You don’t expect honesty from the Fed and you don’t expect the Washington Post to print the truth.  So this comes as a surprise:

Foreclosures already pocked Chicago’s poorer neighborhoods but the downtown still was booming as the Federal Reserve Bank of Chicago convened its annual conference in May 2007.

The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.

Bernanke, who was in charge of regulating the nation’s largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.

“Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market,” Bernanke said. “The troubled lenders, for the most part, have not been institutions with federally insured deposits.”

… until you see the angle taken further down in the article – that he was just an innocent incompetent – and then all becomes clear.

As has been pointed out:

I recall reading at the time how the Citi traders were incredulous at being outed by the [British] regulators, because that is how they would do things in the States, running the stops and using outsized positions to perform short term price manipulation. In the states ‘price management’ has become quite notorious around key market events, such as option expiration. It is so prevalent that it has its own momentum among traders. The only time that it is remarked by the exchanges in the states, however, is when other prop trading desks are caught by it unawares and complain. The public is fair game.

Even the Treasury recently got into the act, with young Tim’s Treasury granting a $38 Billion tax break to Citi in order to enhance their financials and the price of their stock.

It’s one thing pointing out shoddy practice inside the major financial houses but it’s another appointing their senior execs as a Federal Reserve President. I include this Fed announcement only as an example of the, at a minimum, dubious way of running the country’s financial affairs over there.

This is a short post because there are things to do uptown and no one’s going to read a long diatribe. The point is that while much is made of politicians declaring their interests, their expenses and their funding, with incestuous financial relations leaving them open to accusations by their opposition, in New York, * the incest goes on unabated, with regulators hand in glove with those they’re regulating and sweetheart deals the name of the game.

That oversimplification is for the purpose of pointing out to non-economists who really truy believe there is no collusion on top of the incompetence that in fact there very much is and it’s not even in dispute. As for the incompetence:

Greenspan was the architect (with Bernanke’s goading) of the “extended” 1% interest rates in the 2000-2003 time period, and now we’re at ZIRP. But it didn’t stop there! Bernanke went even further and monetized $300 billion of Treasury Debt and is on track to monetize $1.2 trillion of Fannie and Freddie paper, thereby effectively “negating” (for the purpose of the government) $1.5 trillion of government spending.

Of course this is all a bunch of arm-waving BS – you can’t “negate” such a thing, you can only shift where the damage falls. And fall it will – in this case, right on the value of the currency.

The real question Greenspan should have raised (but didn’t) is where the line is on capital flight – exactly how far we have to go before the dollar loses all credibility in the international markets. Continuing to try to monetize our way out won’t work, and Bernanke appears to understand this in that the latest FOMC statement rather forcefully says “yes we really are shutting it all down come February.”

Why aren’t these people rounded up and prosecuted instead of either giving out bonuses or receiving them? The answer is at the * above. An incestuous club of private financiers controls the money supply of the United States of America and by association, with six banks in Europe and so on and so on and I’m tired of repeating it.

Filed under: Politics & economics