pm

    Making banks lend = making people borrow. Got any ideas, Matt?

17. Ape Man Says:
    

    January 28th, 2010 at 1:50 pm

    Banks don’t lend out reserves to private entities, they lend out reserves to each other.

    There’s not much more to say. The described calculation is imaginary. If a bank has $1 in excess reserves, its two choices are to hold them at the fed in some way (either in a security or just as a cash balance) or to loan them to another bank at the fed funds rate.

    It can’t lend reserves to a private entity. Banks don’t do that. You can look it up!

    Another way of saying this is that a bank lends money without regard to its reserve position. You can ask a bank manager “hey, how often each day do you check your reserve position to make sure you have money to lend out?” and he will laugh at you because he has no idea what his bank’s reserve position is and he never checks it ever.

18. Colatina Says:
    

    January 28th, 2010 at 1:54 pm

    “MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.”

    No he’s referring to a very specific set of claims that Hayek made about business cycles, which are believed by only a small number of academic economists, even on the right.

    Hayek was too smart to be viewed as some generic, right-wing standard-bearer who can’t be called straighforwardly wrong about anything by anyone but a left-wing hack.

19. DTM Says:
    

    January 28th, 2010 at 2:20 pm

    It is hard to tell, but I think in Matt’s mind, excess bank reserves deposited with the Fed take the form of cash sitting in a vault somewhere. This is incorrect. The Fed can then use those reserves to purchase securities, which it has been doing at longer terms in an attempt to lower longer-term interest rates, which in turn is intended to stimulate more investment and consumption.

    The more the Fed can borrow short and lend long, the better that will work. Paying interest on excess reserves helps that happen. Another way to put this point is that the Fed is trying to get banks to put their short-term money with the Fed instead of somewhere else, because the Fed knows that at least it is going to lend that money out at longer-terms, as opposed to other potential holders of short-term money.

    By the way, all this just applies to excess reserves. With required reserves, you aren’t changing bank behavior at all, of course, just basically providing them with a little back-door recapitalization.

    Anyway, here is an article touching on this, which I would urge Matt to read.

20. Paulie Carbone Says:
    

    January 28th, 2010 at 2:26 pm

    No he’s referring to a very specific set of claims that Hayek made about business cycles

    Which ones? How does that relate to his disagreement with Drum about interest on Fed reserves? How is Drum “taking the side of Hayek” by advocating high interest rates on central bank reserves?

21. H-Bob Says:
    

    January 28th, 2010 at 2:42 pm

    Let’s see … refusing to use monetary policy to improve the economy won’t undermine confidence in the effectiveness of monetary policy going forward because that will reassure the public that the central bank will use monetary policy will be used to resist further upward shifts in inflation.

    How asinine ! If the Fed refuses to use monetary policy to fix the worst recession in 80 years then why should the public be confident that the Fed actually will use monetary policy to fight future inflation ? Then I suppose my doctor shouldn’t treat my broken leg because I will be less confident that he would be willing to perform a knee replacement if I needed one 10 years from now ?

22. Bob Says:
    

    January 28th, 2010 at 2:47 pm

    All of this is besides the point. What we should have learned is that when the Fed tries to help us by keeping the interest rates low is that we loose. We loose baddly, and it will get worse. Low interest rates only lead to bad decisions by everyone. And there is no good way to figure out what to do. Quit playing tinker toys with interest rates.

23. Paulie Carbone Says:
    

    January 28th, 2010 at 2:52 pm

    Low interest rates only lead to bad decisions by everyone. And there is no good way to figure out what to do. Quit playing tinker toys with interest rates.

    Now that’s taking the side of Hayek. It’s also completely wrong…

24. Max424 Says:
    

    January 28th, 2010 at 4:17 pm

    The Fed is currently attempting to break the Guinness Book of World Records for having the most balls in the air at the same time.

    They got the legal scam thing going on, where they lend the big banks money, the big banks buy T-bills, make the spread, then pay back the loans. That’s a good one.

    The Fed also did A LOT quantitative easing in 2009. By August of last year, they had lent out $2.3 trillion at essentially zero percent interest, $500 billion of that money, shipped off to Europe. No quantitative easing was available for American small-businesses, however. The small business sector in 2009 experienced the greatest credit crunch United States history.

    Let’s see, what else. Oh, the Fed bought 80% of the debt issued by the Treasury Department in 2009. Oh yeah, this was an unprecedented event, and a clarion call, a dire and ominous warning, that few Americans want to hear (la..la..la), nobody wants American dollars. NOBODY.

    The magic debt buying moves of the Fed worked out nicely for their balance sheet, though. The Fed paid themselves interest for printing the money to buy the debt and made a tidy little profit in doing so.

    And then there’s the housing industry. The Fed took it over completely in 2009. It owns it. The Fed, with help from Fanny and Freddy, became the terminal buyer of 100% of the mortgages issued last year. If you include all the other mechanisms the Fed employed to prop the real estate market in 2009, the bailouts totaled $1.25 trillion.

    But, they’re getting out. The Fed started pulling out the props in December and has announced it will have nothing more to do with American housing after March. The immediate reaction, existing home sales in December took their biggest month to month plunge in 40 years.

    The good news? Once less ball in the air.

25. The Desert Lamp » The Bureau Abroad » Fed Superstar Bernanke Returns for a Second Try Says:
    

    January 28th, 2010 at 11:19 pm

    Some have suggested that if increasing the excess reserve interest rate would curb inflation by encouraging banks to hold on to their money, then decreasing the rate would be an expedient move now, making it easier for banks and individuals alike to obtain loans. This much is true. However, conflating an increased money supply with growth would be a mistake. Just because small businesses and individuals have easier access to funds, that does not necessarily mean that growth will increase. In order for this to happen, there has to be a corresponding increase in demand, consumer confidence, and, of course, employment. Until the Administration addresses these fundamental issues, any moves by the fed to manipulate the excess reserve rate would necessarily be short-sighted and ineffectual. Share It:

Mobile location-based social network and gaming service Foursquare has been generated a bit of buzz lately, especially amongst the early adopter crowd. In just under a year, it has amassed a user base of 300,000, and with deals like the one it recently signed with television network Bravo, some believe Foursquare may be ready to hit the mainstream.

That's good news for the company and its investors, but as Foursquare starts exploring the commercial opportunities that come with popularity, it may find that maintaining the 'cool' factor and maximizing commercial opportunities at the same time is a difficult thing to do.

As AdAge details, various businesses are starting to experiment with Foursquare. The appeal is obvious: Foursquare knows where you are. That means that Foursquare offers a lot of potential to businesses with physical locations. One such business is frozen dessert chain Tasti D-Lite. It's using Foursquare to deliver promotions to Foursquare users who check in to a location near one of the chain's 50 stores. And it's also testing out a loyalty program that rewards users for checking in and making purchases.

According to Tasti D-Lite, “preliminary data is showing that this is driving foot traffic in stores“. That's good news for Tasti D-Lite, and for Foursquare. But before anyone jumps to the conclusion that Foursquare may be on the verge of cracking the location-based mobile advertising nut, it may not be quite so easy.

On Sunday, TechCrunch's MG Siegler discussed how Foursquare's 'Douchebag' badge was creating controversy amongst some users. The complaint: it's offensive. The badge is awarded (if that's the right word) to users who check in to locations that other users have tagged. These tend to be 'trendy' locations, such as Barney's.

Putting aside the political correctness of a 'Douchebag' badge, it's obvious that this badge creates a potential conflict between the interests of the businesses Foursquare needs to court and the interests of its users. As one commenter, Jim Kerr, put it:

They are an innately local business, which will live and breathe with the success of dealing with local brands and establishments, and yet they…overtly tag local businesses (their lifeblood) with badges like “douchebag.”

Foursquare, which, according to AdAge, is earning little to no revenue from its initial deals with businesses, apparently has no plans to ditch the badge. Dennis Crowley, the company's co-founder, posted a response:

The douchebage badge isn’t going anywhere. It’s supposed to be a joke, I feel like 97% of users are in on it, and the only way to unlock the badge is to check-into places that *other users have tagged* douchebag. Sure, it’s a little out of control in some places (I unlocked it on the N/R train over the Manhattan bridge!) but that’s part of the fun of it.

While it would be premature to claim that a somewhat offensive badge is going to destroy Foursquare's business potential, there is a question as to whether things like this will fly once Foursquare decides to start asking businesses for money.

When it comes down to writing a check, a business might be inclined to look at the situation and demand some protection in return. A guarantee that users who check in to their locations aren't labelled 'douchebags' would probably be a good start. Will Foursquare give in, potentially diminishing its 'cool' factor with the early adopters propelling its current growth, or will it decide to give potential paying customers a reason to second guess deals? Only time will tell.

Foursquare's dilemma is not unique of course. Many successful consumer internet businesses find that certain elements of their original offerings that contributed to early appeal eventually come to threaten their potential as businesses. Without users, of course, that potential ceases to exist. But users and no revenue isn't exactly viable either. In short, sometimes you can't stay cool and become filthy rich at the same time.

Photo credit: cambodia4kidsorg via Flickr.

http://www.webjam.com/gabrielle71 http://www.prlog.org/10248797-reitbuyercom-offers-opportunity-to-onlinereal-estate-stock-traders-in-albuquerque-new-mexico.html http://www.prlog.org/tag/online-stock-trading/ http://www.prlog.org/10219817-online-traders-discover-reits-and-real-estate-mutual-funds-to-be-good-investment.html http://www.prlog.org/10248797-reitbuyercom-offers-opportunity-to-onlinereal-estate-stock-traders-in-albuquerque-new-mexico.html http://www.webjam.com/gabrielle71

25 Responses to “Ben Bernanke Has Ways of Making Banks Lend”

1. Th Says:
   

   January 28th, 2010 at 10:56 am

   Math challenged as well as spelling challenged. 7% not 0.7%

2. Matt Says:
   

   January 28th, 2010 at 10:57 am

   Great post, and I really like the information you’ve been providing about the ability to increase lending by lowering rates. 1 small thing though – I think you mean 7% of GDP though – not 0.7%

3. Stephan T. Lavavej Says:
   

   January 28th, 2010 at 10:58 am

   $1 trillion is 7% of GDP ($14.2 trillion), not 0.7%.

4. Paulie Carbone Says:
   

   January 28th, 2010 at 11:03 am

   In hip-hop terms, this is Drum taking the side of Hayek against Keynes

   Oh, that clears everything up. WTF does that have to do with this. MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.

5. Shooter242 Says:
   

   January 28th, 2010 at 11:04 am

   fiddling with an easy-to-access alternative can swiftly and systematically alter perceptions of what kinds of loans make sense.

   Except for the part where Federal regulators tell banks what kind of loans to make. Tight lending parameters make the cliche true… Shaky companies need credit, Solid companies don’t.

   But hey, advocating sub par loans with low interest rates, will make Greenspan a fan of this blog.
   Keep up the good work.

6. Jasper Says:
   

   January 28th, 2010 at 11:11 am

   Can somebody remind me again why Obama wants this guy to stay on? Should we take this as a sign he doesn’t want to run for reelection?

7. DMonteith Says:
   

   January 28th, 2010 at 11:15 am

   MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.

   Well, first of all, Hayek is a generic right-wing bad guy. Also, this.

8. Ed Marshall Says:
   

   January 28th, 2010 at 11:54 am

   Shaky companies need credit, Solid companies don’t.

   Is that a cliche from the bar down the street about running tabs or something? It doesn’t translate *at all* to things like the commercial paper market.

9. Thomas Says:
   

   January 28th, 2010 at 12:09 pm

   Two things:

   1. I think Matt needs to distinguish between Bernanke and the Fed. Note that Bernanke didn’t even get a unanimous vote yesterday on what is, in my view and Matt’s, a pretty weak forward looking statement on interest rates.

   2. I don’t think Matt really takes this position seriously. Matt believes the mainstream Obama line, which is that the crisis began on Wall Street and was the result of regulatory failures. If Sumner is right, the Fed’s failures were not regulatory failures but failures in its monetary policy, and the solution to that is to get the monetary policy right, not give the Fed additional regulatory authority to compensate for the fact that it’s doing an incompetent job at its main task.

10. Haiti, State of Nature, and Birth Control | Conservative Heritage Times Says:
    

    January 28th, 2010 at 12:25 pm

    the current debate about Haiti (here, here, and here), I would like to add a few

11. Max424 Says:
    

    January 28th, 2010 at 12:54 pm

    Western central bankers have lost control of their fiat currencies, and they know it. Total world money supply now exceeds $70 trillion.

    Having raced by annual world GDP last year, the pace of monetary expansion continues to accelerate. Out of control money is constructing another in a long series of chart classics — the exponential mountain.

    http://goldseek.com/news/2009/1-12mh/11.png

    That’s not the worst part, not even close. The most conservative estimate of worldwide bank exposure to shadow derivatives is $600 trillion. Many estimates are much, much higher. China believes the true level of exposure lies closer to $1.4 quadrillion. –Yup, $1.4 quadrillion.

    If you take the conservative figure, $600 trillion, and put an absurdly low failure rate on these derivatives, of say 10%, the banks of the world stand to lose, AT MINIMUM, 60 trillion dollars over coming decade.

    You can see why Ben wants to tighten up and pack the toolkit. When Ben makes his move, he want to be fully prepared. Soon, an all effort on his part will be required to slow the advance of the inevitable two-front onslaught, a hyper-inflationary event in conjunction with -or leading to- the total failure of the worldwide banking system.

12. rapier Says:
    

    January 28th, 2010 at 1:04 pm

    The banks in fact do not have excess reserves. They have excess reserves only to the extent their required reserves are actually pegged at an inadequate level by the Fed, on an absolute basis and on the basis of accounting legerdemain which allows them to overstate or ignore the likely real value and likely losses on their book of loans.

    The entire excess reserves thing is a canard. Then there is the problem that it is loan demand that is the driving force behind the shrinkage of private sector borrowing. Since every sector of the economy is over leveraged it stands to reason more debt is being rejected by so many. After all it was excess debt which got us into this mess.

    One can always hope I suppose
    http://julianaheng.com/wp-content/images/DollDivinePony_MagicPop.jpg

13. OGT Says:
    

    January 28th, 2010 at 1:11 pm

    Drum’s got a point, I think. Sumner (and hence Matt) look at this entirely from a supply side of credit. But there is an effective demand side as well, banks are looking for credit worthy borrowers. The return on a defaulted loan is not good at any interest rate. True if they all lent at once NGDP would skyrocket, but individual banks have an incentive to not be the first mover.

    Maybe Drum’s siding with Minsky and endogenous credit.

    That said, it’s clear that giving banks interest on reserves is contractionary for lending and NGDP. The only reason I can think to support it is a back door recapitalization of the banks.

14. rapier Says:
    

    January 28th, 2010 at 1:23 pm

    Nation state dysfunction is a function of the growing power of corporations. Most if they buy into this sort of argument tend to think of the growing power of corporations as a derivative of the waning of governance. I myself usually like to think of the trends as complimentary but putting a thumb on the scale in favor of corporate/private power over government/public/communal power going to have to be the hook needed to move public and government perceptions of the issue going forward.

    The ceding of governmental power to private/corporate power is widely perceived in the case of GS but of course it runs far deeper. In that case however the politicians in their guts understand the threat to their own power. Their interests however are too diffuse to concentrate on this usurpation of their power. Largely due to their antagonists propaganda campaign which put so many of them on their side. The greatest Trojan Horse of all time.

15. Pete Says:
    

    January 28th, 2010 at 1:29 pm

    Drum:

    “Lowering the interest rate on excess reserves won’t change this, it will just eat into bank earnings, and right now the Fed is eager for banks to recapitalize as quickly as possible.”

    Isn’t Obama’s fee on the top 50 banks eating into their earning? Which way is better? Do both?

    I agree the financial sector needs to be shrunk and regulated, but it also is the avenue to allocate credit and reduce unemployment, like it or not. How well it does this is debatable.

    Obama was great on the need for regulation last night and threatened to veto bills that didn’t go far enough. He has Bernanke and Geithner there to lend establishment cred. (plus to lend credence to his bipartisan rhetoric.)

    The housing bubble provided a huge amount of demand, and that is gone.

    It’s entirely possible we slip back into crisis. If that happens he can let go Summers and them and bring in some new faces.

16. kafka Says:
    

    January 28th, 2010 at 1:37 pm

    Making banks lend = making people borrow. Got any ideas, Matt?

17. Ape Man Says:
    

    January 28th, 2010 at 1:50 pm

    Banks don’t lend out reserves to private entities, they lend out reserves to each other.

    There’s not much more to say. The described calculation is imaginary. If a bank has $1 in excess reserves, its two choices are to hold them at the fed in some way (either in a security or just as a cash balance) or to loan them to another bank at the fed funds rate.

    It can’t lend reserves to a private entity. Banks don’t do that. You can look it up!

    Another way of saying this is that a bank lends money without regard to its reserve position. You can ask a bank manager “hey, how often each day do you check your reserve position to make sure you have money to lend out?” and he will laugh at you because he has no idea what his bank’s reserve position is and he never checks it ever.

18. Colatina Says:
    

    January 28th, 2010 at 1:54 pm

    “MY is veering toward a sort of hackery where he uses Hayek as some generic, right-wing bad guy.”

    No he’s referring to a very specific set of claims that Hayek made about business cycles, which are believed by only a small number of academic economists, even on the right.

    Hayek was too smart to be viewed as some generic, right-wing standard-bearer who can’t be called straighforwardly wrong about anything by anyone but a left-wing hack.

19. DTM Says:
    

    January 28th, 2010 at 2:20 pm

    It is hard to tell, but I think in Matt’s mind, excess bank reserves deposited with the Fed take the form of cash sitting in a vault somewhere. This is incorrect. The Fed can then use those reserves to purchase securities, which it has been doing at longer terms in an attempt to lower longer-term interest rates, which in turn is intended to stimulate more investment and consumption.

    The more the Fed can borrow short and lend long, the better that will work. Paying interest on excess reserves helps that happen. Another way to put this point is that the Fed is trying to get banks to put their short-term money with the Fed instead of somewhere else, because the Fed knows that at least it is going to lend that money out at longer-terms, as opposed to other potential holders of short-term money.

    By the way, all this just applies to excess reserves. With required reserves, you aren’t changing bank behavior at all, of course, just basically providing them with a little back-door recapitalization.

    Anyway, here is an article touching on this, which I would urge Matt to read.

20. Paulie Carbone Says:
    

    January 28th, 2010 at 2:26 pm

    No he’s referring to a very specific set of claims that Hayek made about business cycles

    Which ones? How does that relate to his disagreement with Drum about interest on Fed reserves? How is Drum “taking the side of Hayek” by advocating high interest rates on central bank reserves?

21. H-Bob Says:
    

    January 28th, 2010 at 2:42 pm

    Let’s see … refusing to use monetary policy to improve the economy won’t undermine confidence in the effectiveness of monetary policy going forward because that will reassure the public that the central bank will use monetary policy will be used to resist further upward shifts in inflation.

    How asinine ! If the Fed refuses to use monetary policy to fix the worst recession in 80 years then why should the public be confident that the Fed actually will use monetary policy to fight future inflation ? Then I suppose my doctor shouldn’t treat my broken leg because I will be less confident that he would be willing to perform a knee replacement if I needed one 10 years from now ?

22. Bob Says:
    

    January 28th, 2010 at 2:47 pm

    All of this is besides the point. What we should have learned is that when the Fed tries to help us by keeping the interest rates low is that we loose. We loose baddly, and it will get worse. Low interest rates only lead to bad decisions by everyone. And there is no good way to figure out what to do. Quit playing tinker toys with interest rates.

23. Paulie Carbone Says:
    

    January 28th, 2010 at 2:52 pm

    Low interest rates only lead to bad decisions by everyone. And there is no good way to figure out what to do. Quit playing tinker toys with interest rates.

    Now that’s taking the side of Hayek. It’s also completely wrong…

24. Max424 Says:
    

    January 28th, 2010 at 4:17 pm

    The Fed is currently attempting to break the Guinness Book of World Records for having the most balls in the air at the same time.

    They got the legal scam thing going on, where they lend the big banks money, the big banks buy T-bills, make the spread, then pay back the loans. That’s a good one.

    The Fed also did A LOT quantitative easing in 2009. By August of last year, they had lent out $2.3 trillion at essentially zero percent interest, $500 billion of that money, shipped off to Europe. No quantitative easing was available for American small-businesses, however. The small business sector in 2009 experienced the greatest credit crunch United States history.

    Let’s see, what else. Oh, the Fed bought 80% of the debt issued by the Treasury Department in 2009. Oh yeah, this was an unprecedented event, and a clarion call, a dire and ominous warning, that few Americans want to hear (la..la..la), nobody wants American dollars. NOBODY.

    The magic debt buying moves of the Fed worked out nicely for their balance sheet, though. The Fed paid themselves interest for printing the money to buy the debt and made a tidy little profit in doing so.

    And then there’s the housing industry. The Fed took it over completely in 2009. It owns it. The Fed, with help from Fanny and Freddy, became the terminal buyer of 100% of the mortgages issued last year. If you include all the other mechanisms the Fed employed to prop the real estate market in 2009, the bailouts totaled $1.25 trillion.

    But, they’re getting out. The Fed started pulling out the props in December and has announced it will have nothing more to do with American housing after March. The immediate reaction, existing home sales in December took their biggest month to month plunge in 40 years.

    The good news? Once less ball in the air.

25. The Desert Lamp » The Bureau Abroad » Fed Superstar Bernanke Returns for a Second Try Says:
    

    January 28th, 2010 at 11:19 pm

    Some have suggested that if increasing the excess reserve interest rate would curb inflation by encouraging banks to hold on to their money, then decreasing the rate would be an expedient move now, making it easier for banks and individuals alike to obtain loans. This much is true. However, conflating an increased money supply with growth would be a mistake. Just because small businesses and individuals have easier access to funds, that does not necessarily mean that growth will increase. In order for this to happen, there has to be a corresponding increase in demand, consumer confidence, and, of course, employment. Until the Administration addresses these fundamental issues, any moves by the fed to manipulate the excess reserve rate would necessarily be short-sighted and ineffectual. Share It:

Mobile location-based social network and gaming service Foursquare has been generated a bit of buzz lately, especially amongst the early adopter crowd. In just under a year, it has amassed a user base of 300,000, and with deals like the one it recently signed with television network Bravo, some believe Foursquare may be ready to hit the mainstream.

That's good news for the company and its investors, but as Foursquare starts exploring the commercial opportunities that come with popularity, it may find that maintaining the 'cool' factor and maximizing commercial opportunities at the same time is a difficult thing to do.

As AdAge details, various businesses are starting to experiment with Foursquare. The appeal is obvious: Foursquare knows where you are. That means that Foursquare offers a lot of potential to businesses with physical locations. One such business is frozen dessert chain Tasti D-Lite. It's using Foursquare to deliver promotions to Foursquare users who check in to a location near one of the chain's 50 stores. And it's also testing out a loyalty program that rewards users for checking in and making purchases.

According to Tasti D-Lite, “preliminary data is showing that this is driving foot traffic in stores“. That's good news for Tasti D-Lite, and for Foursquare. But before anyone jumps to the conclusion that Foursquare may be on the verge of cracking the location-based mobile advertising nut, it may not be quite so easy.

On Sunday, TechCrunch's MG Siegler discussed how Foursquare's 'Douchebag' badge was creating controversy amongst some users. The complaint: it's offensive. The badge is awarded (if that's the right word) to users who check in to locations that other users have tagged. These tend to be 'trendy' locations, such as Barney's.

Putting aside the political correctness of a 'Douchebag' badge, it's obvious that this badge creates a potential conflict between the interests of the businesses Foursquare needs to court and the interests of its users. As one commenter, Jim Kerr, put it:

They are an innately local business, which will live and breathe with the success of dealing with local brands and establishments, and yet they…overtly tag local businesses (their lifeblood) with badges like “douchebag.”

Foursquare, which, according to AdAge, is earning little to no revenue from its initial deals with businesses, apparently has no plans to ditch the badge. Dennis Crowley, the company's co-founder, posted a response:

The douchebage badge isn’t going anywhere. It’s supposed to be a joke, I feel like 97% of users are in on it, and the only way to unlock the badge is to check-into places that *other users have tagged* douchebag. Sure, it’s a little out of control in some places (I unlocked it on the N/R train over the Manhattan bridge!) but that’s part of the fun of it.

While it would be premature to claim that a somewhat offensive badge is going to destroy Foursquare's business potential, there is a question as to whether things like this will fly once Foursquare decides to start asking businesses for money.

When it comes down to writing a check, a business might be inclined to look at the situation and demand some protection in return. A guarantee that users who check in to their locations aren't labelled 'douchebags' would probably be a good start. Will Foursquare give in, potentially diminishing its 'cool' factor with the early adopters propelling its current growth, or will it decide to give potential paying customers a reason to second guess deals? Only time will tell.

Foursquare's dilemma is not unique of course. Many successful consumer internet businesses find that certain elements of their original offerings that contributed to early appeal eventually come to threaten their potential as businesses. Without users, of course, that potential ceases to exist. But users and no revenue isn't exactly viable either. In short, sometimes you can't stay cool and become filthy rich at the same time.

Photo credit: cambodia4kidsorg via Flickr.

Facebook Has All The <b>News</b> That's Fit to Share – GigaOM

Facebook staffer Malorie Lucich wrote a post on the site's blog recently in which she talked about using the social network to keep up with the <b>news</b> in two different ways — both by picking up <b>news</b> from the friends you follow through …

Facebook Is Already The World's Largest <b>News</b> Reader

When Marshall Kirkpatrick posted the other day that Facebook could become the largest <b>news</b> reader I had an inkling that it already was. Today, new data released from Hitwise confirms my suspicions: Facebook is indeed the largest <b>news</b> …

Adobe CTO: Flash is 'ready' for iPhone, iPad | iLounge <b>News</b>

If you have a comment, <b>news</b> tip, advertising inquiry, or coverage request, a question about iPods or accessories, or if you sell or market iPod products or services, read iLounge's Comments + Questions policies before posting, …

http://www.shumakerelays.com/

In the last 24 hours two teaching resources have launched that will help you to learn some great lessons on making money online:

1. Blog Masters Club – presented by David Risley, this resource is in it’s second class and will be available until next Tuesday. David presents a comprehensive 16 module course for bloggers including 92 videos, loads of transcrips, MP3s, forum, action guides and some nice bonuses. He’s offering a discount for those who act to join in the first 24 hours so to get in at the discount you need to act today.

To get a taste for whether this is the type of teaching for you David has released some free stuff worth checking out:

• Six Figure Blogger Blueprint
• How to Psychologically Evaluate Any Niche
• The Blut Simple Truth About Making Money Blogging

2. Shoemoney System – presented by Jeremy Schoemaker, the Shoemoney System launched today and Jeremy tells me that he’s already 75% sold out (he’s taking a maximum of 500 students). It looks like they’ll close their doors inside 24 hours if signups continue at the same rate that they have been.

The Shoemoney system is a little broader in it’s approach than David’s course above (which focuses more upon blogging). Jeremy’s system again focuses heavily upon video presentations (over 100 hours) and is a 12 month training course. He also throws in some good bonuses including $2500 in free advertising from a variety of companies that will help you get yourself going.

Jeremy is a well connected buy and he pulls in some big names and knowledgeable people in his teaching with lots of interviews and tools.

To get a taste of what it’s all about here’s some stuff to check out:

• Q and A call with Jeremy
• 6 Ways to Make Money Online

If you’re wanting to focus your energy just on blogging – I’d go with David’s Blog Masters Club. If you’re wanting a broader introduction to online marketing that goes beyond blogging, go with the Shoemoney System.

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This post originally appeared on the American Express OPEN Forum, where Mashable regularly contributes articles about leveraging social media and technology in small business.

Starting a company is often a lonely and nerve wracking process. One day, you’re working at a big company with tens of thousands of people and health benefits, and then the next day it’s just you, maybe a co-founder, and a lack of steady income.

Yet you’re really not alone. There are thousands of others making similar journeys around the world, and even more who have not only gone down the entrepreneurial path, but succeeded. These people are more than happy to share their advice, insight, and stories — if you know how to find them.

That’s where social media tools come into play. Forging new connections has never been easier due to the increasing accessibility of people, ideas, and information. Web communities based around business, entrepreneurship, and programming are thriving all over the place. TwitterTwitter, FacebookFacebook, and other social networks have become an amazing way to learn new lessons and keep in touch with other entrepreneurs.

If you’re looking to enrich your entrepreneurial journey by sharing with others, I have a few social media suggestions that will help:

Follow Entrepreneur Twitter Lists

A few months ago, Twitter launched a feature called “Lists,” which gave users the power to create lists of their favorite users. Many have used this to create Twitter lists of top entrepreneurs and startup founders.

Following these people and interacting with them is a good step towards building connections. Check out Listorious’ collection of entrepreneurship Twitter lists to start.

Connect With Amazing Entrepreneurship Communities

Entrepreneurs are already gathered in a lot of great places on the web. Finding these hidden gems of community and startup enthusiasm could be just what you’re looking for.

To start out, we suggest checking out Hacker NewsHacker News (a community sharing some of the best articles on startups, development, and human nature), TheFunded (focused around raising money for your startup), and PartnerUp (helps you find business partners and co-founders). For more, check out a list of Mashable’s favorite entrepreneur communities.

Use Social Media to Find Local Events

While connecting online is great, there is no substitute for shaking hands and meeting in person. Luckily, social media can help you in this regard by helping keep you in the loop about events you’ll want to attend. Tools like Meetup and searches for Facebook Events are good ways to get started.

Just Reach Out

In the end, social media only helps make it easier to connect – you still have to do the hard work of building a relationship with fellow entrepreneurs. Use social media to find them and reach out, but be sure to take it the next step and start a long-lasting conversation.

More small business resources from Mashable:

- HOW TO: Implement a Social Media Business Strategy
- 9 Great Document Collaboration Tools for Teams
- 5 New Year’s Resolutions for SMBs
- HOW TO: Choose a News Reader for Keeping Tabs on Your Industry
- Top Mobile Productivity Tools for the Small Business
- 5 Advanced Social Media Marketing Strategies for Small Businesses
- 4 Ways Social Media is Changing Business

Image courtesy of iStockphotoiStockphoto, Cimmerian

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