Monthly Archives: June 2011

Financial Reform Destined To Fail, Top Federal Reserve Official Says

Reforms instituted after the financial crisis to prevent future taxpayer-funded bailouts are bound to fail and will likely be weakened within the next few years, the Federal Reserve’s longest-serving policy maker predicted Monday.

The stark warning, offered by Federal Reserve Bank of Kansas City President Thomas Hoenig, who’s been warning about the rise of too-big-to-fail banks for more than a decade, comes as international regulators finalize plans to increase supervision of and toughen requirements on the world’s largest banking organizations as a reaction to the global financial crisis. Rather than break up big banks, politicians decided to simply subject them to more oversight.

Yet debate rages as to whether the requirements are too tough, or not tough at all, and whether regulators will have the backbone to follow through on their commitments. Republicans in the U.S. House of Representatives are trying to dismantle the domestic financial reform law passed last year; banks are screaming that lending will dry up, inhibiting the anemic U.S. recovery; and on the global level, regulators from some countries where large banks dominate the national economy (and thus enjoy overt taxpayer backing) are trying to weaken international accords.

For Hoenig though, the choice is clear when it comes to what to do with the financial institutions that caused the most punishing downturn since the Great Depression: break them up into pieces that regulators can understand and provide a backstop to entities engaged in the so-called real economy — but allow those dabbling in more risk-laden activities to fail.

The Obama administration and Congress chose the alternate route in passing the Dodd-Frank financial regulation law. To Hoenig, they made a mistake.

via Financial Reform Destined To Fail, Top Federal Reserve Official Says.

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Bit O’Money: Who’s Behind the Bitcoin Bubble? | The New York Observer

It was a tweet from a stranger that crystallized the concept of Bitcoin for Bruce Wagner. “I can explain the benefit of Bitcoin in four words,” one of Mr. Wagner’s 12,000-some Twitter followers wrote. “Briefcases full of cash.”At the time, briefcases full of pennies seemed more apt—one unit of the new virtual currency was then worth $0.06. Then, in one day, the price of a Bitcoin jumped to $0.22. Mr. Wagner, a former I.T. specialist who now produces and stars in his own web TV shows, became obsessed with the things. He sat at his computer, too excited to eat, reading the myriad white papers, trade blogs, technical analyses and forum discussions about Bitcoin. For five days, he hardly slept. He just kept thinking, This is amazing. This is going to change everything.The last time he’d been this excited was when Windows came out. He got his hands on some Bitcoins and sold when the price doubled. It kept climbing. He invested more.Bitcoin is Internet gold, a digital currency developed by a community of programmers in 2009 that represents the first plausible manifestation of an unregulated global “cryptocurrency” first imagined by anarchist computer hackers in the late 90’s. Bitcoins are snippets of code that use encryption to prevent counterfeiting and double-spending. Complex algorithms control the money supply, in theory replacing the need for banks or a central regulator. Right now Bitcoins can be generated—or “mined”—by running a program on a powerful computer. This task requires exponentially more time and processing power as the number of Bitcoins grows, and the absolute number of Bitcoins is capped at 21 million, mimicking the scarcity of gold. There are now 6,539,450 in circulation; $2 million worth were traded on the main Bitcoin exchange Mt. Gox on Friday.

via Bit O’Money: Who’s Behind the Bitcoin Bubble? | The New York Observer.