Janet Yellen: No New Financial Crisis In Our Lifetime - Really????

[cawacko]

The head of the Fed is saying this? God help us all. Of course Yellen said there wasn't a housing bubble in 2006 as well and the system was under no threat.




Fed's Yellen expects no new financial crisis in 'our lifetimes'

U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.

"Would I say there will never, ever be another financial crisis?" Yellen said at a question-and-answer event in London.

"You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be," she said.

Yellen said it would "not be a good thing" if reforms of the financial services industry since the crisis were unwound, and urged those who had helped manage the fallout at the time to be vocal in preventing such a dilution.

U.S. President Donald Trump has said during his election campaign that he would cut banking regulation. The U.S. Treasury Department earlier this month proposed easing up on restrictions big banks now face in their trading operations.

Yellen declined to comment when asked about her relationship with Trump but said she had a good working relationship with U.S. Treasury Secretary Steve Mnuchin.

She also reiterated her view that the U.S. central bank would continue to raise interest rates only gradually.

"We think it will be appropriate for the attainment of our goals to raise interest rates very gradually to levels that are likely to remain quite low, although there is uncertainty about this, to remain low by historical standards for a long time," she said.

She said the stockpile of bonds the Fed amassed to help the U.S. economy through the crisis would be shrunk "gradually and predictably."

Asked about share price valuations by a member of the audience, Yellen said "by standard metrics, some asset valuations look high but there's no certainty about that."


http://mobile.reuters.com/article/idUSKBN19I2I5

[Cancel 2020.1]

I'd love it if that were true. Not sure how she can say that, though - too many variables.

Still, it's nice to read some optimism on that front.

[archives]

She is saying within the near future, and she is referring to an event comparable in scope to the last recession

She is the head of Monetary Policy, they think in terms of years ahead, would you have felt more reassured if she predicted a major catastrophe on the horizon?

[cawacko]

She is saying within the near future, and she is referring to an event comparable in scope to the last recession

She is the head of Monetary Policy, they think in terms of years ahead, would you have felt more reassured if she predicted a major catastrophe on the horizon?

Leaving aside her poor track record of predictions why does she need to say this at all? We're arguably in a bubble right now and she's supposed to be the watchdog and this is her attitude? It's either incredible hubris, she's delusional or she's lying.

[canceled.2021.3]

typical liberals putting all of their faith in the so called "experts"

I read her comments and I am ready to start shorting the market

[cawacko]

The head of the Fed is saying this? God help us all. Of course Yellen said there wasn't a housing bubble in 2006 as well and the system was under no threat.




Fed's Yellen expects no new financial crisis in 'our lifetimes'

U.S. Federal Reserve Chair Janet Yellen said on Tuesday that she does not believe that there will be another financial crisis for at least as long as she lives, thanks largely to reforms of the banking system since the 2007-09 crash.

"Would I say there will never, ever be another financial crisis?" Yellen said at a question-and-answer event in London.

"You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be," she said.

Yellen said it would "not be a good thing" if reforms of the financial services industry since the crisis were unwound, and urged those who had helped manage the fallout at the time to be vocal in preventing such a dilution.

U.S. President Donald Trump has said during his election campaign that he would cut banking regulation. The U.S. Treasury Department earlier this month proposed easing up on restrictions big banks now face in their trading operations.

Yellen declined to comment when asked about her relationship with Trump but said she had a good working relationship with U.S. Treasury Secretary Steve Mnuchin.

She also reiterated her view that the U.S. central bank would continue to raise interest rates only gradually.

"We think it will be appropriate for the attainment of our goals to raise interest rates very gradually to levels that are likely to remain quite low, although there is uncertainty about this, to remain low by historical standards for a long time," she said.

She said the stockpile of bonds the Fed amassed to help the U.S. economy through the crisis would be shrunk "gradually and predictably."

Asked about share price valuations by a member of the audience, Yellen said "by standard metrics, some asset valuations look high but there's no certainty about that."


http://mobile.reuters.com/article/idUSKBN19I2I5

Reporting what Yellen said at her event is now "right wing slander" according to Desh. I guess that means her comments were pretty bad.

[cawacko]

For those so inclined to read the full article I only pasted page 1. The link with page 2 is below. Pretty well sums up the fallacy in Yellen's comments.




There Is No Excuse For Janet Yellen's Complacency

Janet Yellen has been reported by Reuters as saying in London yesterday that “she does not believe that there will be a run on the banking system at least as long as she lives”:

"Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be," Yellen said at an event in London. “Fed’s Yellen: Not another financial crisis in ‘our lifetimes’”

The only word I can use to describe this belief is “delusional.”

The only way in which her belief could be justified would be in financial crises were truly random events, caused by something outside the economy—or just by a very bad throw of the economic dice.

This is indeed the perspective of mainstream “Neoclassical” economic theory, in which Yellen was trained, and because of which she was deemed eligible—and indeed eminently suitable—to Chair the Federal Reserve.

This is the theory that led the OECD to proclaim, two months before the crisis began in August 2007, that “the current economic situation is in many ways better than what we have experienced in years”, and that they expected that “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.” (OECD, June 2007, “Achieving Further Re-balancing”). It is the theory that led her colleague David Stockton, then the Director of the Division of Research and Statistics at the Federal Reserve, to dismiss the possibility of a recession after the crisis had begun, in December 2007—the very month that the recession is now regarded as having commenced:

Overall, our forecast could admittedly be read as still painting a pretty benign picture: despite all the financial turmoil, the economy avoids recession and, even with steeply higher prices for food and energy and a lower exchange value of the dollar, we achieve some modest edging-off of inflation. (Federal Open Market Committee transcript, December 2007)

So what we are getting from her is not merely her own personal complacency, but the complacency of an approach to economics which has always been grounded in the beliefs that (a) capitalism is inherently stable, (b) that the financial sector can be ignored—yes that’s right, ignored—when doing macroeconomics, and (c) that the Great Depression was an anomaly that can also be ignored, because it can only have been caused either by an exogenous shock or bad government policy, both of which cannot be predicted in advance.

Someone who would not have been deemed suitable to run the Federal Reserve, before the Global Financial Crisis of 2007-08, was the maverick American economist Hyman Minsky. Minsky began from the perspective that, to be realistic, economic theory had to answer the question:

Can "It"—a Great Depression—happen again? And if "It" can happen, why didn't "It" occur in the years since World War II? These are questions that naturally follow from both the historical record and the comparative success of the past thirty-five years. (Minsky, Can “It” Happen Again? 1982, p. xii)

To do this, Minsky made the obvious point that economic theory had to be able to explain how Great Depressions came about:

To answer these questions it is necessary to have an economic theory which makes great depressions one of the possible states in which our type of capitalist economy can find itself. (Minsky, 1982, p. xi.)

He specifically rejected the dominant Neoclassical approach to economics on this basis:

The abstract model of the neoclassical synthesis cannot generate instability. When the neoclassical synthesis is constructed, capital assets, financing arrangements that center around banks and money creation, constraints imposed by liabilities, and the problems associated with knowledge about uncertain futures are all assumed away. For economists and policy-makers to do better we have to abandon the neoclassical synthesis. (Minsky, 1982, p. 5. Emphasis added.)

Minsky argued instead that financial crises are not random, but are a manifestation of the innate nature of capitalist economies. They can be anticipated by trends in private debt (though their precise timing can’t be determined because their occurrence depends in part on firms’ willingness to borrow, or banks’ willingness to lend terminating in response to levels and rates of growth of private debt that are too high relative to GDP). But most conventional economists don’t know that Minsky argued this, because he could only get published in journals that most conventional economists never read.

I say most conventional economists don’t know of Minsky’s arguments, because some have now read him—and that includes Janet Yellen.

She knows who Minsky was. She has spoken at conferences at the Levy Institute at Bard College, in upstate New York, where Minsky worked for his final years. She gave a speech there just 18 months after the crisis began, at a conference named after Minsky, in which she praised Minsky (Janet Yellen, April 16 2009, “A Minsky Meltdown: Lessons for Central Bankers”). She noted in it the irony of her giving such a speech, when the previous time she had spoken at the Levy Institute, she had extolled the virtues of derivatives (the CDOs and the like which, a decade later, helped trigger the biggest crisis since the Great Depression):

It’s a great pleasure to speak to this distinguished group at a conference named for Hyman P. Minsky. My last talk here took place 13 years ago when I served on the Fed’s Board of Governors. My topic then was “The ‘New’ Science of Credit Risk Management at Financial Institutions.” It described innovations that I expected to improve the measurement and management of risk. My talk today is titled “A Minsky Meltdown: Lessons for Central Bankers.” I won’t dwell on the irony of that.

She might not want to dwell on the irony, but I do. When she spoke at the Levy Institute in the Spring of 1996, she clearly had no idea of Minsky, nor of his diametrically opposed view of how financial markets operated. But Minsky was alive when she spoke, and may well have attended her talk. If he had, he would have shaken his head at the naivety of the views she expressed then (as I do now at her views today):

Despite the complexities I have attempted to describe today—indeed, partly because of these complexities—I remain highly optimistic that both our system of financial intermediation and our system of financial regulation will remain strong and resilient. We know much more about risk measurement and management than we did a decade ago—and a decade from now we will know still more. Just as I cannot imagine that our present system of regulation will remain unchanged forever, I cannot imagine that we will ever reach a "perfect" system of regulation and supervision. However, we can, and I believe will, make the system better as we strive to adapt to changing realities. Perhaps a future Federal Reserve governor will appear before you a decade hence to discuss the continuing evolution of our financial system. (Yellen, “The ‘New’ Science of Credit Risk Management at Financial Institutions”, Levy Institute, Spring 1996).

So back then she said she couldn’t imagine a “perfect” system of regulation, but now she can imagine a world in which another financial crisis doesn’t occur in the lifetime of her audience in London yesterday.


https://www.forbes.com/sites/steveke.../#337ad877430e

[Celticguy]

It would be nice is she b was right for a change but that seems optimistic given Obama's gross mismanagement and corruption.

[cawacko]

Another article that nails down what we face and why Yellen is wrong. Check out the final bolded paragraph and tell me if it makes you feel economically secure.

Why Janet Yellen is very wrong about the banks


Federal Reserve Chairperson Janet Yellen spoke in London on Tuesday and indicated that the financial system was not likely to experience another significant financial crisis in our lifetime. Ms. Yellen is convinced that the actions taken by the Congress and the banking regulators have created a financial system in this country that can withstand significant stress without breaking. If one looks at the banking ratios, Ms. Yellen is making a good case.

However, if one assesses the impact of the new rules and regulations on this country, it is clear that the Fed has placed the United States at greater risk of a major collapse than at any time in the past 110 years – going back to the Panic of 1907.

The Ratios

Thirty years ago, in the first quarter of 1987, the FDIC indicates that U.S. banks had equity equal to 4.5 percent of assets. In the first quarter of 2017, this ratio was 5.9 percent. Bank liquidity has also improved. Cash and securities were 28.8 percent of assets in the earlier period and 32.7 percent recently. Plus, banks have more money to lend. Thirty years ago the loan to deposit ratio was 78.8 percent (it was 92.2 percent ten years ago). Today it is 71.1 percent.

These numbers indicate that the banking system is well capitalized; it has more than adequate liquidity; and it has excess deposits that can be loaned. It will take a long, long time for these ratios to erode. In this regard Ms. Yellen is right.

Protections Gone

The first place where Ms. Yellen may be wrong is that the new regulatory environment demands that banks fail in the event of a crisis. It prevents any and all bank regulatory agencies from aiding a weakening bank. It is actually against the law for the government to bail out a bank now due to new regulations. The new system relies on bank capital and liquidity to protect the system when an economic and/or financial set of problems occur.

This approach has been tried before. In the 19th century, and in 1929, the only protections that banks had against failures were their own balance sheets and what they could borrow from other bank balance sheets. It did not work. There were mammoth depressions prior to the Civil War – 1837 was a lollapalooza. There were depressions in 1873, 1883, 1893 and a panic in 1907.

In 1929 the regulators had the tools to prevent a massive setback but they did not use them and the system failed. In 2008, they had the tools but did not use them until Lehman failed and almost crashed the system or until the protections were utilized.

There are no more tools. The protections put in place going back to the establishment of the Fed are gone. The financial system is now at massive risk. The next downturn will be far more devastating than what happened in this country a decade ago.

Economic Activity

A series of new regulations have effectively nationalized the banks. They give government agencies the power to control every key aspect of banking. The government penalizes banks that get too big. It tells banks how they should allocate their assets. It demands that a large percent of those assets be loaned to the government. It penalizes banks that lend money to industries or in types of loans that the government does not like. It tells banks where they must acquire their liabilities. It tells them what types of liabilities are acceptable and what are not. It tells the banks that they must borrow money at relatively high rates in long-term markets and lend that money at relatively low rates to the government.

Under its new system it forces banks away from international activity liberally using the Bank Secrecy Act and the Anti Money Laundering laws. Its activities have forced two of the nation's largest banks to close what could be millions of overseas accounts and ruin thousands of relationships. It is weakening the country's ability to offer the liquidity in global financial markets that was once available.

If one believes that a small group of people operating behind closed doors, in private, a group that totally failed to protect the system from the last collapse, knows best about the direction of funds in the United States economy, Ms. Yellen is right. If you believe that this is the worst possible structure because it assumes that regulators know more about the economy than the economy knows about itself, this new system is a disaster.

Ms. Yellen is not right. She is blind to what she and her political cohorts have done.



http://www.cnbc.com/2017/06/28/why-j...ommentary.html

[cawacko]

Don't worry Janet. One of the four white liberal males that make up late night comedy could do a man on the street skit and ask how many people know who you are. I'd guess two out of ten would be best guess. Yet you control our economy.