Bernanke Dodges the Bullets
On March 15th, Governor Bernanke gave an unprecedented interview to CBS. In it he lit a fuse of 'anger' against AIG. And then he retreated from the fray. Surprisingly, he is not a target of public anger. Instead that anger is aimed at the president.
This is an extraordinary turn of events, given a) that the Fed has a seat on the board of AIG; b) the Governor's personal share of responsibility for the chaos caused by AIG's reckless gambling these last seven years; and c) his responsibility for overseeing the US economy over the same period.
How has the Fed Chairman managed to avoid being the prime target of public anger?
First, let me remind you of the facts. Governor Bernanke served on the Academic Advisory Panel at the Federal Reserve Bank of New York from 1990-2002. In other words, Ben Bernanke was there as the Federal Reserve presided over, and, I would argue encouraged, the inflation of the biggest Credit Bubble in history.
If he had challenged the dominant orthodoxy of the Fed at the time, then I vouch he would not have become a member of the Board of Governors of the Fed from 2002 to 2005.
In June, 2005 he was appointed chairman of President Bush's Council of Economic Advisors. In 2006 he was appointed by President Bush as Governor of the Federal Reserve with these words: 'he is the right man to build on the record Alan Greenspan has established".
In other words over the period 2002 to 2009, Governor Bernanke has had a key and highly influential role as one of the 'guardians of the nation's finances' on the board of the Federal Reserve.
Over this same period, and under the watch of the Federal Reserve, AIG accumulated massive, and historically unprecedented liabilities -- a truly incomprehensible $62 trillion of liabilities.
Source: Data ISDA. Chart: www.suddendebt.blogspot.com
Regulators cheered on the 'innovation' of AIG's so-called 'swaps' (a term adopted to disguise the fact that CDSs are really just a form of non-collateralized insurance. Their nomenclature enabled them to dodge the 'asleep-at-the-wheel' regulator's radar).
The Fed and other regulators assured us constantly that sophisticated Wall St. financial products 'diversified risk' -- and made us all safer. But, as Gillian Tett of the Financial Times has cogently argued, they did the very opposite. They concentrated the risks many banks were taking, in one financial institution -- AIG.
Failing to understand the threat of this looming catastrophe was a major regulatory oversight. An oversight of historic proportions. An oversight that occurred on the watch of Ben Bernanke and other Federal Reserve governors.
Given this context, let us consider the extraordinary interview the Fed Governor gave CBS last week.
And let's remind ourselves: Fed Governors do not give TV interviews. When he breaks with all precedent and protocol, and goes public, then there can be no question. Something is up. We, the public, are being manipulated.
So it was that very little spontaneity emerged from the Governor's interview. His 'anger' at AIG, his 'slamming down' of the phone was, I contend, wholly contrived -- especially given the responsibility he shares for the bonus debacle as a board member of AIG.
The interview was just an opportunity, I would argue, to deflect attention from the Fed's negligence and whip up popular opinion against Liddy and the other buckin' broncos of AIG. In the macho style of Rodeo, the Fed Chairman was angrily slamming the barn door shut -- long after the bucking broncos had charged out of the barn, clutching bonuses.
Then the Fed Chairman deployed an extraordinary analogy. He compared the AIG gamblers to 'a neighbor that smoked in bed' and set his house on fire.
Would it not be wise for neighbors to call the fire brigade, he asked? Would there not be a risk to neighboring 'wooden houses' of leaving the neighbor's house to burn down? And would it not be better to put out the fire first, and then, and I quote 'change the fire code?'
'What needs to be done' he asked, without apparent irony 'to make sure this doesn't happen in the future? How can we fire proof our houses?'
Thus spoke a man who was charged with the responsibility -- and paid good money -- to protect the nation's 'wooden houses' from risk these last seven years. Thus spoke a man who could have 'changed the fire code'. Thus spoke one who could have restrained the bolting broncos at AIG and made sure their gambling did not risk a colossal meltdown of the global economy.
Thus spoke a man with representation on the board of AIG.
By fueling anger over AIG bonuses, Bernanke is playing a very old game.
By aiming at AIG, he is distracting public anger from the Federal Reserve. He is protecting his reputation and legacy. (No Fed Chairman wants a legacy such as Greenspan's.)
And he is effectively channeling anger toward the White House.
From this perspective the timing and content of his TV interview was exemplary. It enabled him to 'dodge the bullets', and ensure that public anger was aimed instead at a newly-elected President.
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"the amount of money being pumped into the system does not equal the amount being destroyed by debt-defau
Ms or Mrs Pettifor,
If the amount of money being pumped into the system is not adequate, how we will deal with future debt-defaults in the housing industry that will be accelerating over the next 3 years with the reset of OptionArm mortgages and the CDS`s that are attached to them? This is a progressive issue over the next 3 years 30/67/100 billion respectively and only a small part of the bigger picture I am sure.
http://www
Has the Federal Reserve system and it`s model reached a infinite loop of sorts?
"THE Federal Reserve proposal was unconstitutional from its inception, because the Federal Reserve System was to be a bank of issue. Article 1, Sec. 8, Par. 5 of the Constitution expressly charges Congress with "the power to coin money and regulate the value thereof.". Warburg’s plan would deprive Congress of its sovereignty, and the systems of checks and balances of power set up by Thomas Jefferson in the Constitution would now be destroyed.
The London Connection
http://www
Most of us have never lived under a monetary system our Founders intended.
so whats new here.
Bernanke, like his predecessor, Greenspan, are Wall Street shill’s who will lie to hide their incompetence. Americans are getting intelligent about the machinations of these criminals, the elections of 2006 and 2008 sent a clear message, lying republicans are going, going, gone (except in the redneck, racist, bible belt south).
The debate about americas financial crisis has got completely side tracked with issues of bonuses and so on The real issue is to reduce uncertainty The problem is like the Year 200o software bug: a large problem to be solved with a lot of detailed work This was done largely in India (outsourcing again) To ge tto the size of the ortgage problem it is necessary to list all mortaged proerpties, map them, value them find out aboit them physically and value them. This is the only way to get to the sixe of the balance sheet hole. For lack of effort and high manpower cost the US cant do it. So please ask someone else to do it It will take all of six months and needs perhaps 5,000 people to so this. At the same time we need to list all these mortgages and capture the detailsi n a data base, Its quite easy to do Please start this and stop the meaningless debate on the theroteical value of toxic assets
the toxic assets are creations of aig (credit default swaps) and other financial institutions. it takes the unravelers (people who may have claimed bonuses march 15th) and other people much time and energy to return us to anywhere near where we were before the financial meltdown occurred.
aig has received enough hatred to go around, but the hatred was misdirected. it should have gone first to bush, who opposed federal regulation. somewhere soon after, it should have gone to ben bernanke. his sixty minutes interview last week redirected it to aig and the president. start hating with the source of the misery, not the people who are trying to fix aig. they have improved it from a $2.7 trillion problem to a $1.6 trillion problem. they actually deserve their bonuses, unlike the merrill lynch recipients, who received billions of dollars just before bank of america took over.
the merrill lynch bonus recipients stole their bonuses. the aig bonus recipients earned their bonuses.
The current economic unpleasantness is a completely bipartisan boondoggle. Setting the record straight, it was in 1998 that Brooksley Born lost her fight with Rubin, Greenspan, and Levitt because as head of the CFTC, she wanted to regulate derivatives.
And the Gramm-Leach-Bliley Act, which repealed FDR era Glass-Steagall Act was enacted on November 12, 1999.
Paolo at econocasts
Ann, Bernanke will eventually meet up with that bullet and get hit, because he is part of the banking crime syndicate and just as Alan Greenspan met up with the bullet, so will Bennie, metaphorically speaking of course.
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If you have spent much time hanging with nerds and read Bernanke's bio on Wikipedia you are forced to conclude that he is probably one of those guys, driven by ego, that just have to be right, be successful. It has worked for him his whole life.
http://en.
The Achilles heel of achievement oriented behavior is that achievers are intensely invested in being right and seek validation from outside authority.
Consciously or unconsciously he probably thinks the big money men are the ultimate authority about economic issues. They have his unconsciou
There are many talented people competing for a few positions of power, and they jockey for position by prostituting their talents to men like Nixon, as Greenspan did, and men like Bush, as Bernanke did.
Nice article putting the current Fed Kabuki theater in historical perspective.
I don't believe Bernanke is motivated by personal greed. He is an academic, and likely has an ego commensurate with his previous academic position and reputation. I'm beginning to think his motivation in pursuing a suicidal plan for the dollar by blatantly printing digital currency rests on his need to prove that his prescription on how to avoid another Great Depression, as outlined in his thesis and numerous position papers he wrote for the Fed is robust and will stand a major reality test.
Of course, I don't think the Fed can violate a natural law and create a free lunch. There is no such thing as a free lunch. What the Fed is doing is shifting the cost from what would have to be a massive increase in taxes to pay for ongoing Treasury obligations and their accruing interest, to a less well-defined but more destructive form of payment in the loss of purchasing power of our currency. The causes of this latter debacle are unfortunately easier to hide from the public, since loss of purchasing power can be later blamed on an abstract device called inflation, which "just happens" and whose cause is less easily traced to Fed actions except by honest students of monetary policy.
The lag time between future 'inflation' and current Fed quantitative easing makes it much easier to hide.
Paolo at econocasts
See Ann Pettifor's Profile
Pdeep...I am not so sure that the risks to the dollar are more threatening than the risk of the US economy turning into a corpse....
Ann - Thank you for your reply. I appreciate your point about balancing the risks between devaluing the dollar and the need to employ Keynesian measures to restart the cycle of production and consumption. I might argue how effective such a stimulus would be absent any other rational long range economic planning, given our economy's deep structural problems, but for the sake of argument, I'll defer and assume it will work.
The dollar is currently used as the world's reserve currency, though perhaps for not that much longer given the current monetary policy. Bernanke's plan, by thus internationalizing the costs of our stimulus by devaluing our currency leaves the Fed with much less fiscal flexibility going forward. Rising price levels from currency debasement are inherently regressive, as the utility of marginal dollars is higher for those unemployed or at lower income levels. The administration will lose the ability to focus payment for the stimulus on folks in higher income brackets such as myself, who can afford to lose some luxuries because we are not scrounging for necessities. Requests for higher marginal tax rates will be met with the counter-argument that raising any taxes during a period of rising price levels will further derail any possibility of an economic turnaround.
Space prevents me from presenting specific economic arguments addressing the flaws in the current Fed plan. I think the ethical issues I have pointed out deserve as much, if not more consideration from our leadership.
Paolo at econocasts
Ann:
I agree with you entirely. You can find support for your positions in my Seeking Alpha posts: "The Bailout Plan: Did Bernanke Panic?"
http://see
and, "AIG and Bailouts: Welcome to the Real World."
http://see
Keep up the pressure.
Mase
See Ann Pettifor's Profile
Thanks MasePSU...
Why do we need a "federal reserve bank". Its simply a corporation like any other, in it for profit. Lets get back to the days when money was worth something -- when it was backed by gold and silver. The more money the gov't hands out the less each dollar is worth. And, who"s getting to hand it out all these nearly worthless dollars -- we're all seeing that play out. Its pretty bold.
Who is the Federal Reserve accountable to?
TO:
1. Elite Banksters
2. London Banksters
3. Harvesting Americans Wealth - more its primary Goal!
NOT TO:
1. US Government who it charges Interest
2. American People
3. Small Business
I've always wondered: How is the Fed Reserve even LEGAL under the US Constitution??? I can't find any authority for it.
It certainly has NOT done its job in any sense!
Both Bernancke and Greenspan should be held accountable, along with Paulson and Geithner and the execs at these financial boondoggles!!!
So, more to the point, HOW DO WE GET RID OF IT??? AND THEM??? And take control again? (I think President O. may manage it, given enough time. But not by himself. And not with BAD advisors.)
A Speech by Economist Muriel Mabley to the Washington State Libertarian Convention 1995.
""If we divide the total money of the nation by the total population of the nation we conclude that there is about $21,500 for each person.
Unfortunately, there is about $58,000 of debt for every person. Apply your $21,500 to the debt and $37,500 of debt would remain. Your options are forfeiture of assets or borrow more money. Can you borrow yourself out of debt? You cannot!
Since the established mechanism of money creation and un-creation is itself the cause of ever increasing debt, it is not possible to correct the debt problem using any method that deals with money after it has been created.
Working harder or longer will NOT correct it.
Having a job for everyone will NOT correct it.
Neither raising nor lowering wages will correct it.
Neither greater nor lesser utilization of natural resources will correct it.
Neither increasing nor decreasing exports will correct it.
Neither more nor less spending will correct it.
Neither full employment nor less employment will correct it.
Changing interest rates will NOT correct it.
Changing tax rates will NOT correct it.
The only thing that will correct it is to strip banks of their power to create their money as debt at interest and adopt a method of money creation whereby the U. S. Treasury creates our money as CREDIT!
This issue is the key issue in the financial future of our nation and world! ""
That should be Economist Muriel Mobley.
A beautiful sentiment, but the reality is our money system is a system of pure carrot on a stick motivation slavery. It's a benign, perhaps humane, and a for most part a very comfortable slavery, hence that's why you don't see much marching in the streets, etc., but slavery just the same. However, a few bloggers here and there, who while enjoying the comforts of their Dollar slavery, in the abstract, rebel and long for a certain unfettered freedom. And that's a good thing.
I see a day, when the money masters grow weary and bored with their power game and desire for the mass of humanity to step up, and in full consciousness, and ownership and responsibility, reject their slavery. But that day is indeed a long way off, the PEOPLE NEED AND WANT A KING TO LEAD THEM.
The World is truly a stage and we are all here to entertain each other, no?
No.
I posted the comment of an economist on the mathematical impossibility of our debt money system doing ANYTHING but running our economy into the ground and stealing the earned wealth of the labor of the American people.
I am glad that you are moved by the sentiment.
My purpose is a new money system.
Plain and simple.
And I for one am not waiting for the money masters to tire of the largesse of their comfort, thank you very much.
I thought you were going to point out my error and that of Dr. Mobley.
Perhaps you consider your work here entertainment, that is up to you.
These people know what they are doing and they have been planning this entire scheme for a very long time, including the contingency plan for getting caught. We are witnessing an elaborate game of chess. It's time to start looking past all of these strategically placed pawns who have been set up for sacrifice and find the real players. Historically, the most evil of beings are the ones we least suspect.
I agree, but unfortunately Obama is playing the role of unwitting patsy. Thats why I didnt vote for him, as a Senator he thinks that politics is a game of gentlemen, when whats needed right now is a knife fighter. He did this too himself and to us. I don;t know if it was his decision to keep Bernanke or if Bernanke gets to stay a set term, but he could have asked for Bernankes resignation and made a big deal out of it. Greenspans and Bernanke's constant lowering of interest rates is what caused all of this. I called my Senator almost weekly predicting this and was of course ignored. Peopl like Obama because he's apparently a nice guy, being nice isnt what makes an effective president, especially in a time of crisis.
ahh, people are pretty angry at Benanke and the FED from what ive seen and heard, their day is coming and their involvement in all of this is becoming noticed.
Fed Reserve Chairman appears to be best at calling the game after it has been played.
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