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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 - 23:33 | 2307164 akak
akak's picture

Oh damn, don't EVEN get me started on Rush --- great lyrics in search of even halfway-mediocre music.

My personal idea of Hell would be front-row seats at an eternal Rush concert --- with no bathroom breaks.

Sun, 04/01/2012 - 06:40 | 2307382 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Oh damn, don't EVEN get me started on Rush --- great lyrics in search of even halfway-mediocre music.

"Helix was a wicked concert. Fuck, I sold a lot of dope at that concert. I mean, they had good lyrics, like 'gimme an R - O - C - K' and the crowd yells 'ROCK' really loud. Now that's a fuckin' concert.

Rush just don't do stuff like that. I mean, they got these lyrics aboot how trees are talking to each other and how different sides of your brain work or outer space bullshit."

http://www.youtube.com/watch?v=dRwjTCC3Pyo

My personal idea of Hell would be front-row seats at an eternal Rush concert --- with no bathroom breaks.

...and seated in the second row, right behind you, is AnAnonymous. During "Closer to the Heart" he's yelling how the song is really about US citizenism and how it blobbed up across Canadia, depleting tha natural gas and tar sands, and when they play Xanadu, he goes into a tirade because he thinks it is propagandizing about the eternal nature of Chinese citizenism coconutism.

Made me laugh.

 

Sun, 04/01/2012 - 16:36 | 2308052 akak
akak's picture

.

"Helix was a wicked concert. Fuck, I sold a lot of dope at that concert. I mean, they had good lyrics, like 'gimme an R - O - C - K' and the crowd yells 'ROCK' really loud. Now that's a fuckin' concert.

Rush just don't do stuff like that. I mean, they got these lyrics aboot how trees are talking to each other and how different sides of your brain work or outer space bullshit."

///////////////////////////////////////////////////////////////////////

Just like every Canadian US citizen: trying to deflect attention from their bad music coconutism.

Focusing on smaller Helixism while larger Rushism bad musicism remains obvious.  Make me laugh!

Only in the minds of Canadian US citizens is Helixism even comparable to the overwhelming musical crimes of Rushism.

The eternal nature of Canadian US citizens' bad music Rushism blobbing-up coconutism citizenism cannot be denied.

So utterly unlike the public grace and dignity of Chinese citizenism:  https://www.youtube.com/watch?v=6jNZdmK47DI
https://www.youtube.com/watch?v=ADeNtNPeav4

Sat, 03/31/2012 - 11:05 | 2306208 BandGap
BandGap's picture

Those loans used to be given out by guys named Vinnie in a smoky bar room when you were down to your last resort.

Nice to see the government allows for organized crime to advertise.

Sat, 03/31/2012 - 12:51 | 2306412 WestVillageIdiot
WestVillageIdiot's picture

It is funny that it is an Indian lender that is doing the scalping.  I don't mean that in a non-politidally correct way.  I just mean that here is a group of people that has been betrayed and manipulated and used and now look what they are doing to others.  Just as Hillary, Pelosi, Obama and Holder prove that women and black people can be just as corrupt as any fat white guy these loan sharks prove that the downtrodden will also gladly trod on others when given the opportunity.

It is sick. 

Sat, 03/31/2012 - 13:31 | 2306478 Moe Howard
Moe Howard's picture

Notice its an Indian owned business operating on a reservation. Scalping is permitted. I would bet [ha ha] that the cash being lent is casino profits. Doesn't the mob do exactly the same thing, except without the hot chick on teevee?

Sat, 03/31/2012 - 11:01 | 2306206 Atomizer
Atomizer's picture

Yin and Yang (The Flowerpot Bernank)

 

Money printing is your yoga…. BAAAAABBBBYYYYYYYY!!!!

Sat, 03/31/2012 - 12:56 | 2306419 WestVillageIdiot
WestVillageIdiot's picture

You got that right.  It is interesting that Bruce, for whom I have much respect, states that Greenspan's raising of interest rates popped the housing bubble.  I would have some disagreement with that.  I believe that the oceans of credit to shit borrowers just caved in on itself.  They just couldn't push it any further, especially when prices reached greater than 10 times the median income in several areas.  Higher interest rates might have sped up the collapse in housing but I don't think it caused it. 

I do think Bernanke believes that Greenspan raising interest rates popped the bubble.  That is why interest rates will never be intentionally raised as long as Bernanke is the Chair-douche of The Fed.  He is the high priest of printing and such fallacies that higher interest rates popped the real estate bubble serve his relligious views well.  To raise is a cardinal sin, in his demented mind.

Sat, 03/31/2012 - 13:01 | 2306432 Bruce Krasting
Bruce Krasting's picture

There were many causes to the ultimate bust. The "shit credits" was central to it all. The Fed's rapid rate increases helped bring it to a boil.

b

Sat, 03/31/2012 - 13:35 | 2306484 Kayman
Kayman's picture

ZIRP and the destruction of the holding value of money, was the start.  Raising rates back to "normal" simply killed the patient who had terminal cancer.

Sat, 03/31/2012 - 13:28 | 2306474 Moe Howard
Moe Howard's picture

We have short memories. The gasoline price jump back then was the prick that burst the bubble. Or the straw that broke the camel's back. Or the halt of the music, and everyone at once scrambled for the chairs.

Did any sane person not understand that the "house flipping" was a game of musical chairs or hot potatoe? How could anyone ignore the people buying "interest only" $1M plus McMansions in crazy Cali? I could go on, but the bubble was created with cheap money and easy credit [illegal aliens purchasing homes, no money down, show an electric bill to prove identity]. The Black P. Stone Nation was commiting mortgage fraud, everybody who could hold a pen was signing up. I saw punks barely old enough to shave driving $100K sports cars and wearing designer suits. Drug dealers? Nope. Mortgage brokers. Hahahha. That was in the final six months before the bubble burst. haha. They are most likely fry cooks now.

Sat, 03/31/2012 - 21:18 | 2307073 StychoKiller
StychoKiller's picture

                   Excerpt(s) from "The Big Short":

"In Bakersfield, CA., a Mexican strawberry picker with an income of $14,000/yr and no English was lent every penny he needed to buy a house for $724,000."

"By May 2007, however, there was a growing dispute between Howie Hubler and Morgan Stanley.  Amazingly, it had nothing to do with the wisdom of owning $16 Billion in complex securities whose value ultimately turned on the ability of a Las Vegas stripper with five investment properties, or a Mexican strawberry picker with a single $750,000 home, to make rapidly rising interest payments."

"'Who takes out a home loan and doesn't make the first payment?' asked Danny Moses, putting the matter one way.  'Who the fsck lends money to people who can't make the first payment?' asked Eisman, putting it another."

Sat, 03/31/2012 - 13:45 | 2306494 Kayman
Kayman's picture

Moe Howard

None of the craziness was possible without the Fed killing the opportunity cost of money. With interest rates at the zero bound, housing went nuts, the Wall Street criminals were "financializing" anything from which they could create a discounted cash flow, and those that had commodity pricing power, like the oil companies and cartel(s) told the Fed they wanted more fiat for their product.

It is the Fed that has fucked America. And it is the Fed that is advertizing itself as the cure, when it is, in fact, The Disease.

Sat, 03/31/2012 - 15:45 | 2306672 Boxed Merlot
Boxed Merlot's picture

Wall Street criminals were "financializing" anything...

 

Moe, there's still another piece to this puzzle, WS had to have willing "buyers" of this junk.  They found it in the regular as clockwork, (and thereby easy to frontrun), retirement funds showing up at their doors from government unions - calstrs, calpers, etc.  The fleece was being scalped on both sides at once and now they're luxuriating in the fruits of their wantoness.

If I didn't know better, I'd say Barney and Jon were more than co-habitors.

 

Why the NSA hasn't charged these national security terrorists with treason has left me baffled.  It's not like they lack for information.

 

Perhaps the term "willful blindness" is appropriate here as well.

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