Posted on 03/30/2008 2:52:32 PM PDT by BGHater
WASHINGTON -- The cover of the latest issue of BusinessWeek shows Ben Bernanke in profile against a bright red and orange backdrop, pensively stroking his grey beard and looking remarkably like Vladimir Ilyich Lenin.
The imagery is intentional and pointed. From BusinessWeek to The Wall Street Journal and beyond, the U.S. business elite has awoken to the realization that the U.S. Federal Reserve Board, backed by the Bush administration, has embarked on a revolutionary course to save financial capitalism from implosion.
It isn't just about the Bear Stearns rescue, which Mr. Bernanke greased with a $30-billion (U.S.) loan. Mr. Bernanke's Fed has opened wide the central bank's vault, pledging nearly half its $900-billion balance sheet to the cause, while strong-arming other federally sponsored lenders to similarly flood mortgage markets with liquidity.
In just a few short weeks, U.S. authorities have given up on the long-held notion that financial markets can self-correct. Government intervention is back in vogue like it hasn't been since the dark days of the 1930s.
"Comrade Ben is determined that there will be no financial meltdown and no depression while he is in command," economist Ed Yardeni wrote to clients. "Given the initial reaction [on Wall Street], I suppose this means we are all financial socialists now."
The revolution may be just beginning. From Congress to the U.S. presidential campaign trail, lawmakers are promising a vastly expanded government presence in financial market regulation.
During a major economic speech yesterday in New York, Democratic front-runner Barack Obama called for a sweeping modernization of financial market regulation to address the problems exposed by the housing meltdown.
"To renew our economy and to ensure that we are not doomed to repeat a cycle of bubble and bust ... we need to address not only the immediate crisis in the housing market, we also need to create a 21st-century regulatory framework."
Mr. Obama then outlined several key reform principles, including direct Fed oversight of all institutions taking its loans, minimum liquidity and capital requirements for investment banks, enhanced rules for "complex financial instruments," confronting conflicts of interest at bond rating agencies, enhancing risk management at banks, and regulating financial institutions for "what they do, not what they are."
Earlier this week, Treasury Secretary Henry Paulson, a former Goldman Sachs chief executive, said that if big Wall Street investment banks can run to the Fed for emergency lending, they must also expect tighter regulation. "The world has changed," he acknowledged.
The Democrats, which polls show are poised to consolidate their hold on Congress in the November election, are already asking pointed questions about the Fed-brokered Bear Stearns fire sale. The Senate banking and finance committees have each demanded more details from Mr. Bernanke and James Dimon, chairman of JPMorgan Chase, which is acquiring Bear Stearns.
Mr. Bernanke is now caught between critics on the political right, who argue he's gone too far in bailing out Wall Street, and those on the left, who say government should be doing much more to help the millions of individuals hurt by the housing crisis.
Peter Wallison, a former U.S. Treasury official who advises the U.S. Securities and Exchange Commission on improved financial reporting, said the hasty Fed bailout of Wall Street is an open invitation to more regulation.
"The Fed's actions have summoned the would-be regulators from the vasty deep, and if they succeed in turning securities firms into wards of the government, as the banks have become, we will have much less innovative, profitable, aggressive, competitive and successful financial system," Mr. Wallison warned in the latest issue of The American, published by the conservative American Enterprise Institute.
Just how much U.S. taxpayers wind up on the hook for all this is unclear. The Fed could wind up returning profits to the U.S. Treasury, or it could take a major hit.
Investment banks are eagerly embracing the Fed's largesse, according to figures released yesterday. Broker-dealers borrowed $37-billion from the Fed's 2.5-per-cent discount window on Wednesday, $8.2-billion more than the previous week.
Guaranteeing Bear Stearns' portfolio of troubled investments sets a bad precedent by transferring potential losses from the market to taxpayers, complained Allan Meltzer, a professor of political economy at Pittsburgh's Carnegie Mellon University.
"I do not believe the current system can remain if the bankers make the profits and the taxpayers share the losses."
Others, however, said Mr. Bernanke may have saved the U.S. financial system from the cascading series of failures that marked the Great Depression of the 1930s.
"Bernanke may very well turn out to be a hero here, when everything is said and done and the recovery comes," Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton business school in Philadelphia, told the school's online magazine.
Crank up the currency printing presses, the big Gov’t spenders are in control and they are not Dems.
Bernanke, funny to the Chinese and anyone else holding almost worthless dollars Bernanke might someday become “Burn Yankee”
There is little doubt that Bernanke prevented, maybe temporarily, a catastrophe. However, the price will be very high.
With laws like Sarbanes-Oxley on the books in the US, the free markets will certainly find a home elsewhere.
Some people think I’m nuts, but I’ve been saying for quite some time now that it’s every American for themselves these days.
Plan accordingly, FReepers. ;)
the only thing worse than the cynical, shortsighted and deterministic mantra of the article is the even more ridiculous “amens” that follow.
Although the headlines read that there were no golden parachutes for the execs, that's hiding the fact that they will still walk away with millions--funded by the American taxpayer, many of whom can only dream of a million.
The costs should lie more directly with those who stood to benefit. Do you think the American taxpayer (via the Fed) should cover my gambling losses if I head to Vegas?
Interesting that you should say that, with a handle of "the invisible hand"...something that was removed from the mix by the Fed.
It does not really suprise me that the feds are gonna get into stricter regulations on wall street. It should not bother the wall streeters either, since they are the ones that caused their own problems to begin with.
They gotta take a dose of salts(epsom I hope)too.
Watch out the Bush Bots are going to come after you. Bush could declare he was a Marxist, and they would still back him up. The sad truth is that they are loyal to Bush and the Republican party instead of Conservatism and what made our country great.
That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
Maybe its time to do away with the Federal Reserve (once again)and follow the Constitution? End its middle class grabbing policies and inflation hidden tax.
Article 1, section 8, of the Constitution reads:
...The Congress shall have the Power.....To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;....
Nowhere in that document does it give Congress the authority to delegate this responsibility to anyone, much less a bunch of private bankers.
I’m not a Ron Paul fan but sometimes he nails it:
http://www.govtrack.us/congress/billtext.xpd?bill=h110-2755
Are you sure?
When the Fed becomes an investor/owner in Bear Stearns, then yes, the hand has stopped being invisible.
IMO the ONLY thing he;s done is pursue the War and even that has been so badly bungled it is infuriating. Again, IMO, a complete loser who, along with many other short-sighted, greedy Reps, squandered a unique opportunity and we are now all so much worse of for it.
how about a tin-foil hat thought???
The whole US Federal deficit/debt + the encouraged Consumer overspending (credit disaster) has all been intentional and engineered to cause a major US economic collapse, thus putting the fascists in a position to take over, just like in pre-WWII Germany...
If the alternative is world wide depression, yes.
What do you mean by that exactly? I’m not asking in a critical way, just curious really. Are you expecting TEOTWAWKI soon?
It’s just that the deck is stacked against taxpayers, any way you slice it. And one should always be prepared for the worst, no matter what the economy.
People need to educate themselves, and fast, about how banks and “The Fed” truly operate. They’re not in it for OUR benefit; not by a long shot.
It’s the standard advice of live below your means, pay as little in taxes as you’re required to by law, start a small business on the side for the tax breaks, save more than you earn, stay out of debt, invest for the long term, etc. When PREPARATION meets LUCK, wonderful things can happen. :)
That way, when TEOTWAWKI does come, you’ll be in a stronger financial position than the dope living next door to you in debt up to his eyeballs, nothing in cash reserves and no ‘basic life skills’ to help him get by while things shake themselves out.
Does this scenario sound familiar? I’m hardly a ‘Doom and
Gloomer’ but we ARE destined to repeat History if we don’t learn from it. And Government is a slow-to-respond and stupid beast, at best:
“In 1920, Ben Strong of the US Federal Reserve Bank of New York raised interest rates sharply to prevent inflation. This caused a recession and the stock market to fall. Once hard assets like commodities and real estate were no longer rising in price, money began to pour into stocks and bonds. The Dow started climbing from its low at 63.90 in 1921 and rose 150% over the four years to 1925.”
And then:
“It was suddenly cheaper to borrow money to invest in the stock market (called margin investing). Since the Dow had risen steadily since 1921, “small investors leapt giddily into the stock market in large numbers”. The margin requirement at that time was only 10%, meaning you could buy $10,000 worth of stock with only $1,000 down, borrowing the rest. With artificially low interest rates and a booming economy people and companies were more apt than ever to invest in grandiose business expansions and over-priced stocks. Mergers and acquisitions soared.”
Read the rest at:
http://www.shambhala.org/business/goldocean/causdep.html#Whatcaused
I was raised by Depression-Era Grandparents who came through it relatively unscathed, compared to others of their era. This stuff was drummed into me every day of my life, so to me it’s second nature to be fiscally conservative. However, ask your current 20-something ANYTHING about the monetary history of the United States, and you get nothing but a blank stare.
I don’t have a crystal ball, but a lot of the pieces are in place for a repeat performance. And we have such a high number of idiots in Congress right now, it’s getting to be a perfect storm.
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