Ben Bernanke's Dismal Prediction Record

Ben Bernanke has a long history and record of predicting the market wrong. Whatever he says, in less than half year, everything seems to go very wrong in the other direction. Now he says the recession will be over by end of this year. This alone should get all of us worried.

In March 2007, he said the subprime crisis was contained when it was barely starting. When the problem of delinquencies and foreclosures started to surface, he said, “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.” We all know what happened next.

Now switching from real estate to banking, after a year when he said subprime was not a problem, in February 2008, this time he said, “among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”

Obviously he wouldn’t count Bear Stearns or Lehman among the large banks referred in his speech since he can blame them as only investment banks. He wouldn’t count Fannie Mae (FNM) and Freddie Mac (FRE) either, since they don’t make up a very substantial part of our banking system, or do they? To keep his words, he had to bump trillions of taxpayers’ money to save Citi (C) and Bank of America (C), and forced Merrill and Wachovia to be sold, instead of letting the bondholders of those banks taking the losses in the normal "pre-packaged bankruptcy" process, since he wants to protect the big guys as bondholders are mainly large financial institutions. But how about Washington Mutual? Its failure in September 2008 is the largest bank failure in history with $307 billion in assets. Both common and preferred stockholders got totally wiped out, all subordinate bondholders were also totally wiped out, only the most senior bondholders received merely pennies back for the dollar. This is the example of "too big to fail" becoming "too big to save".

Sometimes I don’t know whether he is speaking from his mind (unlikely from his heart), or he just says what he has to say because he has no choice. In his role as a cheerleader for the financial market, he actually gets his hands tied and is not supposed to speak freely on what is in his mind. This is actually the biggest problem for the the Fed and the whole banking industry -- like a secretive skull and bones society with only a few elite members, you are sworn to protect the secrecy at all costs, including lying. If you know the truth, you just can’t say it, or better yet, you say the opposite. Let us see what happens this time, whether he remains 100% “correct” on his prediction record.

I fully expect Bernanke won’t be able to last after his first term ending next year. Even if the President nominates him again, as an academic person, he may not want to through such suffering for another term. Especially if his prediction of recession ending this year again turns out to be wrong. I am not sure he has the thick skin and endurance to take it any more either.

Comments

[Mark Bern:]

His skin would have to be very thick, indeed. He did, in an earlier speech, leave himself a little wiggle room when he said that the recession could end by year end "or early in 2010." The it gets down to semantics and whether he can deflect critisism later by pointing to the earlier speech and claiming that is what he really said.

The Fed is supposed to be neutral, politically speaking. It is also supposed to be independent, not answering to Congress or the Administration, taking what it believes is the right course.

We all remember Greenspan ignoring the pleas of the Administration to lower rates before the Fed was ready, or do we? Certainly we all remember the late 1970s, when Volker raised interest rates to quell inflation. The Administration and Congress were not pleased with the Fed actions taken then (at least not publicly) unitl inflation came down. Then everyone was happy.

The biggest problem I see with the current Fed leadership is its lack of independence. It seems like Bernanke acts more like a member of the Administration than the head of an independent agency. Of course, during drastic times drastic measures are called for and coordination of planned efforts may be necessary to some degree. But it appears that the Fed, at least at this juncture, has lost all of its independence. That may call into question its credibility in the world financial markets. Trust me, that is not a good thing.

Mar 25 12:59 PM

[gabe borens...:]

Never mind Mr.Bernanke's track record . The "jolts" in place in cooperation with the Treasury ,Congress and both administrations will contribute to a major economic/market rebound.It is easy to be a back seat driver.The time for caution and criticism was as early as 2005 .I have issued a warning about recession ahead in June of 2005.I have followed with additional warning on September18,2007. Now I am constructive about measures in place .I am looking for a major GDP expansion in the fourth quarter of 2009. Mr.Bernanke? is becoming effective monetarist very rapidly these days.

Mar 25 12:59 PM

[altaman:]

Helicopter Ben is focusing all of his efforts on helping Obama BS the American Sheepel and serve his masters that own the Fed - the big banks. His is going to do and say anything to avoid his oft-stated buggaboo - deflation - while ignoring the fact that banks are insovent due to capital holdings gone bad. The issue is not liquidity or credit. He does not care about inflation, the destruction of everyones' current wealth, which will explode after he is gone. He seeks new powers to take over additional institutions instead of using the bankruptcy courts which are willing and able to handle things. Now why wouldnt he want to use the current system?? I suggest because it cannot be manipulated or covered up. Caveate Emptor.

Mar 25 02:03 PM

[conceptwizard:]

The list of Ben Bernanke Bosses. The Financial Warlords of the Federal Reserve. They control Ben. Obama, Geithner is a disciple and fully traned within their ranks for years. You are only ever going to hear what they want you to hear.

A list of the actual owners of the Federal Reserve of USA
> Rothschilds of London and Berlin
> Lazard Brothers of Paris
> Israel Moses Seaf of Italy
> Kuhn, Loeb & Co. of Germany and New York
> Warburg & Company of Hamburg, Germany
> Lehman Brothers of New York
> Goldman, Sachs of New York
> Rockefeller Brothers of New York
> All of the above listed entities are of "the chosen ones".
Also 300 shareholders mostly made up of family members.

We are handing over the country to these people. They are in front of congress right now looking for absolute power.

land.netonecom.net/tlp...

I printed this comment once before on this commentary "Bernanke Desperate, Fed Out of Ammo" and Somebody removed it right off the commentary after it had 15 positives and no negatives. Figure that one out!

This is the systemic financial rape of wealth from the American people. AIG was just a funneling mechanism to capture tax payer dollars in to these shareholders banking systems. That is why no one knew where the money was gong until after is was long gone. Say goodbye to trillions it is just starting.

Mar 25 02:11 PM

[Speedspirit:]

Dear Gabe,

For someone who claims he saw this coming and believes that the current actions will save us all is insane. I have to agree with the author that Ben is wrong again. Geithner is a Goldman guy and when he leaves this post he will want to return to his place among wall street, not run for president. You are losing your common sense. Even if the 4th quarter GDP expansion takes place it will be at what cost to society. A monetarist is someone who assures economic growth by control of the money supply in relation to real productivity and the banking industry is not a symbol of productivity.Care to revamp your statement?

Mar 25 02:15 PM

[rhizome:]

Bernanke and Geithner are clearly doing all they can to keep this system from grinding to a halt in a wave of deflation. Unfortunately, their plan will not work because they are forgetting the demand side of the equation. The collective loss for American households stands at approximately $11 trillion (according to the Fed). Nothing the Fed or Treasury do is going to be able to fill that hole in the economy. We are being sold this idea that by lowering interest rates in various ways it will make people want to borrow money again? Nobody in this country has any faith in Bernanke's ability to predict where they economy is going. He missed every major move so far so why should anybody believe him when he says we will be out of this mess by next year? People are thinking unemployment is going to 20% and they are living their lives as if it has already happened. It will be interesting to see the CPI number for March. If it comes out below expectations (or worse down significantly), the markets are going to panic because people will become painfully aware that neither the Fed nor the Treasury have any control over the velocity of money and that underpins every plan in their book.

Mar 27 03:36 AM