1) The Banks Bernanke Made Bigger are Still Bigger
When Bernanke was called to testify before the Financial Crisis Inquiry
Commission earlier this fall he declared that,
"The single most important lesson of
this crisis is we have to end the 'too big to fail' problem."
Now, he was the guy that had the power as
Fed Chairman to prevent the biggest banks from getting any bigger.
Yet,
during the fateful fall of 2008, the Fed approved JPM Chase's
government-backed acquisition of Bear Stearns and Washington Mutual,
Bank of America's acquisition of Merrill Lynch and Wells Fargo's
acquisition of Wachovia - making the biggest banks, bigger.
Existing size limits were ignored, allowing
these banks to surpass or hit the 10% concentration limits that had been
specifically designed to keep a lid on the 'too-big' notion. Similarly,
it was Bernanke's Fed that approved the re-classification of Goldman
Sachs and Morgan Stanley into bank holding companies - which they still
are - which made the prospect of major bank collapse all the riskier.
If he really wants to make the banks
smaller, keeping them bigger isn't the way to go.
2) The Great Depression Scholar Act is
Getting Old
Bernanke's big claim to economic godliness is that he studied the Great
Depression.
It just doesn't seem like he studied what
lead up to it or exacerbated it. Then, as still now, Wall Street banks
were overleveraged. They were sitting on too many risky loans. The Fed
was one of their key subsidizing lenders then, as now, and by the middle
of 1929, the Fed was worried.
So it began raising interest rates (this,
according to Bernanke, was the main problem he didn't want to repeat,
but he's oblivious to the fact that it was the reckless lending and
manipulating, not the interest rate moves, that did the most damage and
hid the most problems).
Back in the '20s, the NY Fed began extending more loans to the big banks
at the same time they were trying to restrain them from speculative
activities. Which of course didn't work.
Nicely asking banks not to
speculate with cheap money is like asking a hungry lion not to roar. The
Fed could have put on the brakes and checked the borrowing of the Wall
Street banks, but it didn't. It didn't during the years that Bernanke
first took the helm.
And, it doesn't now.
3) Even if Bernanke understood the causes
of the Great Depression, he didn't apply them
If he did, Bernanke would have put more blame where it's due. Banks did
not merely lend predatorily - they pushed, scooped up, repackaged, and
resold loans to the Nth frenzied degree.
You can't continue to blame 'the economy'
for that. (That's what people like Class A New York Fed director, and
JPM Chase CEO, Jamie Dimon do, while pocketing more profits from fees to
offset loan related losses.)
The underlying financial process has not
been terminated.
In 1930, the Fed pushed for the creation of, and funded, new 3-month
Treasury bills, to give banks another avenue to access short-term money
as their loans and trusts were imploding. It worked for the biggest
banks that had the most access. The smaller banks folded.
Sort of like what is still happening now.
4) Scholarly Talk Doesn't Equal Wisdom
Bernanke has avoided other current comparisons to the asset speculation,
faux bank evaluations and cheap money fuel that led to the Great
Depression, including the conflicts of interest in inherent to the
nature of the Fed itself - its directors are its main benefactors and do
dangerous things to keep themselves afloat.
Class A New York Fed director (and
simultaneous head of Citibank, predecessor to Citigroup) from 1927
through 1931, Charles Mitchell pumped $25 million into the market in
March, 1929, creating artificial demand to lift prices, for a second.
Six months later, the five most powerful bankers pumped a collective $1
billion into the market, while getting loans from the Fed. Now, bankers
didn't have to contribute to their own survival. The Fed and Treasury
footed the bill. As did we.
Bernanke uses academic garble to deflect attention from the Fed's
regulatory responsibility for monitoring the banking system, something
it demonstrably failed to do. When Time magazine dubbed him man of last
year, it and others gave Bernanke credit for stopping a second Great
Depression.
And sure, if our definition for a healthy
economic outcome is more unemployment, more foreclosures, more
individual and small business bankruptcies, and a higher stock market,
set of corporate profits and bonuses, then yeah - he was awesome.
If you
dump trillions of dollars into anything, it's probably going to perk up,
for the recipients and their record bonuses.
That's not wise, that's irresponsible.
5) The Fed is still subsidizing Wall Street
at Main Street's Expense
When the Fed initiated its asset purchase program in late 2008 and early
2009, it subsidized the declining value of those assets on Wall Street's
behalf.
It provided a market when there was none.
But, the Fed did nothing to examine the loans backing those assets. It
still hasn't.
That's why the foreclosure fraud that's
coming out now is only the tip of the iceberg of trillions of dollars of
securitized assets rife with fault and fraud. As I've said before, you
don't create $14 trillion of assets out of $1.4 trillion of loans,
without cutting a lot of corners.
Meanwhile, remaining Fed subsidies include:
-
$1.25 trillion of
mortgage-backed securities purchases
-
$175 billion of GSE debt
purchases
-
$900 billion of Treasury purchases
Banks have parked around $1 trillion of
excess reserves at the Fed instead of lending it since the bailout, and
have received thus, about $47 billion of excess interest for their
tight-fistedness.
6) Bernanke wouldn't know a bubble if he
were living in one
The Fed under
Alan Greenspan was certainly complicit in creating
bubbles, but Bernanke is more proactive at it, he threw much more money
at them.
When serious signs of loan problems were
surfacing as early as 2006 and 2007, the securitized asset market was on
a coke-bend. He did nothing. Since then, no reports have linked
continued loan decay and the massive asset pyramid partially funded by
the Fed still sitting on top of those loans to further potential
problems.
Bernanke has ingeniously hedged himself against his ability to do
anything about these sorts of asset bubbles. He has spoken at length,
and for years, about the difficulty of identifying or predicting asset
bubbles.
In his first speech after reconfirmation, he warned that
"monetary policy can be problematic to pop asset bubbles," that
constraining the bubble that was growing in 2003 and 2004 could,
"have
seriously weakened the U.S. economy at just the time when the recovery
from the previous recession was becoming established."
He truly believes in the power of asset appreciation, whether real or
artificially inflated, and that his job is not to screw around with
anything that 'looks' like it might be working. In Ben's world, the Fed
can do no wrong.
It can't pop bubbles, because that will
damage - the bubbles, ergo, following a policy of easy money and
securities purchases (and guarantees and facilities) is the only thing
to do to keep the party going.
7) The QE100 thing is dangerous
Two weeks ago, Bernanke stressed that the Fed latest cheap money program
isn't really quantitative easing, but rather "securities purchasing"
"Securities purchases work by affecting
the yields on the acquired securities and, via substitution effects
in investors' portfolios, on a wider range of assets."
Last week, Bernanke continued easing (sorry,
intended verb) away from the term 'quantitative easing' trying a
different description claiming,
"additional monetary policy
accommodation was needed to support the economic recovery and help
ensure that inflation, over time, is at desired levels."
Whether you call it monetary policy
accommodation, securities purchasing, credit easing, or Bob - it's
buying assets to artificially inflate prices and reduce rates, and it
has so far, not translated into similar help for
Main Street.
Bob may not cause rampant inflation given
the anemic environment, but it also doesn't push banks to lend more
money to small businesses to increase payroll and jobs, or to borrowers
to restructure mortgages. There is no magical job-creation tunnel
connecting the trading floors of JPM Chase or Goldman Sachs to the small
businesses of America. Besides, our economy doesn't work in isolation
from our banking system.
Thus, financial markets still suck up excess
money from whatever source they can get it (think: water in a desert)
and invest it in whatever seems like it will rise the most coffee, oil,
gold, whatever, causing those prices to spike and related products to
rise in tandem.
8) Ben isn't talking about the real causes
of Europe's problems
In the wake of the Irish bank bailout, Bernanke has been quiet. Perhaps,
he's happy that the pressure is off the US and focus is on the Euro
currency's survival and various national bailouts across the Atlantic.
But, while the notion of austerity measures is being pushed onto the
population in ailing countries like Greece and Ireland, the real reason
for their economic woes, is that national governments chose to ignore
and then to subsidize their banks rather than levy them with austerity
measures.
Irish banks were over-extended in real
estate loans and related speculation, as are Spanish banks to a far
larger degree. Local governments tried to help their banks with direct
aid, and when the banks sucked up their help and asked for more, all
hell broke lose.
As the leader of the world's biggest 'Central' bank, it would be nice if Bernanke presented a realistic take on this, or would somehow learn from
it.
Keeping banks as they are, and giving them
temporary federal relief problems inherent to global finance's structure
and rapaciousness will not create long term stability or stronger main
street economies.
9) China isn't an errant Child
Regarding China, Bernanke recently said,
"currency undervaluation inhibits
necessary macroeconomic adjustments and creates challenges for
policymakers in both advanced and emerging market economies."
Translation: China is artificially
undervaluing its currency and the rest of the world is having no fun
competing or trading with it. China could have responded, Yes, Ben,
exactly, but the irony would be lost on him.
Yet, issuing these sorts of couched demands won't work, absent some kind
of acknowledgement that our policies (regulatory, money-printing, etc)
are simply not attractive to other nations and don't promote faith in
our dollar. His willful disregard for other national interests is
accelerating an international turning away from the dollar and new trade
and currency partnerships like
the one between Russia and China.
The only incentive China has to play even a little ball is that it holds
such a high portion of its reserves in dollar denominated bonds. Dumping
all of them would deflate their prices too quickly, which would lose
China money.
That's why China is strategically
diversifying instead, creating more alliances with other trading
partners, and reducing the percents of dollar assets it holds gradually.
10) Words aren't enough
If Bernanke were truly a scholar of the
Great Depression and concerned
about the financial system (domestically or globally), he'd advocate the
enactment of similar laws created after the great depression, such as
Glass-Steagall.
That would entail a thorough autopsy and
dissection of the biggest banks, and an end to inflating the value of
securities and deflating the value of the dollar in the process.
Bernanke would also cease trying to convince us and the rest of the
world that this is all in our collective 'best interest.'
Unfortunately, without a lot of public
pressure and political will, we are stuck with his unrestricted actions
until 2020 or the next leg of this crisis, which will come sooner than
that.
