"The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions .... Derivatives have permitted the unbundling of financial risks."
Would you pay this dude $100,000 for his words of wisdom? Didn’t this man have hundreds of PhDs gathering wads of information about the practices of our biggest financial institutions? He was either the most incompetent Federal Reserve Chairman in history, or he was in the back pocket of the banking cartel. Take your choice. The major banks became gambling casinos run by multi-millionaire MBAs, tooling around in their private jets, using derivatives as the chips in their trillion dollar game of craps. When these Masters of the Universe MBAs rolled snake eyes, the world wide financial system collapsed. Mandate #1 was not a success story.
Mandate #2 was to protect the credit rights of consumers. Considering Americans have lost $10 trillion of net worth in the last 18 months due to the Federal Reserve mismanaging interest rates, failing to properly regulate banks, and allowing mortgage brokers to mislead millions of immigrants into mortgages they didn’t comprehend, it appears they may have failed on mandate #2. Now, Ben Bernanke has lowered interest rates to 0% in an attempt to enrich the major banks at the expense of senior citizens living on a fixed income. Investors who were receiving 5% on their money market deposits in 2007 are now receiving less than 0.5%. Ben would prefer that 85 year old grandmothers invest in high yield bonds. He is systematically stealing from the poor to give to the rich.
Mandate #3 regarding maximum employment doesn’t seem to be working out too well either. The government massaged numbers show unemployment at 8.5%, the highest rate since 1983. Unemployment will easily reach 10% during 2009 and may reach the highest levels since the Great Depression. It appears the Federal Reserve misunderstood their mandate and is working towards minimizing employment as less than 60% of working age population is employed today. By reducing interest rates to generational lows, the Federal Reserve created the boom that led to the bust. Their interest rate manipulations have led to 13 million Americans being unemployed today, an increase of 6 million in less than two years.
Mandate #4 of stable prices with prevention of inflation and deflation has been somewhat of a challenge for geniuses at the Federal Reserve. Using the non-manipulated consumer price index, inflation has consistently run above 8% since the 1980’s, peaking above 12% in 2008. By falsifying the calculations, Ben Bernanke is able to leave interest rates at 0%. The government reported figures show no inflation. By manipulating the CPI, the government is able to pay senior citizens 1%, while their costs for food and energy and go up 6%. It is good to see the Federal Reserve is looking out for the most susceptible in society.
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Lastly, the Federal Reserve was supposed maintain stability in the financial markets. The last 18 months have been the most instable period for financial markets in history. The Federal Reserve allowed at least a dozen financial institutions to become too big to fail. By coming to the rescue of the financial markets every time something bad happened starting with LTCM, the Federal Reserve encouraged excessive risk taking by financial firms. These institutions knew the Federal Reserve would clean up their messes. They were right.
With a perfect record in the mandates they were asked to fulfill, you can see why we would want to give the Federal Reserve more power and more mandates. Paul Volcker, the only decent Federal Reserve Chairman in history, thinks otherwise:
“The Federal Reserve is going beyond the traditional role of central banks here or abroad. At some point it’s reasonable to ask should this particular institution, with its independence very well protected, be allocating so much of what is essentially government money. The inflation problem, which should be a real threat for the future, is not right on the doorstep. But two or three years from now that may be the critical problem, how that’s handled. Because, given what the Federal Reserve has been doing, it’s going to be harder to retrace their steps, so to speak, than it ordinarily would be.”
Goofing on Elvis, Are We Losing Touch?
The stock market has been soaring as banks report fraudulent earnings. These banks are purposely underestimating future losses to make current earnings appear better than they really are. Hank Paulson and Ben Bernanke demanded that Ken Lewis commit fraud by not revealing material information to the public about Merrill Lynch. Why are they not being prosecuted? Bankers protect the members of their bankers club. Dr. John Hussman describes how it works in today’s world:
“That's what these bureaucrats want during their stint in government service, that's how they advise our elected officials, and then their revolving door takes them right back to Wall Street. This thing is run by investment bankers and corporate bondholders for the benefit of investment bankers and corporate bondholders.”
The government is desperately attempting to convince the world that the banking system is sound and recovery is under way. The actions they have taken have not and will not fix the system. The waves have washed away the foundations of sand propping up the U.S. financial system. Instead of learning from their mistakes, officials have decided to rebuild on a new foundation of sand. We are borrowing from foreigners to bailout bankers and handing the bill to future generations. With government dictating the future of our banking system we can count on massive fraud, waste and mismanagement. Dr. Hussman’s frustration is well founded:
“It's frustrating, but we are wasting trillions of dollars that could bring enormous relief of suffering, knowledge, productivity, and innovation in order to defend bondholders of mismanaged financials, and nobody cares because hey, at least the stock market is rallying. If one thing is clear from the last decade, it is that investors have no concern about the ultimate cost of the wreckage as long as they can get a rally going over the short run.”
This public relations effort will fail. There are hundreds of billions of losses left to be recorded by our big bad banks. If you believe this is almost over, you are not paying attention.
