Plea for a New World Economic Order.
Greenspan Conundrum and
Bernanke Global Saving Glut.
Paragraph 7: Systemic Risk, Section A: Ben "Systemic Risk" Bernanke.
"I am similarly skeptical of notions that stepped-up regulation of financial markets could improve their performance - particularly the idea of expanding the mandate of the Federal Reserve to become the market-stability regulator,with broad authority to unearth incipient imbalances and bubbles.
That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer.
Much as we might wish otherwise, policy-makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances. Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away."
The Age of Turbulence: Adventures in a New World [Economic Order?].
I am arguing here that Bernanke is the only cause of the sub prime mess.
Whether he engineered it on purpose or by sheer stupidity is still up for debate.
The Dangerous Inversion:
As we saw in Chapter III: Greenspan Conundrum and Bernanke Global Saving Glut. Paragraph 3: Bubbles & Bursts. the only one cause of Crash is an excessive inversion of the yield curve.
The problem of the sub-prime MBS were known already to the public since the beginning of 2007. We have to suppose that it was known before to the Federal Reserve System.Google Trends on "Sub Prime".
|Wells Fargo buying more 'sub-prime' mortgages |
Los Angeles Times - Dec 5 2006
|Goldman trims sub-prime risk |
Independent - Mar 14 2007
|Uncertainty shrouds sub prime situation |
Moneycontrol.com - Aug 10 2007
|Sub-prime crisis claims further scalp |
AboutProperty.co.uk - Nov 5 2007
|Swan upbeat about sub-prime fallout |
Fairfield Champion - Dec 6 2007
|Bank of China hit by sub-prime woes |
The Australian - Jan 22 2008
Knowing that such a risk existed Bernanke should have lowered the short-term rates before December 2006.
It is only on September 18th, 2007 that Bernanke lowered the target fed fund rate from 5.25% by a mere 0.50% to 4.75%!
On March 5th, 2009 the 30 Years US Treasury Bond yield went as low as 4.621%. It went as low as 4.617% on September 10, 2007!
On December 11 He lowered the target for Fed Funds by ridiculous 0.25% When on December 4th the yield on 30 Years US Treasury Bonds were 4.309%.
On January 31 he raised the target to 4.25%. When on January 23, 2008 the Yield on the 30 Years US Treasury Bond was as low as 4.102%!!!
It was never relevant to Bernanke that average American, notably those who were reimbursing variable rate mortgages, did suffer from these strict monetary policy.
Should he have acted decisively and normalised the yield curve by lowering, according to our computation the rates to around 1% when he knew what was happening as we showed the sub prime mess wouldn't have occurred and the number of mortgage who defaulted would have been a fraction of what they were.
Was it the result of indecisiveness, mere stupidity or more worrisome, a carefully plan to gain power?
The Power of a Central Banker:
I have learned several things in my previous life as a trader:
- When you can turn to only one person or institution in order to solve a problem, they did cause it in the first place.
- When a professional make a mistake more often than not he did that on purpose.
Ben Systemic Risk Bernanke is no beginner in economic depressions:
was over the importance to be ascribed to monetary factors.
It was easily observed that the money supply, output, and prices all fell precipitously in the contraction and rose rapidly in the recovery; the difficulty lay in establishing the causal links among these variables.
In their classic study of U.S. monetary history, Friedman and Schwartz (1963) presented a monetarist interpretation of these observations, arguing that the main lines of causation ran from monetary contraction—the result of poor policy-making and continuing crisis in the banking system—
to declining prices and output.
Opposing Friedman and Schwartz, Temin (1976) contended that much of the monetary contraction in fact reflected a passive response of money to output; and that the main sources of the Depression lay on the real side of the economy (for example, the famous autonomous drop in consumption in 1930)."
Ben S. Bernanke
Essays on the Great Depression.
Chapter 1: The Macroeconomic of the Great Depression.
A Comparative Approach
November 21st, 2002
The Monetary History, the name by which the book is instantly recognized by any macro-economist, examined in great detail the relationship between changes in the national money stock--whether determined by conscious policy or by more impersonal forces such as changes in the banking system--and changes in national income and prices.
The broader objective of the book was to understand how monetary forces had influenced the U.S. economy over a nearly a century. In the process of pursuing this general objective, however, Friedman and Schwartz offered important new evidence and arguments about the role of
monetary factors in the Great Depression.
In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that "the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces" (Friedman and Schwartz, 1963, p. 300).
To support their view that monetary forces caused the Great Depression, Friedman and Schwartz revisited the historical record and identified a series of errors--errors of both commission and omission--made by the Federal Reserve in the late 1920s and early 1930s.
According to Friedman and Schwartz, each of these policy mistakes led to an undesirable tightening of monetary policy, as reflected in sharp declines in the money supply. Drawing on their historical evidence about the effects of money on the economy, Friedman and Schwartz argued that the declines in the money stock generated by Fed actions--or inactions--could account for the drops in prices and output that subsequently occurred.
Friedman and Schwartz emphasized at least four major errors by U.S. monetary policy-makers. The Fed's first grave mistake, in their view, was the tightening of monetary policy that began in the spring of 1928 and continued until the stock market crash of October 1929 (see Hamilton, 1987, or Bernanke, 2002a, for further discussion).
This tightening of monetary policy in 1928 did not seem particularly justified by the macroeconomic environment: The economy was only just emerging from a recession, commodity prices were declining sharply,
and there was little hint of inflation.
Why then did the Federal Reserve raise interest rates in 1928?
The principal reason was the Fed's ongoing concern about speculation on Wall Street.
Fed policy-makers drew a sharp distinction between "productive" (that is, good) and "speculative" (bad) uses of credit, and they were concerned that bank lending to brokers and investors was fuelling a speculative wave in the stock market. When the Fed's attempts to persuade banks not to lend for speculative purposes proved ineffective, Fed officials decided to dissuade lending directly by raising the policy interest rate.
The market crash of October 1929 showed, if anyone doubted it, that a concerted effort by the Fed can bring down stock prices. But the cost of this "victory" was very high. According to Friedman and Schwartz, the Fed's tight-money policies led to the onset of a recession in August 1929,
according to the official dating by the National Bureau of Economic Research.
The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October.
In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.
Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930."
Governor Ben S. Bernanke
Money, Gold, and the Great Depression.
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
March 2nd, 2004
Bernanke by terrorizing the Congress got 700 Billions of TARP to save his fellow bankers. By doing that he made the whole congress on both side of the aisles accomplice of his policy and forced them to give it a stamp of approval.
A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices.
Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money"
Governor Benjamin Shalom Bernanke
Deflation: Making Sure "It" Doesn't Happen Here.
Before the National Economists Club, Washington, D.C.
November 21st, 2002
He hijacked the powers of the executive and of the congress, American Democracy.
By deciding who would be rescued and who would failed, or more bluntly said who would get protection and who wouldn't he asserted his power over the banking communities (those with more than 100 billions in assets).
We all remember how he offered Bear Stearns to JPMorgan Chase & Co. at a price which was so small that they had to increase it, how Lehman Bros., a systemic entity according to the Bernanke definition was allowed to go bankrupt. We all remember how Goldman and JPMorgan Chase &Co. became suddenly bannk holding companies and hence could receive Bernankes' protection without having received $1 of customers' deposit. We remember how AIG which is not even a Bank was rescued by the FED. We remember the way Bernanke twisted the arm of Bank of America in the Merryl Linch deal. Bernanke decides who will become rich and who will disappear.
On March 3rd, 2009 he revived the stock market by organizing a meeting of his Systemic Friends and startied a coordinated lift:
It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."
June 5th, 1723 – 17 July 17th, 1790
An Inquiry Into the Nature and Causes of the Wealth of Nations.
Book I, Chapter X, Of Wages and Profit in the Different Employments of Labour and Stock,
March 9th, 1776
God wanted that this meeting took place on the anniversary of the publication of Adam Smith Book!
He even invited President Obama to assist: he said that given the PER of stocks they were good value for long term gain.
He distributed billions by purchasing assets that were far beyond the legal powers of the FED and refused to be audited on the ground that it would create economic turmoil.
By making believe that he saved the economy he expected to get the benefit of being a the saviour of Capitalism. Putting him above the law.
Most of my arguments will not be new to the policy board and staff of the BOJ, which of course has discussed these questions extensively.
However, their responses, when not confused or inconsistent, have generally relied on various technical or legal objections—- objections which, I will argue, could be overcome if the will to do so existed."
Prof. Benjamin Shalom Bernanke
Japanese Monetary Policy: A Case of Self-Induced Paralysis?
For presentation at the ASSA meetings, Boston MA,
January 9th, 2000.
Finally he is getting the role of Systemic Risk regulator, hence getting even more power from terrorized officials and from the public.
Now you know that the Power has switched from Wall Street to Washington: 20th Street and Constitution Avenue NW, Washington, DC 20551.
Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."
June 5th, 1723 – 17 July 17th, 1790
An Inquiry Into the Nature and Causes of the Wealth of Nations.
Book IV, Chapter II, Of Restraints upon the Importation from Foreign Countries
of such Goods as can be Produced at Home , Paragraph 2.
March 9th, 1776
The "depression" was Bernanke Arson of the Reichstag:
The Reichstag fire (German: Der Reichstagsbrand) was an arson attack on the Reichstag building in Berlin on February 27 1933. The event is seen as pivotal in the establishment of Nazi Germany.
At 21:25hrs (UTC +1), a Berlin fire station received an alarm call that the Reichstag building, the assembly location of the German Parliament, was ablaze. The fire started in the Session Chamber, and by the time the police and firefighters had arrived, the main Chamber of Deputies was engulfed by flames.
Inside the building, a thorough search conducted by the police resulted in the finding of a naked Marinus van der Lubbe. Van der Lubbe was a Dutch insurrectionist, council communist and unemployed bricklayer who had recently arrived in Germany, ostensibly to carry out his political activities. The fire was used as evidence by the Nazis that the Communists were beginning a plot against the German government. Van der Lubbe and four Communist leaders were subsequently arrested. Adolf Hitler, who had been sworn in as Chancellor of Germany four weeks before, on 30 January, urged President Paul von Hindenburg to pass an emergency decree to counter the "ruthless confrontation of the Communist Party of Germany". With civil liberties suspended, the government instituted mass arrests of Communists, including all of the Communist parliamentary delegates. With them gone, and their seats empty, the Nazis went from being a plurality party to the majority; subsequent elections confirmed this position and thus allowed Hitler to consolidate his power.
Meanwhile, investigation of the Reichstag fire continued, with the Nazis eager to uncover Comintern complicity. In early March 1933, three men were arrested who were to play pivotal roles during the Leipzig Trial, known also as "Reichstag Fire Trial": Bulgarians Georgi Dimitrov, Vasil Tanev and Blagoi Popov. The Bulgarians were known to the Prussian police as senior Comintern operatives, but the police had no idea how senior they were; Dimitrov was head of all Comintern operations in Western Europe.
Historians disagree as to whether van der Lubbe acted alone or if the Nazis were involved. The responsibility for the Reichstag fire remains an ongoing topic of debate and research.
The day after the fire, Hitler asked for and received from President Hindenburg the Reichstag Fire Decree, signed into law by Hindenburg using Article 48 of the Weimar Constitution. The Reichstag Fire Decree suspended most civil liberties in Germany and was used by the Nazis to ban publications not considered "friendly" to the Nazi cause. Despite the fact that Marinus van der Lubbe claimed to have acted alone in the Reichstag Fire, Hitler, after having obtained his emergency powers, announced that it was the start of a Communist plot to take over Germany. This sent the Germans into a panic and isolated the Communists further among the civilians; additionally, thousands of Communists were imprisoned in the days following the fire (including leaders of the Communist Party of Germany) on the charge that the Party was preparing to stage a putsch. With Communist electoral participation also suppressed (the Communists had previously polled 17% of the vote), the Nazis were able to increase their share of the vote in the March 5, 1933 Reichstag elections from 33% to 44%. This gave the Nazis and their allies, the German National People's Party (who won 8% of the vote) a majority of 52% in the Reichstag.
While the Nazis emerged with a majority, they had fallen short of their goal, which was to win 50%–55% of the vote. The Nazis thought that this would make it difficult to achieve their next goal, which was to pass the Enabling Act, a measure that required a two-thirds majority. However, there were important factors weighing in the Nazis' favor. These were: the continued suppression of the Communist Party, and the Nazis' ability to capitalize on national security concerns. Moreover, some deputies of the Social Democratic Party (the only party that would vote against the Enabling Act) were prevented from taking their seats in the Reichstag, due to arrests and intimidation by the Nazi SA. As a result, the Social Democratic Party would be under-represented in the final vote tally. The Enabling Act, which gave Hitler the right to rule by decree, passed easily on March 23, 1933. It garnered the support of the right-wing German National People's Party, the Catholic Centre Party, and several fragmented middle class parties. This measure went into force on March 27 and, in effect, made Hitler dictator of Germany.
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.
Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.
But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil."
John Maynard Keynes, 1st Baron Keynes of Tilton
June 5th, 1883 – 21st April 1946
The General Theory of Employment, Interest, and Money.
Concluding Notes on the Social Philosophy Toward Which the General Theory Might Lead, Chapter V.
13tn December 1935
My Political Orientation According to Nolan Chart Survey!
As Libertarian as Friedrich August von Hayek!
Extreme Economic Conditions Call for Radical Solutions.
The Provocative & Controversial Innovation
Since John Maynard Keynes and Friedrich August von Hayek.
It is of the Uttermost Importance That, When the Crash Comes, Which It Will Inevitably Do, we Restore as Fast as Possible the Economy by Implementing our Plausible Alternative Solution as to Minimalize the Economic Sufferings of the People. To That Order I am Building Redundant Social Networks. Please Grow the Networks!
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The Tract will be ready to go to for edition on September 1st, 2009. I am looking for an editor.