Friday, September 3, 2010

Mr. Bernanke's Testimony

How important was Ben Bernanke’s testimony given to the Financial Crisis Inquiry Commission?

Well, the New York Times reported it on page B3 of the Business section and the Wall Street Journal reported it on page A6 of its first section. Ho hum!

This more or less puts the testimony in the class of Alan Greenspan’s efforts to recover his reputation once he stepped down from the position Bernanke now holds.

The important thing, to me, about the testimony is what it says about one of the leaders of economic and monetary policy in Washington, D. C. these days. I have just commented on this leadership recently.

“Economic leadership of the United States currently rests in the hands of individuals that were an instrumental part in the excessive credit inflation of the 2000s. Ben Bernanke was a member of the Board of Governors of the Federal Reserve System and a vocal supporter of Alan Greenspan’s move to keep the Federal Funds target rate around one percent in 2003 and beyond, having joined the Board in 2002. Timothy Geithner became President of the Federal Reserve Bank of New York in 2003. This position has a permanent vote on the Open Market Committee, so that Geithner was in on all votes during this time as was Bernanke. After a short stint as the Chairman of the President’s Council of Economic Advisors in 2005-2006, Bernanke became Chairman of the Board of Governors of the Federal Reserve System in February 2006. Geithner moved from the New York Fed to become Treasury Secretary in January 2009.

These two leaders, arguably the most important leaders in economics and finance in the United States government, have held top positions and been voting members of policy boards during one of the most un-disciplined times in United States history. And, their lack of discipline continues, as is evident by the speech given by Bernanke last Friday at Jackson Hole, Wyoming. The only policy that these two people follow is one of throwing everything they can at a problem and seeing what works.

The problem is that their interest rate efforts in the 2003 to 2005 period led to a housing bubble and stock market bubble which resulted in the collapse of the sub-prime market in 2006 and 2007. Their response to this break-down resulted in the financial disaster of the 2008 to 2009 period when the government threw just about everything it could at the disaster in order to try and avoid worse. We are now in 2010 and the evidence of the lack of discipline is still around us. Consumers are plagued with debt fostering record numbers of foreclosures and personal bankruptcies. Businesses are overwhelmed with debt, not only with high-yield bond debt but also with commercial real estate loans and foreclosures and bankruptcies are also high in this area. State and local governments are piled high with debt and we find that states and cities are cutting back on the most basic of services including the release of fire fighters and police. And, the federal government faces budget deficits that some estimate will result in $15 trillion or more in additional debt over the next ten years.”

And, Mr. Bernanke is so disingenuous as to say about letting Lehman Brothers fail: I wasn’t “straightforward” in my statements about the condition of the company. In his view “Lehman didn’t have enough collateral to support a loan from the central bank.” That is, there were no choices!

Then Mr. Bernanke says, “This is my own fault, in a sense...”

What is this “in a sense” business! Either you did or you didn’t!

Going on, “I regret not being more straightforward there because clearly it has supported the mistaken impression that in fact we could have done something. We could not have done anything.”

Thank you Mr. Greensp…whoops…Mr. Bernanke.

I have yet to hear anything, from Mr. Bernanke, Mr. Paulson, or anybody, that has changed my mind concerning that time back in September of 2008. My post on the events of that specific period is titled “The Bailout Plan: Did Bernanke Panic?” (See”

This is the leadership we are now getting in Washington, D. C. Need I say more?

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