Randall Forsyth does a good job explaining what FOMC Chair Ben Bernanke has done right:
"Yet much of the criticism seems unfair and after the fact. Not only have Bernanke’s unorthodox moves staved off a full-fledged financial meltdown, but they also have done so while reducing the inflation risks inherent in the traditional policy response of merely slashing interest rates.
That’s not my opinion. It is the one rendered by the currency, credit, Treasury, equity and gold markets. Since the credit crisis peaked (or reached its nadir, depending on your point of view) on St. Patrick’s Day, the Monday after the Sunday night special with the Bear takeover by JPMorgan Chase, the extreme tensions in all those markets have eased.
It was not just the Bear deal per se. The Fed established the Primary Dealer Credit Facility, which let Wall Street investment firms to borrow from the central bank, a privilege reserved for commercial banks, except for the rarest instances in the Great Depression.
The PDCF joined other, new Fed instruments to funnel liquidity where it was needed most. Last December, the central bank began the Term Auction Facility, or TAF, which permitted banks to borrow anonymously for longer periods than via the traditional discount window borrowings, which were to cover overnight shortfalls. TAF also permitted borrowing against lesser-quality but still prime collateral.
The Fed also established the Term Securities Lending Facility, which allowed banks and dealers to swap their illiquid but high-quality government and mortgage-backed securities for Treasuries. It was like a pawnshop for the financial system, allowing Wall Street to exchange their (real, not fake) Rolexes for good-as-cash obligations of Uncle Sam."
What say ye? How much of the benefit of the doubt do you want to give Ben Bernanke?
Source:
Hey, Bernanke Bashers: His Moves Have Been the Right Ones
RANDALL W. FORSYTH
Barron’s April 29, 2008
http://online.barrons.com/article/SB120939353075949559.html
Zero credit to Helicopter Ben.
The credit crunch has not gone away because the fed facilities are still expanding, treasury finances are dwindling down and although the US$ may show a short-term uptick, foreigners will stop purchasing treasuries precisely at a time when we need them the most.
We will not only see long and deep recession, but it will be associated with high inflation, a.k.a. inflationary recession. If you think stagflation was bad, wait for things to unfold in the next 6-9 months.
Helicopter Ben thinks that by providing liquidity he can stop deflationary recession. In reality, he is leading us right into it.
The Fed is playing the depression book step-by-step – just as they did in 1929.
So, prepare yourself.
As someone once said – If you have to panic, be the first one to panic!
– Shankar
I’ll give him some.
Let’s be honest with ourselves, he took over a thankless job. And everyone knew he was. Wasn’t there a magazine cover from “The Economist” that showed Greenspan handing off a lit dynamite to Bernanke in a running relay?
I’ll report this again. In a fancy eatery in D.C. Ben was overheard ordering the steak tatare,,,,,,medium well.
He has not a clue….. Remember last August when he called in the I-Banks and hedge funds to explain the then crises?
And I recall he was a member of Al’s team when he made the helicopter speech. I do not recall his objections to 1% Fed Funds while on the FOMC.
Has he thrown money down a hole and prayed like hell? Yup. Did he violate the mandate of the Fed with regard to I-Banks? Yup.
Has he been responsible for soaring rice prices? Yup. Uncle Ben’s converted rice…
I’ll get to his bad points tomorrow.
Not only have Bernanke’s unorthodox moves staved off a full-fledged financial meltdown, but they also have done so while reducing the inflation risks inherent in the traditional policy response of merely slashing interest rates.
———
I had trouble getting past the first paragraph.
One, his moves have only prolonged the financial suffering, and the possibility of a full-fledged financial meltdown has only been pushed down the road, not averted.
Two, I missed the part where the “inflation risks” have been “reduced”. Last I checked, the dollar was the world currencies’ bitch, and commodities were appreciating exponentially.
That said, he was dropped into a minefield…
I’ve got dollars in my back pocket so I’m a big fan of Ben Bernanke and all he’s done to keep our markets solvent. America had the best finacial markets in the world until recently — let’s hope the invisible 2% recovers. Ben punishes equity holders first – he understands the big picture (wink and a grin).
Everything depends upon the inflation prediction. Inflation is the ultimate ‘reset’ that will affect everyone, mortgage or no mortgage. If Bernanke is wrong on inflation, then the credit crisis could snowball, far bigger than the delinquent mortgage mess. In my opinion, since Bernanke didn’t have the guts to raise interest rates or even keep them the same, then the commodities will have to do the work for him. Dennis Gartman is wrong. The commodity bull will be what finally spoils the party for everyone.
no credit: bailing out a bunch of dumb banks blinded by profits using leverage to generate fake alpha deserve to die. the capital markets in this country are broken and only a washout will enable decent leadership to emerge with a mandate to fix them. paulson and crew have the audacity to keep the banks as “self regulated organizations” (SRO’s)…after the fed bails them out? where, oh where are the p. volckers of this world? grantham says it much better than I ever could…
The FED still expects inflation to moderate and it will. Perhaps, just not in our lifetime.
By appearance alone I would say that he has an unseasoned aspect. No offence to Ben Bernake, but I would say that he is well out of his league. In his defence, I have to state that he is a sevant to persuasive interests in finance and government. In other words, he has no choice but to execute a policy that will benefit those interests.
Barry; I have to believe that, most of your readers would find that obvious. He has been extraordinarily predictable.
“swap their illiquid but high-quality government and mortgage-backed securities for Treasuries.”
I’ll swap some illiquid “but high quality” government and mortgage-backed securities for Treasuries. Yeah, that’s the ticket… SURE…..
Best regards,
Econolicious
It’s too soon to tell. He may have staved off meltdown and that may turn out to be a good thing but it’s too soon to tell.
“that said, he was dropped into a minefield”.
That may be but he was one of the ones that planting the mines!
The capital system exists so that money may be channeled to the highest and best uses. Markets are allocaters of this capital. When you rig the system by turning a blind eye, you get what we now have. Distortions!
Ben is cut from the self same cloth as Greenspan. Only difference is one has more hair than the other. These guys are rented political hacks whose retirement, like Clinton’s, is funded ex post facto by the ‘Street’ as a reward for services rendered. They can’t even claim that they didn’t know they were whores.
And Rubin’s. I’m proud of that ex-Citi guy who stood up at the annual meeting and pointed out that many folks were being laid off while Bob was getting $10-15 million. For doing what? Maybe repeal of Glass Steagall??
Who is this Randall Forsyth anyway?
Sounds like a lobbyist for the banking and finance industry–one of President Bush’s most important clients–to me. And his assesment of Bernanke? Hogwash.
Bernanke is a functionary of the imperial presidency. As one columnist put it, the Fed chief is now “part of the president’s cabinet.”
And his actions show it. They conform perfectly to what we have seen from other members of this administration. Whether the issue is torture, phone tapping or pollution, the pattern is always the same: politicize the department and push the law to its very limits. Many argue they go beyond the law.
In the instant case, as Paul Volkler said, Bernanke is operating at “the very edge of [the central bank’s] lawful and implied powers.”
Bernanke’s actions are totally predictable, and they fit the pattern that we have seen time and time again from this administration. History will probably not be kind to him. The Bush administration has destroyed many a good man–Colin Powell, George Tennet, Alan Greenspan, just to name a few–and all indications are Bernanke awaits the same fate.
~~~
BR: Hardly a mouthpiece for anyone: He’s been very critical of both the administration and the FOMC about their policies. In fact, he’s been more right than wrong about the economy, housing and the credit crunch than most journalists . . .
Hi Barry,
Any chance you’d throw up a monthly chart of the ES futures, now that this month is over? I cant gettem.
Thanks,
Sean
The problem as ever is :
1. calling these assets high quality when they aren’t.
2. Not charging a penalty/high interest rate.
From a trading basis, in terms of present value, he’s swapped 60 to 80c worth of crap for (what was ) good quality treasuries. The bill comes due in various intervals but I can make PV calculations and on that basis he’s added to the monetary base.
Separately, Randall Forsyth has carried water for the Fed through all this fiasco. I remember how the Fed surreptiously lowered the Fed Funds rate a full 3 weeks before the actual meeting last Aug/Sep – and despite people pointing out this anomaly, RF continued writing it up in Barrons as if no change had taken place.
-K
Bernanke’s only mistake was that he was not aggressive soon enough. December should have been a 75bp cut, not a 25bp cut. That being said, we would probably be at about the same place we are today regardless.
☺☺”…he’s swapped 60 to 80c worth of crap for (what was ) good quality treasuries.”–Posted by: sk | Apr 30, 2008 9:25:23 PM
60 or 80c??????
The public doesn’t have a clue as to what securities were received or what they might be worth.
Another hallmark of everything this administration does–secrecy.
“What say ye?” Barry’s question suggests that this is an issue on which reasonable minds could differ. And yet, Jim Cramer has written repeatedly: (1) that the credit issues we now face could have been “easily avoided” (exact quote) if the Fed had lowered short-term rates sooner in 2007, (2) that nobody understood gravity of the problem sooner than he (i.e. Cramer) did, and (3) that the Fed “knows nothing.” So there are there only two possibilities. By even asking for debate on the issue, Barry is essentially saying that about 95% of Cramer’s Fed comments for the past eight months are nothing more than the rantings of a self-aggrandizing creep. And I would agree.
The Fed also established the Term Securities Lending Facility, which allowed banks and dealers to swap their illiquid but high-quality government and mortgage-backed securities for Treasuries. It was like a pawnshop for the financial system, allowing Wall Street to exchange their (real, not fake) Rolexes for good-as-cash obligations of Uncle Sam.”
It takes some balls to tell us that a fake Rolex is real. “High quality” mortgage-backed securities? I’m sure we can take Forsyth’s word on that, seeing as how he is a Serious Expert and all and the critics are just too small minded to see Bernanke’s brilliance.
So no credit to Bernanke. Short-term fools’ rallies, when the fundamentals look dreadful, do not win Bernanke any laurels today. Perhaps he needs better cheerleaders.
Beautiful Mind! Lousy/clouded Intellect?! …But it is the same underlying spirit that drives all of us. Good and Bad — all is part of the same whole.
Sounds like there is a competition going on right now? Between the folks in charge of epicenters of greed and power — wall street and washington — as to who can outdo the other before Bush leaves in January.
I guess dollar is doomed and Oil will march on to greater heights. Don’t know too much about the history of currency pegs but someone will break away soon
As the great Henry Rollins said…
“Knowledge without mileage is bullshit!”
Lots of people “know” how to manipulate things to their will, but just because you can, doesn’t mean you should. Bernanke and Co are trying to manage a problem that has never existed. Bunch of armchair economists and policy makers here spewing fantasies like Uncle Ricco in Napolean Dynamite.
So far so good for Bernanke IMHO.
Maybe if you looked up what the NY Fed’s Tim Geithner has been upto in the last couple of months, you’ll find that Bernanke has been pretty much lucky to be able to take all the credit while doing squat.
The house of cards still stands… until it doesn’t.
Just like the assets these banks had until they weren’t assets any longer.
What else can Bernanke do?
Give a man a fish and you’ll feed him for a day.
Teach him to fish and he’ll deplete his food supply.
Another hallmark of this administration: liberal use of exaggeration and fear, so we hear things like “mushroom clouds” and “a full-fledged financial meltdown.”
Here’s the report card as I see it.
Greenspan – F
Bernanke – D
Congress – F
Bush – Get in the corner with the Dunce
cap.
Bankers – Thank God I own my home, my cars and don’t have a dime of revolving debt.
In my books, he is being smart…and fulfulling the dual mandate of his job.
I would rather have the pain of inflating food and energy with the pain of deflating asset prices rather the utter destruction and instability that deflation across the board will bring…People calling for such a deflation are either naive…or dont own a home or have kids to take care of…failures in a Darwinian sense.
http://alephblog.com/2008/04/26/the-sea-change-in-bonds/
…What a whipping for safe assets. Perhaps the Fed will be happy that they helped engineer the whacking. Then again, the TED spread is still high, and the change might just be a normal shift in sentiment after the panic leading up to the last FOMC meeting. Interesting to see both the return of the carry trade and credit spreads outperforming the move in Treasuries…
http://alephblog.com/2008/04/29/still-too-early-for-banks/
…6) What does the Fed do? Perhaps they can take a page from Cramer, and look at the progress from private repair of the financial system through equity and debt issuance. It’s a start, at least. But the Fed has increasingly encumbered is balance sheet with lower quality paper. Two issues: a) if there are more lending market crises, the Fed can’t do a lot more — maybe an amount equal to what they have currently done. b) What happens when they begin to collapse the added leverage? Okay, so they won’t do it, unless demand goes slack… that still leaves the first issue. There are limits to the balance sheet of the Fed.
Beyond that, the Fed faces a weak economy, and rising inflation. Again, what does the Fed do?…
“What say ye? How much of the benefit of the doubt do you want to give Ben Bernanke?”
None!
Six times out of the nine last rate setting meetings, beginning with June 28 2007, the DOW sold of or closed lower after the FOMC announcement. That’s a clear and loud message. His actions have weakened the dollar and inflated the commodity complex beyond recognition. I wished Bernanke would be a one time chairman but realize that he is the true successor of Greenspan. He will probably hang around for the next twenty years.
Also…
http://alephblog.com/2008/04/29/sternly-bashing-the-bear-stearns-bailout/
There were better ways to achieve the protection of the derivatives market the the Fed wanted to achieve. Take a page out of the playbook of the insurance regulators that are sweating over the financial guarantors. Are they worried about the holding companies that own the operating insurers? No, they are only worried about the operating insurers. In the same way, the Fed didn’t need to sell off Bear Stearns, and (in a way) backstop the sale. All they needed to do was say that they would provide credit to the derivatives arm if Bear failed.
Hindsight may be 20/20, but the Fed neglects Bagehot’s rule to lend infinitely at a penalty rate in a crisis. The penalty has not been there. Beyond that, Reinhart points to the ways that the Fed is taking credit risk onto its balance sheet, which limits its flexibility.
Can that credit risk have negative impacts on the Fed? Yes, but maybe those effects aren’t big. The Fed is a profitable institution. How profitable? Who gets the profits? Well, the US Treasury gets the profits, essentially unifying the Fed with the US government in an economic sense. From fiscal 2005-2007, the Fed earned $18.1, 21.5, and 28.5 billion respectively. Any losses from credit risk will diminish what the Fed dividends back to the US Treasury, which will raise borrowing and taxes. So the impact is minor, in one sense — you can destroy the value of the US Dollar, but the Fed is an arm of the US Government in an economic sense. It dies only when the US Government dies, or when the US Government eliminates it (hey, it’s happened before in US history).
I think it is funny how in the great free market system, a group a people sit in a secret meeting to set the most important rate in the economy. If any rate should NOT be set by people sitting in secret meetings, it is the short-term lending rate. But who am I? Every single rate announcement I have seen has been met by a wildly gyrating stock market for the rest of the day. Things work in cycles and since 1982, the Fed has done everything to prop up the markets. But my link of the day shows it would be well within its mega- range for the Dow to trade at 3500 in the next few years. It is way overbought on a long term chart.
“[The] Fed also established the Term Securities Lending Facility, which allowed banks and dealers to swap their illiquid but high-quality government and mortgage-backed securities for Treasuries. It was like a pawnshop for the financial system, allowing Wall Street to exchange their (real, not fake) Rolexes for good-as-cash obligations of Uncle Sam.”
Let’s see, weren’t these loans made on property that was determined to be of (x) value and is now only 88%(x) value with no bottom in sight?
Sorry, but the minute-hand on that Rolex is missing.
Bernanke may have saved the captain and crew, but the passengers will go down with the ship.
I was personally wishing for a reason to call him “Zen” Bernanke but that wish has faded…
With that said, however, I do not feel as though I have earned the right to cast any stones…
I think it is funny how in the great free market system, a group a people sit in a secret meeting to set the most important rate in the economy. If any rate should NOT be set by people sitting in secret meetings, it is the short-term lending rate. But who am I? Every single rate announcement I have seen has been met by a wildly gyrating stock market for the rest of the day. Things work in cycles and since 1982, the Fed has done everything to prop up the markets. But my link of the day shows it would be well within its mega- range for the Dow to trade at 3500 in the next few years. It is way overbought on a long term chart.
http://www.geocities.com/WallStreet/Exchange/9807/Charts/SP500/Dji200_0710.gif
How Ben Got the Job:
George: “Ben I have a special job for you.”
Ben “Whatever I can do to help the country”
George: “Ben, here is a can”
Ben: “Huh?”
George: “Ben, take this can and kick it as hard as you can.”
Ben: “I am sorry sir, I am an economist, I don’t understand.”
George: “Ben, the job of the Federal Reserve Chairman is to kick a can down the road, either you do it or I will find someone else. Ben, can you kick a can down the road or not?”
Ben: “Sir, I will kick that can so far down the road you won’t even be able to see it.”
George: “That is exactly what we need.”
And so Ben got the job and the rest is history.
Let us not forget….
That Ben Bernanke is THE foremost authority on the Great Depression.
He knows an asset deflationary spiral when he sees one. He DOES NOT care about inflation. Inflation is the NOT the problem.
The problem is the TRILLIONS of dollars that are disappearing due to the Housing and Credit Bubble deflating. Period. End of story. Everyone whining about inflation needs to stop whining right now.
That ain’t the problem. If we’re facing what I fear we’re facing…then NO ASSET CLASS is safe. Don’t bother hiding in Potash, or Mosaic, or John Deere, or Gold, or oil, etc…etc…etc…
He’s doing the best he can with the hand dealt. That being said, he’s completely screwd. In poker parlance, he’s been “dealt a rainbow with no pairs showing.”
BR: Thanks for posting a semi-positive article about the current state of affairs…creates a little balance within this blog.
Regards,
AT.
If Bernanke was a card player and took over Greenspan’s hand, he would’ve walked away from the table. He’s completely boxed in.
hey, there we wuz, bear stearns on the ropes along with the dollar and today schtocks are higher with most commodities lower. what a genius! i think he can’t keep it going but the nose ring crowd is happy, just in time for summer vacation. can we just stop time on those rolexes now?
I strongly disapprove of these bailouts. Bad banks should fail. Their shareholders and over-the-FDIC-limit depositors should take the losses on the gambles they took.
And this is not just “Bernanke”. Any politician either pushing this or keeping quiet is part of the problem, too.
Despite these bailouts, regular Americans are going to get killed anyway thanks to the declining dollar and recession. These bailouts aren’t saving them.
Reminds me of a Guardian article after 911, when the administration decided to bail out airline shareholders instead of bailing out the newly unemployed airline workers (who lost a far greater percentage of their income than the shareholders). The Guardian title was “For Richer”.
I’m so sick of these bailouts. If the government’s going to give money away, they should either:
– give it to the biggest charity cases or
– get something for it, like new bridges, dikes, solar plants, etc.
I’m angry.
…. I’m tired and don’t mean to write this, But the Fed had every chance to pull out their dicks and bang their nuts on the table.
They have to disappoint the market at one point, and it was expected… They could even have said “we are saving this bullet for later.”(like when the NFP goes to negative 200k) it would have reduced inflation(real inflation) by 1-2% this year. Kicked the Dollar/Euro into the 1.4 range, Bottomed out gold and oil for the next 2-4 quarters and it could have been the ounce of prevention to Reduce the pound of cure that we will be choking down next year…. But no!!!!
But they have been done some innovative things. Necessity is the mother of innovation. It is also great to see a more front loaded fed, rather than the “Fool in a Bathtub” approach…. that is, if we are going to keep up with this Protect us from the boogeyman of Deflation(I’m almost as negative on Boogiemen than unicorns), Bullshit…. I wonder if there is any way we can get America to save… I guess it’s more important to have NIRP, and Money that depreciates faster than a car….. Where do I get me some of those dolphin Teeth?…
I guess we will continue to blame Ethanol for the high price of copper, Nickle, titanium, labor, cotton, coffee, wood, Medical Costs, insurance….etc
No worries because apparently because my computer has 8 USB ports it offsets all of that in the inflation numbers.
but maybe the NFP is worse than expected.
The treasuries markets have actually performed with reduced inflation expectations lately. The market could be wrong, but that is what it’s saying. I’ll give it a couple of more weeks to see where those expectations are heading after today’s ff rate move.
First of all, I’m as bearish as any one person could be. I’m thinking Kondratieff Winter, if you’re an afficianado of apocalyptic economic theory (as I am).
Anyway, my view is that Bernanke was left with few good choices. When he began to engineer the rate decreases (and the subsequent new credit facilities), his highest priority was to stave off a total collapse of the banking system. And what was the feared driver of the collapse — what would take down the banks? A negative feedback loop that would destroy bank equity that went something like this:
Falling housing prices >> lower consumer spending >> contracting economy >> increased layoffs >> more foreclosures >> falling housing prices >> repeat cycle…
That’s a prescription for extreme deflation. So, by lowering rates, he was specifically trying to do two things (to break the vicious cycle described above):
1. Lower rates such that the coming round of ARM resets in 2H 2008 and 1H 2009 would not lead to even more foreclosures –> he has somewhat neutralized that timebomb…for now, anyway.
2. Create inflationary pressures by flooding the monetary system with liquidity –> the idea here is that perhaps the Fed could proactively head off deflation before it even started.
The downside, of course, has been the commodity boom, which is a direct result of the rapidly falling dollar (due to the Fed’s policies). Hey, there has to be some negative effects to any policy, right? The commodity boom is causing global food riots as well as increasing the cost of living for all Americans (food and fuel) at precisely the time Americans can’t afford it — and you’ll see that negative feedback loop start up again as people increasingly are unable (and unwilling) to service their mortgages, pay off their credit cards, and buy new things. That will lead to a contracting economy, layoffs, foreclosures, lower home prices, etc.
Meanwhile, the Fed will be forced into an ever increasingly expensive bailout of the financial system (that may, in the end, not actually achieve anything).
“Fifty years ago, Mort Sahl revolutionized American comedy with his album, The Future Lies Ahead. He could have easily gotten his basic idea across with the addition of a colon: The Future: Lies Ahead. The biggest lie of all is that the government is competent to spend our money better than we can.”
Gary North
Here comes the “Go away in May” time.
In a crowded field of political, pandering nitwits masquerading as economists he is more creative than most in his approach to delaying and worsening the inevitable, so I suppose I have to give him credit of sorts.
But giving anyone leveraged more than 30:1 anything other than a swift kick in the nuts when they blow up is still a long term recipe for disaster, and a drag on economic growth from leaving resources locked up in the hands of the incompetent.
The tragedy of what could have been had all that capital not been destroyed is hardly ever mentioned in these fiascoes despite being incalculably greater than even the unadulterated accounting losses of the current mess.
One can do the right thing for a situation, yet create a precedent so bad that the end result is worse than if one had done nothing.
The situation in the credit markets was dire enough that it merited radical action. But that action should have come from the Congress, which is authorized to spend money. Instead, the Federal Reserve delegated new powers to itself. The result is dangerous, amounting to the creation of a fourth branch of government.
We will pay for this later, even if we are spared the worst of the crisis in the present.
Cuts too steep – inflation is killing the value of Americans’ savings (luckily that savings rate was about 0%,I guess); JPM/BS deal socialized too much risk, but something needed to be done.
Other methods to provide liquidity have been creative and good.
B- for BB
Rate cuts are rate cuts, nothing innovative about that. Savers are bailing out the spenders. The Fed hasn’t cared about inflation in a long time, they only care about the applause meter (from Fleckenstein).
Perhaps they will care about inflation when it’s so out of control Congress is screaming about it. Maybe Volcker II is appointed.
Barry, take a poll on who should be Volcker II.
Only then can you sell hard assets and buy long bonds.
Bernanke’s unorthodox moves staved off a full-fledged financial meltdown.
ENOUGH. No one gets to say that anymore without explaining exactly what they mean. I heard the same line in 1998 and again in 2002, yet somehow mysteriously here we are once more on the edge of the abyss.
Meanwhile, from where I sit, way down here in the “real” economy:
* The purchasing power of my life savings (which I made the mistake of holding primarily in dollars) has crashed by nearly 50% when measured against anything I care about.
* Housing has been rendered unaffordable for an entire generation of Americans
* We’re seeing f**king food riots, hoarding, and rationing around the world because people can’t afford to eat.
But thank God Bear Stearns bondholders got bailed out with my money because *that* would have been a crisis.
Bernanke gets zero credit from me for his “unorthodox” bailout methods – – isn’t “innovative” financing what got us into this mess in the first place?
He may be succeeding in pulling Wall Street’s feet out of the frying pan, but he’s doing it by throwing the rest of us into the fire.
-Ant
Ben was oblivious to the size of the problem and I’m still not quite sure he gets it. I apparently saw the mortgage tidal wave coming 6-9 months before our dumb a$$ Federal Reserve Chairman …and it’s NOT MY JOB!
Ben gave away up to $29 billion in taxpayer money without consent of Congress, which is illegal.
Ben seems more concerned about the stock market than the economy. The timing of all the stick saves is highly suspect …always during a crash …or a good time to screw the shorts.
Ben’s auction for the iBanks means we the taxpayer have now “leased” hundreds of billions of dollars of mark to model mortgage paper that’s probably worth 10 cents on the dollar.
Ben’s affect on the US $ and all the slosh in the system is at least partly responsible for the commodities bubbles we are experiencing. This is killing people in poor countries.
Ben should have told the banks to come clean on their losses (no off-balance SIVs or mark to myth accounting) …this would have unfrozen the credit markets because banks would again trust each other. Instead he did the opposite …gave them more money to hide under. Despicable.
The only thing worse than Ben and Paulson trying to bail out the iBanks are our communist congressmen trying to bail out everybody else.
Anyway, just one comrade’s opinion…
The problem I see with Bernanke is not what he’s giving out, he had no choice but to provide liquidity. The problem is that he got nothing in exchange. If he had set some harsh terms for the liquidity he provided (dismissal of top management, restructuring of compensation, board seats for regulators/overseers, leverage restrictions, etc.) he could actually have changed some of the behavior in these companies that were driven into the ground. As it is, he’s just handing out money and hoping that those naughty boys in pinstripes have learned their lesson. Since these bailouts seem to be happening with increasing frequency, that doesn’t seem to be happening.
Too early to judge, but my seat of the pants feel is that he will be judged by history as superior to Greenspan.
I give him quite a lot of credit for calming financial markets. He’s done it by good old state socialism that FDR would have been proud of, in fact he used a lot of depression era mechanisms for doing it. Ironic since right wing think tanks are forever telling us these mechanisms were ineffective. The problems are twofold. Firstly, he’s completely destroyed the concept of moral hazard. It’s clear a US govt of whatever political persuasion is never going to let a major financial institution fail. The second problem is interest rates and printing money. A combination of the two has played havoc with the dollar. There are other factors but these are the two main drivers. The dollars decline and the increase in the money supply have ignited a burst of inflation which is going to have very serious consequences for US consumer spending which in turn is greatly going to exacerbate the recession. So basically I think the jury is still out in overall terms. We need some perspective, he’s dealt with one problem but is causing others. I also suspect he has good idea of what he is doing but has decided it’s the worst of a bad series of options.
My feeling is analogous to the Titantic where the rich folk are locking the poor folk in the bottom of the boat while they jump in the remaining life boats.
Boys and girls…Ben I am not a fan of…and I think inflation is a worse sin than the deflation that Japan has gone through since 1990…at least people in Japan who live within their means still have money….
But the larger problem is the way our government is run…we are a service economy now that is under increasing competition for these services by expanding economies in the old third world…we are fighting a horrifically expensive war basically by ourselves, with no end in sight…and without a balanced budget amendment our fiat currency is undefendable with huge budget deficits year after year after year…
It is not the crazy driver that is the problem for all of us on the bus…somebody sold us a crappy bus in the first place…
We are on a high-speed train to financial ruin. We are trading Treasuries for complete garbage which is wrecking the FED’s own balance sheet. Level 2 becomes Level 3 with a few key strokes and everything is OK? I don’t think so, and how about the 60 Trillion in unfunded liabilities that nobody wants to talk about.
We are destrying credit/debt faster than it can be originated including everything the FED has done. It doesn’t turn hay into gold, nor will it ever.
He has never jaw boned the banking industry for its poor lending standards.
When he took over, he didn’t have the fortitude to stop the increases when they were going to worsen the housing downturn which he denied was going to happen. Now that it is happening, he is worsening the collapse by lowering the fed funds rate too much which is just feeding inflation through the cost of oil. Inflation control will require rates to be raised above what would otherwise have been necessary–(and my guess is put further downward pressure on housing prices because the macro effect is for people not to be able to afford the monthly payments at higher interest rates). Doesn’t he deserve the same credit as Mozilo, Prince, et al?
Bernanke had to be appointed by the President and approved by Congress.
He, therefore, is a politician, which, de facto, means he has no moral compass, save doing that which is good for him.
He would be a remarkable man indeed, if he had asserted some sense of values and said to Bear Stearns:
“Sorry, but it appears you guys got a bit overleveraged. Unfortunately for you, it is not the taxpayers job to bail you out of your poorly placed bets. If we are to believe in free markets for profits, from which you have benefited handsomely in the last few years, then we must, absolutely must, enforce the discipline of loss when bets go bad. Fear is the single best remedy to excessive risk taking I know. We are not your safety net.
I don’t care what this does to the financial system. Let the chips fall where they may. The financial system is not the real economy, which is otherwise rather healthy. Much of what is done in the financial markets is just gambling with other people’s money, which is to say, much of it helps very little in allocating capital to its best and greatest uses. Perhaps a shrinkage in the financial system’s importance might be just the medicine that ails us. People will still need food, clothing and shelter, but Wall Street doesn’t necessarily need a few crumbs every time someone arranges to meet their needs.
If I bailed you guys out, then the fed would become the de facto guarantor of every investment bank’s bad bets. I haven’t enough ink, paper or printing presses to impose that obligation upon the American people. It is my charge to provide a currency that can operate as a store of wealth, a medium of exchange, and a measurement for account. If the fed became the safety net for the investment banks, it would destroy the dollar, and I’m not willing to do that. The long-term costs would be far greater than a short-term financial system collapse.
So fail, Bear Stearns, and any like you. We will all get over it in due time, and without the burden of a long, dull painful period of pretending your business model represents anything more than a gambling house.”
Keeping a vegetable on life support is harmful to the greater good.
In a world of limited resources this behavior is unacceptable.
He and all of his superiors should be removed as soon as possible.
As I see it, it equates to financial genocide.
I regard the actions of the Fed in the same manner I regard all actions of the Bush administration. If you accept their stated goals and purposes they appear to be incompetent. If you accept that they are competent, and look at their actions you can deduce what their true intentions are. This government hasn’t given a shit about the American people in a long time, because most Americans don’t give a shit about the government. Most Americans get side-tracked arguing about bullshit like religion, gay rights, and abortion which really aren’t important compared to the only two things that should matter in government: Economic and Foreign policy. So most of our leaders are like their constituents: ignorant about both. And since few notice or care, those who do know what is going on pass policies that benefit their own interests and those of their cronies.
If you consider the problem as having more than one part, i.e. inflation, slowing growth, and credit crunch, Bernanke seems to have addressed credit crunch and slowing growth issues. It looks like he’s been more effective concerning the credit crunch. Reinhart pointed out, in the video you posted, that dynamic upward moves in interest rates, as opposed to gradualist, may be needed to address the inflation issue. I’d give him a solid ‘B’ so far.
Some credit.
The interest rate reduction is excessive, more than required and more than inflation or the dollar tolerate.
But the handling of Bear and other banks in distress is sensible. A big entity collapse would have added extra damage. Big.
In 1992 the likes of Soros broke the pound as they did one up on BOE. Today ‘the vandals’ are cross they were unable to pull a quick one with the Fed’s Bernanke. BSC going under would have had the severe implications for the entire banking sector, if anyone was involved in trading on Monday after BSC- JPM Fed brokered deal, the ‘vultures’ were after LEH, they failed and the tide turned. It was a crisis of confidence and Fed came to help and save the sytem from melting down.
Financial historians will write long analysis and sing praises for Bernanke interventionism ala Donald Tsang in Hong Kong during the Asean contagion crisis. Lets revisit the Asean contagion.
ASEAN countries believed that the well co-ordinated manipulation of currencies was a deliberate attempt to destabilize the ASEAN economies. Former Malaysian Prime Minister Mahathir Mohamad even accused George Soros of ruining Malaysia’s economy with “massive currency speculation”, an accusation which few economists took seriously. (Soros appeared to have had his bets in against the Asian currency devaluations, incurring a loss when the crisis hit.) The East Asian Financial Crisis was a period of financial crisis that gripped much of Asia at the beginning of the summer of July 1997. It raised fears of a worldwide economic meltdown, a financial contagion. It is also commonly referred to as the East Asian currency crisis, or locally as the IMF crisis. (wiki source)
The Fed has simply borrowed a page from the HKMA and Donald Tsang (then the Financial Secretary), who declared war on speculators. The Government ended up buying approximately HK$120 billion (US$15 billion) worth of shares in various companies. They became the largest shareholder in some of those companies (e.g. the government owned 10% of HSBC) by the end of August, when hostilities ended with the closing of the August Hang Seng Index futures contract. The Government started selling those shares in 2001. They made a profit of about HK$30 billion (US$4 billion). The Fed will make similar kind of returns very soon once the vandals are staved off; economies don’t go into recession when consumers are around. The speculators will learn that.
Bernanke’s interventionism is currently being frownded upon. However, financial historians will, in the near future, sing praises for this very internventionism. The last 7 days of Fed assertion has not compromised moral hazard. Rather, it has has strengthened public trust in the institution of state. Donald Sang was critized when he staved of speculators.
Today, Benanke will face the same criticism from the advocates of lassez faire. However, there is a time when any debt instrument can fail as a result of insolvency. There are times when even the best of instruments are discounted. The value of any debt instrument is the ability of people to service the instrument over its life. The ability of service has not been compromised, but the rumours could have taken the values out and brought the entire economy to a standstill. Usually debt instruments fail as a result of macro-economic failure. The speculators had hedged an inadvertant scheme through which they would have failed the economy though the failure of the instruments.
http://iqballatif.newsvine.com/_news/2008/03/25/1388632-fed-bernanke-and-the-hkma-donald-tsang-a-study-into-the-similarities-of-strategies-in-seeing-off-vandals-and-herd-mentality-of-hedge-funds