Saturday, March 20, 2010

Bernanke Must Be Joking

Bernanke Says Bailouts of Banks ‘Unconscionable’ .

I say "Ha!"

Per the article:

Federal Reserve Chairman Ben S. Bernanke said government bailouts of large financial firms are “unconscionable” and must be ended as part of a regulatory overhaul following the worst financial crisis since the 1930s.

“It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,” Bernanke said today in a speech in Orlando, Florida. “If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.”

It was really Paul Volcker who started the bailout tradition at the Fed, most famously in the Continental Illinois mess back in 1984 (though something came earlier, the details of which I forget). The Fed exists as a public-private enterprise, dedicated to the big banking companies it allegedly regulates. Dr. Bernanke was about the head cheerleader for the Fed and Federal government bailouts rather than the clearly fairer strategy of requiring shareholders and bondholders to take the losses, and for any governmental or Fed bailers-outers to make unconsionable profits on said largesse.

The Fed is a destructive organism, based on Gentle Ben's testimony to the House on Feb. 10, 2010 (point 9):

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

Huh? No minimum reserves? Is that the same as zero reserves? In other words, depositors put $100,000 into a bank, which loans out that $100,000? When some of the depositors want their money back, does the bank call in a loan? Is the bank equivalent to the Fed, and just creates the cash if that's what the depositor wants? Does it keep a printing press on site? How does bank capital figure in this? How does it distort anything for a depository institution to hold onto some of its deposits and not loan them all out?

The regulators must be desperate when something as liberal as small, mandatory reserve requirements may get junked in order to allow the system to perform yet more frenetically.

Got gold?

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