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Westlake Legal Group > Banking and Financial Institutions (Page 3)

Me and My Whistle-Blower

One sunny Wednesday in February, a gangly man in a sports jacket and a partly unbuttoned paisley shirt walked into the Los Angeles field office of the F.B.I. At the reception desk, he gave his name — Val Broeksmit — and began to pace anxiously in the lobby.

Mr. Broeksmit couldn’t believe he was voluntarily meeting with the F.B.I. An unemployed rock musician with a history of opioid abuse and credit card theft, not to mention a dalliance with North Korea-linked hackers, he was accustomed to shunning if not fearing law enforcement. But two investigators had flown from the bureau’s New York office specifically to speak with him, and Mr. Broeksmit had found their invitation too seductive to resist. Now the agents arrived in the lobby and escorted him upstairs.

They wanted to talk about Deutsche Bank — one of the world’s largest and most troubled financial institutions, and the bank of choice to the president of the United States. Mr. Broeksmit’s late father, Bill, had been a senior executive there, and his son possessed a cache of confidential bank documents that provided a tantalizing glimpse of its internal workings. Some of the documents were password-protected, and there was no telling what secrets they held or how explosive they could be.

Federal and state authorities were swarming around Deutsche Bank. Some of the scrutiny centered on the lender’s two-decade relationship with President Trump and his family. Other areas of focus grew out of Deutsche Bank’s long history of criminal misconduct: manipulating markets, evading taxes, bribing foreign officials, violating international sanctions, defrauding customers, laundering money for Russian billionaires.

In a windowless conference room, one of the agents pressed Mr. Broeksmit, 43, to hand over his files. “You’re holding documents that only people within the inner circle of Deutsche would ever see,” he said.

ImageWestlake Legal Group merlin_157663062_41bacd08-1113-4095-ba88-47b844b59e00-articleLarge Me and My Whistle-Blower Whistle-Blowers Trump, Donald J Sony Pictures Entertainment Sony Corporation Simpson, Glenn R Schiff, Adam B Russian Interference in 2016 US Elections and Ties to Trump Associates Politics and Government North Korea News and News Media New York Times Money Laundering Justice Department Guardians of Peace Fusion GPS Federal Bureau of Investigation Deutsche Bank AG Cyberattacks and Hackers Boies, David Banking and Financial Institutions

The United States headquarters of Deutsche Bank in New York.CreditJeenah Moon for The New York Times

“Clearly, things went on in Deutsche Bank which weren’t kosher,” added the second agent. “What we’re up against is, all those bad acts are being pushed down on the little people on the bottom.”

“The low-hanging fruit,” said the first agent.

“And the larger bank in its entirety is claiming ignorance and that it’s one bad player,” said his partner. “But we know what we’ve seen. It’s a culture of just — ”

“Fraud and dirt,” Mr. Broeksmit interjected. Already, he was warming to the idea of having a cameo in a high-stakes F.B.I. investigation. He spent the next three hours vaping, munching on raspberry-flavored fig bars and telling his story, entranced by the idea of helping the investigators go after executives high up the Deutsche Bank food chain. (Deutsche Bank has said it is cooperating with authorities in a number of investigations.)

When he finally emerged from the Los Angeles field office, Mr. Broeksmit got into a Lyft and called me. His adrenaline, I could tell, was still pumping; he was talking so fast he had to stop to catch his breath.

“I am more emotionally invested in this than anyone in the world,” he said. “I would love to be their special informer.”

Here’s the thing about whistle-blowers: They tend to be flawed messengers. Daniel Ellsberg, Chelsea Manning, Edward Snowden — each of them was dismissed as selfish, damaged, reckless and crazy. Yet all of them, regardless of motivation, used secret documents to change the course of history.

For more than five years, Val Broeksmit has been dangling his Deutsche Bank files in front of journalists and government investigators, dreaming of becoming the next great American whistle-blower. He wants to expose what he sees as corporate wrongdoing, give some meaning to his father’s death — and maybe get famous along the way. Inside newsrooms and investigative bodies around the world, Mr. Broeksmit’s documents have become something of an open secret, and so are the psychological strings that come attached. I pulled them more than anyone, as part of my reporting on Deutsche Bank for The New York Times and for a book, “Dark Towers,” to be published next year. It has been the most intense source relationship of my career.

An endless procession of bank executives and friends of the Broeksmit family have warned me that Mr. Broeksmit is not to be trusted, and, well, they might have a point. His drug use has sent him reeling between manias and stupors. He has a maddening habit of leaping to outrageous conclusions and then bending facts to fit far-fetched theories. He fantasizes about seeing his story told by Hollywood, and I sometimes wonder whether he’s manipulating me to achieve that ambition. He can be impatient, erratic and abusive. A few days ago, irate that he was not named in a blurb for my book on Amazon, among other perceived slights, he sent me a string of texts claiming that he’d taken out a brokerage account in my name and traded on secret information I’d supposedly fed him. (This is not true.) A little later, he left me a voice mail message saying it was all a joke.

Why do I put up with this? Because his trove of corporate emails, financial materials, boardroom presentations and legal reports is credible — even if he is not. (In this article, every detail not directly attributed to Mr. Broeksmit has been corroborated by documents, recordings or an independent source.) Besides, there’s something uncanny about how Mr. Broeksmit’s fearlessness and addiction to drama have led him, again and again, to the center of the news. In addition to Deutsche Bank’s troubles, he has figured into North Korea’s hack of Sony Pictures, the collapse of the world’s oldest bank and the House Intelligence Committee’s ongoing investigation into Mr. Trump.

We might wish our whistle-blowers were stoic, unimpeachable do-gooders. In reality, to let you in on a journalistic secret, they’re often more like Val Broeksmit.

Val Broeksmit with his father at Wimbledon in 2013.CreditVal Broeksmit

On a drizzly Sunday in London in January 2014, Bill Broeksmit cinched his dog’s red leash around his neck, slung it over a door and lunged forward. He was 58.

The elder Broeksmit was widely known as the unofficial conscience of Deutsche Bank and a longtime confidant of the company’s chief executive, and his death shocked the financial world. I was a reporter in The Wall Street Journal’s London bureau, and there were rumors that Mr. Broeksmit’s suicide was connected to his work — that he regretted what he’d seen and done. My colleagues and I divvied up the unpleasant task of contacting his family, and I got Val. He was easy to track down: His band, Bikini Robot Army, had a website with his email address.

When I reached him, he was in New York for his father’s funeral, and at first he asked me to leave his family alone. “Everyone is very sad and grieving right now,” he wrote. But before long he was on the phone — angry, slurring his speech, insisting without evidence that he knew why his father had killed himself and that it had nothing to do with Deutsche Bank. Over the next several months, we kept in sporadic touch as Mr. Broeksmit bounced between rehab facilities in Florida and California, trying to beat an opioid addiction and teasing me with provocative messages. (He is open about his struggles with substance abuse.) He would say things like “I think I know what happened” and then never follow up; once, apropos of nothing, he sent a picture of a San Francisco building on fire.

Finally, on a Tuesday in July 2014, he emailed me a single line: “Are you still looking into deutsche?”

The evening after his father died, Mr. Broeksmit had found the passwords to his email accounts. Now, he told me that he had discovered hundreds of messages related to Deutsche Bank. Mr. Broeksmit asked if I could help him sift through and decipher them, and I suggested a list of search terms: things like “subpoena” and “DOJ,” for the Department of Justice.

He soon forwarded an item with a number of those keywords. “Don’t know what it means,” he said. I started skimming: It was a detailed letter to Deutsche Bank from a senior official at the New York arm of the Federal Reserve, who was furious with the bank for its slipshod accounting. Trying to contain my excitement, I asked if I could write about the document. I braced for a negotiation, but all Mr. Broeksmit said was, “That’s cool. Please don’t tell anyone where you’re getting this info.” (He has since released me from that promise.)

Four days later, I published an article describing the Fed’s concerns. The bank’s shares fell 3 percent. Mr. Broeksmit told me he felt empowered by having dented Deutsche’s market value by more than $1 billion.

What makes a person crave the attention of journalists? Consider where Val Broeksmit comes from.

He was born in Ukraine in 1976, and his parents, Alla and Alexander, emigrated to Chicago three years later. Their marriage collapsed; Val and his father landed in a homeless shelter; and in 1982, Cook County took custody of the boy, placing the frightened 6-year-old in a foster home.

Meanwhile, Alla met and married Bill Broeksmit, who was then an up-and-coming banker. They moved to New Jersey and eventually extracted Val, then 9, from the foster care system. Bill adopted him — an angry, impulsive child with a strong anti-authority streak. A caseworker who visited the family noted that he insisted on calling his parents by their first names.

Val’s friends told me that he acted out through his boarding school and college years, compensating for what he described as his parents’ icy detachment. He was the guy trying to keep the party going with a little coke at 3 a.m., cajoling girls to make out with each other, stealing expensive gear from his college’s music department. (Mr. Broeksmit acknowledges all of this.) He wanted to be the center of attention, to prove that he mattered. That’s part of the reason he became a rocker — “It’s less lonely with an audience,” he once told me — but Bikini Robot Army never hit it big. When his father died and Mr. Broeksmit came into possession of his documents, he finally had an opportunity to make the world pay attention.

After his initial leak to me in the summer of 2014, Mr. Broeksmit started seeking out other big stories. Late that year, a group of North Korea-linked hackers, calling themselves the Guardians of Peace, penetrated the computer systems of Sony Pictures. When the hack became public, Mr. Broeksmit followed a bread crumb trail of links until he eventually came across an email address for the hackers.

“I’m interesting in joining your GOP, but I’m afraid my computer skills are sophomoric at best,” Mr. Broeksmit emailed the Guardians of Peace. (Typo his.) “If I can help in any other facility please let me know.” He doubted the hackers would reply, but an email soon arrived with a primer on how to access Sony’s stolen materials. As he waited for the hundreds of gigabytes to download, he sent another email. “Hey, you guys ever thought about going after Deutsche Bank?” he wrote. “Tons of evidence on their servers of worldwide fraud.” The hackers didn’t respond.

Mr. Broeksmit, leaning into his new persona as an exposer of corporate secrets, took to Twitter to post embarrassing Sony files: deliberations over who might direct a remake of “Cleopatra”; Brad Pitt freaking out about the edit of “Fury.” He wasn’t the only one airing Sony’s laundry, but his prolific postings set him apart.

David Boies in New York in July. Mr. Boies was representing Sony when it demanded that Twitter shut down Val Broeksmit’s account.CreditCarlo Allegri/Reuters

David Boies — Sony’s attorney and arguably the most famous lawyer in America — sent Twitter a letter demanding that it shut down Mr. Broeksmit’s account. Another letter, from a Sony executive, warned Mr. Broeksmit that Sony would “hold you responsible for any damage or loss” stemming from the materials he had published. A few days before Christmas, a colleague and I published an article about the huge corporation and its powerful lawyer threatening this random musician.

For the first time, Mr. Broeksmit was in the public spotlight. Soon he was on the Fox Business channel. “It seems like somebody’s trying to make you the fall guy, doesn’t it, Mr. Broeksmit?” an anchor asked. The lesson was clear: The media had ravenous appetites for documents that exposed the guts of giant corporations. It even seemed virtuous to share juicy material. And Mr. Broeksmit had plenty of that.

Spelunking through his Deutsche files, Mr. Broeksmit encountered detailed information about what was going on deep inside the bank. There were minutes of board meetings. Financial plans. Indecipherable spreadsheets. Password-protected presentations. And evidence of his father’s misery.

Here was the elder Broeksmit scolding his colleagues for not taking the Fed’s annual “stress tests” seriously. Here he was, in the months before his suicide, pushing executives to deal with the American division’s alarming staff shortages. Here he was talking to a criminal defense lawyer.

Mr. Broeksmit concluded that all this might help explain why his father had hanged himself. He told his therapist, an addiction specialist named Larry Meltzer, that he was on a quest to understand the suicide. Mr. Meltzer told me that he encouraged the inquiry. He also persuaded Alla Broeksmit to increase her son’s monthly stipend from $300 to $2,500.

Figuring that more information about his father’s death might be lodged in Alla’s email accounts, Mr. Broeksmit consulted some online tutorials and broke into her Gmail. Inside, he found an extraordinary demonstration of corporations’ power to control what the public knows.

In his mother’s inbox was a scan of the elder Broeksmit’s suicide note to Anshu Jain, at the time the co-chief executive of Deutsche Bank. It was four sentences, handwritten in black ink on white printer paper.

Anshu,

You were so good to me and I have repaid you with carelessness. I betrayed your trust and hid my horrible nature from you. I can’t even begin to fathom the damage I have done.

I am eternally sorry and condemned.

Bill

Mr. Broeksmit could feel his father’s anguish. It left him in tears — and baffled. Why had his father been sorry? When had he ever been careless? How had he damaged the bank?

Mr. Broeksmit read on. He learned that his father had once looked into the conduct of some Deutsche Bank traders and concluded — mistakenly — that nothing was amiss. It turned out the traders were manipulating a benchmark known as Libor. The elder Broeksmit feared he could become a target of government investigators because he had failed to detect the fraud; spiraling, he consulted his physician and a psychologist.

Those doctors wrote to the coroner investigating Mr. Broeksmit’s suicide. One described the banker as having been “extremely anxious” over the Libor affair. The other added: “He was catastrophising, imagining worst case outcomes including prosecution, loss of his wealth and reputation.”

The coroner, Fiona Wilcox, scheduled a public hearing to discuss her findings. She intended to read aloud from the doctors’ letters. But on the morning of the inquest, at the courthouse, lawyers that Deutsche Bank had hired for the Broeksmit family took her aside and urged her not to do so in order to protect the family’s privacy.

Ms. Wilcox, who declined to comment, acquiesced. Nearly everything about Mr. Broeksmit’s specific anxieties was expunged. Where the psychologist had written that his patient imagined prosecution, the words were crossed out and replaced with “He imagined various issues.” The physician had originally described Mr. Broeksmit’s worry “about going to prison or going bankrupt even though he knew he was innocent. He kept on thinking back over all the thousands of emails he had sent over the years. He knew how lawyers can twist things round.” It was replaced with: “He told me he had been extremely anxious.” All of this — the originals, and the whitewashed version — had been emailed to Alla Broeksmit. Now they were in her son’s hands.

Val Broeksmit in Los Angeles, where he moved to drum up Hollywood interest in his life story.CreditOriana Koren for The New York Times

Mr. Broeksmit’s antics escalated. He fished his mother’s American Express details out of her email and bought laptops, a plane ticket to Paris, rooms in luxury hotels. He told friends he was investigating his father’s death, but I wondered if he just wanted to tell people (and himself) that he was on a noble mission. At one point, Mr. Broeksmit filled out a form on the Justice Department’s website: “I’m writing in hopes of speaking to someone at the DOJ in reference to the evidence I have showing major fraud at one of the world’s largest banks.” He got a note that his message had been passed to the F.B.I.’s New York field office, but no other acknowledgment.

Ms. Broeksmit eventually wised up to her son’s credit card theft, and by the end of 2016, he was running low on cash. (In a brief phone call last year, she told me that Mr. Broeksmit “is completely ostracized from the family.”) Word spread in journalism circles that the son of a dead Deutsche Bank executive had access to revelatory materials. In Rome on New Year’s Eve of 2016, Mr. Broeksmit shared the files with a reporter for the Financial Times, periodically excusing himself to snort 80-milligram hits of OxyContin, and the journalist later connected him with someone willing to pay for the documents. On the third anniversary of his father’s death — Jan. 26, 2017 — $1,000 arrived in his PayPal account.

The money was from Glenn R. Simpson, a former journalist who ran a research company called Fusion GPS. Weeks earlier, it had rocketed to notoriety as the source of the so-called Steele Dossier — a report by a former intelligence agent containing salacious allegations against Mr. Trump. Mr. Simpson was searching for more dirt and, Mr. Broeksmit told me, he agreed to pay $10,000 for the Deutsche materials. (Mr. Simpson declined to be interviewed.)

Mr. Simpson asked Mr. Broeksmit to start searching for specific topics. “Any Russia stuff at all,” he wrote on an encrypted chat program. “Let’s get you here asap.”

They met two days later in the U.S. Virgin Islands and began combing for material on Mr. Trump, Russia and Robert Mercer, a top Trump donor. They didn’t discover bombshells — more like nuggets. One spreadsheet, for example, contained a list of all of the banks that owed money to one of Deutsche Bank’s American subsidiaries on a certain date — a list that included multiple Russian banks that would soon be under United States sanctions.

Mr. Simpson asked Mr. Broeksmit to travel with him to Washington and meet some of his contacts. Mr. Broeksmit shared some of his files with a Senate investigator and — after snorting some heroin — a former prosecutor in the Manhattan district attorney’s office. The documents found their way to a team of anti-money-laundering agents at the New York Fed. Coincidence or not, a few months later, the Fed fined Deutsche Bank $41 million for violations inside the American unit that Bill Broeksmit had overseen. (A Fed spokesman declined to comment.)

Mr. Broeksmit moved to Los Angeles to drum up Hollywood interest in his life story. Early this year, a producer invited him to a dinner party. Among the guests was Moby, the electronic music legend, who told me he was impressed by Mr. Broeksmit’s exploits and existential sadness. Moby arranged an introduction to his friend Adam Schiff, the chairman of the House Intelligence Committee, which had recently opened an investigation into Deutsche Bank’s relationship with Mr. Trump.

Mr. Schiff’s investigators badly wanted the secret Deutsche files. Mr. Broeksmit tried to extract money from them — he pushed to be hired as a consultant to the committee — but that was a nonstarter. An investigator, Daniel Goldman, appealed to his sense of patriotism and pride. “Imagine a scenario where some of the material that you have can actually provide the seed that we can then use to blow open everything that [Trump] has been hiding,” Mr. Goldman told Mr. Broeksmit in a recorded phone call. “In some respects, you — and your father vicariously through you — will go down in American history as a hero and as the person who really broke open an incredibly corrupt president and administration.” (Mr. Broeksmit wouldn’t budge; eventually, Mr. Schiff subpoenaed him.)

It was around this time that Mr. Broeksmit had his meeting at the F.B.I.’s Los Angeles field office. Someone at the bureau had finally noticed his submission to the Justice Department’s website. After the three-hour session, Mr. Broeksmit still needed some stroking, and the F.B.I. agents obliged. They told Mr. Broeksmit he could have a special advisory title. They promised to keep him in the loop as their investigation proceeded. They let him tell the world — via this article — that he was a cooperating witness in a federal criminal investigation. They even helped procure a visa for his French girlfriend.

I had to tip my hat to Mr. Broeksmit. The man whom everyone had discounted and demeaned had managed to get his information into the hands of the Federal Reserve, Congress and the F.B.I. Even if the documents ultimately prove underwhelming to these powerful investigators, Mr. Broeksmit had accomplished one of his life’s goals: He mattered.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The New York Fed Chief Is Facing His Biggest Test. Here’s His Response.

Westlake Legal Group 29dc-nyfed-facebookJumbo The New York Fed Chief Is Facing His Biggest Test. Here’s His Response. United States Economy Money Market Accounts Interest Rates Government Bonds Economic Conditions and Trends Credit and Debt Banking and Financial Institutions

John C. Williams, president of the Federal Reserve Bank of New York, has spent the past two weeks grappling with the regional bank’s most tumultuous period in years.

Since Sept. 16, a shortage of dollars in an obscure but crucial corner of short-term Wall Street funding, called the repo market, has forced the New York Fed to engage in an ongoing series of market interventions — a first since the Great Recession. The effort is an attempt to keep the central bank’s benchmark rate from accidentally creeping higher.

The situation is the biggest test so far for Mr. Williams — who took the helm of the New York Fed in June 2018 — and one that many market analysts say deserves a less-than-stellar grade.

While officials have succeeded in getting interest rates under control, some investors have criticized the Fed for moving too hesitantly when problems first arose, waiting until rates on repurchase, or repo, agreements had skyrocketed and briefly spilled over, pushing the Fed’s benchmark rate above its intended range.

Mr. Williams, a theoretician responsible for some of the most influential economic studies of the past two decades, was at the center of the disapproval. Before assuming his role as head of the New York Fed, he ran the Federal Reserve Bank of San Francisco and made a practice of ignoring day-to-day market moves. But those moves are central to the New York branch’s mission as the Fed’s primary conduit to — and supervisor of — Wall Street.

His early tenure in New York had not been smooth sailing, even before the market hiccups this month. Mr. Williams ousted two top officials, Simon Potter and Richard Dzina, earlier this year because of differences in management style. Each had more than two decades of experience at the Fed, and Mr. Potter had overseen the markets group. Their dismissal unsettled some bank employees and raised eyebrows on Wall Street.

The shake-up also left another New York Fed official, Lorie Logan, temporarily in charge of the market portfolio — the Fed’s giant stash of bonds. Ms. Logan is well-respected and often pointed to as a natural fit for the permanent job, but former Fed officials worry that she is now essentially auditioning, which could hinder her ability to make tough or unpopular decisions.

In an interview on Friday, Mr. Williams batted back the critiques, defending the timing of the New York Fed’s recent responses and saying that the bank’s team was working effectively.

Mr. Williams also said he still supported the way the Fed has chosen to guide interest rates — what it calls an “ample reserves” framework. Instead of intervening in markets to push rates into place by balancing out supply and demand, as it did before the financial crisis, the Fed now announces how much interest it will pay on banks’ reserves, and that rate is passed through the financial system.

The approach requires the Fed to hang on to large holdings of government-backed bonds to keep reserves, essentially currency deposits at the Fed, plentiful. Central bankers had thought that they had a long way to go before reserves became scarce. So until last month, they were shrinking their balance sheet and drawing down that supply.

But Mr. Williams said the recent episode showed him that the approach might require higher reserves than he had realized. That is important, because it could hint that the Fed will start growing its balance sheet again soon, something several of Mr. Williams colleagues have signaled over the past week.

Mr. Williams, who has a constant vote on monetary policy decisions made by the Federal Open Market Committee, was mum on the other major question facing policymakers — whether the Fed will cut rates beyond the two moves it has already made. He declined to give any hint about his preferences, arguing that amid uncertainty, the Fed should keep its options open.

Here is a look at how he is addressing the biggest questions facing the New York Fed and the central bank, in a curated, and partly paraphrased, transcript.

New York Times: Some market participants have said the Fed was too slow to intervene amid the recent disruption in overnight repurchase agreements, or repos. Can you walk us through the decision-making process?

Mr. Williams emphasized that data on the Fed’s policy rate, the federal fund rate, comes in slowly and the official figure is released on a delay — it comes out at 9 a.m. the following morning. That figured into the timing, Mr. Williams said, because “we need to explain why we’re intervening — the desk directive is very clear,” he said, referring to the rules set out by the policymaking Fed committee for the New York Fed to follow.

The bank is meant “to conduct open market operations, to keep the federal funds rate in the range.”

He noted that the Fed took market participant feedback from the first intervention into account. Since Sept. 17, it has announced a day in advance that it would provide liquidity to markets and how much. It also -announced on Sept. 20 that it would continue intervening through Oct. 10.

There’s concern on Wall Street that you ousted Mr. Potter and Mr. Dzina, and, in doing so, set a tone at the New York Fed in which experts may not feel comfortable speaking up, especially about repo market issues. What is your response to that?

“It’s just completely wrong, in terms of what actually happened,” he said, noting that when rates started to spike in the market for repos earlier this month, he and Ms. Logan were both in Washington for the Federal Open Market Committee meeting.

“It was all hands on deck. Everyone was working tirelessly to understand what was happening,” he said. “The team operated magnificently, there was no delay, there was no hesitation — there was no, in any way, feeling that people weren’t sharing and discussing things very quickly. This is something that Lorie, Lorie Logan, and her colleagues have been preparing for, for years.”

“We have complete confidence in the teams’ analysis, and conclusions, and it played out exactly the way you would want it to,” he said.

When it comes to the recent repo market turmoil, what does a long-term solution to fixing that look like?

“We have learned something. Despite there being a lot of reserves in the system, they weren’t moving around. They’re lumpy.”

When it comes to the level of bank reserves needed going forward, “any view I had before, based on all the research, and the outreach, and the surveys, my view would be that — that level is probably higher,” Mr. Williams said.

“I think we are seeing that liquidity doesn’t move around as easily, in these situations, which means that if we want interest rates to stay kind of on their own in a narrow range, that we have to make sure we have that amount of reserves to support that.”

“As we think about permanent solutions, the big issues, I think, are: what is the right level of reserves,” he said, along with the possibility of some sort of standing facility to keep markets running smoothly.

Do you have a specific number for how much bigger reserves need to be?

He said he did not, but “I do have on my computer a picture of where reserves were in the summer, and where they were in September,” he said. Earlier this year, “we saw a period where these issues were not manifesting themselves in the way that we saw in the last couple of weeks.”

Is market functioning the primary thing keeping you up at night, or are other aspects of central banking in 2019 more worrying?

“This is very acute. This is very much an issue that arose very quickly,” he said of repo market disruption. But when it comes to monetary policy, “we still have a very interesting point where the economy remains in a very favorable place,” but “there’s a lot of uncertainty — the slowing in global growth continues. Uncertainty around trade and other issues, Brexit.”

You’ve been a big advocate of moving early to forestall risks, rather than waiting. Do you think that means lowering rates again before the end of the year?

“I don’t think that this issue — of the lower bound, and trying to risk manage around it — is pertinent to a specific issue, of what decision we should make at the coming meetings.”

“It’s really more about where the likely trajectories of the U.S. economy are right now,” he said. “The issue we’re grappling with, I’m grappling with, is managing these various uncertainties and some of these downside risks, that do seem more prominent now than normally.”

“I do think we’re in a very good place, on monetary policy, and obviously I supported the decisions we’ve made,” he said. “My view is just to continue doing that assessment.”

Did you forecast another cut when the entire Fed committee released its September economic projections?

“I am not going to answer what my projection, or my expectation is, because I think it’s really pretty uncertain,” he said.

He noted that policymakers’ projections fit a few different narratives. “Maybe the economy will do well, surprise to the upside,” or “the economy takes longer, or doesn’t do as well,” and “I don’t know which of those is going to happen.”

We tend to paint Fed officials a faceless technocrats. But you have obsessions outside of economics, including video games. What video games are you playing?

“I really enjoy playing the online games, so I have been playing this game Dark Souls for the last few months,” he said. “You learn about how teams work together, or don’t work together effectively.”

How do you try to bring your personality — the sneaker-wearing, book-loving, craft beer enthusiast — to your leadership role?

He said he encouraged people to be themselves at work, and, prodded, admitted that “we did change the dress code,” adding, “But people always want to know what the new dress code is. And I always say: It’s use good judgment.”

He seemed disappointed that the change in the dress code at the New York Fed, traditionally a jackets-and-heels institution, was not happening faster.

“People are changing. I’m not telling them what they should do, but people are coming in, dressed as they wish,” he said. Among men, “where you really see it — far fewer ties.”

“Like so many things, it’s a longer journey.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The New York Fed Chief Is Facing His Biggest Test. Here’s His Response.

Westlake Legal Group 29dc-nyfed-facebookJumbo The New York Fed Chief Is Facing His Biggest Test. Here’s His Response. United States Economy Money Market Accounts Interest Rates Government Bonds Economic Conditions and Trends Credit and Debt Banking and Financial Institutions

John C. Williams, president of the Federal Reserve Bank of New York, has spent the past two weeks grappling with the regional bank’s most tumultuous period in years.

Since Sept. 16, a shortage of dollars in an obscure but crucial corner of short-term Wall Street funding, called the repo market, has forced the New York Fed to engage in an ongoing series of market interventions — a first since the Great Recession. The effort is an attempt to keep the central bank’s benchmark rate from accidentally creeping higher.

The situation is the biggest test so far for Mr. Williams — who took the helm of the New York Fed in June 2018 — and one that many market analysts say deserves a less-than-stellar grade.

While officials have succeeded in getting interest rates under control, some investors have criticized the Fed for moving too hesitantly when problems first arose, waiting until rates on repurchase, or repo, agreements had skyrocketed and briefly spilled over, pushing the Fed’s benchmark rate above its intended range.

Mr. Williams, a theoretician responsible for some of the most influential economic studies of the past two decades, was at the center of the disapproval. Before assuming his role as head of the New York Fed, he ran the Federal Reserve Bank of San Francisco and made a practice of ignoring day-to-day market moves. But those moves are central to the New York branch’s mission as the Fed’s primary conduit to — and supervisor of — Wall Street.

His early tenure in New York had not been smooth sailing, even before the market hiccups this month. Mr. Williams ousted two top officials, Simon Potter and Richard Dzina, earlier this year because of differences in management style. Each had more than two decades of experience at the Fed, and Mr. Potter had overseen the markets group. Their dismissal unsettled some bank employees and raised eyebrows on Wall Street.

The shake-up also left another New York Fed official, Lorie Logan, temporarily in charge of the market portfolio — the Fed’s giant stash of bonds. Ms. Logan is well-respected and often pointed to as a natural fit for the permanent job, but former Fed officials worry that she is now essentially auditioning, which could hinder her ability to make tough or unpopular decisions.

In an interview on Friday, Mr. Williams batted back the critiques, defending the timing of the New York Fed’s recent responses and saying that the bank’s team was working effectively.

Mr. Williams also said he still supported the way the Fed has chosen to guide interest rates — what it calls an “ample reserves” framework. Instead of intervening in markets to push rates into place by balancing out supply and demand, as it did before the financial crisis, the Fed now announces how much interest it will pay on banks’ reserves, and that rate is passed through the financial system.

The approach requires the Fed to hang on to large holdings of government-backed bonds to keep reserves, essentially currency deposits at the Fed, plentiful. Central bankers had thought that they had a long way to go before reserves became scarce. So until last month, they were shrinking their balance sheet and drawing down that supply.

But Mr. Williams said the recent episode showed him that the approach might require higher reserves than he had realized. That is important, because it could hint that the Fed will start growing its balance sheet again soon, something several of Mr. Williams colleagues have signaled over the past week.

Mr. Williams, who has a constant vote on monetary policy decisions made by the Federal Open Market Committee, was mum on the other major question facing policymakers — whether the Fed will cut rates beyond the two moves it has already made. He declined to give any hint about his preferences, arguing that amid uncertainty, the Fed should keep its options open.

Here is a look at how he is addressing the biggest questions facing the New York Fed and the central bank, in a curated, and partly paraphrased, transcript.

New York Times: Some market participants have said the Fed was too slow to intervene amid the recent disruption in overnight repurchase agreements, or repos. Can you walk us through the decision-making process?

Mr. Williams emphasized that data on the Fed’s policy rate, the federal fund rate, comes in slowly and the official figure is released on a delay — it comes out at 9 a.m. the following morning. That figured into the timing, Mr. Williams said, because “we need to explain why we’re intervening — the desk directive is very clear,” he said, referring to the rules set out by the policymaking Fed committee for the New York Fed to follow.

The bank is meant “to conduct open market operations, to keep the federal funds rate in the range.”

He noted that the Fed took market participant feedback from the first intervention into account. Since Sept. 17, it has announced a day in advance that it would provide liquidity to markets and how much. It also -announced on Sept. 20 that it would continue intervening through Oct. 10.

There’s concern on Wall Street that you ousted Mr. Potter and Mr. Dzina, and, in doing so, set a tone at the New York Fed in which experts may not feel comfortable speaking up, especially about repo market issues. What is your response to that?

“It’s just completely wrong, in terms of what actually happened,” he said, noting that when rates started to spike in the market for repos earlier this month, he and Ms. Logan were both in Washington for the Federal Open Market Committee meeting.

“It was all hands on deck. Everyone was working tirelessly to understand what was happening,” he said. “The team operated magnificently, there was no delay, there was no hesitation — there was no, in any way, feeling that people weren’t sharing and discussing things very quickly. This is something that Lorie, Lorie Logan, and her colleagues have been preparing for, for years.”

“We have complete confidence in the teams’ analysis, and conclusions, and it played out exactly the way you would want it to,” he said.

When it comes to the recent repo market turmoil, what does a long-term solution to fixing that look like?

“We have learned something. Despite there being a lot of reserves in the system, they weren’t moving around. They’re lumpy.”

When it comes to the level of bank reserves needed going forward, “any view I had before, based on all the research, and the outreach, and the surveys, my view would be that — that level is probably higher,” Mr. Williams said.

“I think we are seeing that liquidity doesn’t move around as easily, in these situations, which means that if we want interest rates to stay kind of on their own in a narrow range, that we have to make sure we have that amount of reserves to support that.”

“As we think about permanent solutions, the big issues, I think, are: what is the right level of reserves,” he said, along with the possibility of some sort of standing facility to keep markets running smoothly.

Do you have a specific number for how much bigger reserves need to be?

He said he did not, but “I do have on my computer a picture of where reserves were in the summer, and where they were in September,” he said. Earlier this year, “we saw a period where these issues were not manifesting themselves in the way that we saw in the last couple of weeks.”

Is market functioning the primary thing keeping you up at night, or are other aspects of central banking in 2019 more worrying?

“This is very acute. This is very much an issue that arose very quickly,” he said of repo market disruption. But when it comes to monetary policy, “we still have a very interesting point where the economy remains in a very favorable place,” but “there’s a lot of uncertainty — the slowing in global growth continues. Uncertainty around trade and other issues, Brexit.”

You’ve been a big advocate of moving early to forestall risks, rather than waiting. Do you think that means lowering rates again before the end of the year?

“I don’t think that this issue — of the lower bound, and trying to risk manage around it — is pertinent to a specific issue, of what decision we should make at the coming meetings.”

“It’s really more about where the likely trajectories of the U.S. economy are right now,” he said. “The issue we’re grappling with, I’m grappling with, is managing these various uncertainties and some of these downside risks, that do seem more prominent now than normally.”

“I do think we’re in a very good place, on monetary policy, and obviously I supported the decisions we’ve made,” he said. “My view is just to continue doing that assessment.”

Did you forecast another cut when the entire Fed committee released its September economic projections?

“I am not going to answer what my projection, or my expectation is, because I think it’s really pretty uncertain,” he said.

He noted that policymakers’ projections fit a few different narratives. “Maybe the economy will do well, surprise to the upside,” or “the economy takes longer, or doesn’t do as well,” and “I don’t know which of those is going to happen.”

We tend to paint Fed officials a faceless technocrats. But you have obsessions outside of economics, including video games. What video games are you playing?

“I really enjoy playing the online games, so I have been playing this game Dark Souls for the last few months,” he said. “You learn about how teams work together, or don’t work together effectively.”

How do you try to bring your personality — the sneaker-wearing, book-loving, craft beer enthusiast — to your leadership role?

He said he encouraged people to be themselves at work, and, prodded, admitted that “we did change the dress code,” adding, “But people always want to know what the new dress code is. And I always say: It’s use good judgment.”

He seemed disappointed that the change in the dress code at the New York Fed, traditionally a jackets-and-heels institution, was not happening faster.

“People are changing. I’m not telling them what they should do, but people are coming in, dressed as they wish,” he said. Among men, “where you really see it — far fewer ties.”

“Like so many things, it’s a longer journey.”

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Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Consumer Bureau’s Complaints Database Is ‘Here to Stay,’ Director Says

Westlake Legal Group 19cfpb1-facebookJumbo Consumer Bureau’s Complaints Database Is ‘Here to Stay,’ Director Says Mulvaney, Mick Kraninger, Kathy Consumer Protection Consumer Financial Protection Bureau Banking and Financial Institutions

The Consumer Financial Protection Bureau will continue to publish its database of consumer complaints about financial companies, ending — for now — a battle over public access to one of the agency’s most powerful tools.

“The database is here to stay,” Kathleen Kraninger, the bureau’s director, said Wednesday at a consumer conference in Rosemont, Ill., outside Chicago.

Since 2011, the bureau has maintained an open and searchable record of more than one million consumer accusations of inaccurate bills, illegal fees, improper overdraft charges, mistakes on loans and a long list of other issues. Companies have complained that the database unfairly harms their reputations by spreading unverified negative information, but consumer advocates say it’s a vital tool for spotting problems and patterns of bad conduct.

Consumer groups had worried that the database — which contains information the bureau is legally required to collect — could be made private as the bureau shifted in a business-friendly direction under President Trump, who has pushed to reduce government regulation.

Mick Mulvaney, Mr. Trump’s acting chief of staff, who ran the bureau temporarily, suggested shielding the complaints data from public view. He told a banking conference last year, “I don’t see anything in here that says I have to run a Yelp for financial services sponsored by the federal government.”

When Mr. Mulvaney initiated a public call for feedback on the bureau’s complaint process, more than 26,000 people, companies and advocacy groups responded. Ms. Kraninger called that outpouring of comments “staggering” and persuasive.

Ms. Kraninger said that the database would remain public and that the bureau would add new features to help consumers contact companies and research answers to common questions. The bureau will also release data visualization and analysis tools to help people interpret the data in context.

“These are the kind of tools that our researchers already use internally, and I think making them available to the public will greatly improve the functionality of the database,” she said.

In a rare moment of alignment, industry trade groups and consumer advocacy organizations were cautiously optimistic about Ms. Kraninger’s announcement.

“I’m gratified that the complaint narratives will remain public and hope that the C.F.P.B. will continue to encourage consumers to submit complaints when they face problems,” said Lauren Saunders, associate director of the National Consumer Law Center.

The U.S. Chamber of Commerce called Ms. Kraninger’s plans “a step in the right direction.” Richard Hunt, the chief executive of the Consumer Bankers Association, said the changes Ms. Kraninger outlined would help make the bureau’s complaints system fairer.

While consumer advocates were heartened by the preservation of the public database on Wednesday, they were lining up to criticize another decision Ms. Kraninger made this week. On Tuesday, she flipped the bureau’s position in a court fight about its independence, joining critics who say its leadership structure is unconstitutional.

The legislation that created the consumer bureau contained a provision saying that the bureau’s director could be removed only for cause, defined as “inefficiency, neglect of duty or malfeasance.” That provision has been repeatedly challenged in court by adversaries who have said it gives the bureau’s director too much unchecked power — a position the Justice Department took early in Mr. Trump’s presidency.

The bureau had resisted, maintaining that its structure was legally permissible — until this week. Consumer groups including the National Consumer Law Center and Public Citizen criticized Ms. Kraninger’s reversal, saying it undermined Congress’s ability to create independent agencies.

In her speech on Wednesday, Ms. Kraninger urged the Supreme Court to take up a case involving Seila Law, a California firm that has asked the court to hear its challenge to the agency’s structure, including the terms of the director position.

“My decision to no longer defend the removal provision does not mean that the bureau will stop its work,” she said. “We will continue to defend the actions that the bureau takes now and has taken in the past.”

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The Fed Is Poised to Cut Rates Again. Here’s What to Watch.

Westlake Legal Group 18dc-fedpreview2-facebookJumbo The Fed Is Poised to Cut Rates Again. Here’s What to Watch. United States Politics and Government United States Economy Powell, Jerome H Interest Rates Federal Reserve System Federal Open Market Committee Banking and Financial Institutions

WASHINGTON — Federal Reserve officials are expected to cut interest rates for a second time on Wednesday, a move that could prove divisive among Fed officials and aggravate President Trump’s anger toward the central bank.

The Fed’s rate decision, which will be announced at 2 p.m. in Washington, will be accompanied by a fresh set of quarterly economic projections and followed by a news conference at 2:30 p.m. with the chair Jerome H. Powell.

That means markets will have plenty of information to digest as they try to game out what comes next for the Fed, which lowered its policy interest rate by a quarter point for the first time in more than a decade in July as officials tried to protect the economy against uncertainty created by Mr. Trump’s trade war and a global economic slowdown.

Mr. Trump has been pushing for an extensive cut, one that leaves rates at or below zero, but investors anticipate another quarter-point move — setting rates in a range of 1.75 to 2 percent. Here’s what else to watch out for.

The Fed will release an updated version of its postmeeting statement Wednesday, and economists are looking for any changes to the language that could provide clues about whether officials are becoming more or less concerned with the economic outlook.

Perhaps more crucially, the Fed’s 17 participants will publish new economic projections at this meeting, giving an updated snapshot of where the group believes growth is headed and whether officials believe the Fed might need to provide additional support.

“The most important question” coming out of this meeting, according to Goldman Sachs economists, “is how many participants will project additional rate cuts.”

The last set of Fed funds rate projections — commonly referred to as the “dot plot” because it depicts rate expectations as blue dots on a graph-paper background — showed that as of June, not one policymaker expected more than two rate cuts by the end of 2019.

But risks have mounted since then, putting the Fed under increasing pressure to help keep America’s record-long economic expansion going.

Mr. Trump ramped up his trade war with China immediately after the Fed’s rate cut in July.

While China and the United States plan to resume talks next month, a resolution is hardly assured and the global economy continues to wobble. Manufacturing data has been deteriorating globally, job growth in the United States is decent but moderating, Britain’s smooth exit from the European Union is still a question mark and airstrikes on Saudi oil facilities could heighten geopolitical tensions.

Will it be enough to tip some officials in favor of future rate cuts? Probably, based on their public remarks. James Bullard, the president of the Federal Reserve Bank of St. Louis, suggested in a recent interview with Reuters that he would favor a half-point rate cut — the equivalent of a third cut, for dot-plot purposes.

But not everyone is expected to agree with even a moderate cut. Esther George and Eric Rosengren, who are also voting members of the rate-setting Federal Open Market Committee, have been less enthusiastic about getting ahead of risks before they turn into economic reality. They dissented against the July rate cut and could do so again at this meeting.

When it comes to the data, things actually look pretty good. At 3.7 percent, unemployment is hovering near a 50-year low. Overall growth has held up, and consumers are still spending strongly, though the University of Michigan survey suggests that they are becoming less confident as the trade war spooks many.

Inflation is still stuck below the Fed’s target of 2 percent — as it has almost been pretty regularly since the central bank formally adopted that goal in 2012 — but it has been showing signs of creeping back up.

The Fed will release new projections for growth, joblessness and price gains through 2022, and those could offer insight into what officials are expecting. They previously forecast that the unemployment and inflation rates would climb slightly in the coming years while growth moderated.

Perhaps the biggest wild card at this meeting is Mr. Powell’s news conference. The Fed chair roiled markets after the July meeting because investors interpreted his statement that the Fed’s rate cut was a “mid-cycle adjustment” as a sign that the central bank did not plan to aggressively cut borrowing costs.

Mr. Powell has little to gain by making definitive promises: Trade policies are one of the major risks on the horizon, and they have the potential to change quickly. The Fed could face very different conditions by its Oct. 29-30 meeting, which comes after United States and Chinese officials are scheduled to meet.

“We think Powell will steer clear from the phrase mid-cycle adjustment that caused waves in July, favoring instead an open-minded recalibration of rates,” economists at Evercore ISI wrote in a research note previewing the meeting.

Whatever Mr. Powell says seems likely to draw a reaction from the White House. While Mr. Trump has no ability to directly influence Fed policy — the central bank is insulated from politics and answers to Congress, not the White House — he has made a habit of weighing in on its decisions.

Mr. Trump has ramped up his attacks on Twitter in recent months, figuratively calling Mr. Powell a bad golfer, labeling him an enemy and saying that he and his colleagues are “boneheads.” He has even suggested that the Fed should adopt negative rates, a policy intact in the eurozone and Japan, which have very low inflation and more fragile economies.

You might also hear the phrase “standing repo facility” bandied about around 2 p.m.

A little background: There has been some turmoil in the money markets this week as a corporate tax due date and Treasury bond issuance combined to fuel a cash shortage. That creates problems for the Fed — it makes it harder for it to keep its policy rate under control, and risks tightening financial conditions in ways that slow down borrowing and spending.

As a result, some economists believe the Fed will discuss ways to keep those markets chugging along smoothly — while also steadying the Fed funds rate — at their meeting. Analysts think options might include a technical tweak to the Fed’s rate-setting tool, a resumption of bond-buying that will keep the Fed’s balance sheet growing alongside the economy to guard against future cash crunches in money markets, and a standing repo facility.

“Repo” is short for Treasury repurchase agreements, short-term loans taken out overnight by financial institutions like hedge funds and banks. The “standing facility” refers to a regular Fed program that allows banks to convert Treasury securities into reserves — money holdings at the central bank — on demand, at a rate the Fed sets.

In theory, such a tool would keep reserves, which banks sometimes prefer to hold for regulatory reasons, from becoming scarce. That would help money markets function better at times of stress, because banks would be less likely to hoard their reserves. As a result, it would keep the Fed from having to step in to cool things down. The central bank had to do so twice this week, a first since the financial crisis.

It is not clear whether the Fed is going to make any big changes at this meeting. Its officials tend to be a contemplative bunch, and they have not foreshadowed a shake-up. But market conditions could drive the institution’s hand, so it is worth watching for moves in that direction.

“I had been skeptical that they were going to introduce a standing repo facility — I think now the probability on that has gone up,” said Seth Carpenter, chief United States economist at UBS.

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E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat

FRANKFURT — The European Central Bank took unexpectedly aggressive steps on Thursday to head off a downturn before it gained momentum, but the bank signaled that it was reaching the limits of what it could do to stimulate the eurozone economy.

The central bank cut a key interest rate and revived a money-printing program, but later issued an unusually strong call for eurozone governments to do more of the economic heavy lifting.

Those countries that can afford it should stimulate growth by increasing public spending, Mario Draghi, the central bank president, said during a news conference.

Asked whether the message to political leaders was that they can’t expect the central bank to come to their rescue forever, Mr. Draghi answered: “Definitely yes.”

Mr. Draghi’s call for government action, which he said had the unanimous support of the bank’s 25-member Governing Council, was also an expression of unity with his soon-to-be-successor, Christine Lagarde. Ms. Lagarde, who will become the European Central Bank’s president in November, issued a similar plea when she spoke to members of the European Parliament last week.

For much of the last decade, the European Central Bank has prevented the eurozone economy from collapsing with an array of sometimes unprecedented crisis measures. But economic growth has almost stalled, and there is a growing consensus among analysts that wealthier countries like Germany or the Netherlands need to pump money into their economies, and by extension the rest of the eurozone, with tax cuts or public works projects.

Central banks are “not the only game in town,” Ms. Lagarde said at the European Parliament last week.

Read more: Central banks around the world are cutting rates to fend off recession.

The measures that the European Central Bank announced Thursday go beyond what many analysts were expecting. Recent comments by members of the Governing Council had cast doubt on whether the bank would restart purchases of government and corporate bonds. It has been only nine months since the bank ended a previous bond-buying program, an initiative that started in the midst of the financial crisis.

The bank will buy 20 billion euros’ worth of bonds, or $22 billion, every month starting in November, a form of money printing intended to inject money into the system and hold down interest rates.

In a bid to increase lending, the bank also pushed even lower the so-called negative interest rate it imposes on commercial banks that hoard cash.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a negative rate — essentially, a charge — on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent. It was the first cut in interest rates since 2016.

The deposit rate is one of the few remaining levers the bank can use to push down market interest rates. Its benchmark interest rate, the rate at which it lends to banks, is already at zero and cannot go any lower.

The move was symptomatic of the upside-down world of modern finance, in which interest rates are so low that insurance companies and other investors must pay governments and even some corporations to keep their money safe.

The central bank acknowledged Thursday that negative interest rates have some unwanted side effects and took steps to ease the pain. Some bank holdings will be exempt from the penalty, a practice known as tiering.

Despite Mr. Draghi’s plea for governments to do more, the idea of debt-financed spending, even on such favorable terms, is politically touchy in Germany. Germans are proud of their balanced budgets, and a constitutional amendment effectively forbids deficit spending.

ImageWestlake Legal Group merlin_160661526_6442e930-0759-41b6-83cb-6ca02a20d88d-articleLarge E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

Mario Draghi, the European Central Bank president, at a news conference after the meeting of the Governing Council in Frankfurt on Thursday.CreditRalph Orlowski/Reuters

With Germany on the brink of recession, weighed down by slumping exports caused by the United States-China trade war, some domestic leaders have begun to question that orthodoxy. “We should think about whether a break-even budget is the right path,” Wolfgang Tiefensee, economics minister of the state of Thuringia, said in an interview last month.

“We should use increased tax receipts to invest in infrastructure — bridges, streets, railways, broadband,” he said, “everywhere there is an urgent need to catch up.”

“Many people share this view,” Mr. Tiefensee added, “but not yet a majority.”

The European Central Bank also exceeded expectations by making an open-ended commitment to keep interest rates low, and sweetening a program that encourages banks to lend money to consumers and businesses.

The bank said it would not begin raising interest rates “until it has seen the inflation outlook robustly converge to a level” below but close to 2 percent, the official target. The annual rate of inflation in August was only half that much. The open-ended commitment was in contrast to previous statements when the bank outlined a specific time frame.

Further, the bank said it would ease the terms of a program that allows banks to borrow money on favorable terms, provided they lend it to customers. The loans will be extended to three years from two, and for banks that meet certain benchmarks the interest rate will be negative. In other words, banks won’t pay any interest and won’t have to repay all of the money they borrowed.

President Trump, who has been pressing the Federal Reserve to cut its benchmark rate, responded to Thursday’s move by needling his own central bank. The European bank, he said, is “trying, and succeeding, in depreciating the Euro against the VERY strong dollar, hurting U.S. exports … And the Fed sits, and sits, and sits.”

President Trump wants negative interest rates. Here’s how that would work.

The euro slipped against the dollar on Thursday, but Mr. Draghi rejected the idea that currency manipulation was behind the bank’s action.

“We have a mandate, we pursue price stability, and we don’t target exchange rates, period,” he said.

Some prominent economists say that it’s time for the European Central Bank to get more creative. The bank’s balance sheet already includes €2.6 trillion, or about $2.9 trillion, in government and corporate bonds. They were bought with newly created euros to inject money into the financial system and push down interest rates.

Analysts say that the bank has limited scope to buy more government bonds because it already owns such a big chunk of the market.

“As I see it, he has only about €60 billion of sovereigns he can buy,” Carl Weinberg, chief international economist at High Frequency Economics in White Plains, N.Y., said in an email. “That does not support sovereign bond purchases lasting for very long.”

Some economists have begun urging the bank to consider printing money and distributing it directly to citizens.

Among them is Stanley Fischer, former vice chairman of the Fed and Mr. Draghi’s thesis adviser when he was a doctoral student at M.I.T. Mr. Fischer was among the authors of a report published last month by the fund manager BlackRock.

“An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough,” the report said.

“That response will likely involve ‘going direct,’” the report said. “Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders.”

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be highly contentious. “Giving money to people in whatever form, it’s a fiscal policy task,” Mr. Draghi said Thursday. “It’s not a monetary policy task.”

He added, though, that Ms. Lagarde might reconsider the issue.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com