Fiatch

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These clips span more than four years.  I ask again: Was the Fed Chairman lying or just totally wrong?

In either case, should we make the financial system yet more fragile and inflexible by adding to the immense power held by this position?

Btw, if you have friends who would like to follow intelligent market analysis and economic insight, refer them to SpongeBob SquarePants before you direct them to CNBC.  Ugh.

The value of CNBC derives from two sources:

1. Seeing what smokescreens and con games are currently in play; and
2. Catching the occasional appearance by Jim Rogers, Marc Faber, Peter Schiff, Dr. Ron Paul, James Grant, et al.

Reportedly, The Federal Reserve has already begun monetizing the US Treasury’s debt:

“The speed of the shell game is accelerating.”

Chris Martenson (via Karl Denninger and Robert Murphy)

What’s the term for making promises you know you cannot keep?  These days, it’s apparently about 7 years at 3 1/4%.

[photo source]

“I expect there will be some failures” of smaller banks. “Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”

Federal Reserve Chairman Ben Bernanke, February 2008

Was the Fed Chairman lying or just totally wrong?  In either case, should we make the financial system yet more fragile and inflexible by adding to the immense power held by this position?

Btw, have you noticed how often commentators mention that Bernanke is an “expert” on the Great Depression?  If I had a dollar for every time I’ve heard that bit, I’d exchange all that paper for gold.

Do we not con ourselves with such talk?  It is naturally somehow comforting to believe that our problems will lessen or disappear because some single expert can devise the solution to save us.  As with all myths, though, reality differs from the tale.

While it is of course important that officials represent the best and the brightest, it is folly to believe that any central planners can be so smart as to know how to allocate scarce resources better than markets.

Hayek’s concept of “the fatal conceit” nails it:

The belief that one person or group, no matter how smart, can know how best to allocate resources is a classic example of what the Nobel Laureate economist F. A. Hayek called “the fatal conceit.”

In Hayek’s view, what enables businesspeople to make good decisions about the allocation of resources is not that they are smarter than other people. Instead, two other factors are key.

First, businesspeople have very detailed knowledge of their particular corners of the world. They know where resources are, where their customers are and what they want, and have the experience of knowing how to deliver it. This is not about being “smarter,” but about having local and contextual knowledge that others don’t have.

Second, entrepreneurs develop this knowledge by making use of the signals provided by prices, profits, and losses. Prices guide entrepreneurial decision-making by enabling them to formulate budgets and estimate the profitability of the various choices they might make.

Profits and losses provide information after the fact about how well they chose. Profits signal them to continue, while losses tell them that resources need to be reallocated. By acting on the basis of that information, each entrepreneur contributes to the overall improved allocation of resources.

The lesson from Hayek is that when the rules are right, markets are collectively much smarter than any individual or group within them. This is the lesson that the Obama administration has utterly missed.

Let us have new financial regulation.  Let us have heath-care reform.  With both, let us empower markets and reduce the role of command-and-control central authority.

[Chairman Bernanke photo and quote source]

The Federal Reserve serves the interests of its private members.  It has done tremendous damage and represents an ongoing threat.

Turning over its power to the US Congress strikes me as a horrible idea.  Letting corrupt politicians run monetary policy seems worse even than allowing corrupt private interests to do so.  Consider “Fearing Ron Paul” by Robert Wenzel.

If only there were some alternative.  Sigh.

Life Imitating Atlas as the Fed focuses on PR.

“Dollar Caught in Catch-22: Default or Debase?” via Minyanville

Dr. Ron Paul engaged Fed Chairman Ben Bernanke May 5, 2009.

This man is still employed.

If you have friends who still do not understand the role of the Federal Reserve Chairman, show them this video.  This girl demonstrates what the post entails.

Of course, she’s an amateur.  Creating four simultaneous bubbles is relatively easy.

Last September (see below), Marc Faber described the preeminence of Chairmen Greenspan and Bernanke in this realm:

Well, if you look back at 2002 to 2007, we have an unprecedented historical asset bubble in the sense that even in the gold standard you had bubbles, but they were concentrated in one sector of the economy.  But Mr. Bernanke has managed to inflate everything: real estate, equities, commodities, art prices, any kind of worthless collectible, and even bond prices.  This is unprecedented, and this is a major achievement of your Fed Chairman.

And now, the only asset that during that time went down is the US dollar.  Now, international liquidity is tightening, and I think all asset prices will fall one after the other like a domino but that the US dollar should be supported.

In point of fact, Mr. Bernanke is quite excellent at his job.  It’s the job that’s the problem.

What if the government is disobeying law?  What if this whole show is an illegal farce? What is worse than failure?

Consider “The Underlying Fraud In Banking” from The Market Ticker. Lest you mistakenly assume this article presents fringe conspiracy theory, check the intro:

Ok tinfoilers, this is not what you think it is; I’m sure many of you came here and started to read because you thought I was going to rant about fractional reserves or the lack of “sound money.”

Sorry, no dice.

No, I’m going to talk about the inherent fraud over the last five or so years in the housing (and other lending) markets, and it is NOT where you think it is.

The author meticulously outlines fraudulent lending practices and securitization schemes as well as regulatory failures, all apparently against the law. Read all these details for yourself. This is important stuff.

After walking through the mortgage-securitization-oversight mess, the author continues:

Got it?

This is really pretty simple - there must be a leverage limit and the OTS, OCC and FDIC must enforce that limit to insure that banks do not fall into being undercapitalized.

Further, no bank may make a capital distribution (pay a dividend) or pay a management bonus if before or after doing so it would be undercapitalized.

Where has this supervision been?

Note that Geithner and President Obama have continued this nonsense, and Geithner is one of the people personally culpable for ignoring the law in the first place.

What will stop this blatant lawlessness?

Certainly not Congress. Ben Bernanke was before Congress this last week and guess what: Not one question about the law compelling him (and the other regulators) to act before banks become insolvent.

Now President Obama has released his budget which provides for even more bailouts - a potential $750 billion “second round.”

Yet the law under which we are supposed to operate in this country makes clear that this sort of policy decision is directly contrary to statute; instead, the law by its black letter requires banks to be taken into receivership before they become insolvent.

And oh by the way, the regulators are not allowed (by that law) to ignore off-balance sheet obligations either. Uh uh - they are required to take action before the insolvency occurs irrespective of how - and they did not.

In fact the banks have self-declared their non-compliance with that statute as noted in The Ticker right here (“Our Tier 1 Ratio Is Strong!”) once again last night!

This “self-declaration of insolvency” in fact goes back to Washington Mutual’s original1Q 2007 report that set me off and started me writing Tickers back in April of 2007!

We are in fact talking about what amounts to nearly two years of this nonsense to date, and through the fall of 07 into the early part of 08 the MLEC garbage (and friends after it went down in flames) makes clear that regulators, including Treasury and The Fed knew exactly what the state of these firms was and willfully ignored it.

There is not a policy “decision” allowed here guys and dolls - this is black letter statutory language that compels a certain set of actions - statutory language put in place after the last time we were here (the S&L crisis) that was intended to prevent the damage ($150 billion) that was done to our nation the last time!

This time around we’re at $750 billion with another $750 in “placeholders” in the budget - that is, fully ten times as much damage, and yet the black letter law of the land says that this approach is directly contrary to the statute.

What are the implications of this allegedly criminal behavior?

..the underlying reason we have seen a market collapse is not due to economic recession.

Recessions are not “abnormal”; they come about due to the human condition - people are both too ebullient and too fearful. “Animal spirits” include both reaching for a brass ring and cowering in the corner, contrary to the Wall Street myth that such is only a “positive” thing.

No, we have seen this collapse because “The Bezzle” has reached into literally every corner of our financial system and government and nobody has been held to account.

When the S&L crisis happened only a few people went to jail, even though thousands committed felonies. When the Internet Bubble blew up only a few went to jail even though it is trivially easy to identify thousands who flatly lied about growth metrics - and that’s just one place they were lying in their annual and quarterly reports.

As we have continued to tolerate “The Bezzle” it has become clear to people in all financial areas that they can lie and get away with it. That the odds of being caught, say much less prosecuted, are so trivial that it’s definitely worth the risk.

So how does it end?

This - up and down the line - from the intentional lack of prosecution to willful refusal to follow the law to utter stupidity in criminal sanction - is the essence of “The Bezzle” and it is why capital has fled.

It also, however, points out an essential truth about any future recovery in our economy and banking system - it won’t happen until “The Bezzle” is muzzled to a significant degree.

It is too much to expect that we will ever get rid of “The Bezzle” entirely. That’s simply not going to happen - there will always be cheats, liars and frauds.

However, until those who commit such crimes and blatantly ignore the black letter of the law are held to account on a consistent basis, thereby destroying the belief that this sort of criminal activity is “free of material risk”, there can be no meaningful recovery of economy progress.

We can either demand and obtain this change in policy and attitude now as Americans, or the market will do it for us by continuing to tank and forcing these firms and examples into the open where they are destroyed. The unfortunate reality, however, is that the latter course - refusing to face this and allowing the inevitable market implosion to do that which we refuse to through law enforcement - will also take down tens of thousands of sound companies who also see their capital base removed while their obligations remain.

Bluntly put - Congress and The Administration must, right here and now, compel these regulators to follow the law or remove them from their positions of power.

This had to be done two years ago and it still needs to be done.

There is no way to stop the bleeding in our capital markets - both credit and equity - until this occurs. It will happen; we are only choosing the means and where we want to confine the risk to.

If we continue down the path we are on now we are risking the meltdown of the United States Federal Government;

How’s it looking today?

The Fed knows that it is holding a bunch of crap and is threatened by the “value” (or lack thereof.) If they shove that off onto Treasury then the detonation of over $1 trillion in bad debt will occur on the government’s balance sheet, which will (1) cause a dramatic move upward in Treasury interest rates, (2) translate into all other forms of debt and (3) result in exactly the same collapse that happened in the 1930s - but it will be far worse in degree, since we are far more in debt now than then.

As things stand today I have no confidence whatsoever that The Obama Administration has any intention to act according to law any more than George Bush’s Administration did.

As a consequence until and unless the government’s position and actions change my “base case” economic forecast must remain bearish and over time continue to grow more bearish; without the 2/3rds of all capital that is private in our economy, even with supplanting of that capital from the government (to the extent it is able) I believe we are looking at a potential 30% contraction in GDP from top to bottom and unemployment reaching north of 20% on U-6 (broad form), with the very real possibility of a 20% headline number.

We are headed for an Economic Depression worse than the 1930s at Warp Speed folks, and it is not going to happen because of “fundamentals” or even because “the credit markets froze up.”

No, it is going to happen because both the Bush and Obama administrations are intentionally, with malice aforethought, ignoring the black-letter law of the land for the purpose of covering up their own malfeasance and misfeasance, and neither political party or the American People will get off their fat asses and demand that it be stopped.

Your job, prosperity and wealth are on the line America - right here, right now.

This is not some abstract failure in the market - this is a series of actions that have been taken with the full intention of screwing you, by both Democrats and Republicans, so that a handful of robber barons masquerading as capitalists do not have to face the music for their acts.

How bad can it get? Have a look at these charts folks over at Calculated Risk. They’re sobering - and if the lawlessness does not stop we are just getting started.

Is it possible that a theft of this magnitude is being perpetrated right before our eyes in the United States of America?

What builds trust?  What destroys it?  What store of value is safe?  What happens next?

The WSJ reported on February 27 that “US To Take Big Citi Stake and Overhaul the Board:”

As a condition, the government is demanding that the New York company overhaul its board of directors, the people said. Treasury will call for Citigroup’s board to be comprised of a majority of independent directors. Chief Executive Vikram Pandit is expected to keep his job under the agreement.

The government will convert its stake only to the extent that Citigroup can persuade private investors such as sovereign wealth funds do so as well, the people said. The Treasury will match private investors’ conversions dollar-for-dollar up to $25 billion.

The size of the government’s new stake will hinge on how many preferred shares private investors agree to convert into common stock. The Treasury’s stake is expected to rise to up to 40% of Citigroup, the people said.

An agreement would mark the third time since October that Washington has come to Citigroup’s rescue. Twice last fall, the government pumped a total of $45 billion into the company, and also agreed to protect Citigroup against most losses on $301 billion of assets. That gave the U.S. a 7.8% stake in the company.

The WSJ reported on February 25 that “Bernanke Again Pushes Back Against Nationalization:”

In response to a specific question about Citigroup Inc.’s current woes, Mr. Bernanke told the House Financial Services Committee, “We will see how their test works out and we’ll see what evolves.” Nationalization, he said, misses the point.

Asked if the Citigroup could end up nationalized, Mr. Bernanke said he doesn’t see that happening. “It may be the case that the government will have a substantial minority share in Citi or other banks, but again we have the tools… to make sure that we get the good results we want in terms of improved performance” without the negative effects of a bankruptcy process or seizure, which would be disruptive to the markets, Bernanke said.

He added that he defines nationalization as the government taking over 100% of a firm and zeroing out stock. “I don’t think we want to do that,” he said. “I don’t think we need to do that.”

So, it’s not “nationalization” according to the Fed Chairman unless one government controls the entire 100%? How convenient.

The US will match other sovereign wealth funds dollar for dollar to acquire up to a 40% stake in Citigroup for the Feds.  Call it what you will, e.g. call it “Unicornization,” but Citigroup is a private organization no more.  It’s been nationalized.

President Obama lies to our faces about earmarks with easy self-confidence.  His Fed Chairman follows his lead to openly proclaim with confident detachment utter nonsense.

Do you trust these people?  If so, why?  Without question, they are lying constantly.  You cannot believe the words.  That’s not possible if you are honest.

Despite the lies, do you believe in the goodness of the intent behind the lies — that these leaders, so-called, are deceiving us with a wink and for our own good?  Is that your view?  Have you even thought about it?  Or are you also complicit in all this dishonesty by actively deluding yourself?

On a related note — do you believe the dollars in your pocket?  If so, why?

Have you ever bought a gold coin?  Have you held a bar of silver?  I relive my first experience each time I acquire more.  Holding these items always strikes me as an odd thing.  What is different?  Why do these objects seem special?  What is this feeling?

Oh. This is money.

The other junk we keep in our pockets represents the lies of our leaders rendered into print in such a manner that we can all participate in the delusion.  For Americans, it’s been a wonderful setup for decades because the whole system is so ruthlessly rigged in favor of the US dollar.  What happens if this massive shared dream ends?

What if the ideas of the Austrian school of economics are correct?  If so, what happens next?

What builds trust?  What destroys it?  What store of value is safe?

“This is a crisis of western finance with roots in the excessive leverage of the banking system.” Let go the myth of Lehman Brothers and the Bailoutapalooza.

Niall Ferguson offered these great lines a month or so back:

• The Great Repression.

• Do you want The Bank of Amtrak?  Is that where we are headed?  A bank run by the IRS?

• The bad bank already exists.  It’s called the Federal Reserve.

‘What Is Worse Than Failure?” — the latest edition from Citigroup via Mish.

Citigroup is in deep trouble. Its share price is $1.95 and the market is recognizing what I said a year ago: “Citigroup Is Insolvent”. Of course it is not just Citigroup that is insolvent, the entire global banking system is insolvent.  Nonetheless, Citigroup pretends otherwise.

To hell with Citigroup. Bust it up and sell it. It’s the best possible outcome for everyone involved.