Thursday, February 26, 2009

Ben Must Go

"I feel reasonably confident that we'll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that."

-Ben Bernanke on Bear Stearns, Congressional testimony, 4/2/08


U.S. taxpayers may be stuck with losses on $30 billion of Bear Stearns Cos. assets owned by the Federal Reserve even though the central bank has said otherwise, according to Robert A. Eisenbeis, Cumberland Associates Inc.’s chief monetary economist.

“There is no prospect for a profit on the assets,” Eisenbeis wrote in a report yesterday. “Losses are mounting.”

“The transaction was not structured with adequate over-collateralization to protect the taxpayers from losses,” based on the risks associated with housing-related assets at the time, Eisenbeis wrote.

-Bloomberg 2/4/09


I keep wondering what one has to do these days to be deemed unfit to run monetary policy. Presiding over a potential depression and one of the worst bubbles and collapses in world history isn't enough, I guess. I've found that those who defend Bernanke as having inherited Greenspan's mess are most likely to have first heard Bernanke's name on the day Bush nominated him. But he's played an important role in shaping monetary policy, the regulatory environment, and the financial system itself for many years. And as I've noted before, he voted for every one of the FOMC's devastating decisions to keep the Fed funds rate at 1% during the crucial 2003-2004 period. Bernanke has become the bearded elephant in the room. As one of the intellectual architects of a failed system, he cannot credibly stand alongside Tim Geithner or other administration officials while they cite the damaging policies of the past eight years.

His continued employment is a symbol of new standards for accountability and performance. Apparently the financial system has become so complicated that simply being up to speed on its intricacies is good enough. This is why someone who didn't pay taxes now oversees the IRS. (Wall Street executives have started reading from the script: "Who else knows our business well enough to run it right now?") Remember who nominated Bernanke. He's a holdover from a group that includes Bernie Kerik, Harriet Miers, Alberto Gonzales, Heckuva Job, and Chris Cox. He's been complicit in mistakes that have been far more destructive than any made by Cox. What would have been the reaction had Obama asked Cox to stay on as head of the SEC? Bernanke should be getting his morning coffee at the Princeton Starbucks while Congressional investigators sort through his email and other records to get a more detailed picture of his role during the bubble years.

Obama can't remove Bernanke, but he could make it clear privately that he would like him to step down. One of the goals of policymakers right now is to stabilize financial markets. A Bernanke resignation -- depending on who replaced him and how the public announcement was handled -- could send the Dow up 500 points. The alternative is to suffer through the rest of Bernanke's term while a soft-focus media runs stories about what a nice guy he is and how he aced his SAT's forty years ago. It could be a long summer.

19 Comments:

Anonymous Anonymous said...

While i fully agree with you that Bernanke should be asked to resign, i hate statements like this:

"could send the Dow up 500 points"

I wish monetary/fiscal policy were less worried about the freakin' dow and more worried about real measurements of the economy, such as real wages, inflation, employment, etc.

The economy is supposed to drive the financial markets, not the other way around.

hankest

2/26/2009 6:42 AM  
Blogger Spider said...

Forgive my ignorance, but why can't Obama replace Bernanke anytime he wants? Is Bernanke on a set term of years?

2/26/2009 9:22 AM  
Anonymous Anonymous said...

Spider, they are appointed for 4 year terms by the president. Bernanke's is up in 2010.

As far as i know, there's no legal mechanism to boot the chair for his policies (if there were Bush the first would have booted Greenspan. oh if only), but with what's going Obama could quitely ask him resign, and he would - unless he's completely insane, which is very possible.

hankest

2/26/2009 10:52 AM  
Anonymous Anonymous said...

My question would be who replaces him? Who does know the system well enough without being too closely tied to current people and policies? Volcker's too old.

2/26/2009 11:46 AM  
Anonymous Anonymous said...

How bout Mish? Schiff? Denninger?

2/26/2009 12:12 PM  
Anonymous Anonymous said...

a fella can dream, can't he?

2/26/2009 12:12 PM  
Blogger Spider said...

Hankest, thanks for the information there.

As far as who to replace Bernanke, I officially nominate TCR!

(Only half joking there.)

2/26/2009 1:43 PM  
Anonymous Anonymous said...

I'm one of those folks that wanted to give BB a chance once he took the reins, hoping he'd quickly move away from the Greenspan Put, etc.

Instead we've learned he's simply arrogant. Perhaps even more than the maestro himself.

Anyhoooo, he totally lost me when we saw a reaction shot during questions coming from Ron Paul (about a year ago). As Mr Paul was talking, Chairman Bernanke was busy exchanging smirks with various members of the panel (they all treat him like he's nuts). And he did it again today. (The thing is, like him or not, Ron Paul has been one of the few government officials that has been all over this crisis even before anybody called it that.) You'd think Bernanke might sit up and show some respect...

2/26/2009 9:31 PM  
Anonymous Anonymous said...

Why replace him with anyone? I say take it one step further and abolish the damn Fed.

2/27/2009 12:36 AM  
Anonymous goldhorder said...

Don't knock Bernacke. He is still correct. Ron Paul is a complete drooling moron as far as the Obama crowd and Ivy League elite are concerned. The US masses do the elites' bidding. When Ben Bernacke smirks at Ron Paul...it isn't because he thinks Ron Paul is wrong...it is because he thinks Ron Paul is a Fool for thinking the American Public can tell the difference. They can't. They won't. The American Public do what their TV sets tell them to do. What do you think public education is for? That is why I buy Gold...even when it is 1000 dollars an ounce. LMAO.

2/27/2009 1:30 AM  
Anonymous Anonymous said...

Where was the Dow when Bernanke took office?

2/27/2009 6:51 PM  
Anonymous KAIMU said...

ALOHA !!

Chapter One, The Lesson ... THIS IS THE VERY FIRST SENTENCE IN THE BOOK ... "Economics is haunted by more fallacies than any other study known to man. This is no accident ..." Economics 101, by Henry Hazlitt, 1946.

WHAM BAM ... NO ACCIDENT!

3/01/2009 4:16 AM  
Anonymous KAIMU said...

ALOHA !!

I'll go one step further ...

Don't just stop at Bernanke ...

ELIMINATE THE ENTIRE US FED!


Let them choke on their own FRNs for a CHANGE!

Someone please explain how our monetary lives have improved since 1913? Has the US Dollar purchasing power gotten stronger? I have a 1960 Denny's menu and a ham and turkey sandwich was 40 cents and a vanilla shake was 15 cents. In 1908 you could buy a new home about any where in America for $1800USD.

Please-e-e-e ... isn't that important to any one?

NOT ONE PERSON has complained about the "deflation" of the US Peso's purchasing power over the past 90 years yet a couple years of "economic deflation" and we're all worked into a PSYCHOPATHIC DITHER and spewing trillions of dollars out our asses while the banks keep feeding US TAXPAYERS bottles and bottles of FLEET MONEY ENEMAS!

Just exactly what is the "STRONG DOLLAR POLICY" that Rubin and Greenspan used to talk about?

Are the US private banks any less inept than their leader Bernanke? After all they are all one in the same!

Maybe its been the "money" all along?

AHHHHHH ...


ITS THE MONEY STUPID!


ALL OUR BEST THINKING GOT US HERE!

3/01/2009 4:39 AM  
Anonymous DanC said...

I try to educate people when we talk about the Fed because most people have no idea what it does.

Here is the sequence I present:

First, The US govt borrows money into existence from the Fed.

Second, The US pays the Fed 6% interest for that money.

Third, Question: When the Fed was first set up and the US borrowed its first dollar, where did that 6% interest come from? Answer: The US had to borrow some more from the Fed.

Fifth, It is impossible to ever pay down the debt and it keeps compounding.

Typically, they are stunned, angry as hell and want to abolish the Fed.

I then tell them to buy Silver & Gold while it is still available at such low prices.

3/02/2009 1:24 AM  
Anonymous Kilfarsnar said...

DanC:

I am a layman when it comes to the Fed, but I have been trying to educate myself. It is my understanding that the Fed rebates back to the government the majority of the interest it collects. It only keeps what it needs for operating costs (yes, the salaries and bonuses are huge). So the debt doesn't grow on that 6%. It grows more slowly than that. But it is still impossible for us to get out of debt under the Fed system.

Is that correct?

3/02/2009 10:21 AM  
Blogger TheEvilOne said...

This article from the RAW story makes clear that the sub-prime disaster was due to fraud intended to prolong the boom just a few more months as in the Galbraith quote with which The Cunning realist started this thread.

The instinct of the loosing gambler or embezzler is to double the bet, and if he does not have his own money with which to do so but there is money he can steal, then he will steal it. This is what the sub-prime crisis was about. Certain embezzling kleptocrats were in deep trouble before the lending to poor people who could not afford the loans or the property they bought with them began.

Who were the victims of the theft? Not the poor people who borrowed the money, they started poor and remained poor after they walked away from the unrepayable loans and the property that they bought with them. The victims were the fools who bought the AAA rated bonds based on the loans. The poor loan recipients were simply used as dummy loan receivers, non-existent but pretend loan recipients would have done as well.

Do not get distracted by the fact that the terms of the loans were abusive to the borrowers. This only mattered to people who borrowed for houses in which they already had equity and who inevitably lost that equity. For people with no equity that the loans were abusive does not matter. However the high interest rates after these ARM loans reset to higher interest rates deluded buyers of bonds based on the loans into seeing the bonds as spectacularly profitable.

4/06/2009 12:49 AM  
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