Tuesday, September 15, 2009

Stiglitz says banking problems are now bigger than pre-Lehman Brothers

Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system.

“In the U.S. and many other countries …” Stiglitz said in an interview in Paris, “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods”.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said.

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government. “The question then is who is going to finance the U.S. government,” Stiglitz said.


Friday, September 04, 2009

Federal Reserve makes $14 billion profit on economic crisis

The Financial Times reports that the Federal Reserve has made a $14billion profit on loan programs that have provided hundreds of billions of dollars in liquidity to the financial system since the start of the crisis two years ago, according to Fed officials.

The central bank earned about $19 billion in income from charging interest and fees to financial institutions and investors that tapped the new facilities to obtain much-needed funds during the turmoil. The interest the Fed would have earned by investing the same amount in T-bills was an estimated $5 billion, leaving a $14billion gain since August 2007.

Some politicians have criticized the Fed for using billions of dollars of public funds to support the market and stricken groups such as AIG and Bear Stearns. A recent Gallup Poll found the Fed had the worst public approval rating of nine government agencies, even lower than the tax authorities.