Toto tugs on the curtain

Dean Baker hopes to deprogram the credulous among us in his "Cult of the Subprime Central Bankers." He begins by stating that:

The world is suffering from the worst downturn since the Great Depression. The crisis has left tens of millions unemployed in the U.S., Europe, and elsewhere. The huge baby boomer generation in the United States, now on the edge of retirement, has seen much of its wealth destroyed with the collapse of the housing bubble.

It would be difficult to imagine a worse economic disaster. Prior periods of bad performance, like the inflation ridden seventies, look like mild flurries compared to the blizzard of bad economic news in which we are now enmeshed.

None of this is new. People don't need economists to tell them that times are bad. However, what the public may not recognize is that the same people who caused this disaster are still calling the shots. Specifically, there has been little change in personnel and no acknowledgment of error at the central banks whose incompetence was responsible for the crisis.

Remarkably, this crew of incompetents is still claiming papal infallibility, warning governments and the general public that bad things will happen if they are subjected to more oversight. Instead, the central bankers and their accomplices at the IMF are dictating policies to democratically elected governments. Their agenda seems to be the same everywhere, cut back retirement benefits, reduce public support for health care, weaken unions and make ordinary workers take pay cuts.

He continues:

It is important to be clear about the responsibility of the central bankers and the IMF for this totally preventable disaster. The first reason is accountability, something that is very important to economists who believe in economics. Economic theory teaches us that if workers are not held accountable for poor work, then they have no incentive to do their jobs well. If the central banker and IMF crew can mess up disastrously and continue to draw their paychecks as though everything is fine, what is their incentive to do better next time?

The other reason why it is important to recognize the responsibility of the central bankers and the IMF for this disaster is so that we don't continue to take advice from people who apparently don't have a clue. Before anyone listens to Ben Bernanke, European Central Bank President Jean-Claude Trichet, or IMF Managing Director Dominique Strauss-Kahn, they should first be forced to tell us when they stopped being wrong about the economy. We cannot afford to let these subprime central bankers control economic policy any longer.

One possible explanation which Baker does not discuss but which cannot be rule out as impossible or even highly improbable: These central bankers are succeeding because they are managing an economic system based upon elite predation, not social production that ensures social stability and collective well being.

Sometimes it’s hard to tell…

…whether Alan Greenspan is a moral idiot or just an idiot. Perhaps he is just so arrogant that the two forms of idiocy congeal into one reality-challenged character disorder. Consider Ryan Grim's Huffington Post report based on newly released Federal Open Market Committee meeting transcripts from 2004:

As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

Why is public accessibility to these debates important? Greenspan provides a strong clue:

I must admit that I didn't think about some of these issues [regarding publicity and access to information] until I saw the comments others made, but I'm a little concerned about other people getting into the debate when they know far less than we do. I don't know what [Assistant Secretary of the Treasury] Michelle [Smith] has to say on this but my impression is that, if we go in that direction, we may find ourselves coming to a conclusion that is not based on our best judgment. She's nodding in agreement.

In other words, publicity or transparency about this decision was thought to pose a threat to the autocratic character of the Federal Reserve. Why would these financiers and their experts believe this? They might believe it because it is true, for one thing! Publicity does threaten the autocratic isolation of the Federal Reserve, as it does to any authoritarian institution.

More importantly, just look where the lack of publicity and thus accountability got the country and the world: Financial Hell. Thus the compelling issue raised by the minutes. As the Huffington Post suggests:

The release of the transcripts comes at a bad time politically for the Federal Reserve, as it works to prevent Congress from authorizing the Government Accountability Office to audit the central bank.

The audit language has already passed the House, despite White House and Fed opposition, and a Senate amendment by Bernie Sanders (I-Vt.) is gaining momentum, cosponsored as of Monday morning by ten Republicans and five Democrats.

But the Fed also benefits from the timing. "Transcripts of meetings for an entire year are released to the public with a five-year lag," according the Fed's own policy. Had the transcripts been released on time, they could have influenced the confirmation of Ben Bernanke for a second term as chairman. Meanwhile, the Fed policy of releasing a full year at once deprives the public of transcripts from the first four months of 2005, which are now five years old.

Grayson apologizes for smearing a whore

The pertinent deed happened in late September when Rep Alan Grayson (D-FL) called ex-Enron lobbyist and current Federal Reserve senior adviser Linda Robertson a "K Street whore." One can listen to the relevant interview here. But Grayson shows himself to be confused as to whom he wronged when he used the bad word, "whore," for he apologized to the wrong person, as may be seen in his statement:

"I offer my sincere apology to Linda Robertson, an adviser to Fed Chairman Ben Bernanke. I did not intend to use a term that is often, and correctly, seen as disrespectful of women.

"This characterization of Ms. Robertson, made during a radio interview last month in the context of the debate over whether the Federal Reserve should be independently audited, was inappropriate, and I apologize."

Grayson's apology should have gone to all women and to all sex-workers who deal with too much crap as it is. They were surely defamed by a comparison to an Enron lobbyist and Federal Reserve advisor, a taxonomic unit that is ambiguously related to the human species. They deserve the apology.

On the Bernanke reappointment

Dean Baker opines:

It would be an insult to the tens of millions of people who have lost their jobs, their homes, and/or their life savings to see Bernanke reappointed. Failure should have consequences, even for central bank chairmen.

Obamanomics…

The New York Times reports that:

President Obama on Tuesday will nominate Ben S. Bernanke to a second term as chairman of the Federal Reserve, administration officials said.

Watering the stock market

Keeping the weeds green and tall has been Ben Bernanke's project according to Mike Whitney and Andy Kessler. In recent Wall Street Journal article Kessler wrote:

At the end of the day, only one thing has worked — flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.

So, it appears Bernanke's program was successful? It did jump-start the stock market. Well, no, it was not at all successful, Kessler asserts:

Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along. It's the ultimate Enforcer.

In other words, bubbles explode, and they often damage the society that had lived off the bubble. Mike Whitney's appreciation for Bernanke's intrigue prompted him to draw this conclusion:

It means the revered professor Bernanke figured out a way to circumvent Congress and dump more than a trillion dollars into the stock market by laundering the money through the big banks and other failing financial institutions. As Kessler suggests, Bernanke knew the liquidity would pop up in the equities market, thus, building the equity position of the banks so they wouldn't have to grovel to Congress for another TARP-like bailout. Bernanke's actions demonstrate his contempt for the democratic process. The Fed sees itself as a government-unto-itself.

Alas, the Chinese may no longer want to purchase Treasury bonds. If so, that is, if China abandons the United States, what then? How will Uncle Sam finance its empire? Whitney suspects that American banks will buy up America's new debt, thus establishing a circuit between them and the government that had bailed them out of trouble! Whitney concludes:

So, the bottom line is that the dollar is increasingly balanced on the rotting scaffolding of Bernanke's buyback programs (Quantitative Easing) and the circular purchases from collaborating banks that are concealing their backroom dealings with the Fed.

To keep this game going, Bernanke will have to keep juicing the market while the banks use the $850 billion in reserves (which the Fed has provided in the last year) to keep purchasing US sovereign debt.

Is anyone in Congress watching or is this shell game going to go on forever?

Well, this truism still holds: Things that can't last forever don't last forever. The game must end someday.

Banksters face opposition

Adrianne Appel points out that:

The U.S. Federal Reserve and U.S. Treasury have doled out trillions in taxpayer dollars to banks and corporations and now the boom may be falling on what lawmakers say is a shroud of secrecy that surrounds their actions.

In separate hearings on Capitol Hill this week, lawmakers expressed support for a bill to make the Fed's decisions more transparent, and for the findings of a special inspector general report that calls for greater transparency in the Treasury's bailout of banks, called the Troubled Asset Relief Programme (TARP).

The Fed Chair sought to reassure those paying attention:

"We are taking all the steps necessary to protect taxpayer money. One sensitive area is to have Congress second-guessing monetary policy," Bernanke said.

Bernanke's words are not at all reassuring, I would say, given the origin of the crisis, which can be located in the dysfunctional relationship between Wall Street and the Federal government. Consider Bernanke's position on the controls placed upon the Fed:

"If we raise interest rates at a [Fed meeting] and someone in Congress didn't like the decision and ordered an audit, isn't that interference?" he said.

Or political oversight…

Into the sunlight and then out the door…

William Greider assesses the Federal Reserve and the significance it has for the American system:

The Federal Reserve is the black hole of our democracy — the crucial contradiction that keeps the people and their representatives from having any voice in these most important public policies. That's why the central bankers have always operated in secrecy, avoiding public controversy and inevitable accusations of special deal-making. The current crisis has blown the central bank's cover. Many in Congress are alarmed, demanding greater transparency. More than 250 House members are seeking an independent audit of Fed accounts. House Speaker Nancy Pelosi observed that the Fed seems to be poaching on Congressional functions — handing out public money without the bother of public decision-making.

The problem the Fed now confronts:

Basically, what the central bank is trying to do with its aggressive distribution of trillions is avoid repeating the great mistake the Fed made after the 1929 stock market crash. The central bankers responded hesitantly then and allowed the money supply to collapse, which led to the ultimate catastrophe of full-blown monetary deflation and created the Great Depression. Bernanke has not yet won this struggle against falling prices and production — deflationary symptoms remain visible around the world — but he has not lost either. He might get more public sympathy if Fed officials explained this dilemma in plain English. Instead, they are shielding people from understanding the full dimensions of our predicament.

Yet, why would Bernanke and his staff wish to enlighten the public about the Federal Reserve when the institution ought to be scrapped and replaced by a public bank? They and their private bank masters would not care much for this at all since these banks not only own the Federal Reserve but have the capacity to job the system as it now exists. And they use their powers to implement policies they consider to be to their advantage. So far, as it turns out, the economic crisis has only resulted in the government giving additional powers to the Federal Reserve! This power-gathering is a feature of the system, not an aberration which the current government might care to address if not also fix. Unfortunately, resolving this crisis in a rational way and in pursuit of rational goals would require the creation of a power which could contend with the Federal Reserve. One would have to look toward a political movement that does not yet exist to motivate the Congress and the President to adopt this path.

And just like that…

The Fed yesterday announced that it will spend up to $1.75T to purchase securities.

Take our money, please….

The Fed cuts its benchmark rate to near zero

The Federal Reserve Bank announced today that it will cut its Federal Funds interest rate to 0%-.25%. It will make this cut because:

…labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Moreover, "…inflationary pressures have diminished appreciably." And, finally, "…the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

The New York Times report asserts that, "Far more important than the rate itself, the Fed bluntly declared that it was ready to move to a new phase of monetary policy in which it prints vast amounts of money for a wide array of lending programs aimed at financial institutions, businesses and consumers."

This new strategy appears to be, as Business Week characterizes it, "Ben Bernanke's 'shock and awe' campaign." I would suggest that "shock and awe" is a disturbing but, perhaps, apt name for Bernanke's program since the Iraqi "shock and awe" campaign was a prelude to a much greater disaster.

Let the sun shine, let the sun shine in, the sun shine in….

Bloomberg News reports (see also this) that, in response to Bloomberg's recent FOIA request for information (on which see this) regarding the companies that received government emergency loans, the Federal Reserve still refuses to reveal the names of these firms and the assets they used as collateral.

The Fed's reluctance is both unsurprising and unfortunate. And need I mention here that its habit of introducing murkiness into its dealings with the public at large does little to quell fears that the Bush regime's economic crisis management program is just another instance of financial fraud?

The Columbia Journalism Review sadly notes that "it would be nice if other news organizations would jump on this bandwagon."