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NY Fed President Proposes "Paying" Bankers With Long-Term Debt

What a topsy-turvy world we live in thanks to Fed nonsense. Consider the outgoing NY Fed president's latest brainchild.

Outgoing New York Fed President William Dudley has a new proposal to mock.

Wall Street should force banks to share the pain of regulatory penalties by docking executives’ pay, a move that would help discourage bad behavior, Federal Reserve Bank of New York President William Dudley said Monday.

If bankers were paid more with long-term debt, it could “better align senior managers’ interests with the long-term safety and soundness of the firm,” he said. Such a change might need to be pushed by regulators, he said, because the banks “may be reluctant to adopt such pay structures on their own for competitive reasons.”

Brief Payment History

  • Millennials may be shocked to discover that people used to be paid with gold.
  • Roosevelt ended the gold payment system during the Great Depression, illegally confiscating everyone's gold. He should have gone to prison.
  • Following personal confiscation, international trade deficits were settled in gold until Nixon put an end to that in 1971.
  • After Nixon closed the gold window, people at least got paid in cash.
  • People collected interest on debt in US dollars and other currencies.
  • Lately, covenant-lite and toggle bond issuance has soared. Toggle bonds "pay" interest with more debt.
  • Now, Dudley proposes paying people with debt.

What's the difference anyway?

The dollar is in reality nothing but debt.

Dudley Gems

  1. Oh that “Elusive” Inflation! New York Fed President, William Dudley, says 2% inflation target will remain elusive even if price pressures pick up.
  2. Confident Dudley Expects Rate Hikes Will Continue, Hurricane Effect to Provide Long Run Benefit: "Hurricanes will boost economic activity over the long run.”
  3. NY Fed President Wants Consumers to Tap Home Equity: Didn’t We Try That Before? "People are leaving the wealth generated by rising home prices locked up in their homes."

Dudley will be gone shortly. He is retiring. The lead candidate is John Williams, the current San Francisco Fed President.

Williams has some "clever" ideas of his own. For discussion, please see All Hail the New Fed Triumvirate: Powell, Williams, Clarida.

For discussion of the gold window and faith in central banks, please see Rate Hike Cycles, Gold, and the “Rule of Total Morons”

It is precisely because of central bank foolishness and bubble-blowing episodes that people would be wise to own gold.

Those wanting a return to a gold standard should note that the price of gold cannot be pegged to the dollar. Instead, a dollar should be redeemable as a fixed quantity of gold.

Addendum Q&A

Q. Are you simply trying to say that each dollar should be backed by a certain amount of gold that physically resides in a Federal Reserve vault?

A. Nearly correct. The gold does not have to specifically be at the Fed. A dollar should be redeemable in a specific weight. Period. Local banks quite fine.

Mike "Mish" Shedlock

@truthseeker, My take on that is, the Fed Put ain't dead yet. At least in the minds of investors. It takes a whole bunch more bloodletting to kill that dog. This "Correction" isn't isolated to the Trade meme, or Interest Rates, as much as it is jitters surrounding an overvalued market at the south end of a very skewed business cycle.

(edited)

Disclaimer, not long or short, but a bit hedged.

That said, futures don't look that sure of themselves tonight.

Do not put words like that in my mouth again, none of which I said or even agree with (other than Trump being a loose canon - never said but I agree)

History clearly indicates prices need to be quoted directly in terms of ounces of Gold. With no intermediate “dollar” step. 1 micro-ounce for a pint, etc. …. I’m sure the Willie the Slicks of the world, would still immediately get busy debating what the meaning of “micro” is, but those are still quite a bit harder to redefine than less standardized terms, like “dollar.”

"Wall Street should force banks to share the pain of regulatory penalties by docking executives’ pay, a move that would help discourage bad behavior, Federal Reserve Bank of New York President William Dudley said Monday." No banker was criminally prosecuted for participating in massive financial fraud during the housing bubble. There has been no discouragement of bad behavior by bankers, as they are being held above the law. Bernanke falsely lamented that no one was held accountable, but he had the power to refer and REFUSED to use it.

"William Dudley, says 2% inflation target will remain elusive even if price pressures pick up." Cycles have no target, which is why 2% inflation remains elusive. Cyclical pressure is either up or down, depending on the phase of the cycle. Greenspan's Whip Inflation Now buttons simply didn't work, as the the cycle phase was up. Sloganeering just doesn't work in the face of the laws of math.

"People are leaving the wealth generated by rising home prices locked up in their homes." That would mean that people are keeping their wealth locked up in stock market, too. Why didn't Dudley tell people to sell stocks & stock funds and spend the money?

Because the wealthy have their wealth locked up in assets, assets which they own using leverage. If people sell stocks, then there is asset price pressure and deflation...which will beget margin calls...which begets more selling...which begets deflationary death spiral. Especially since the banking system has created so many assets based on debt(derivatives, ETN's, ETFs, etc.)

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