Lies my Fed Chairman told me
Thursday, September 2, 2010 at 10:21AM I've often wondered whether Fed Chairman, Ben Bernanke, believes his own hype, or if he is just so personally and professionally invested in perpetuating the story of the success of the greatest bailout ever compared to the most heinous of consequences that would have befallen us without it, that it doesn't matter.
Either way, I cringed a little inside when he told the Financial Crisis Inquiry Commission this morning,
"The single most important lesson of this crisis is we have to end the 'too big to fail' problem."
This coming from the man who, sat at the helm of the Fed in the fall of 2008, and approved without any conditions or questions, as per the Fed charter that equally provides for rejecting:
- The acquisition of Bear, Stearns and Washington Mutual by JPM Chase - making a big bank, bigger
- The acquisition of Merrill Lynch by Bank of America - making a big bank, bigger
- The acquisition of Wachovia by Wells Fargo - making a big bank, bigger
- The re-classification of Goldman Sachs and Morgan Stanley into bank holding companies - making the arena of big banks, riskier
Of course, no one on the commission asked probing questions about those brainiac decisions and how or why other alternatives weren't considered, particularly given the substantial government subsidies these institutions enjoyed on the way to becoming bigger and more Fed co-dependent. No one asked specifics of what the remaining subsidies to Wall Street still are. No one asked Bernanke what he meant when he implied that the new so-called financial reform bill would reduce the possibility of too-big-to-fail in the future, given that the Fed totally ignored the fact that 3 of the institutions above subsequently surpassed or hit the already existing 10% concentration limits that had been designed to keep a lid on the notion of 'too-big' to begin with, and given the fact the the Fed either by itself, or in its position beside the Treasury Secretary on the new Financial Oversight Council, can override most future bailout decisions anyway.
Yet, we are supposed to believe that Bernanke is concerned about 'too big to fail? Really??
Reader Comments (4)
There are a number of important aspects regarding Bernanke's mindset which I find hideously offensive and intellectually wanting (aside from his career as a "Yes man" to Greenspan).
His abject ignorance of the crucial variables pertaining to the economics of the Great Depression.
Namely, Prohibition (1920-1933) which acted not only as an enormous tax cut (as taxes were no longer collected on an outlawed substance - alcoholic beveridge); but all those illegal gains, some estimates beyond hundreds of millions, were laundered through the stock exchange.
These are crucial when examining the economics of that era.
Plus, Bernanke's overall ignorance of securitization and credit derivatives until rather recently, and his abject ignorance that the process of securitization actually dates back to the early 1900s, really taking off in the 1920s (although the term "securitization" wouldn't be coined until the 1990s).
I agree, Prohibition did have a hand in subduing certain gains during the period, but far more destabilizing and shady, banks were subject to barely any regulation whatsoever on the 20s version of 'securitization' - or various 'trusts.' Aside from the more commonly known manipulation of pooling together in 'trusts' to spike or dump various stocks, banks created plenty of deals that didn't even come up during the Pecora trials in which they over-valued deals within trusts sold to investors, that were worth much less, almost immediately thereafter.
Bernanke holding onto the notion that the economy fell into crisis because of $1.4 trillion of subprime loans, rather than the $14 trillion of securitized assets created on the back of those loans, (not to mention the leverage borrowed on the back of those assets throughout the global banking system) is stupid and reckless. I take that to task in my chapter - 'We already have a bad bank - it's the Fed."
Ms. Prins, I'd be interested in your opinion on the following.
I keep hearing people say that Elizabeth Warren should be in charge of that new consumer protection agency. She'd do a great job and blah, blah blah.
But since this agency is being buried in the bad bank, the Federal Reserve, isn't that really just a form of meta-regulatory capture, after all?
And wouldn't Prof. Warren be completely waster there, then?
Rather, wouldn't Prof. Warren be a fantastic presidential candidate in 2012?
No one has been more pro the American family unit than Prof. Warren.
No one has been more pro the American worker than Prof. Warren.
I sincerely believe a Warren/Feingold ticket, or Warren/Kucinich or Warren/Defazio or Warren/Grayson would be a super-winner in 2012.
Let's face it, Obama has been a disaster.
Sure, he's been a primo representative for Wall Street, but as a proponent for the American public, fuggedaboutit.
Great question....I have carefully through the financial reform bill's section regarding the Consumer Financial Protection Agency, and it's designed to be truly ineffective - the very fact that it's both housed in, and funded by the Fed, is only one painful aspect of a tangle of red-tape that will make accomplishing anything useful nearly impossible. In that respect, I think Elizabeth Warren is best suited to give the Agency even the slightest hope of functionality, but that said, it would be fantastic if she could get the exposure of a 2012 Presidential ticket.