Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Bernanke the Crony Bureaucrat

Politics / US Federal Reserve Bank Mar 07, 2013 - 06:30 PM GMT

By: Fred_Sheehan

Politics

The bureaucrat is similar to the cockroach. Both "species adapt readily to a variety of environments, but prefer warm conditions found within buildings." Both "are among the hardiest insects." (Wikipedia's descriptions, for interested entomologists) Madonna (the exhibitionist) captured the nexus: "I am a survivor. I am like a cockroach, you just can't get rid of me."


Federal Reserve Chairman Ben S. Bernanke is the consummate bureaucrat. His pretense of expertise (economics) is of minor interest. As a thoroughly modern, American bureaucrat, he and his institution are seemingly indispensable. His is no different than the Department of the Interior; both constantly hire staff, convene committees, expand budgets (although, the Federal Reserve has no budget: the envy of its contemporaries), pass rules, mandates, laws, more rules, create more paperwork, and pass new rules regulating the new paperwork. In the Fed's case, it specifically expands money growth, credit facilities, regulatory responsibilities. The only possible change to the Fed's monetary policy is if it purchases $170 billion securities a month, from $85 billion now. It must never change course, but smother earlier contretemps by expanding the same.

In a different sphere, the Fed has refused to puncture Too-Big-to-Fail banking. In fact the Big Five banks hold a much larger proportion of bank assets today than when they became insolvent in 2008.

Over the course of human experience, the failure of Chairman Bernanke to foresee and dispose of the worst miscreants during the 2008 crisis would have ended his career, at the very least. But he is an American bureaucrat. A survivor. He snuggled in the Eccles Building, then issued statements that satisfied his handlers and spared him the roach trap.

Before the Financial Crisis Inquiry Commission, on November 17, 2009, Chairman Bernanke testified: "First, is that 'too big to fail' is a very, very serious problem, and one that was much bigger than expected. And I think it's absolutely critical that if we do one thing in financial reform, it is to get rid of that problem. It has to be possible for firms to fail...."

Note: Too-Big-to-Fail [TBTF] was the top problem. Bernanke told the FCIC to emphasize this. In fact, Simple Ben never intended to act. He may not have - and may not still - understand his aimlessness since he is a survivor. No matter what he does or does not do, we can not get rid of him. (Vice Chairman Yellen would be worse.) If you listen when he speaks, his is a world of processes - of agendas, of "measuring, monitoring, assessing activities" of "establishing rules", of "developing orderly authorities" of "moving in the right direction," but of never, ever succeeding at what he sets out to accomplish.

This does not matter. See for yourself in Bernanke's testimony before the Senate Committee on Banking, Housing, and Urban Affairs on February 26, 2013. The quoted portions concentrate on Too-Big-to-Fail. We could read his responses to bubble fears (he has none). Or, the Fed's exit strategy (we learned he doesn't need one). But, he identified TBTF as the "absolutely critical" problem to solve, three-and-one-half years ago.

Bernanke has not shied from the claim since. This is the lovely situation of the bureaucrat. He can bore his audience with procedural guidelines but never need accomplish a thing. Americans are suckers for 12-step-plans, white papers, blue-ribbon panels, think-tank studies, all of which could be launched to the Moon without being missed.

Bernanke spoke on his home turf, the campus of Princeton University, on September 24, 2010, two-and-one-half years ago: "Prior to the crisis, market participants believed that large, complex, and interconnected financial firms would not be allowed to fail during a financial crisis.... As a result...firms thought to be too big to fail tended to take on more risk, as they faced little pressure from investors and expected to receive assistance if their bets went bad.... The resulting buildup of risk in too-big-to-fail firms increased the likelihood that a financial crisis would occur and worsened the crisis when it did occur."

Here, Bernanke identified a failing that was important to correct. He then went on to describe the Federal Reserve's efforts to address Too-Big-to-Fail: "One response to excessive risk-taking is stronger oversight by regulators, and the recent legislation and the rules and procedures being developed by the Federal Reserve and other agencies will subject systemically critical firms to tougher regulatory requirements and stricter supervision.... The financial reform legislation took an important step in this direction by creating a resolution regime under which large, complex financial firms can be placed in receivership, but which also gives the government the flexibility to take the actions needed to safeguard systemic stability."

In other words, he was full of words, and he survives. He is eternal. This is one of the most serious problems in the United States today: the crushing weight of the immobile bureaucracies that enslave us. If half the government and quasi-government workers were laid off tomorrow, the GDP would jump 400%.

What follows is the to-and-fro of senators questioning Simple Ben at the February 26, 2013 Senate Committee on Banking, Housing, and Urban Affairs. To ponder: Do you think this guy is going to wake up some morning and say: "Hey, I was wrong about QE. Let's back off and let the market set interest rates."?

Chairman Ben S. Bernanke, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C., February 26, 2013:

Senator Jeff Merkley (D-OR):

Chairman Bernanke:"...Too-Big-to-Fail [TBTF]: we also agree that that's something that really needs to be addressed and that many of the parts of Dodd-Frank are intended to address that and we're pushing those as hard as we can."

Senator Merkley: "Thank you and I think it does certainly say to us we're a long way from getting there [from eliminating TBTF - Bernanke had just ducked Markley's interrogation regarding large banks' regal status as "Too-Big-to-Go-To-Jail-for-Their-Crimes" - FJS] if we're afraid of any form of shakiness of these large banks. .....There's another aspect too.... It continues to tell folks it's safer to invest in large banks rather than community banks. The community banks would have been shut down or at least investigated thoroughly.... Is this sort of bias counter-productive to the overall health of our economy?

Chairman Bernanke: Absolutely. It means the playing field is not level. It means there's not market discipline so there's too much risk-taking. ...., So, getting rid of Too-Big-to-Fail is, I think, an incredibly important objective and we're working in that direction."

Senator Bob Corker (R-TN):

Senator Corker: "We watch regulator capture take place here, where basically the regulators end up working for the people they regulate....Upon exit [when the Fed unwinds the securities it has accumulated - FJS], do you concern yourself at all with the Fed being viewed as not as independent as it used to be, and working so closely with many of these institutions you regulate?"

Chairman Bernanke: "Well we're concerned about perception, but none of things you've said are accurate."

Senator Corker: Oh, yes they are."

Chairman Bernanke: ".... [The Federal Reserve] paying interest [to the banks] on reserves....is beneficial for the taxpayer...."

Senator Corker: ".... It's really helping the institutions...."

Chairman Bernanke: ".....It's not helping the banks."

Senator Corker: "When you exit, when you draw the money supply in...."

Chairman Bernanke: "There is no subsidy involved."

Senator Elizabeth Warren (D-MA):

Senator Warren: I'd like to start with a question about Too-Big-to-Fail: We haven't gotten rid of it yet. Now we have a double problem. The big banks - big at the time that they were bailed the first time - have gotten bigger. And, at the same time, investors believe with TBTF out there, it's safer to put your money into the big banks and not the little banks, in effect creating an insurance policy for the big banks. The government has created this insurance policy, [that is] not there for the small banks... Bloomberg [calculated the subsidy that is received by the large banks from borrowing at lower rates than small banks] is $83 billion that the big banks get... in what is essentially a free insurance policy. They borrow cheaper than the small banks do. I understand we're all trying to get to the end of TBTF [Not so fast, Liz - FJS] ....Until we do, should the big banks be repaying the American taxpayer that $83 billion subsidy they are getting?

Chairman Bernanke: "The subsidy is coming because of market expectations that the government would bail out those firms if they failed, those expectations are incorrect...."

Senator Warren: "The $83 billion says that...there really will be a bailout for the largest financial institutions."

Chairman Bernanke: "That's the expectation of markets, but that doesn't mean we have to do it."

Senator Warren: "....But I don't understand. It is working like an insurance policy. Ordinary folks pay for homeowner's insurance. Ordinary folks pay for car insurance and these big financial institutions are getting cheaper borrowing, to the tune of $83 billion in a single year, simply because people believe the government would step in and bail them out. I'm just saying if they're getting [this subsidy], why shouldn't they pay for it?"

Chairman Bernanke: "I think we should get rid of it." [Huh? - FJS]

Senator Warren: "....We've now understood this problem [Too-Big-to-Fail] for almost five years. So when are we going to get rid of it?"

Chairman Bernanke: "Well, some of this, you know, ah, as we've been discussing, some of those rules, uh, ah, take time to develop, uh, ah, the [FDIC's] orderly liquidation authority, we've got the living wills. I think we're moving in the right direction. If additional steps are needed then Congress can obviously discuss this but we've got a plan and we're moving in the right direction."

Senator Warren: "Any idea when we'll arrive at the right direction?"

"Chairman Bernanke: "It's not a zero-one thing. Over time....this is a problem we've had for a long time, and we're not going to solve it immediately."

Senator Warren: ".... What's happening is the big banks are getting a terrific break and the little banks are getting smashed on this. They are not getting that kind of break. And that has a long term impact for the whole financial system."

Senator David Vitter (R-LA)

Senator Vitter: "My top concern is actually exactly the same as Mrs. Warren's and I think that is a statement in and of itself. That there is growing bi-partisan concern across the whole political spectrum, about the fact - I believe it's a fact - that TBTF is alive and well....."

Senator Vitter went on to read from an FDIC study that stated the TBTF banks receive a subsidy. This is separate from the academic study Bloomberg drew upon in calculating the $83 billion subsidy.

Chairman Bernanke said nothing worth repeating.

One lesson from all this (coming to mind as I finish) is the difficulty even those thought to possess great power - the senators, in this case - have in getting some cockroach bureaucrat to do something!

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules