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Bernanke - 'The Fed never makes mistakes'

Bruce Krasting's picture





 

Everyone makes mistakes. The best thing one can do is face up to the facts and acknowledge the error; fix the problem to the extent possible and do what is necessary to avoid repeating the mistake. Ben Bernanke's inability to admit his (and his predecessor's) mistakes condemns the Fed to repeat the sins of the past.

In this week's lecture tour at George Washington U, Bernanke spoke to the students about the causes of the economic collapse of 2008. In his presentation, he identified most of the bad actors and the mistakes that those institutions made. He pointed his finger at:

-Fannie Mae and Freddie Mac

-The big banks and Wall Street wire houses

-Mortgage brokers -AIG

He blamed:

-Sub Prime mortgages

-Excessive leverage

-Banks’ failure to adequately monitor and manage risks

-Excessive reliance on short?term funding

-Increased use of exotic financial instruments that concentrated risk

Bernanke never acknowledged that the Fed contributed to the mess of 2008. If Ben wasn't flat out  lying, his head is buried very deeply in the sand. In response to the recession of 2001 the Fed allowed money supply to increase by 30% in 4 years:

 

 

The Fed also manipulated interest rates. It drove short-tem rates (Federal Funds) to 1% in 2004.

 

When Greenspan tried to normalize interest rates in 2005 he was forced to raise the Fed Funds rate 13 times. This sharp increase was a significant factor in blowing the top off of the real estate market. Greenspan’s Fed contributed to the housing bubble. The Fed's tightening brought on the bust that it helped create. So where are we today on the critical issues that brought about the collapse of 2008? Money supply is zooming:

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Inflation is chugging along:

 

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Interest rates are pegged at zero:

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The Fed’s balance sheet is bloated:

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The government is still making junk mortgages; FHFA is guaranteeing loans at 97.5% of value.

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Consumers are borrowing more. Debt has grown 6% in the past year, three times the rate of growth in the economy.

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Student loan balances have been exploding. They passed the Trillion mark this week:

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The savings rate is the lowest it’s been since the crisis. Who would want to save money when the return on savings is negative?

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Junk bonds (and other forms of exotic debt) are back in style, and investors are lapping up the swill up:

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Funny money credit is back. This outfit is lending money to all comers. I love it when the lady says, “Yes it is expensive”.  (11 second video)

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It’s not just expensive money, It’s crazy. Consider this chart of pricing:

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If you want $10,000, the cost will be $52,343 in interest. If you only need a quick $500, these nice folks will give to you, but the cost will be $1800 or 340%%.

For the Chairman of the Fed to stand before all those GWU students and avoid accepting a share of the responsibility for what happened in 2008 is a gross re-write of history. That he does not see that he is making the same mistakes that the Fed made in every prior economic cycle is sad. The audience should have booed him. I am.

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Sat, 03/31/2012 - 20:44 | Link to Comment Lumberjack
Lumberjack's picture

Bruce, thanks for the pricing chart. 

 

With your permission, may I use that for educational purposes?

Sun, 04/01/2012 - 07:22 | Link to Comment Bruce Krasting
Bruce Krasting's picture

Anything I put up is public, help yourself.

b

Sat, 03/31/2012 - 20:25 | Link to Comment q99x2
q99x2's picture

'FHFA is guaranteeing loans at 97.5%.'

I'm going to look into that. With my 5,000 pell grant and my FASFA student loan and 3,000 disability back payment and my SSI monthly with two rooms rented out to friends that are receiving SSI. Wow I could be a real estate entrepreneur.

Thank you Ben.

Sat, 03/31/2012 - 19:56 | Link to Comment rsnoble
rsnoble's picture

My biggest mistake is not getting the fuck out of the US by now. Of course we'll probably start launching default nukes before long and it won't matter.

Sat, 03/31/2012 - 19:47 | Link to Comment dcb
dcb's picture

By law Ben should be hooked up to a lie detector each time  he opens his mouth. I keep saying he's a sociopath, and that speech proves it. Only a sociopath could go up and saya what he did knowing it was a total lie. But if you think the elites are going to be honest with us,, when it means they would take the hit...

Sat, 03/31/2012 - 19:31 | Link to Comment John Wilmot
John Wilmot's picture

Ben's right. The Fed does not make mistakes.

They aren't stupid, they just have bad intentions. ; )

Sat, 03/31/2012 - 19:56 | Link to Comment steve from virginia
steve from virginia's picture

 

Interesting ... very 'similar' article @ Vox (minus the rants, of course):

 http://www.voxeu.org/index.php?q=node/7673

Bernanke does the best he can but he is irrelevant. Haters are really barking up the wrong tree.

The establishment is trying to solve a supply problem on the demand side. This attempt (since 2008) is doomed to failure.

W/ supply shortage it is pointless to artificially stimulate demand. This demand cannot be satisfied yet there is the COST of the added demand that cannot be satisfied, either. See: Greek 'debt crisis'.

Stifling demand (by way of austerity) adds the cost of austerity to cost of unsatisfied demand. Both costs are persistent. Also see: Greek depression.

What is in short supply is petroleum relative to demand. Bernanke cannot print oil so there is nothing he can do. Stop picking on him.

With diminished input(s) there is no possibility of inflation. The price for the diminished input increases in real terms relative to demand regardless of whether the money supply expands or collapses ... Under every monetary condition petroleum is too expensive. What takes place is that demand is destroyed which is what the central banker responds to and nothing else.

There IS nothing else, unless this government acknowledges Peak Oil and its occurance in the past. Bernanke refuses becuase it is politically unpalatable.

The US's condition is identical to charging the battery of a car that is out of gas. There is no gas, the car doesn't work and the owner has to pay to charge the battery.

Demand destruction does not reduce the amount of existing debt. In real terms, the burdens of debt increase as overall demand collapses. There is less system solvency: the ability to service debt (or to take on new debt so as to retire maturing debt) is diminished. The cost of charging the battery become greater than what the car is worth leading to the car's abandonment: this cost does not push the price of the car higher (inflation).

What Bernanke does is give money to his friends so they can close out their finance positions: the Bernanke Money Laundry. Rats abandoning a sinking finance ship.

Sat, 03/31/2012 - 21:30 | Link to Comment mumbo_jumbo
mumbo_jumbo's picture

petroleum demand has fallen off a cliff in the USA so i' not sure which planet you're on

Sat, 03/31/2012 - 17:58 | Link to Comment jack stephan
jack stephan's picture

cats don't skate...........bitchez

Sat, 03/31/2012 - 17:47 | Link to Comment flow5
flow5's picture

Bruce Krasting said:  "Greenspan tightened in 2005 (Krasting's analysis was based upon the effective FFR).  That was what killed housing"

The general thrust of Krasting's accusation is correct. However, any student of monetarism knows Greenspan NEVER tightened & Bernanke tightened for much longer, & much more aggressively than necessary.

Note: Nominal gDp's 2 year rate-of-change (which equals what the FED can control -- i.e., MVt), peaked in the 2nd qtr of 2006 @ 12%. Bernanke let it fall to 8% by the 4th qtr of 2007 (or by 33%). It fell to 6% in the 3rd qtr of 2008 (another 25%). It then plummeted to a -2% in the 2nd qtr of 2009 (another [gasp] - 133%).

Sat, 03/31/2012 - 17:14 | Link to Comment Everyman
Everyman's picture

"If Ben wasn't flat out  lying, his head is buried very deeply in the sand."

 

That is NOT shere his head is!  There is NO SAND where Ben Bernanke is.  Only Shite.

Sat, 03/31/2012 - 16:39 | Link to Comment ebworthen
ebworthen's picture

Funny, I don't think Ben mentioned anything about prosecutions or jailings of malfeasant bankers or other Wall Street crooks, did he?

It's like an enabling Parent of thieving sucmbag children lecturing other people's children about how bad his own kids are, and that he helped them to be crooked assholes. 

And then he is on the cover of Atlantic magazine as "Hero".

TWILIGHT ZONE.

Sat, 03/31/2012 - 20:19 | Link to Comment disabledvet
disabledvet's picture

THIS is a problem fer sure. The Fed has enormous amounts of information vis a vis money flows. Yet neither Congress nor the Fed have expressed any type of public alarm over not only massive sums of cash simply "sloshing around and between borders" but also the all too real and dangerous issues related to identity theft and outright fraud from within the banking system itself. We shall see if these national security considerations to the extent they are being addressed at all come back to haunt us.

Sat, 03/31/2012 - 16:07 | Link to Comment Money 4 Nothing
Money 4 Nothing's picture

Silent weapons for quiet wars, is no mistake, just fast tracking with a WMD called credit and fiat cash.

Sat, 03/31/2012 - 15:56 | Link to Comment Amish Hacker
Amish Hacker's picture

The loan company commercial was brilliant, offering "Enough [money] to really get you over the hump."

This perfectly captures the current public mentality, imo, that borrowing enough money will solve your economic problems, which are seen as strictly short term. Then it's an easy slide down the back side of "the hump" (insert adolescent humor here), and onwards to a glorious future.

Is this kind of magical thinking really any different than what every central bank in the world is doing?

 

Sat, 03/31/2012 - 15:21 | Link to Comment zerohedgeJUNKIE
zerohedgeJUNKIE's picture

Another God Complex seizure is attacking Bernanke ! Quick give him his medicine b4 he starts another QE and crank up the printing press again.

Sat, 03/31/2012 - 15:18 | Link to Comment Yen Cross
Yen Cross's picture

 Bruce, thanks for taking the time, to look out for the ( Crowd )...

  You are a man of HIS word!

Sat, 03/31/2012 - 15:15 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture
“We can't solve problems by using the same kind of thinking we used when we created them.” —Albert Einstein
Sat, 03/31/2012 - 16:07 | Link to Comment OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

DO NOT MISS the scathing critique of the Fed by Jim Grant. Beautifully-crafted and irrefutable arguments. He gave a talk at the Fed called "Piece of My Mind":

http://www.grantspub.com/

Sat, 03/31/2012 - 15:12 | Link to Comment Cpl Hicks
Cpl Hicks's picture

"Greenspan tightened in 2005. That was what killed housing"

Bullshit. What killed housing was a 30+ year insustainable rise in housing prices. It was a bubble many years in the making. I saw it in the mid-1970's here in Seattle. 'California money' was the conventional-wisdom cause then.

Sat, 03/31/2012 - 16:26 | Link to Comment jcaz
jcaz's picture

Yes, and what caused the rise in prices?   Access to credit via low rates.

Seattle is a supply and demand bubble-  Seattle traded on Boeing money, then Microsoft money, then Hong Kong money-  not the same picture as the rest of the country.

Sat, 03/31/2012 - 15:07 | Link to Comment edwardo1
edwardo1's picture

What can be said about The Bernank that has not already been said before. He's an execrable character and one hopes he gets what he deserves.

Sat, 03/31/2012 - 14:58 | Link to Comment PhattyBuoy
PhattyBuoy's picture

It must confound Benny to no end, that his unprecedented bubble re-inflating policies have gained such little traction to this point ...

Pushing on a string.

And every day the planet destabilizes more.

Sat, 03/31/2012 - 15:06 | Link to Comment km4
km4's picture

Irish Economist David McWilliams discusses the dangers of playing games with liquidity, in Punk Economics: Lesson 3 - YouTube http://bit.ly/HaTzSh

Sat, 03/31/2012 - 13:53 | Link to Comment Yen Cross
Yen Cross's picture

 The fed is ( Incapable )...

Sat, 03/31/2012 - 13:52 | Link to Comment Dingleberry
Dingleberry's picture

"Never makes mistakes"?  Is my wife running the fed now?

Sat, 03/31/2012 - 13:48 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Its a failure of Industrial policey - credit does not create wealth - it consumes the stuff, now at increasing intensity.

It was not just French fries that became a dirty word - Dirigisme even became a dirty word in France during EMU.

Fiscal money must first be spent wisely ...then perhaps a little bit of credit money can consume the new surplus.

Credit money does not I repeat not come first if you want to create wealth.

First you spend real money on a Nuclear plant ........then and only then can  you produce credit Grot to consume the new energy surplus.

Sat, 03/31/2012 - 14:06 | Link to Comment jimmyjames
jimmyjames's picture

Credit money does not I repeat not come first if you want to create wealth.

***********

True and that is exactly what's been happening-credit is issued first (FRL) and reserves are basically non existent-

Easy credit money has sucked future growth into yesterday and most of that money (credit) was spent on malinvestments-

Sat, 03/31/2012 - 20:30 | Link to Comment disabledvet
disabledvet's picture

I agree "the Dork" is spot on yet again. What matters most is still LABOR markets. "Competitive devaluations of labor" have killed Greece...and will do the same to anyone else crazy enough (Spain are you listening?) to go down that path. I simply don't see the failure in The Bernanke's approach. Trichet was near cataclysmic for the Euro--"purposely the exact opposite of Bernanke." Sure...some private rates are crazy high...if you're crazy enough to go there. (There's always a loan shark too of course. He doesn't advertise needless to say.) But first and foremost it's "forget the currency...it's dead already" and get loan growth at least to businesses growing. After that try and to me it's all about creating final demand..."a liquidity pool of consumers" if you will...thus restoring true confidence (sales at the register) back into the system. if that means slapping new names on the banks so be it. the point of course is not to have to do that. but there is nothing unusual about financial panics...and we all are still in the midst of "yet another one."

Sat, 03/31/2012 - 13:42 | Link to Comment FASB 666
FASB 666's picture

You got me straight trippin "BOO"

Sat, 03/31/2012 - 13:23 | Link to Comment barliman
barliman's picture

 

Bruce,

Excellent article. As Rainman observed, it indicts the behavior of Bernanke in a very clear fashion.

barliman

Sat, 03/31/2012 - 13:10 | Link to Comment Bartanist
Bartanist's picture

It does not seem that he is failing to admit his mistakes as much as justifying his actions with lies that are too obvious for everyone not to believe.

The more obvious the lie the more likely people are to believe it... and disregard the obvious intentional destruction of the world's economies.

Sat, 03/31/2012 - 13:02 | Link to Comment jimmyjames
jimmyjames's picture
In response to the recession of 2001 the Fed allowed money supply to increase by 30% in 4 years: ***************
Money supply increased many times more than 30% during those years- ***********************

http://research.stlouisfed.org/fred2/categories/25
M1 should not be used in looking at money supply because Greenspan allowed Sweeps to be used in 1995 which distorts the amount of savings deposits and allows for the by-passing of the 12-1 reserve requirements- Checkable deposits at thrift institutions/demand deposits/travelers checks etc. cannot be counted as money supply growth-because that money already exists/existed- ******************************
http://research.stlouisfed.org/fred2/categories/29
M2 as well cannot be used in measuring money supply growth-because it also contains MZM components such a- savings accounts/time deposits and MMMF's which is also existing money supply or credit supply (savings accounts are a credit supply that accommodates FRL) http://bit.ly/GZXzCG

*********************** When Greenspan tried to normalize interest rates in 2005 he was forced to raise the Fed Funds rate 13 times. This sharp increase was a significant factor in blowing the top off of the real estate market. **************

http://bit.ly/s86T8y Actually-Greenspan raised rates 17 times but the long end of the curve stayed inverted (Greenspan's great conundrum) so i can't see that it was rates that blew up housing-it was imo- simply the pool of greater fools that dried up- ****************
http://research.stlouisfed.org/fred2/series/AMBSL Looking at money supply from 1990-2010 actual printed money supply only grew by 400 billion-

http://research.stlouisfed.org/fred2/series/TOTALSL During the same period-total consumer credit alone grew by 2 trillion dollars-
http://research.stlouisfed.org/fred2/series/TCMDO And total credit (which would include consumer loans) grew by 40 trillion dollars-

There is the hyper-inflation of the money supply that people are waiting for-its passed you by and now we will see the inevitable deflation and after that or maybe even before deflation has corrected the imbalance--we certainly could see the currency component of the "money supply" hyper-inflate-
Sat, 03/31/2012 - 17:56 | Link to Comment flow5
flow5's picture

jimmy james:

You said "Checkable deposits at thrift institutions/demand deposits/travelers checks etc. cannot be counted as money supply growth-because that money already exists/existed"

That comment would have been true if you were talking about the period prior to the DIDMCA.

The DIDMCA of March 31st 1980 provided the legal framework for the addition of 38,000 more commercial banks to the 14,000 we already had, and in the process, the abolition of 38,000 intermediary financial institutions.  The intermediary financial institutions effected were the nation's savings and loan associations, mutual savings banks, and credit unions.  Trust companies and stock savings banks had been commercial banks for many years.

Sat, 03/31/2012 - 23:24 | Link to Comment jimmyjames
jimmyjames's picture

That comment would have been true if you were talking about the period prior to the DIDMCA.

The DIDMCA of March 31st 1980 provided the legal framework for the addition of 38,000 more commercial banks to the 14,000 we already had, and in the process, the abolition of 38,000 intermediary financial institutions.  The intermediary financial institutions effected were the nation's savings and loan associations, mutual savings banks, and credit unions.  Trust companies and stock savings banks had been commercial banks for many years.

**************

Ok- but that has no bearing on the existing supply or new supply of money that is involved with those entities-

Savings deposits for example is monry from your paycheck that is deposited with any institution and same for demand deposits that you would for eg: withdraw from your savings and invest in money markets-

It has no effect on the supply of money-it is simply a transfer of existing money from A to B-


Sat, 03/31/2012 - 12:31 | Link to Comment Rainman
Rainman's picture

Great job, Bruce.....I like these charts in one easy-to-read format. Every picture tells a story, don't it ? It's just too bad the majority of Americans can't even understand their own cell phone bill.....much less follow this bread crumb trail to financial disaster. 

Sat, 03/31/2012 - 12:23 | Link to Comment blindman
blindman's picture

experiments.
god doesn't make mistakes, he makes experiments.
some don't work out so well. if one works we have
success, always success and life, never a "mistake".
just experiments.
.
"Hey Momma!
Is it true what they say that Papa never worked a day, in his life
And Momma, some bad talk goin' round town sayin' that
Papa had three outside children
And another wife, and that ain't right
Heard them talking Papa doing some store front preachin'
Talking about saving souls and all the time leechin'
Dealing in dirt, and stealing in the name of the Lord
Momma just hung her head and said"..
pappa was a rollin' stone......
the temptations-papa was a rollin stone
http://www.youtube.com/watch?v=We4-lJe0JRY&feature=related

Sat, 03/31/2012 - 12:13 | Link to Comment Neo1
Neo1's picture

Returning to Real Money will end the sins of the past.

The real reason you pay an income tax, is for the privilege of using a private currency.

Also known As A:  Federal Reserve Note

Demand from your bank or brokerage, lawful money and the tax goes away, with a tax exemption on lawful money, all of your money is yours.

http://www.21silver.com/?show=merrill&read=federal_reserve_act_remedy

http://stormthunder.com/federal-reserve-act/

Tax Exemption: http://stormthunder.com/federal-reserve-act/#ixzz1pOYzDgEm

 Web search these three different phrases:

Redeemed in Lawful money  or

Redeemed in Lawful money Pursuant to Title 12 USC §411  or

deposited for credit on account or exchanged for

non-negotiable federal reserve notes of face value  

Sat, 03/31/2012 - 12:10 | Link to Comment comrade pravda
comrade pravda's picture

Ben Shitter Bernanke

The Bernank shits Benjamins for the benefit of Wall St and to buy US govt debt that the rest of the world can no longer afford to buy because the Federal deficit is several times larger than the trade deficit.

As a sideline, Bull Shitter Bernanke tells everybody that he is not just shitting Benjamins.

Sat, 03/31/2012 - 12:06 | Link to Comment Kali
Kali's picture

The Fed IS a mistake.

Sat, 03/31/2012 - 13:19 | Link to Comment Kayman
Kayman's picture

For America "the Fed is a mistake." For the Criminals, is was the best sly trick they have ever done. America assigned contol of money and credit to con men.

Sat, 03/31/2012 - 12:06 | Link to Comment I am Jobe
I am Jobe's picture

U just have not been to Princeton or Harvard to understand anything. Yeap the cream of the crop looters were made there. Minds molded to nth degree. STFU you Amerkan pesants. Go worship your mindless crap and be my slave is what Govt an Corp wants. If u defy, they will come and shoot u.

Sat, 03/31/2012 - 12:04 | Link to Comment honestann
honestann's picture

For anyone who has half a brain, and is used to staring straight at reality and not "words", the state of affairs with predators DBA governments and predators DBA central banks is far beyond laughable and far beyond insane.  They practice the most extreme version of classic misdirection.  They spew endless self-serving lies and depend upon expensive clothes, haircuts, PR-agents ad fancy deceptive linguistics to fool the masses.  In other words, theirs is the classic "con man" scam.

But anyone with their eyes slightly open, and an IQ greater than 80 should see through their lies.  That so many don't is a testament to the complete destruction of intellect by public schools, mainstream media, and purposeful introduction of poisons into the environment (food, medicines, etc) by the predators-that-be and predator-class.  The entire species of man has been destroyed in a mere lifetime, with few exceptions.  And most of the few exceptions hide their heads in the sand for fear of being seen as non-mainstream.  I'm sure those who frequent ZH see this phenomenon all around them.

If humans don't wake up very soon and deal with the infestation of predators, then mankind is finished.  I mean "finished" figuratively in the short run, and literally over the following few decades.  And unless the species wakes up, shapes up (gets honest), and takes actions, then mankind is finished... and good riddens.

Sat, 03/31/2012 - 13:06 | Link to Comment hbjork1
hbjork1's picture

I am late getting to this messsage but I agree with the sentiment. 

My favorate tagret for the root source of the trouble is the "boob tube".  It introduces, through simultaneous visual and sound media, a fantisy world at an early age.  Real world cause and effect expectations are suplanted or modified. 

 

 

Sat, 03/31/2012 - 12:03 | Link to Comment fleur de lis
fleur de lis's picture

Can someone please explain to me why we are listening to these looters? No one believes what they say so how do they stay afloat? I understand the part where they avoid jail because they own the system, but how does that explain the workers and producers outside the club?

If everybody ignored them how could that make things any worse? It's not like they can add or subtract, they can't plan anything unless it's some kind of scam, they are utterly useless and a drag on the rest of us, how do they still have such a hold? 

Sat, 03/31/2012 - 14:08 | Link to Comment Kayman
Kayman's picture

It is Ben's Marie Antoinette moment.  He is busy distributing cake to the peasants.

And he can't be ignored because the U.S. government has granted money and credit creation to Ben's masters. And I doubt that anything less than blood will sever that deal.

Sat, 03/31/2012 - 12:01 | Link to Comment ekm
ekm's picture

Mr Krasting

Why even bother analyzing Bernanke. He's got three bosses to deal with:

- Banks

- Congress

- White house

He is clearly exhibiting PSYCHOPATHIC BEHAVIOUR = HE IS NEVER WRONG = FED IS NEVER WRONG = FED IS GOD = FED CAN ABOLISH NATURAL LAW OF SUPPLY/DEMAND = FED CAN ABOLISH DEATH.

Allan Greenspan was in an self induced identical psycopathic behaviour until he came back to reality.

The problem is with the Job Description of the Fed Chairman. It is literally a PSYCHOPATHIC INDUCING JOB POSITION = I am never wrong = I am God = I can abolish death.

As far as I know, only Jesus Christ has claimed that in history. Bernanke is trying to out-do Jesus Christ.

Sat, 03/31/2012 - 13:01 | Link to Comment Kayman
Kayman's picture

Perhaps he could  try that walking on water thing.

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