While it may not be the job of the Chairman of the Federal Reserve Board to deceive Congress to advance the interests of the big banks, apparently no one has informed Ben Bernanke of this fact.
Some people may recall the role that Mr. Bernanke played in helping to get the TARP through Congress. As part of the effort to build fear among members, he told Congress: "The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper."
This was a big deal. Most large corporations are now dependent on selling commercial paper to finance their ongoing operations. They borrow money on the commercial paper market to meet their payroll and pay suppliers. If major companies were not able to sell commercial paper, they would quickly be unable to pay their bills and the economy really could shut down.
The extent to which the commercial paper market was actually in danger of freezing up is debatable. However, what is not debatable is the fact that the Federal Reserve Board had the ability to single-handedly keep the commercial paper market operating. In fact, the weekend after Congress approved the TARP, Bernanke announced that he was establishing the Commercial Paper Funding Facility. This facility directly purchased commercial paper from non-financial companies, ensuring that they had the money to stay in business.
In other words, even if the commercial paper market was shutting down, as Mr. Bernanke told Congress, there was no reason that Congress had to rush to pass the TARP. The Fed already had the ability to keep the commercial paper market going and Mr. Bernanke was prepared to exercise this authority before any TARP funds would be entering the system. Bernanke was helping to create the atmosphere of fear that was needed to get Congress to authorize $700 billion in TARP funds for the banks, with few substantive conditions.
It seems that Bernanke is again in his "fool Congress" mode. Yesterday he sent a letter to the Senate arguing that it should remove language that the Agriculture Committee put into the financial reform bill that would require banks to spin off their derivative trading units. The intent of this language is to separate out the business of the commercial banks, which operate with government insured deposits, from the more risky operations associated with derivative trading.
There are reasonable arguments that can be made on this issue, but these did not appear in Mr. Bernanke's letter. At the center of Bernanke's argument are two points that are just not true. He argues that the legislation would prevent banks from buying derivatives to hedge interest rate risk. This was not the intent of the rules and this is not how most people other than Bernanke are interpreting them. The issue is whether commercial banks should be acting as the intermediaries in trading derivatives, not whether they can buy derivatives as end users, just as any other end user would.
The other false concern raised by Bernanke is that derivative trading will be taken away from relatively closely regulated bank holding companies and transferred to more poorly regulated parts of the financial system. This is a false concern because the Ag Committee language only requires that the trading be taken away from the commercial banks that are protected by government insurance. Banks would be allowed to spin off divisions that are still within the bank holding company, however these divisions would not enjoy the special protections provided to commercial banks.
Finally, Bernanke effectively dismisses the concern that motivates removing trading from commercial banks by asserting that the era of "too big to fail" (TBTF) banks has ended. If Mr. Bernanke believes this, he is among a tiny minority of economists. While the financial reform bill includes many elements that will improve oversight and limit risk, there are few economists who believe that if Citigroup or Goldman Sachs were facing bankruptcy, the government would just allow them to collapse.
Of course the whole point of pulling derivative trading away from commercial banks is to ensure that taxpayers will not be liable for the mistakes that banks may make in the derivative trading business. Derivative trading is considerable more risky than the personal and business loans that are the normal business of commercial banks. If we assume that there are no banks that are now TBTF then we need not be concerned about a taxpayer bailout, but few, if any, economists would be as sanguine about this risk as Mr. Bernanke.
In short, this looks like the same sort of effort to misrepresent issues to Congress as we saw with the TARP. Mr. Bernanke is a very accomplished economist and he no doubt has much wisdom to share with Congress. It would be a big step forward if he saw this as being his job, instead of defending the interests of the big banks.
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I made a futile gesture of promising my Senator to vote against Bernanke's reappointment. I wrote the President and warned that his appointment(s) would destroy the Democratic Party and his own leadership. What a useless, pathetic display of helpless, worthless patriotism.
Nonetheless, my alarming predictions keep unfolding. I know how Kevin Phillips must feel as he, like Jesus, went unrecognized in his own country.
For an opportunistic financial oligarchy, Obama is an exemplary President. Relaitve to his Oath of Office and job description he is a traitor and incompetent, through and through.
We're being let down on all sides and Obama just puts on a Kabuki-show to co-opt discontent when the attention is hot (only to subvert and riddle with loopholes these already-toothless proposals when the cameras are elsewhere).
Too bad we don't have a political-party to hold him responsible for continuing this biggest threat to the nation's future (as the Dems and the Republicans are a collective joke that only pretend to represent different sides).
They have it gamed so well by calling him a Socialist (of all things). As Jon Stewart pointed out about the 90 Trillion in unfunded derivatives, this is a threat to the whole shebang (and no one seems capable of addressing it to save the free-market from itself).
No wonder China is convincing other nations to follow their authoritarian model. If only Obama would do like FDR and save Capitalism (instead of being cowed by the rhetoric of the right).
I would also like to point out that this whole article is based on the assumption that the interest of big banks and the American public are in opposition. That is absolutely not true. It is in our country's best interest to allow the banks to return to a healthy and vibrant place while being regulated for systemic risk. I believe that Bernanke knows this and is acting in the best interest of country in trying to ensure that regulation is appropriate and doesn't cripple the financial industry's ability to continue to deliver on their purpose of providing liquidity to the market (obviously in a responsible way).
So easy to point fingers and judge, but what have you done lately?
Finally, the works "government insured" were thrown around a few times in the article. Guess who pays for FDIC insurance? The big bad banks do.
2. Do you even know HOW Obama/Bush and Bernanke kept the financial system afloat in 2008; well, until you then, you ought to keep quiet about how wonderful Obama is. I will give you a hint as to one of Bernanke's "courageous" actions: he printed up a bunch of fresh dollar bills and traded them for sub prime loan securities and CDO swap deals--now we have garbage backing up the U.S. dollar. Bernanke used the term "swap window" to refer to these kinds of deals.
3. Guess What? Bernanke just announced last week that he was opening another swap window for Europe.. Obama and Bernanke are both praying that you don't know what that means, but hell, I'll just tell you because I enjoy spiting Wall Street shills like them: Bernanke is about to print up new dollars and trade them for worthless Greek bonds, further debasing our currency.
Obama and Bernanke traded the financial crisis of 2008 for the currency crisis that we are about to experience in 2010. Now, I hope that you will know who are the correct people to blame when the world economy falls apart in a few months.
2. What Bernanke did was a very common Fed response to a credit crunch. It is called open market operations and it takes on assets from the banks. All of the CDOs were investment grade and already written down. The fed will probably make money on them. When the overnight rate is 0 and there is still a credit crunch, what else do you suggest they do to pump liquidity into the system.
3) I am not up to date on this decision, so I will ave to think about it more.
We will not experience a currency crisis
I also agree that by dampening a crisis the potential outcome can never be know, however that argument works equally in either direction. There is no doubt that Bernanke did sell a view of epic catastrophe to congress and in so doing sold it to the public as well. I would offer that you bought what he was selling.
There are certain things that can't be debated though. Bonuses were handed out to people who not only didn't perform well, but actually caused the problem. That doesn't sit well with me. Bernanke should have done something, but in that very simple regard should have protected the public's interest, but he did not.
The irony of all this is that it wasn't Germany or Russia or even Bin Laden that brought the Western World to its knees...It was the good ol US Congress...Bin Laden would have been better off making a deal with the congress or wallstreet...He would have been more effective...
Its also Ironic how the media goes after hounds BP over every little detail as they try to find someone to blame & hold accountable as they keep the pressure on...Had they held those responsible for the meltdown in the same manner, maybe those bankers would never have gotten those bonuses and maybe those representatives wouldn't be so eager to stand against reform...
But if what you write is true (and it seems straight forward enough to leave very little doubt), I really don't like what I'm seeing.
I would very much appreciate more details on who Bernanke is, and what will his "Grand Design" be.
(Besides trying to avoid world economic collapse)