Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 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