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This Time Around, the Fed Will Be Powerless
Bernanke and pals never really understood what caused the 2008 Crisis. True, the fundamental reason for the Crisis (the unregulated derivatives markets) was obvious and the Fed knew all about it (Greenspan said that the derivatives market could “implode” the system as far back as 1999).
However, the derivatives market was really about one thing only: trust.
Every business transaction is based on trust in one form or another. If you don’t trust the folks who work for you or vice-versa, your company is doomed. The same goes for financial transactions, business partners, anything involving business.
The reason 2008 happened was because the large Wall Street banks, who had turned the entire world economy into a securities playground via the derivatives market, suddenly stopped trusting each other to accurately assess the risk/ asset value of their balance sheets.
In simple terms, Bank A, who was lying about its derivatives exposure, suddenly realized that all the other banks it did business with were likely lying as well. So Bank A stopped trusting the other banks, interbank lending dried up, and the system collapsed.
Bernanke never understood this. The reason is that he never worked in business. He’s a academic. Authority figures in academia, especially in hocus pocus fields like economics, don’t need trust to do anything. If they say you’re a D student, you end up a D student. End of story.
So when 2008 hit, Bernanke thought what any academic authority figure would think of the situation: that he could fix everything simply by virtue of his authority (the Fed backing up the system).
It worked temporarily because the Fed is considered THE monetary authority for the world financial system. Wall Street, given the chance to unload debt onto the public’s balance sheet and get free money from the Fed, was only too happy to go for the scheme (the alternative was collapse).
But these guys never really started to trust each other again. They knew the deal: that they are their banking buddies were all bankrupt. Why do you think they quickly increased compensation back to record levels? Because they thought the game would last?
After all, they sure as heck didn’t stop the derivatives game. They didn’t actually do much of anything to improve their businesses. They just played the Fed’s game for all it was worth and paid out as much of the free money to themselves as they could.
Which brings us to today. Nothing from 2008 has actually been fixed. Faith and trust do not exist in the financial system anymore. Everyone knows the deal… they just don’t want to admit it as it means GAME OVER for the system as we know it.
Which is why now that the next round of the Financial Crisis has hit, there’s really nothing the Fed or anyone can do about it. They had their big chance to fix things in 2008 and failed. This time around, no one will believe the Fed can fix anything. And what’s coming will make 2008 look like a joke.
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Good Investing!
Graham Summers
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If -in 50 years- you looked at the situation unravelling right now, and read the mainstream media of our times, you would most definitely get the wrong impression of what is going on, who is responsible, and who has no clue how to resolve it.
I always presume Bernankistan learned his history from the penny papers of the twenties, so as far as he is concerned, he is a world authority. Just happens to be a world authority on fiction and fallacy.
Benny Boy, do you know what is happening rigt now, and what should be done about it?
Guess not.
A good friend in securities law - a national reputation - has said that NOTHING WAS FIXED. Obama has been useless and Congress complicit in massive fraud and looting.
PEPOLE SHOULD HAVE GONE TO JAIL - without long prison terms these people will NOT change theior behavior.
You're seeing a wholesale looting of the country. NO WAY any firm should be allowed to trade for their own accounts AND customers. It's an inherent conflict of interst and you can guarantee that the customer will get screwed.
In the opinion of more than a few Wall Street firms the Goldman mafia in and out of overnment 'kneecapped' Lehman and Bear Sterns. The used a crisis to take out competitors and solidify their own positions. At the same time Gold,an made sure AIG was propped up so it (eg the taxpayers) could pay out on billions of credit default swaps (to Goldman) tht it Never should have written. If AIG failed Goldman would have lost millions in the 'premiums' they paid for this 'insurance' NOT the 'BILLIONS' they unjustly collected. They had NO vested financial interest in many of these CDS aprrangements. Thes were no more than BETS on a product - bets that no same bookie would ever have taken. But with the taxpayre paying out because the bookie (AIG) failed... it's a 'win-win' for the financial guys.... AIG execs make millions, Goldman makes BILLIONS.
The financial industry sells customers crap and msakes MORE money buying Credit Default Swaps on the securities they'd sold (and KNEW were crap). They used to be satisfied destroying companies with manipulation and naked short selling. Now they're taking out whole countries - AFTER setting them up tofail. Goldman structured Greek debt to hide problesm and make it possible for them to join the EU. Now they're betting on Greece's failure. More profitable than fixing horse races. The financial industries are changing to 'fee based' so they make money NO MATTER WHAT. Obscene transaction fees management fees, interest rates.... the average person is screwed.
apologies for multiple post - site acting VERY glitchy and freezing repeatedly
A good friend in securities law - a national reputation - has said that NOTHING WAS FIXED. Obama has been useless and Congress complicit in massive fraud and looting.
PEPOLE SHOULD HAVE GONE TO JAIL - without long prison terms these people will NOT change theior behavior.
You're seeing a wholesale looting of the country. NO WAY any firm should be allowed to trade for their own accounts AND customers. It's an inherent conflict of interst and you can guarantee that the customer will get screwed.
In the opinion of more than a few Wall Street firms the Goldman mafia in and out of overnment 'kneecapped' Lehman and Bear Sterns. The used a crisis to take out competitors and solidify their own positions. At the same time Gold,an made sure AIG was propped up so it (eg the taxpayers) could pay out on billions of credit default swaps (to Goldman) tht it Never should have written. If AIG failed Goldman would have lost millions in the 'premiums' they paid for this 'insurance' NOT the 'BILLIONS' they unjustly collected. They had NO vested financial interest in many of these CDS aprrangements. Thes were no more than BETS on a product - bets that no same bookie would ever have taken. But with the taxpayre paying out because the bookie (AIG) failed... it's a 'win-win' for the financial guys.... AIG execs make millions, Goldman makes BILLIONS.
The financial industry sells customers crap and msakes MORE money buying Credit Default Swaps on the securities they'd sold (and KNEW were crap). They used to be satisfied destroying companies with manipulation and naked short selling. Now they're taking out whole countries - AFTER setting them up tofail. Goldman structured Greek debt to hide problesm and make it possible for them to join the EU. Now they're betting on Greece's failure. More profitable than fixing horse races. The financial industries are changing to 'fee based' so they make money NO MATTER WHAT. Obscene transaction fees management fees, interest rates.... the average person is screwed.
A good friend in securities law - a national reputation - has said that NOTHING WAS FIXED. Obama has been useless and Congress complicit in massive fraud and looting.
PEPOLE SHOULD HAVE GONE TO JAIL - without long prison terms these people will NOT change theior behavior.
You're seeing a wholesale looting of the country. NO WAY any firm should be allowed to trade for their own accounts AND customers. It's an inherent conflict of interst and you can guarantee that the customer will get screwed.
In the opinion of more than a few Wall Street firms the Goldman mafia in and out of overnment 'kneecapped' Lehman and Bear Sterns. The used a crisis to take out competitors and solidify their own positions. At the same time Gold,an made sure AIG was propped up so it (eg the taxpayers) could pay out on billions of credit default swaps (to Goldman) tht it Never should have written. If AIG failed Goldman would have lost millions in the 'premiums' they paid for this 'insurance' NOT the 'BILLIONS' they unjustly collected. They had NO vested financial interest in many of these CDS aprrangements. Thes were no more than BETS on a product - bets that no same bookie would ever have taken. But with the taxpayre paying out because the bookie (AIG) failed... it's a 'win-win' for the financial guys.... AIG execs make millions, Goldman makes BILLIONS.
The financial industry sells customers crap and msakes MORE money buying Credit Default Swaps on the securities they'd sold (and KNEW were crap). They used to be satisfied destroying companies with manipulation and naked short selling. Now they're taking out whole countries - AFTER setting them up tofail. Goldman structured Greek debt to hide problesm and make it possible for them to join the EU. Now they're betting on Greece's failure. More profitable than fixing horse races. The financial industries are changing to 'fee based' so they make money NO MATTER WHAT. Obscene transaction fees management fees, interest rates.... the average person is screwed.
Corrections required.
"This Time Around The Fed Will Be Powerless" - The Fed has been powerless ever since debt securitization left the US Banking system and went rogue with derivatives of mass destruction. Part I: The Rise of the Non-bank Financial system - Henry C. K. Liu
"Bernanke never understood this." - When TPTB get an opportunity to enrich themselves in the name of saving the country, they pull the strings to make it happen. Never let a serious crisis go to waste - Rahm Emanuel
"However, the derivatives market was really about one thing only: trust." - Nope wrong again. Thanks to financial engineering and complicit regulation (and debt rating agencies), financial crack came into being. - The Resurgence of Risk - A Primer on the Developing Credit Crunch - August 2007 Stoneleigh
sure... but big thievery has already occurred, and will continue
They know that QE3 wouldn't work anyway, it would be Obama coming out officially and saying that we will continue to print money. They know it and the rest of the world know it. That quote "They knew the deal: that they are their banking buddies were all bankrupt.", is what I've been saying off and on for a few years now. When Paulson and Bernanke and the rest where making all these plans and doing all this stuff, the banks knew that the govt. would have to backstop it all. Because no matter how many times you wrap a rotten fish in paper, it still is a rotten fish. So you bundle those toxic instruments up and try to make them like new and nobody except the issuer (the govt.) took them. Because the buyers (other banks) either didn't have the money, was trying to sell this stuff to the govt. and/or knew that this stuff was a rotten fish and wanted no part of it. That is why we still have mark to make believe. The investors that the banks needed to buy this toxic stuff was other financial institutions that knew it was bad, you couldn't try to get harry and marry suburbia to buy a billion dollars worth of toxic debt with a patina of triple A, they don't have that kind of money.
This market is unraveling finally and everyone see's it.
There will be NO QE3. There are no more rabbits in that hat. The world governments just got wind of that fact and that's why the market is selling off.
Disobey.
The problem with an all finance economy is that the concept of a "fair profit" is totally irrelevant. "You keep what you kill" Isn't that the concept on Wall St.? So if you can sucker someone else - well there you go - good boy.
There never was a basis of "trust" - they just realized that with "0" accounting standards - there was no way to assess risk. Trillions of dollars of bets/investments and no pay-off? Good thing we have the government and the sheeple public to make good on all of this.
But, if the finance world comes to Congress a second time - it will not matter if the world as we know it is ending. The answer will still be no.
The Fed won't/can't do QE3, precisely for the reason of trust. If there is no turnaround in the next week, Geithner is gone - Obama is forced to nominate a new Sec Treasury, and that person then ends up in limbo in the Senate, simply because it is not in the best interest of the GOP to have a working Treasury Secretary at the helm. Bernanke similarly is walking a tight-rope right now; he may very well be in the same position that Paul Volcker was in shortly before he resigned - he'll conduct a vote on policy and the board will not vote his way. I give Geithner a month, Bernanke two.
I don't believe in the PTB conspiracy behind this, beyond the normal collusion of sharks in a feeding frenzy. Frankly, the owners of the banks aren't stupid. nor do they trust their fellow bankers to the level of managing an intergenerational grand plan for world domination. Lending isn't occurring because business CEOs recognize that the conditions haven't changed, and as such are generally not borrowing because they don't see the market demand to justify the growth in their internal costs. Homeowners don't believe that we've reached a bottom yet in most markets, and in many cases the banks have been reluctant to release houses back onto the markets because the moment that happens, they take the hit to their capitalization requirements. People aren't buying houses because that's a major commitment in a tight credit market that people aren't going to take on if they're uncertain about having a job six months from now, and if they don't have a job they can't buy anyway.
QE3 won't happen as well because Obama's already ended up eating too much lead with regard to the debt ceiling. Obama's now in a game of chicken with the GOP; in many respects, it is in his best interest, even with the election, to do nothing, to lay the blame at the Republican's feet (which is, to a partial extent, is where it belongs) and to let the economy get worse, because it will hit the businesses that are most heavily invested in perpetuating the status quo the hardest. I think this is the reality that has been behind the market tanking the last couple of weeks. We've peaked, the PTB are digging in for a protracted battle, and the (global) economy is now re-entering recession exactly as occurred in 1933.
A final note - Bernanke is an expert on the history of the 1930s Depression, but like all economists he's coming in with strongly preconceived notions for the reason that the Depression occurred. He assumed that policy decisions in the aftermath of the market collapse were the problem that it was so deep and extended. I'd be far more inclined to believe that he's discovering, as did his counterpart in the 1930s, that the economy has its very own rhythms that extend far back in time and are not always obvious even in retrospect, and that policy in the aftermath of a systemic collapse can only serve to delay the inevitably, at the very real possibility of making things far worse.
Enjoyed reading your insight.
dup... sorry
Damn, you are new here.. Bernanke an expert on the depression, thinking something and being something are different. QE3 won't happen because bammy cannot take the GOP heat. So Bernanke is dancing to Bammy's tune, yeah right, you may wish to keep reading this site for a while..
He's right that the economy has its own rhythms that extend far back in time, and that Bernanke is oblivious to them.
I would urge everyone to read The Great Wave by David Fischer, about the inflationary revolutions and the rhythms of history.
Fischer identifies four periods of inflation, starting in the 1200's. Often the people involved in the revolutions were unaware of the patterns of change that were forcing them to make certain decisions.
We live in such a time now, and the leadership is clueless.
I can only hope the Fed is powerless and the system can finally crash.
Be careful of what you wish for... the devil you know verses the one you don't...
Everyone thought 2008 was 1987. Like all the 'other' recessions, some low rates and easy money would bring the ponzi back to life.
After all, we had borrowed $30 trillion or so, what's a few trillion more?
Now the debt has amost doubled and the service cost is scary. More debt means the chance of bankrupting costs, with any rise in interest rates. So the Fed/Treasury NEEDS deflation or service costs will run away.
Without more debt the current debt cannot be refinanced: coffin corner.
Deflation w/ money laundering: Bernanke's game since March '09. It won't work without a rising market. Now what? QQEE whatever. Problem is that fuel costs go through the roof, $4 gas is like auto- mad USA drinking poison.
What to do? Fed can open a whorehouse, it's tried everything else.
Fed can open a whorehouse...
They already have!
Ain't no inflationary collapse is coming. It is going to be a DEFLATIONARY collapse. All of that debt becomes useless. Sold hard cash becomes valuable since no one will have it. Bring it on!!
Both sides of the Inflationary/Deflationary arguments have very valid points, lots of variables yet to be determined, it will be interesting to see which argument is correct. There have been some discussions that it may be both, first one than the other soon to follow.
Sure you betcha, those banks that own the printing presses and the politicicians at the switch will just burn down in a deflationary collapse uh-huh...
Snorting too much Potassium nitrate perhaps...
Oh well your little 5th grade economics articles pay Tyler's bills, so I'm gonna let it slide:)))!
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Can someone tell this CNBC guy Steve Lies-Man to stop masturbate with QE3?
That is so creative how you manipulated his name to spell out the word "lies". Fucking awesome. I'd like to ejaculate on or about you.
-100. Sorry, As long as the Fed controls the printing presses, they are far from powerless. QE3 is perhaps days to hours away unless the market makea a miraculous turnarround real soon.
FWIW: Todays crash has more to do with problems in Europe than the US. Italy and Spain are at the brink of sovergn debt default. The Bond Vigilantes^H^H^H^H^H Barbarians have left Athens and now at the Gates of Rome and Madrid, getting ready to pillage. ECB President Trichet spoke today stating that Europe is fine and that the US is in much worse financial shape. I would beg to differ, since the US does npt have Bond Barbarians surrounding them. Perhaps after the fall of Madid and Rome, they will begin sieging the US.
Another lazy article by this guy, ho hum. I tead it through and realized I was thinking about other things while reading. So I tried a second time, but it is so boring...
This guy just doesn’t get it. In 2008, the Benake fully understood exactly what was going on, it had been in the works for years. This crises ensured Obama's victory and after he got elected, the floodgates of spending were opened up wide, with TPTB's full approval. This thing has been on a time line, and is proceeding right on schedule. Just a market crash wouldn’t enable the complete collapse of the American system, it had to be mangled to the point that anyone paying attention would not recognize it any more. The rule of law has been getting progressively more corrupt over the years, but at least there was some pretense of justice. Now everywhere you look , it is just in your face -what are you gonna do about it bad.
It would not have mattered if McCain or Obama had gotten elected. This is not a republican/dem issue, the "flood gates" would have opened either way, do you honestly think that McCain/Palin could have stopped this?
By the way, I voted for Obama, who I consider less than a cheap whore...... but I could not stomach the McCain/Palin ticket, and by the way what do the republican have to offer this time around? By the looks of things so far not much better!
+1
Yep, it's all about faith
and that faith thingy seems to be missing
Now we have this USD fiat issue to deal with, hmmm?
got faith?
Be careful with that "faith" thing. 90% of these niggers running around here believe in talking snakes. Sez so right here see...
They'll never be powerless.
First they'll do another QE3 on a massive scale with trillions of funny money follow by erasing all the "debt" from the FED's balance and America will have lost half it's debt.
Sure, the world will be in chatters and wars will start all over the world because of a global hyperinflation thanks to the reserve currency but America will live another day....
and by than, they'll impose a draft to make sure there are enough soldiers to fight off the world.
In the oil business we have a prayer of:
Dear Lord, please grant me one more Boom and I promise I won't piss it all away this time"
But right now I need a:
"Dear Lord just grant me one more QE and I promise I will get the hell outta the market and into PM's for good".
Hey Graham and Tyler: sell me some gold at $350/oz -- fucking douchbags! Yeah it IS about trust. Would you motherfucking trust a leprechaun to sell you $350/oz gold today?