Yves: The Fed seems to believe its own PR
Massive takedown. I'll quote the start, but read it all:
In a sign that the Federal Reserve is circling the wagons, chairman Ben Bernanke has an op-ed in the Washington Post that attempts to defend the central bank’s role. What is interesting is how much the tables have turned. The Obama effort to make the Fed into the uber bank regulator has become a rout, with decent odds that the Fed will have its powers reduced, and an increasing possibility that Bernanke might not be reconfirmed (which is frankly the right outcome, no CEO who presided over a similar disaster would still be in charge).
This piece has so many artful finesses that I must limit myself to the most salient points [ouch!]. From Bernanke:
As a nation, our challenge is to design a system of financial oversight that will embody the lessons of the past two years and provide a robust framework for preventing future crises and the economic damage they cause.
Yves here. He’s only one paragraph into the article and he is already discrediting himself. If he is looking only to last two years for lessons, he is looking in the wrong place. This crisis was at a minimum a decade in the making, and I’d say more like 30 years.
Yes, 30 years is the approximate life-span of the Conservative Ascendancy, and our current condition of a tiny number of very rich people with the rest of the country enslaved was the desired outcome.
Where are the post-mortems? There is absolutely no evidence that the Fed sees its own policies, namely the Greenspan and then Bernanke puts, and the extreme laissez-faire attitude towards bank regulation, as major culprits.
For instance, the Fed was the architect of the “let a thousand flowers bloom” policy towards derivatives, and made inadequate (one might say no) effort to understand new financial technology. Bernanke himself rationalized burgeoning consumer debt, claiming that consumer balance sheets were in good shape. Huh? This is Japan circa 1989 thinking. The measure of whether a borrower can handle his debt load is primarily his debt coverage ratios (income versus debt service costs). And by those measures, consumer creditworthiness had been deteriorating (admittedly, the data series aren’t great here, but merely looking at zero consumer saving rates would tell anyone with an operating brain cell that things were out of whack).
"Out of whack" assuming that our rulerz aren't kleptocrats, of course. Since the financial crisis made the too big too fail banks even larger, and put $22 trillion of our money under their control, I'd say that that the policies of this administration and the last one have been a roaring success. From their standpoint.