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Excerpt from today’s speech by Dallas Fed chief Richard W. Fisher.

In rapid order, over the course of a year, we took at least eight major initiatives:

(1) We established a lending facility for primary securities dealers, taking in new forms of collateral to secure those loans;

(2) we initiated so-called swap lines with the central banks of 14 of our major trading partners, ranging from the European Central Bank to the Bank of Canada and the Banco de México to the Monetary Authority of Singapore, to alleviate dollar funding problems in those markets;

(3) we created facilities to backstop money market mutual funds;

(4) working with the U.S. Treasury and the FDIC, we initiated new measures to strengthen the security of certain banks;

(5) we undertook a major program to purchase commercial paper, a critical component of the financial system;

(6) we began to pay interest on reserves of banks;

(7) we announced a new facility to support the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration;

and (8) at the end of November, we announced we stood ready to purchase up to $100 billion of the direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, as well as $500 billion in mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae.

And, as you all know, in a series of steps, the Federal Open Market Committee (FOMC) reduced the fed funds rate, a process which I fully supported once it became clear that the inflationary tide was ebbing. Simultaneously, and again in a series of steps, the Board of Governors lowered the rate it charges banks to borrow from our “discount window” so as to lower their cost of credit. That rate now rests at 0.5 percent.

All of this has meant expanding our balance sheet. [L]ast Friday night, the total footings of the Federal Reserve had expanded to $2.254 trillion–an almost three-fold increase from when we started the year. And I believe we made it quite clear in our press release after Monday and Tuesday’s meeting of the FOMC that we stand ready to grow our balance sheet even more should conditions warrant. For example, we will expand purchases of mortgage-backed securities, should we feel such purchases would be productive.

You will note that the emphasis of our activities has been on expanding the asset side of our balance sheet–the left side, which registers the securities we hold, the loans we make, the value of our swap lines and the credit facilities we have created. We feel this is the correct side to emphasize. The right side of our balance sheet records our holdings of banks’ balances, Federal Reserve Bank notes or cash (currently over $830 billion) and U.S. Treasury balances.

When the Japanese economy went into the doldrums, the Bank of Japan emphasized the right side of its balance sheet by building up excess reserves and cash, only to find that accumulation did too little to rejuvenate the system.

As I said earlier, in times of crisis many feel that the best position to take is somewhere between cash and fetal. But it does the economy no good when creditors curl up in a ball and clutch their money. This only reinforces the widening of spreads between risk-free holdings and all-important private sector yields, further braking commercial activity whose lifeblood is access to affordable credit.

We believe that emphasizing the asset side of the balance sheet will do more to improve the functioning of credit markets and restore the flow of finance to the private sector. In the parlance of central banking finance, I consider this a more qualitative approach to “quantitative easing.” It is bred of having learned from the experience of our Japanese counterparts. . . .

See full text of Dec. 18, 2008 speech on “Historical Perspectives on the Current Economic and Financial Crisis” as posted at the Dallas Fed web site.

Excerpt from Dallas Fed “Economic Letter.”

In short, tougher times appear to lie ahead. Worsening macroeconomic conditions, particularly in the retail and other service sectors, are hurting CRE [Commercial Real Estate] fundamentals. Meanwhile the intensification of the credit crunch is dampening market activity. And if commercial property’s situation does grow worse, banks are likely to face further losses. One factor that might limit these risks is that the commercial real estate sector wasn’t as grossly overbuilt heading into the current economic slowdown as it had been in the early 1990s.

See full report by Dallas Fed economist Roland Meeks.

As the politicos of Washington, Dallas, and Austin scurry to keep the capital infrastructure from falling down (see notes below) the Bush administration today published new Agriculture rules that labor advocates say will roll back rights of farm workers to bargain for higher pay and better working conditions.

“The Bush Administration has released midnight regulation changes to slash wages, make it easier to hire foreign workers, and reduce worker protections under the H-2A agricultural guestworker program,” argues a summary report from Farm Worker Justice [in pdf format].

DOL [Department of Labor] has changed the recruitment requirements so that employers claiming a labor shortage will not have to engage in meaningful recruitment of U.S. farmworkers and the state job service
agencies will not be permitted to be effective in referring job applicants to H-2A employers.
The DOL has decided that H-2A employers need not engage in positive recruitment in known areas of farm labor supply if those areas have agricultural employers looking for farmworkers.

Despite their claim to be free market supporters, the Administration’s officials are by regulation ending competition among employers. Furthermore, DOL is withdrawing the obligation to engage in the same kind and degree of recruitment for US workers as it does for foreign workers. This allows employers to claim that they can’t find any US workers, while not making any real effort, while at the same time engaging in huge recruitment campaigns in Mexico, Guatemala, Thailand and other nations in the effort to find exploitable guestworkers.

The new Bush plan drives back protections along two fronts, say advocates. On the one hand, the new rules will make it easier for employers to sidestep requirements to first exhaust local labor supply.

In a report titled “Litany of Abuses” the Farmworker Justice organization recalls how agricultural employers can make deceptive commitments to local labor as a pretext for claiming that foreign workers need to be imported [in pdf format].

Meanwhile, the new rules make it more likely that so-called guest workers will be more easily subjected to labor rights abuses such as summary firings, lowered wages, and poor working conditions.

The Dallas Fed chief today made fond references to historical lessons learned. In labor rights also we find that the steel gears of the business cycle act in familiar ways. Hard times crush down against the lowest rungs of labor at home and abroad even as an almighty determination is applied to lift the axles of global capital from the muck of its own discharge.–gm

See also: the Harvesting Justice commentary by Barb Howe.

By Greg Moses

When Art Laffer and the Dallas Fed converge on message, who can doubt that Texas elites are listening to what they most want to hear? In a 2008 review of Texas taxes, Reagan-era supply-side guru Laffer co-authored a report that ranked Texas seventh in the nation on an “Education Freedom Index” that tested for “vouchers, tuition credits, and corporate tax-deductible scholarship programs.” Yet, seventh place is no reason for celebration argued the “Laffer Report”:

“The U.S. rankings are clustered so closely together that a high score, on a curve, still means the state is a long way from potential levels of education freedom. If other states implement choice systems, Texas’ relative rank would fall precipitously. Texas should not see its high rank as a reason to celebrate; rather as evidence that Texas is making important first steps in a crucial and lengthy reform process.” (p. 24: pdf format)

On Friday the Federal Reserve Bank of Dallas agreed that 2009 will be no year for higher education complacency:

“The Texas higher education system faces many challenges in enrolling students from low- and moderate-income households. The state has a low overall graduation rate and, compared with other states, one of the smallest percentages of college-age population enrolled in college. A recent study by the Texas Public Policy Foundation’s Center for Higher Education suggests that the state’s public university system may be promoting a growing elitist society where only those students from families with considerable assets have access to the state’s top universities. In the U.S. as a whole, about 35 percent of American undergraduates receive federal Pell Grants, need-based grants to low-income students. Texas’ top-ranked universities (ranked by U.S. News & World Report), and those that receive the most state resources, have a significantly smaller percentage of students receiving Pell Grants.”

The Dallas Fed posts a graph of the “top Texas universities” and their lack of educational freedom as measured on a Pell Grant scale.

Of course, the ideological packaging for Laffer and the Dallas Fed precludes any outright call for more government spending. The “Laffer Report” favors an environment of low wages, low taxes, and less government. The Dallas Fed is touting “asset building” for low income families. If public money is spent, it would be used to “match” higher education savings accounts for qualified low-income families (see Smart Savings Accounts). Banks would get the money first.

Between the two publications we get a call for improved bootstraps, the better for the poor to lift themselves higher. And so far as that goes, who could oppose them? But neither report tells us that the hurdles in this race for educational freedom are getting higher by the year as elite incomes move further and further ahead of low- and middle-income Texans, and as tuition increases cater to the elites who don’t need to bring Pell Grants with them.

When the history of the 21st Century is written, it will record early years when Texas enjoyed an infusion of young talent from the South. What Texas did with that bounty of youthful labor and talent is what the next chapter will tell.