Category Archives: FInancial

Soros has funded Socialism, Communism, death, and destruction. What is the devil’s greatest success? – Jay Davidson

Soros has funded Socialism, Communism, death, and destruction.  What is the devil’s greatest success?  That he hides in plain sight and misdirects the unwary…

Go here for the original Wall Street Journal Link.

George Soros Transfers $18 Billion to His Foundation, Creating an Instant Giant

By Juliet Chung and Anupreeta Das

George Soros, who built one of the world’s largest fortunes through a famous series of trades, has turned over nearly $18 billion to Open Society Foundations, according to foundation officials, a move that transforms both the philanthropy he founded and the investment firm supplying its wealth.

Now holding the bulk of Mr. Soros’s fortune, Open Society has vaulted to the top ranks of philanthropic organizations, appearing to become the second largest in the U.S. by assets after the Bill and Melinda Gates Foundation. Open Society has funded refugee relief, public-health efforts and other programs.

 

 

 

 

 

 

Shame as a tool of conquest – Jay Davidson

Shame as a tool of conquest

 

Consider how powerful a tool is shame.  If you doubt it, look at the Progressives’ use of shame to condition both democrat and republican politicians, citizens of both parties, religious leaders, everyone.

 

Shame of success.

Shame of heterosexuality.

Shame of monogamous relationships.

Shame of making money.

Shame of something that happened 100 years before you were born.

Shame of being white, whatever that means.

Shame of loving your country.

Shame of deciding to defend your rights to Life, Liberty and the Pursuit of Happiness.

Shame of worshipping the leader of your religion.

Shame of believing in God.

Shame of honesty and ethics.

 

This shame has brought down governments and countries.  To be aware of it is to fight it.

Repealing the Arbitration Rule

Any politician that states his goal is to protect the consumer, should ask us if we want that protection.  I say no, I’ve seen how well all the other federal programs work.

Just how stupid do politicians and bureaucrats think consumers are?

“Mr. Cordray said the ban would protect consumers, but his own agency’s study suggests otherwise. Consumers who prevailed in arbitration recovered on average $5,389 while those who joined class actions received $32. Trial lawyers on average raked in $1 million.”

 

Repealing the Arbitration Rule

Congress can kill Cordray’s payoff to his trial-lawyer funders.

By The WSJ Editorial Board

July 25, 2017 7:32 p.m. ET

 

Consumer Financial Protection Bureau chief Richard Cordray has been on a regulatory tear as he prepares to run for Governor in Ohio. But many of the Obama appointee’s midnight rule-makings need not see the light of day—for instance, his arbitrary ban on mandatory arbitration that the House voted to repeal on Tuesday.

The Congressional Review Act lets a majority of both chambers rescind a final agency rule issued in the past 60 legislative days. The 231-190 House vote overturns the CFPB’s new rule prohibiting class-action waivers in virtually all financial consumer-service agreements. Twenty-four GOP Senators have introduced a similar resolution.

Mr. Cordray said the ban would protect consumers, but his own agency’s study suggests otherwise. Consumers who prevailed in arbitration recovered on average $5,389 while those who joined class actions received $32. Trial lawyers on average raked in $1 million.

Most claims can’t be litigated on a class basis—though trial attorneys try—and arbitration provides an affordable and expeditious alternative. Companies typically pick up most if not all of the filing, administrative and arbitrator costs. Consumers usually obtain relief within two months, while class actions typically take years to resolve.

The rule would cause many firms to stop using arbitration since they would have to spend more defending class actions. The CFPB estimates that financial companies would spend between $2.62 billion and $5.23 billion over the next five years—much of which would go to attorneys—to defend some 6,000 class actions.

Ohio Senator Sherrod Brown, another plaintiff-bar favorite, cites Wells Fargo , which was found to have opened millions of unauthorized accounts in the names of its customers. But Wells Fargo agreed to settle the case on a class basis for $142 million—twice as much as estimated consumer out-of-pocket losses—because arbitrating individual disputes could have cost much more. The bank also paid $185 million to regulators and agreed to refund fees for unauthorized accounts.

Mr. Cordray wants to build a nationwide plaintiff-lawyer fund-raising base for his Ohio campaign. And he may hope that a few Republican Senators like South Carolina’s Lindsey Graham will sink the repeal resolution for their trial-bar campaign donors. But if Republicans stand together on repeal, the CFPB would be prohibited from ever issuing a similar rule. Republicans can strike a blow for the rule of law and against a major progressive cash source for Democrats with a single vote.

Appeared in the July 26, 2017, print edition.

Title: Re-affirms one’s faith in the Austrian School of Economics; that freedom begins with economic freedom…

Re-affirms one’s faith in the Austrian School of Economics; that freedom begins with economic freedom…

“But for the tax side of “one big idea,” Laffer would like to see corporate-tax reform. I agree. Reagan used to say, “Give me half a loaf now, and I’ll get the other half later.” Well, I’d take the half-loaf of corporate tax cuts right now.”

“…said Forbes, who offered an alternative: “The smart approach is get this economy moving through these tax cuts and deregulation … and then having a stable dollar, and then you sit down with country by country and remove trade barriers.” Anything but the trade protectionism that blew up the stock market in 1929.

“To which Laffer added the great line: “Don’t just stand there; undo something!”

“”Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation,” he said. “Undo, undo, undo and undo the damages these other guys have done.””

For the original link to this article, please go here.

Big Economic Ideas From Art Laffer and Steve Forbes
Big Economic Ideas From Art Laffer and Steve Forbes
I participated in perhaps a bit of radio history last week when Steve Forbes and Art Laffer joined me on my syndicated radio show. It may have been the first time these supply-side economics giants were ever together over the airwaves.

Forbes, of course, is chairman of Forbes Media, and he twice ran brilliant issue campaigns for president. And Laffer, once a key adviser to President Ronald Reagan, is father to the groundbreaking Laffer Curve, for which he should have won a Nobel prize. In our discussion, they didn’t disappoint. (For a full transcript, visit http://c10.nrostatic.com/sites/default/files/kudlow-transcript_20170715.html.)

We started with “one big idea.” That’s how the late Jack Kemp approached economic policy reform back in the 1980s. And his big idea, embraced by Reagan, was a mix of low marginal tax rates to spur economic growth incentives and a sound, reliable dollar to conquer inflation and create confidence. (This duplicated President John F. Kennedy’s prosperity model, which Brian Domitrovic and I wrote about in “JFK and the Reagan Revolution.”)

But these days, if you adhere to that big idea, you’re ridiculed as clinging to the past. My guests would have none of it.

“We need it now more than ever,” said Forbes. “To say that just because it worked 40 years ago, therefore it’s old, is like saying the Declaration of Independence and the Constitution are old, therefore we can cast them aside.”

Forbes’ version of “one big idea” is a flat tax and a sound dollar linked to gold. If we have that, we’ll be the “land of opportunity again.”

Laffer agreed. “Our economic verities have remained forever,” he said. “They go back to caveman, pre-cavemen. Incentives matter: If you reward an activity, then people do more of it. If you punish an activity, people do less of it.”

But for the tax side of “one big idea,” Laffer would like to see corporate-tax reform. I agree. Reagan used to say, “Give me half a loaf now, and I’ll get the other half later.” Well, I’d take the half-loaf of corporate tax cuts right now.

And that would work for Forbes, who can see income-tax reform following corporate-tax reform. Of President Trump, he said, “Even if we get to this two years down the road, I think he’d be amenable to doing something radical like a flat tax.”

But why is it that our Democratic friends in the economics profession and politics work so hard to discredit the idea of lowering marginal tax rates on the extra dollar earned to spark the positive incentives that lead to prosperity?

“Let me put it just succinctly,” answered Laffer. “These people are willing to rebut arguments they know to be true in order to curry favors with their political benefactors.”

To which Forbes added: “A lot of these far-left ideologues would rather have a smaller economy and more government power than a bigger economy and a smaller government.”

From that sad truth, we moved to prosperity killers — trade protectionism in particular, about which there is still much talk within the Trump camp. Where, I asked, does trade protectionism — including tariffs on China — fit into the low-tax-rate, strong-dollar prosperity model?

“It doesn’t,” said Forbes, who offered an alternative: “The smart approach is get this economy moving through these tax cuts and deregulation … and then having a stable dollar, and then you sit down with country by country and remove trade barriers.” Anything but the trade protectionism that blew up the stock market in 1929.

To which Laffer added the great line: “Don’t just stand there; undo something!”

“Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation,” he said. “Undo, undo, undo and undo the damages these other guys have done.”

One of those damages is Obamacare. And the fear now is that it will never get undone.

But my guests were optimistic, if philosophical. How will we get true free-market health care reform?

“You do this often, sometimes with great leaps but sometimes step by step,” said Forbes, to which Laffer added: “With any type of change that we can make in the right direction … never let the best be the enemy of the good.”

Finally, I asked, “Is the free-market model losing ground?” We’ve seen its decline in Europe, Latin America and elsewhere.

“This thing always ebbs and flows,” said Laffer. “Reagan, at first, was dissed by all the foreign leaders, except for Thatcher. And once our success story came in, he’s now virtually a god. That’s going to happen again, believe me.”

The limits of this space have forced me to drastically abbreviate what I do believe was a historic radio event. Two economic giants met and discussed the big ideas that will restore growth and prosperity. They offered the “how” and were confident that the “when” is near.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.

COPYRIGHT 2017 CREATORS.COM

Trump to Nominate Randal Quarles as Fed Bank Regulator

For the original WSJ link to this article, please click here.

Jay Davidson comments the article:  

Look for some major and positive changes to the banking environment.  Trump’s Federal Reserve nominee to vice chairman of supervision understands the cost of high capital ratios:

Mr. Quarles, in a March 2016 Wall Street Journal op-ed that he co-wrote, said he didn’t support “arbitrarily taking an ax to big banks and irreparably damaging the economy.” He endorsed a review of postcrisis regulations but warned that “the consequence of a dramatic increase in bank capital is an increase in the cost of bank credit.”

 

He also understands the high cost of regulation:

The choice of Mr. Quarles “shows that we’re looking for a change to the heavy-handed approach to regulation from the prior administration,” the White House official said Monday. Mr. Quarles, the official said, “has a track record of working well with others to implement public policy.”Former Treasury official would be the first Fed vice chairman of supervision

Randal Quarles spoke in New York in 2008.

Randal Quarles spoke in New York in 2008. Photo: BLOOMBERG NEWS

WASHINGTON—President Donald Trump plans to put his first mark on the Federal Reserve by nominating Randal Quarles, an investment-fund manager and former Republican Treasury official, to be the central bank’s top official in charge of regulating big banks.

The choice of Mr. Quarles, expected for months and confirmed by a White House official Monday, would put a more industry-friendly voice in perhaps the most powerful U.S. bank-regulatory post: Fed vice chair of supervision.

That job was created by Congress in 2010 and was never filled during the Obama administration, although former Fed governor Daniel Tarullo filled the role de facto. If confirmed by the Senate, Mr. Quarles would take a lead role in carrying out the Trump administration’s goal of rethinking many financial regulations adopted during the Obama era.

Mr. Quarles would also weigh in on monetary policy as one of seven members of the Fed’s board of governors, now short-staffed with only four members. His views in that sphere could put him at odds with his new colleagues, notably because he has criticized the Fed’s policy of keeping interest rates near zero for years following the financial crisis, and advocated for a monetary-policy rule, or formula, to guide rate decisions.

The Fed board has three vacancies, and the White House hopes to offer two more nominees as soon as possible, the official said. The administration has also begun the search for the next Fed chairman, though Mr. Trump hasn’t ruled out nominating Chairwoman Janet Yellen to a second term, to begin when her current term expires in February.

Mr. Quarles has donated to Republican candidates for years and served in the Treasury Department in both Bush administrations, working on both international affairs and as undersecretary for domestic finance, a senior job that involves coordination with the many U.S. agencies that oversee the financial sector.

He left the government in 2006 and was a managing director at the Carlyle Groupprivate-equity firm, investing in troubled banks. He is now managing director at Cynosure Group, a Utah investment firm.

Mr. Quarles, in a March 2016 Wall Street Journal op-ed that he co-wrote, said he didn’t support “arbitrarily taking an ax to big banks and irreparably damaging the economy.” He endorsed a review of postcrisis regulations but warned that “the consequence of a dramatic increase in bank capital is an increase in the cost of bank credit.”

Analysts and government officials have said nominating Mr. Quarles, an establishment Republican, would be a sign that the White House favors more incremental rather than radical changes to the Fed, an institution that has long engendered mistrust among the economic nationalists who backed Mr. Trump during his campaign last year.

Mr. Trump’s team has advocated a rethink of Wall Street rules but has few officials in place at financial regulatory agencies. If confirmed, Mr. Quarles would immediately take over the job of overseeing the Fed’s regulatory staff, which supervises some of the largest U.S. financial firms including J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.

He could push for changes in the way the Fed oversees those firms, but he couldn’t change the rules on his own. For that, he would need the support of other members of the Fed’s board and other agencies.

The choice of Mr. Quarles “shows that we’re looking for a change to the heavy-handed approach to regulation from the prior administration,” the White House official said Monday. Mr. Quarles, the official said, “has a track record of working well with others to implement public policy.”

Obama administration officials have said stricter curbs on financial risk-taking were warranted in the wake of the financial crisis.

Mr. Quarles would find some familiar faces at the Fed. He has worked before with Fed governor Jerome Powell, who is now the point person on the Fed’s regulatory efforts and also served in the George H.W. Bush administration and worked at Carlyle Group.

Mr. Quarles is married to Hope Eccles, who is a relative of Marriner Eccles, the New Deal-era Fed chairman whose name is on the building where Mr. Quarles would have his office.

Ms. Yellen is set to testify on Wednesday and Thursday on Capitol Hill, where she will likely be asked about Mr. Quarles and the Fed’s agenda. In the past, she has said she is open to changing some bank rules but not what she regards as core changes adopted after the 2008 financial bailouts.

Ms. Yellen has objected to proposals to require the Fed to use a mathematical monetary-policy rule, an approach popular among some conservatives who argue central banks have too much discretion and should be more accountable to the public.

Mr. Quarles said in the 2016 op-ed that low-interest-rate policies have “led to a rise in speculative positions” across the financial system and that a monetary-policy rule would reduce the incentive for big banks and smaller firms to take dangerous risks.

Mr. Quarles’s path to the nomination illustrates a broader trend in which nominees across the executive branch have faced delays completing the traditional background clearance and screening process.

Top White House officials had identified the vice chair post as a priority weeks after Mr. Trump’s election last year, and after an extended search process, officials identified Mr. Quarles as their top pick in April. At the time, Treasury Secretary Steven Mnuchin had indicated a nominee for the post was imminent.

The White House expected Mr. Quarles’s nomination to receive broad Republican support. He needs a simple majority to be approved by the Senate, where Republicans control 52 out of 100 seats.

The White House has also been considering economist Marvin Goodfriend to fill a second vacancy on the Fed board, according to people familiar with the matter. It isn’t clear when his nomination might be announced and submitted to the Senate.

The White House has been searching for a candidate with experience in small, locally focused community banks for the third opening, as a result of a law requiring that someone on the Fed board have experience in that industry.

But finding a nominee has been difficult in part because of federal ethics rules that require Fed officials to divest of their interest in financial firms. Once a regulatory nominee is selected, the process for security and ethics reviews has been taking about two months.

Write to Ryan Tracy at ryan.tracy@wsj.com, Kate Davidson at kate.davidson@wsj.comand Nick Timiraos at nick.timiraos@wsj.com

Appeared in the July 11, 2017, print edition as ‘Trump to Appoint Fed Bank Regulator.’

The last eight years are “the Recovery that Wasn’t” -Jay Davidson

For original link to this WSJ article go HERE.
Mr. Ip is usually better informed.  The last eight years are “the Recovery that Wasn’t.”  There is little inflation because supply and demand are not unbalanced.  The reason that supply and demand are balanced, and inflation is benign, is that economic activity is depressed: Business is not growing or expanding and private investors are not investing.
Lest we forget, as everyone seemed to during the Obama socialistic rampage, it is the private business and investor that is our economy; federal spending requires that the government first takes money from the private citizen, through taxation, before the government spends that taxed money.
The Fed Reserve and Mr. Ip would better serve the nation if they asked why business activity remains depressed.  For the answer, look to Fiscal Policy.  Until the Congress solves the regulatory excesses that befell private businesses during Obama’s Socialist/Communist experiment, there will not be any recovery.  Until Congress reduces federal spending and debt, there will be no business growth.  Until the Congress reduces the tax burden on businesses, investors and citizens, there is no recovery.  This is a Zombie Recovery until the nation as a whole embraces the concept of far less government. – Jay Davidson
Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying – WSJ

Today’s conditions expose vulnerabilities that make a recession or market meltdown more likely

Fed Chairwoman Janet Yellen, a veteran of past mayhem, needs to be on guard for a repeat.

Fed Chairwoman Janet Yellen, a veteran of past mayhem, needs to be on guard for a repeat. Photo: joshua roberts/Reuters

By

Greg Ip

If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.

In other words, it would look a lot like the present.

Those of us who have lived through economic mayhem before feel our muscle memory twitch at times like this. Consider the worrisome absence of worry. “Implied volatility” measures the cost of hedging against big market moves via options. When fear is pervasive, options are expensive so implied volatility is high. At present, implied volatility in bonds, stocks, currencies and gold sits near its lowest since mid-2007, the eve of the financial crisis, according to a composite measure maintained by Variant Perception, a London-based investment advisory.

The economic expansion is now entering its ninth year and in two years will be the longest on record. The unemployment rate sits at 4.3%, the lowest in 16 years, suggesting the economy has reached, or nearly reached, full capacity.

Expansions don’t die of old age, economists like to say. On the other hand, should we really assume this one will be a record breaker? From a level this low, unemployment has more room to go up than down. Another ominous sign: Central banks are tightening monetary policy, which has preceded every recession. The Fed has raised rates three times since December and last week central banks in Britain, the eurozone and Canada all hinted that years of easy money were coming to an end.

Still, the presence of recession preconditions isn’t enough to say one is imminent. To understand implied volatility, think of hurricane insurance. Right after a storm, homeowners are more anxious to have coverage, even as insurers withdraw, which of course means premiums spike. As years go by without another hurricane, homeowners let their coverage lapse, insurers return and premiums drop. Similarly, implied volatility is low today because years without a financial calamity have sapped demand for hedging while enticing sellers with the prospect of steady income in exchange for potentially huge losses. But just as hurricane premiums don’t predict the next hurricane, low implied volatility tells us nothing about whether or when a downdraft will actually come.

Similarly, when unemployment got nearly this low in 1989 and again in 2006, a recession was about a year away; but in 1998, it was three years away, and in 1965, four years. A narrowing spread between short-term interest rates and long-term rates comparable to the present has happened 12 times since 1962, and only five times did recession follow within two years.

But if today’s conditions don’t dictate a recession or a market meltdown, they expose vulnerabilities that make either more likely in the face of some catalyzing event.

When ​growth is steady and interest rates are low for years, investors and businesses behave as if those conditions will last forever. That’s why even with muted economic growth, stocks are trading at a historically high 22 times the past year’s earnings. It’s also why home prices have returned to their pre-crisis peaks in major American cities. Real estate has scaled even greater heights in Australia, Canada and parts of China, which exhibit some of the same lax lending and wishful thinking that underlay the U.S. housing bubble a decade ago.

Companies meanwhile have responded to slow, stable growth and low rates by borrowing heavily, often to buy back stock or pay dividends. Corporate debt as a share of economic output is at levels last seen just before the past two recessions.

When everyone acts as if steady growth and low volatility will last forever, it guarantees they won’t. Once asset prices fall, the flow of credit that sustained them dries up, aggravating the correction. Corporate leverage is at levels that in the past led to weakening corporate bond prices and greater equity volatility, says Jonathan Tepper, founder of Variant. “A high proportion of companies won’t be able to pay back debt.” A selloff in corporate bonds and stocks could become self-reinforcing as those who insured against such a move sell into it to limit their own losses.

Of course, some things are different this time. The postcrisis regulatory crackdown means if asset prices fall, they probably won’t take banks down with them. Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.” Fair enough: crises as catastrophic as the last happen twice a century. But small crises are inevitable as risk migrates to financial players who haven’t drawn the attention of regulators. “Elevated asset valuation pressures today may be indicative of rising vulnerabilities tomorrow,” Fed vice chairman Stanley Fischer warned last week.

Inflation is uncomfortably low rather than too high as in previous cycles, which makes it less likely central banks will have to raise interest rates sharply or rapidly. But in a world with permanently lower inflation and growth, businesses will struggle to earn their way out of debt, and interest rates will bite at lower levels than before. This confronts the Fed with a dilemma. If bond yields remain around 2% to 2.5%, the Fed may be playing with fire by pushing rates to 3%, as planned. If it backs off those plans, it could egg on excesses that make any reversal more violent.

Ms. Yellen and Mr. Fischer, both veterans of past mayhem, need to be on guard for a repeat. So should everyone else.

Could Trump Really Be Draining the Swamp? Dumb..like a fox – WSJ

Could Trump Really Be Draining the Swamp?

Original post on WSJ site can be found HERE>.

The water appears to be receding at key Beltway bureaucracies.

President Donald Trump and Secretary of State Rex Tillerson in the Cabinet Room of the White House on Friday.

President Donald Trump and Secretary of State Rex Tillerson in the Cabinet Room of the White House on Friday. Photo: brendan smialowski/Agence France-Presse/Getty Images

By

James Freeman

The Senate still hasn’t voted on ObamaCare reform, U.S. workers are still waiting for tax cuts to drive economic growth and President of the United States Donald Trump is trading insults with the co-hosts of an MSNBC talk show. Yet Mr. Trump appears to be making progress in what might have seemed the most difficult task given to him by voters in 2016: reducing the power of Washington’s permanent bureaucracy.

Secretary of State Rex Tillerson wasn’t exactly dying to move to Washington to run a federal department, but he seems to have warmed to the task. Max Bergmann, a former Obama Administration official now at the leftist Center for American Progress, writes inPolitico that the “deconstruction of the State Department is well underway.” Discounting for the usual Beltway hyperbole, this probably isn’t as good as it sounds.

All kidding aside, the State Department is one federal agency that was actually contemplated by America’s founders. Conducting foreign policy is an important and necessary task for our central government. But like so much of the Beltway bureaucracy State has been overfunded and undermanaged for years. Now, despite what you may have read about untouchable bureaucrats unaccountable to the public they are supposed to serve, Mr. Tillerson has found ways to clean house, at least according to Mr. Bergmann:

As I walked through the halls once stalked by diplomatic giants like Dean Acheson and James Baker, the deconstruction was literally visible. Furniture from now-closed offices crowded the hallways. Dropping in on one of my old offices, I expected to see a former colleague—a career senior foreign service officer—but was stunned to find out she had been abruptly forced into retirement and had departed the previous week. This office, once bustling, had just one person present, keeping on the lights.

The former Obama appointee is apparently so unnerved by the Trump-Tillerson era at State that he lets slip the fact that the career staff didn’t think much of the previous management either, and that the conservative critique of the department is at least partly true:

When Rex Tillerson was announced as secretary of state, there was a general feeling of excitement and relief in the department. After eight years of high-profile, jet-setting secretaries, the building was genuinely looking forward to having someone experienced in corporate management. Like all large, sprawling organizations, the State Department’s structure is in perpetual need of an organizational rethink. That was what was hoped for, but that is not what is happening. Tillerson is not reorganizing, he’s downsizing.

Do taxpayers dare to dream? As odd as this sounds for regular observers of the federal leviathan, the new boss seems to be imposing the kind of tough measures often seen at struggling companies, but almost never witnessed at government departments that have lost their way:

While the lack of senior political appointees has gotten a lot of attention, less attention has been paid to the hollowing out of the career workforce, who actually run the department day to day. Tillerson has canceled the incoming class of foreign service officers. This as if the Navy told all of its incoming Naval Academy officers they weren’t needed. Senior officers have been unceremoniously pushed out. Many saw the writing on the wall and just retired, and many others are now awaiting buyout offers. He has dismissed State’s equivalent of an officer reserve—retired FSOs, who are often called upon to fill State’s many short-term staffing gaps, have been sent home despite no one to replace them. Office managers are now told three people must depart before they can make one hire.

Perhaps the Tillerson method could work at other agencies too. Mr. Bergmann for his part seems to be disappointed that the un-elected career staff has not been able to impose its will on the duly-elected political leadership:

At the root of the problem is the inherent distrust of the State Department and career officers. I can sympathize with this—I, too, was once a naive political appointee, like many of the Trump people. During the 2000s, when I was in my 20s, I couldn’t imagine anyone working for George W. Bush. I often interpreted every action from the Bush administration in the most nefarious way possible. Almost immediately after entering government, I realized how foolish I had been.

For most of Foggy Bottom, the politics of Washington might as well have been the politics of Timbuktu—a distant concern, with little relevance to most people’s work.

Here’s to making the will of voters more than just a distant concern– and highly relevant to the work of federal agencies.

Meanwhile over at the Environmental Protection Agency, new boss Scott Pruitt is not just draining the bureaucratic swamp in Washington, he’s taking away the agency’s power to oversee swamps nationwide. The Journal reported on Tuesday:

President Donald Trump’s administration is moving ahead with plans to dismantle another piece of the Obama administration’s environmental legacy, the rule that sought to protect clean drinking water by expanding Washington’s power to regulate major rivers and lakes as well as smaller streams and wetlands.

And now the Journal reports:

President Donald Trump declared a new age of “energy dominance” by the U.S. on Thursday as he outlined plans to roll back Obama era restrictions and regulations meant to protect the environment.

In a speech at the Energy Department, the president promised to expand the country’s nuclear-energy sector and open up more federal lands and offshore sites to oil and natural-gas drilling.

Mr. Trump also celebrated his decision earlier this month to withdraw the U.S. from the 195-country Paris climate accord and the Environmental Protection Agency’s rescindment this week of the Obama administration’s clean-water rules that farmers and business groups found onerous.

“We don’t want to let other countries take away our sovereignty and tell us what to do and how to do it,” Mr. Trump said.

Mr. Trump also issued a special permit authorizing the construction of a new pipeline between the U.S. and Mexico that would carry fuels across the border in Texas, the State Department said.

If Mr. Trump can finally reform the Washington bureaucracy and make the will of voters its primary concern, voters may decide he can tweet whatever he wants.

Wall Street Veteran Leads Search for Next Fed Chief- WSJ

For the original WSJ link to the article, please go here.

Talk about a contradictory Fed Reserve as they drop rates to almost zero for years – which should be unbelievably stimulative – yet the economy remained stagnant all that time.  In another attempt the Fed dumps $4,5 Trillion into the economy through QE; still the economy did not respond.

Now, in an ultimate contradiction, the Fed intents to raise rates to slow the economy that has barely begun to revive – and – the Fed still has over $4 Trillion in QE liquidity outstanding; which is it Fed?  Slow the economy through rate increases or stimulate with excess monetary supply?  Neither worked anyway.  Perhaps you should try something different:

The one area the Fed Reserve’s FOMC and BoG have not even considered is the Regulatory and Enforcement side of the Fed Reserve, FDIC and the OCC.  This is exactly why none of the Fed’s Monetary Policy stimulants (rates and QE) worked: the bank regulatory agencies of the Fed and others have effectively used Dodd-Frank to shut down normal banking activity.  This is irrational Fiscal Policy and it is crippling.

They have enacted draconian regulation (Dodd-Frank and CFPB) on the entire industry and banks shut down or diverted lending activity.  Guess what Fed?  Increase capital ratios 20% or more and banks cannot lend either.  This is so obvious to those of us in the trenches as to be gospel, yet the ivory tower economists don’t have the slightest clue. – Jay Davidson

 

Wall Street Veteran Leads Search for Next Fed Chief

The president’s relationship with the Federal Reserve has so far been cordial, but that doesn’t mean Chairwoman Janet Yellen is likely to stay on

President Donald Trump hasn’t lashed out at the Federal Reserve since taking office despite his critical rhetoric during the presidential campaign.

President Donald Trump hasn’t lashed out at the Federal Reserve since taking office despite his critical rhetoric during the presidential campaign. Photo: Ron Sachs/Zuma Press

The White House is set to launch its search for the next Federal Reserve chief, according to a senior official, and it will be managed by Gary Cohn, the former Wall Street executive who some market strategists believe could be a candidate for the post himself.

Officials won’t publicly outline any timetable for their decision or shortlist of candidates. Fed Chairwoman Janet Yellen’s term runs through January, and President Donald Trump didn’t rule out her reappointment in an April interview.

Ms. Yellen’s reappointment isn’t an outcome many observers expect because of Mr. Trump’s fierce criticism of her during the final weeks of last year’s presidential campaign. But his willingness to consider her speaks to the amicable relationship they have forged since Mr. Trump took office, observers say.

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Since taking office, the president and his advisers haven’t publicly questioned the Fed’s actions—including its decision to raise short-term interest rates in March. The Fed has also signaled it is likely to raise rates again at its two-day meeting that concludes Wednesday.

An alternative to Ms. Yellen could be Mr. Cohn, who became Mr. Trump’s top economic adviser after a 26-year career at Goldman Sachs Group Inc. Mr. Cohn has emerged as a key intermediary in the administration’s relationship with the central bank.

When publicly asked if he is interested in the Fed job, Mr. Cohn and other White House officials have said he is focused on his current job. But former colleagues said he has cultivated an appreciation for the power of the Fed during his long career on Wall Street and for the institution’s relative freedom during his current stint in Washington.

While Mr. Trump’s 2016 criticisms of Ms. Yellen suggested the central bank would face a rough time with the new administration, the president and Ms. Yellen are off to a surprisingly smooth start.

Weeks after his inauguration, Mr. Trump held court with Ms. Yellen in the Oval Office. Seated behind the office’s Resolute desk, he told her she was doing a good job, according to people familiar with the exchange. Ms. Yellen sat across from Mr. Trump in a chair next to Mr. Cohn, who arranged the meeting.

The Republican president told Ms. Yellen he considered her, like himself, a “low-interest-rate” person, those familiar with the exchange said. During a conversation that lasted about 15 minutes, they discussed how economic policy might help the millions of U.S. citizens who felt left behind during the postcrisis recovery.

Mr. Trump’s April comments marked a reversal from last year, when he accused Ms. Yellen of keeping rates low to help Democrats.

Mr. Trump and his administration have, so far, opted to stay neutral in public on Fed decisions, a contrast to his administration’s criticisms of other nonpartisan institutions such as the Federal Bureau of Investigation, Congressional Budget Office and the courts.

“The Fed will do what they need to do, and we respect the powers of the Fed,” Mr. Cohn said in a March interview on Fox News, one of his rare public comments on the central bank.

Mr. Trump wants a fast-growing economy, and that means he won’t want the Fed raising interest rates so aggressively that it thwarts any boom. Ms. Yellen, for her part, wants to preserve the independence of an institution that faces more political hostility than at any time in a generation.

On paper, the White House and the Fed appear headed for a collision. The president wants to raise the economy’s annual growth rate to at least 3%, but Fed officials think demographic trends and slow productivity growth mean the economy can grow sustainably at around a 2% rate.

With the unemployment rate at 4.3%, the Fed would likely accelerate interest-rate increases if Mr. Trump’s administration took steps to lift growth in a way that simply boosted short-term demand. This hasn’t been a problem yet because Mr. Trump’s administration hasn’t managed to move its agenda through Congress.

There was a lot of uncertainty about how this was going to play out. I would say, ‘So far, so good.’

—Donald Kohn, ex-Fed vice chairman

Some observers caution against reading much into Mr. Trump’s silence on Fed policy because the central bank hasn’t done anything to upset the administration.

Stocks have moved to record highs while federal borrowing costs have fallen. A likely Fed move Wednesday would lift its benchmark rate to a range between 1% and 1.25%, a very low level historically.

But if the Fed takes action Mr. Trump perceives to be threatening, he could become more vocal, said Peter Conti-Brown, a financial historian at the University of Pennsylvania’s Wharton School.

“The minute that ‘Morning Joe’ has a report about a Fed action that could harm Donald Trump, set an egg timer and see how long before he tweets,” Mr. Conti-Brown said.

Though Mr. Trump and Ms. Yellen were born two months apart in neighboring boroughs of New York City, they couldn’t be more different.

One, from Queens, is the brash celebrity developer who relies heavily on his gut, professes little interest in academic expertise and brings a deep skepticism of established institutions to Washington.

The other, from Brooklyn, is a risk-averse economist who prepares meticulously for speeches and meetings, has vacationed with suitcases full of books and has spent her career in the halls of academia and central banking.

Their placid relationship reflects Mr. Cohn’s leading role. Ms. Yellen meets regularly with Mr. Cohn and Treasury Secretary Steven Mnuchin, who also spent much of his career at Goldman Sachs.

Mr. Cohn has emphasized to colleagues the importance to markets of not publicly second-guessing monetary-policy decisions, following a rule established in the Democratic administration of former President Bill Clinton by another Goldman-executive-turned-presidential-counselor, Robert Rubin, who later became Treasury secretary.

Mr. Cohn takes pride in convincing Mr. Trump of the economic benefits of respecting the Fed’s independence, including not firing off verbal or Twitter attacks on the central bank, according to people who have discussed the issue with him.

Mr. Trump can put his stamp on the institution by filling three open seats on the Fed’s seven-member board of governors.

The Fed chairman and vice chairman jobs come open next year. Many Wall Street and Washington observers expect Mr. Trump to select his own candidate for the top job, possibly Mr. Cohn.

Mr. Cohn knows several central-banking officials from their time at Goldman Sachs, including New York Fed President William Dudley, the bank’s former chief economist, who met with Mr. Cohn in the early weeks of the administration.

All of this comes at a time when the Fed is facing the most intense political scrutiny in decades. The financial crisis and its aftermath prompted lawmakers to debate monetary policy in a way not seen since Paul Volcker was Fed chairman in the 1980s.

The harshest criticism has come from congressional Republicans. Many resented the Fed’s extraordinary measures to boost economic growth long after the 2007-09 recession, with ultralow borrowing costs making former President Barack Obama’s deficits smaller than forecast.

Gary Cohn, director of the White House National Economic Council

Gary Cohn, director of the White House National Economic Council Photo: Alex Wong/Getty Images

Republican lawmakers also said the Fed worked too closely with Mr. Obama’s Democratic administration and Democrats in Congress to overhaul postcrisis regulation through the 2010 Dodd-Frank Act.

Some vitriol aimed at the Fed may ease once Mr. Trump makes his appointments, senior White House officials said.

Fed officials have defended the regulations. “We’ve accomplished a lot. We have a much safer system,” Ms. Yellen told graduate students in Ann Arbor, Mich., in April.

Some White House officials believe Dodd-Frank gave the Fed too much power. They are preparing to nominate a Fed vice chairman for bank supervision, Randal Quarles, who served in the Treasury Department of former GOP President George W. Bush, who could favor a lighter touch.

White House officials also have expressed reservations internally over the Fed’s postcrisis purchases of mortgage-backed securities—one of the extraordinary measures it took to stimulate growth. Some critics said the purchases amounted to fiscal policy by determining the allocation of credit in the economy. Mr. Trump’s administration is considering nominating Marvin Goodfriend, a respected monetary economist who has articulated those reservations, to the Fed board.

These concerns haven’t been aired publicly by the administration, in contrast with Mr. Trump’s comments during last year’s election,when he said Ms. Yellen should be “ashamed of herself” for keeping rates low.

“There was a lot of uncertainty about how this was going to play out,” said Donald Kohn, a former Fed vice chairman who met with Mr. Cohn in February. “I would say, ‘So far, so good.’”

Write to Nick Timiraos at nick.timiraos@wsj.com and Kate Davidson at kate.davidson@wsj.com

Appeared in the June 14, 2017, print edition as ‘Search for Fed Chief Begins, Led by Goldman Veteran.’

Fed’s Stress Tests Bolster Case for Easing Bank Rules- WSJ

Here’s a shocking revelation: bank owners don’t like to take loses even more than regulators.  Know why?  Because bank owners put their own money into their bank to capitalize it.  Regulators don’t.  Yet the current bank regulatory environment has gotten so regulator-driven that Fed, OCC and FDIC bank regulators make most decisions about bank capital.

They may be good at regulating, but they don’t have a clue about running a bank and they aren’t expected too.  The fact is that both bankers and regulators should live by a set of rules.  That does not happen today; regulators make up new rules on a whim, they are not held accountable for their actions and regulatory excess is the major reason for the anemic economy during the entire 8 years of Obama.

A few TBTF bankers got greedy during and before the Great Recession.  Know what? The other 6,000 banks did not.  But these community banks are suffering under the yoke of extreme excess by bank regulators.  It has been ten long years (2007 is when regulators brought out the first CRE 1 and 2 and new capital guidelines) of this regulatory excess; it is time to right the ship and hold bank regulatory agencies accountable to a set of reasonable rules.  The nation and our economy will benefit tremendously. – Jay Davidson

Direct link at WSJ here

Results give ammunition to Trump administration for scaling back postcrisis rules

The Federal Reserve building in Washington. Next week, in the second part of its stress-test results, the Fed will release its decision whether to approve banks’ plans to return capital to shareholders.

The Federal Reserve building in Washington. Next week, in the second part of its stress-test results, the Fed will release its decision whether to approve banks’ plans to return capital to shareholders.Photo: andrew caballero-reynolds/Agence France-Presse/Getty Images

WASHINGTON—The largest U.S. banks survived a hypothetical “stress test” and could continue lending even during a deep recession, the Federal Reserve said, a strong report card that could bolster the industry’s case for cutting back regulation.

In the first part of its annual tests, the Fed on Thursday said 34 of the largest U.S. banks have significantly improved their defenses since the 2008 financial crisis. The results signal that many banks could win the Fed’s approval to increase dividend payouts to investors next week, in the second round of the tests.

The outcome gives ammunition to the Trump administration and congressional Republicans who see some of the rules put in place after the financial crisis as excessive and want to ease them in the name of boosting economic growth. Supporters of the rules say healthy banks show the regulations are working, not that they need to be rolled back.

“Anticipation of some form of Trump-led deregulation could not be any higher,” William Hines, an investment manager at Aberdeen Asset Management, wrote in an email Thursday. “The banks themselves are lobbying hard for it, and a clear bill of health from the stress tests will help their cause. But it is anything but a foregone conclusion.”

The exams are one of several new drills that banks must run in the name of preventing a repeat of the 2008 crisis and subsequent federal bailouts, from liquidity rules preventing a short-term cash crunch to “living will” bankruptcy plans.

This year’s results come in the midst of a broad rethink of those rules. Last week, the Treasury Department released a banking policy report that recommended the Fed consider changes to the stress tests.

The Treasury report said no firm, even the largest, should have its capital plans rejected for solely “qualitative” reasons. Fed officials are already considering that change. In the second round of the tests, scheduled to be released next week, the Fed typically judges banks’ “qualitative” risk-management practices.

The report also said the tests should occur only once every two years, instead of annually, except “in the case of extraordinary events.” It said the Fed should solicit public input on the tests, including the hypothetical scenarios and mathematical models.

Fed officials have resisted similar recommendations in the past when they were suggested by bankers, saying they would undermine the exams by making them less flexible. Fed governor Jerome Powell, the Fed’s regulatory point man, said in Senate testimony Thursday that the Fed would solicit public input on how to make the tests more transparent.

Mr. Powell said he believes it would be appropriate to exempt “firms that achieve and sustain high-quality capital planning capabilities” from the qualitative part of the exams, meaning the largest U.S. banks could win that exemption in future years.

He also said the Fed is open to other rule changes, but not a reduction in risk-based capital requirements. “I don’t think what we’re talking about here amounts to…broad deregulation,” Mr. Powell told the Senate Banking Committee. “I think it amounts to making regulation more efficient.”

Any broad rollback of rules would take time. The Trump administration has few officials in place at the banking regulators. And efforts to change regulations in Congress must overcome potential opposition from Senate Democrats.

Sen. Sherrod Brown, the ranking Democrat on the Senate Banking Committee, said Thursday that policy makers could undo important consumer protections if they push to deregulate too far. “There is no evidence that relaxing rules will lead banks to lend more,” Mr. Brown said at Thursday’s hearing.

It was the third straight year the initial results showed all big banks meeting the Fed’s definition of good health. A Fed official said big banks finished the hypothetical downturn with an even higher level of capital than they had before the 2008 crisis began.

The more closely watched part of the annual tests occurs next Wednesday, when the Fed will release its decision whether to approve, or block, banks’ plans to return capital to shareholders through dividends or share buybacks. The positive results may also allow banks to make larger payouts than in past years.

This week’s results don’t necessarily predict the Fed’s verdict next week. In some previous years, banks have shown strong capital ratios in the first part of the tests, only to be deemed as failing in the second round, which uses a broader set of criteria. Thursday’s results don’t include banks’ individual capital-distribution plans.

The Fed said the banks would experience collective loan losses of about $383 billion but still meet its required minimum capital ratios, even in a hypothetical scenario that envisions the U.S. unemployment rate more than doubling to 10% and severe strains in corporate-loan and commercial real-estate markets.

Fed officials attributed the positive results to the fact that banks have worked through problematic loans like soured mortgages, while steadily increasing loss-absorbing capital on their books as a result of stiffer postcrisis requirements.

Fewer banks are expected to come up short in the second round of tests next week than in previous years. This year, only 13 of the largest, most complex banks will have to take the qualitative exam. Fed officials say that reflects its conclusion that, broadly, banks have improved their ability to track risks in real time.

The stress tests were first conducted in 2009 to help convince investors that the banking system wasn’t about to collapse. They are now a legal requirement to force banks to think about the possibility of an unexpected crisis.

The Fed said the 34 banks collectively maintained at least 9.2% high-quality capital as a share of assets on one measurement, staying well above the Fed’s 4.5% minimum even after being pounded by a severe economic downturn. The Fed changes the details of its recession scenarios from year to year.

Credit cards were one trouble spot for banks, with loan losses rising 9% from last year’s test to $100 billion. U.S. card performance has recently been weakening at several lenders, driven in part by an increase in subprime borrowing. Fed officials said they were finding higher delinquency rates in bank card portfolios at the same time that card lending was increasing.

A new bar for banks to clear in this year’s test was the supplementary leverage ratio, which applied to the largest and most complex banks. That measure, which comes into effect in 2018, is meant to indicate whether banks also hold sufficient capital to cover their off-balance-sheet exposures. That includes derivatives contracts, a big cause of the panic of 2008. A handful of banks, including Morgan Stanley and Goldman Sachs Group Inc., fell within a couple percentage points of the minimum for that ratio during the Fed’s hypothetical scenario. That could end up limiting their shareholder payouts.

In addition to Thursday’s public results, banks also learned privately whether their individual plans to return capital to shareholders would push them below the Fed’s minimum required threshold. If that happens, they may take a one-time shot at cutting their request for dividends or buybacks to stay above the Fed’s minimum requirement.

Write to Ryan Tracy at ryan.tracy@wsj.com and Telis Demos at telis.demos@wsj.comAppeared in the June 23, 2017, print edition as ‘Fed Tests Buoy Case For Easing Bank Rules.’

Step Back Federal Agencies – Let the People Handle This

Federal agencies must step back from, and leave alone, the only source of true economic growth: Private Enterprise, Private Capital and individual initiative.  It is a mistake to allow one’s fear of the unknown to drive the nation to ever greater federal control over our lives.

There is no doubt the Federal Reserve is the 900 pound gorilla in the room.  Their slightest move influences the market.  Is that wise?

Has anyone asked what impact Fed Reserve actions have on markets and on the economy?  For instance, the Fed printed $1.75 Trillion, in QE in 2009, to save TBTF banks by purchasing toxic MBS from their books.  That in turn was a bailout of Congressional action with sub-prime lending through Fanny and Freddie.  After all that, the nation is left with $4.5 Trillion in excess Fed balance sheet and we are now concerned about how to drain that excess from the market.  Why did the Fed Reserve not think of those consequences when they printed $4,5T?

Second question: what impact did the Fed have on the economy?  The past eight years, in spite of massive federal monetary intervention, have resulted in the most pathetic post-recession growth in GDP in history.

Third question: do we really want a more activist Federal Reserve Monetary Policy in light of their past actions?  Just because people don’t understand what the fed does or the consequences of their actions, is that any reason to bestow even greater power in this 900 pound Unknown?

Articles like this, though well researched and intelligent, totally miss the point.  It is not the Fed Reserves’ job to manipulate markets or direct the economy.  Their tools are far too gross, too “nuclear,” to make markets.

We have seen too many examples of the failure of excessive government: this is the path all Progressive/Socialist and Communist nations have gone.  There is absolutely no safety in giving up individual freedom to an all-powerful federal agency.

– Jay Davidson

Here’s Why the Fed Will Stay Central to Markets

Returning to a precrisis playbook risks disruptions

The Federal Reserve building in Washington.

The Federal Reserve building in Washington. Photo: Chuck Myers/Zuma Press

By

Katy Burne

Federal Reserve officials grappling with the legacy of expansive stimulus would find it difficult to return to the central bank’s precrisis role on the sidelines of financial markets, analysts and central-bank watchers say.

A long list of programs adopted to help foster economic growth, along with changes in money markets and bank regulation, have vastly expanded the Fed’s balance sheet and its involvement in markets. The Fed’s assets now total $4.5 trillion, up from less than $1 trillion a decade ago. Since 2013 the central bank has become one of the largest traders with U.S. taxable money-market funds, according to Crane Data.

Many analysts and investors worry that significantly rolling back the Fed’s expansion, a course advocated by some in conservative circles, risks disrupting markets and the economy at a time when growth remains tepid. It would also reduce the connections the institution has built with a diverse set of Wall Street firms, beyond the group of banks it dealt with before the crisis.

The Fed has become “like an octopus,” said Jeffrey Cleveland, chief economist at Payden & Rygel, a Los Angeles money manager. “Once you get the power and you are influencing all these markets, do you really want to retreat from all that?”

Investors are already assessing how stocks and bonds might react, when the central bank begins the latest stage of its yearslong retreat from stimulus—likely later this year—by ending the practice of reinvesting the proceeds of maturing bonds into new bonds. The Fed is scheduled to publish Wednesday the minutes of its latest policy meeting, where officials may have continued their debate over the mix of policy tools they plan to use in the future.

Some Fed officials say they are attracted to maintaining parts of their current approach. Minutes of their November meeting also showed officials discussing the advantages of keeping something similar to the existing system in place, in part because it is simpler to operate than the precrisis one.

The Fed hasn’t decided the issue, but its choices will be closely watched because its leadership is in transition. President Donald Trump is preparing to fill three vacancies on the Fed’s seven-member board. The White House hasn’t named its picks, but its choices could set Fed policy in new directions, including by limiting its role in markets. Republican lawmakers have also revived legislation to subject its decisions to greater public scrutiny, and some want monetary policy conducted by preset rules.

“It’s not your father’s Fed,” said Adam Gilbert, partner at PricewaterhouseCoopers LLP and a former New York Fed official. Changes could herald “incoming policy makers who are by nature skeptical of a Fed that continues unorthodox approaches to both monetary and regulatory policy.”

New York Fed President William Dudley told an audience this month the portfolio isn’t likely to return to its precrisis size. Federal Reserve Bank of San Francisco President John Williams said this month the portfolio would be “significantly smaller” than it is today, but likely above $2 trillion in assets.

The ultimate size will be closely tied to which system the central bank decides to use to control interest rates in the future. A handful of Fed officials have already begun questioning the wisdom of returning to the blueprint for controlling rates that they used before the crisis, although they have more time to decide.

At the center of the debate is a special investment program the Fed launched in 2013. Through the facility, it lends money-market funds and others Treasurys in exchange for cash, temporarily draining excess cash from money markets and discouraging lenders from lending at rates below the target range for interest rates.

Initially, the central bank said it would reduce the capacity of this so-called reverse repo facility “fairly soon after” it had begun raising short-term rates in 2015. Today, the Fed has no current plans to do so. Mr. Dudley suggested in April the Fed likely wouldn’t phase out the facility.

Without the Fed repos, short-term rates could slip too low, and demand for Treasurys in the open market would surge, causing problems for money-market funds seeking alternative places to park cash overnight. Removing the program would “cause huge dislocations from a bond-market standpoint,” said Debbie Cunningham, chief investment officer for global money markets atFederated Investors .

A balance sheet that is smaller than today’s, yet still substantial, would enable the Fed to keep the reverse repos around. It would also support the Fed’s foreign repos for overseas accounts, where weekly balances have averaged $250 billion, up from $30 billion precrisis, as well as the $1.5 trillion in currency outstanding and changing cash-management policies at the Treasury Department.

If the Fed reduces its bond portfolio, the burden will be on private market participants to step in. In 2018, Morgan Stanley calculates investors may have to absorb $400 billion in mortgage bonds alone, a level not seen since 2008. In the past, such transitions were smoothed by the banks authorized to trade opposite the Fed, called primary dealers. Now those firms are grappling with new leverage rules, and some have less capacity.

Communicating a strategy for unwinding risks some unintended signals. In 2013, when the Fed surprised investors with talk of slowing bond purchases, financial markets convulsed, thinking the Fed meant earlier rate rises than were expected.

The Fed is wary of destabilizing the Treasury market, in particular, because of increasing lurches driven by algorithmic trading. To avoid market disruptions, former Fed Chairman Ben Bernanke wrote in a recent blog post for the Brookings Institution, “There’s no need to rush.”

Write to Katy Burne at katy.burne@wsj.com