Is 2008 the dawning of a new age in government intervention? Notorious in its uncanny ability to generate crisis, has it now moved in a direction to innovatively preventing and/or fixing them? Is it too the model for a new Washington job title? The answer is Yes to all three. Here's why.

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Is 2008 the dawning of a new age in government intervention? Notorious in its uncanny ability to generate crisis, has it now moved in a direction to innovatively preventing and/or fixing them? Is it too the model for a new Washington job title?

 

Indeed, one would answer yes to all if comparing the old and the new. Recent proxy examples respectively being the “Crisis Twins” - Iraq and Credit.

 

With little thought (if any) and planning as to what happens after “Mission Accomplished”, the U.S. went barreling into Iraq on a wing and a prayer, if not downright arrogant expectation there would be a rose petal parade in the streets of Mosul, Tikrit, Fallujah and every other major Iraqi city after 5 days of fighting. Note I did not include Baghdad as it is to easy for a rose petal parade to be staged.  

 

That 5 days has now turned into 5 years and will be 15 before anyone blinks an eye, based on current “exit?” strategies. Quite frankly, due to partisan politics and an unwillingness by Congress to put those aside and instead do what’s right for the country and the American people, there has not yet been a “sensible” exit strategy proposed. That is why 15 could turn into 30. In fact, make it 99 as Mr. McCain is probably dead-on right.

 

On the other hand, in another government branch, in this case the Fed, it too created its own home brewed crisis with its “money printing giveaway”, vis-à-vis its 1% fed funds rate in the early part of this decade. The ensuing Credit Crisis the byproduct, materializing in the form of the housing bubble, sub-prime, mortgage bond, etc. disasters.

Analyst Note: It is understood the“Fed” is not an agency/department of the Federal Government like the Treasury. However it a “quasi-U.S. government” entity as the Central Bank of the U.S. For these discussion purposes then, it is appropriately considered in the “government camp”. 

Yet unlike the same government’s executive and legislative branches that created Iraq not taking really strong, sensible and substantive steps to end it, the Fed is now taking bold and innovative steps to end the same crisis it created. What’s changed with the Fed however is the team. It’s very different in makeup and approach than the predecessor one responsible for creating the mess. Perhaps a lesson here on how to fix Iraq – new team, across the board – Oval to Congress. A clean sweep.

Many say the government should stay out of the “market”. Indeed a meritorious aspiration, albeit one entirely utopian, unrealizable, unrealistic and incredibly myopic in its viewpoint. Fact is the financial markets were pre-disposed to collapse had the Fed not stepped into the Bear Stearns situation. Was Bear Stearns sacrificed? Absolutely. But, what the mainstream public and media fail to realize, it was for the common and better good of the whole. The simple and clear decision being that it is better to lose one company then an entire industry underpinning the economy.

In fact, “Main Street” is not and cannot ever be independent but rather inexorably linked to "Wall Street". If Wall Street fails, Main Street will soon follow. Financial market stabilization, even at some cost, is in Main Street’s best interest. A “run on the bank” is not.

 

Had the Fed not stepped in, the “bank run” on Bear Stearns would have led to an industry wide “confidence crisis”, triggering a domino-like collapse of the financial system and total wipeout of every individual citizen’s personal wealth. If that happened, all the current self righteous “the government should stay out” naysayers would not be so boisterous. In fact, and with quite ironic hypocrisy, they’d predictably be screaming a different gripe, clamoring “Where was Bernanke?”

 

Interesting how values and attitudes change when a previously contentious front page issue hits home.

 

It would seem then, being Fed Chairman is akin to being a husband. There’s no win in what you do. You’re damned when you do, and you’re damned when you don’t. At least though, Mr. Bernanke doesn’t have to go home at night to his spousal critics.

 

Effectively then, the Fed prudently quarantined the problem by putting a “ring fence” around Bear Stearns, thereby halting a global contagion, and an accompanying financial pandemic.

Analyst Note: For those that "myopically" see the Fed action as nothing more than backstopping (not bailout – as any Bear Stearns shareholder will attest) Bear Stearns liabilities with taxpayer money, open your eyes....better yet, WAKE UP!

In historical terms, this government intervention may go down as the best use ever of taxpayer money, risking $30 billion to stem a guaranteed 1929 style financial market and economic crash. Also, it’s interesting to hear the masses complain about the Fed intervention on Bear Stearns, yet not a peep or even blink of an eye to the $150 billion taxpayer money being essentially flushed down the (China) toilet with the economic stimulus plan. Now there’s a tax revenue usage that deserves wholesale public outcry, rather than what it’s unanimously received to date from taxpayers – an oblivious, Goofy-esque “okee-dokee” reaction.  

By the way, the rebate checks don’t go out til May/June. So if any taxpayer does finally have a real world epiphany moment between movies on the flight home from Disney World, and suddenly realize the absolute total folly of this initiative and the associated complete waste and abuse of these precious taxpayer dollars, there is still time to mount a Congressional “stimulus cancellation” campaign with your Congressman/woman and Senators. In fact send them this article with a message “Anything But (stimulus)”.

In other words, yell at Congress, and applaud the Fed.

If the choice is to backstop Bear Stearns and "preserve" your (and I do mean YOU) personal portfolio equity and home asset values and standard of living OR seeing those precious “personal” assets go to zero (i.e. get totally wiped out) in a financial market meltdown, I think one would immediately view the chain of events quite differently and see that the Fed did precisely the right, and ONLY responsible thing, under the circumstances – “Stability Intervention”.

The Analyst would encourage those readers so inclined, to shift away from the cut your nose off to spite your face reaction to the Fed move. Instead, on behalf of your personal assets preservation, job security preservation, retirement preservation, your children and their children's financial future preservation, take just 5 minutes and write Mr. Bernanke and team a big glowing thank you note.

It's time this nation’s citizens cease ALWAYS looking for a negative and in this particular case seeing the forest through the trees, and start appreciating the GIFT the Fed gave you, and your families – a financial future.

And oh yes to a few, with discipline, limit your visits to the mental Magic Kingdom. 24/7a tad bit to much.

While President Bush has the traditional title of “Commander-in-Chief”, it’s time to rethink where the rubber really meets the road, and elevate someone to the more important and critical post of “Czar of Prudent Judgment” or even "Commander-in-Crisis". Mr. Bernanke should be nominated for the title and the NEW model for other government leaders, whether it be the President, Congress or the heads of any government agency or institution.

 

“Results over Politics” as Mr. Bernanke delivered, would indeed be a welcomed new Washington et al performance model.

 

Under intense fire Mr. Bernanke, you have brilliantly and rapidly grown into your job and almost overnight transformed the Fed Chairman function from reactionary bureaucrat to aggressive and innovative solution leader.  Having saved 200 million or so adult U.S. citizens the pain and misery arising from their entire personal wealth being wiped out, you deserve this new title. No one prefers government intervention, but you “prudently” did what had to be done, and what few others would have had the guts to do so themselves. You stepped up and saved the financial system and doing so the broader economy from being 2 orders of magnitude worse off than a  recession (even a severe one), had you not (intervened).

 

In fact the time has come when the government actually earns its keep and contributes real value to the average citizen. In fact, moving from “crisis generator” to “crisis preventer”, and for those that sneak by, “crisis solver”.

 

And a write-in vote this November to create the new cabinet position – “Czar of Prudent Judgment”, with Mr. Bernanke the sole name on the ballot. The Greatest (Brokaw term), Boomer and little cat Gen A, B, C…X, Y and Z whatever generations, thank you from the bottom of their hearty home equity, stock and tuition funding portfolios.

 

Interestingly too, those unabashedly astute, clever, and brilliant Wall Streeters are still playing by the old rules, continuing to call this a bear market with still a huge market down leg to come. They don’t get or rather, don’t accept, what just happened. In fact, an historic, monumental, ground breaking change in government leadership, achievement and direction. Indeed a paradigmal shift in the Washington leadership model, which too hopefully now transcends to other government leaders. These know-it-alls will be shocked (and awed) when they realize to late, the Fed now has the (very) hot hand. Their arrogance will lead to missing a huge ensuing bull market Mr. Bernanke has now not only set the stage for but already put in motion.

 

Their “Fight the Fed (and Treasury too)” mistake will haunt them day in and day out as they in position sympathy, fight the tape, until capitulating when the Dow is 2500 points higher than its January low. Only then will they finally realize the Fed is no longer the brainless patsy and/or fall guy, but rather firmly, cunningly and shrewdly leading and driving constructive change and stability in the financial markets. That it no longer takes direction but rather sets direction. To coin an Al “Haig-ism”, Mr. Bernanke should not only by his actions but verbally announce “Wall Street, I’m in Charge”, and unlike Al Haig, it will be deserved and anything but a hollow boast.

And the sage age old "Don't Fight the Fed" advice will too evolve to "Don't Fight the FaT (Fed and Treasury)".

 

So Mr. Bernanke, let them eat cake for now. You can serve them crow, medium rare, a year from now.

 

As for the President, I trust he is lauding you til the cows come home. His legacy will be an Iraq disaster. You instead can claim credit for saving the country, and him, from an even worse debacle; an economic Waterloo.

 

And for those with a curious interest in Napoleonic military history, recall Napoleon’s glorious and universally feared “Old Guard” elite fighting unit, lost only one battle – Waterloo in 1815. You Mr. Bernanke, in 2008, did a “Wellington”, and won the battle the “Old (Greenspan) Guard” lost.

 

Nicely done!

 

Wear your new “Czar of Prudent Judgment” title well.

 

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A related article coming soon:  

Commulism and National Security: The Fed and Treasury – Perfect Together

Authors Bio:

The cleverest of all, is the man who calls himself a fool at least once a month

- Fyodor Dostoyevsky

It is a curious fact that people are never so trivial as when they take themselves seriously...Some cause happiness wherever they go; others whenever they go

- Oscar Wilde

The situation is what it is...so deal with it...and then as General Patton inspiringly told his tankers...ADVANCE!!

- Brock Novak