For those who may be unfamiliar - which would mean roughly 90% of the US population who believe the Federal Reserve is a national park - Ben Bernanke was Fed chairman from 2006 until 2014. He is better known as the Fed chairman who never launched a tightening cycle during his tenure. He is best known for not only bailing out Wall Street from the folly of his and his predecessor's bubble-creating monetary policy and boosting the Fed's balance sheet to $4.5 trillion, but also for the following selection of quotes:
A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily.
7/1/05 – Interview on CNBC
INTERVIEWER: Ben, there's been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?
BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy.
7/1/05 – Interview on CNBC
INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.
House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.
SEN. SARBANES: Warren Buffet has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system. The Financial Times has said so far, there has been no explosion, but the risks of this fast growing market remain real. How do you respond to these concerns?
BERNANKE: I am more sanguine about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable… With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well-managed and do not create excessive risk in their institutions.
The credit risks associated with an affordable-housing portfolio need not be any greater than mortgage portfolios generally.
Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear…At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.
...we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well.
It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.
The Federal Reserve is not currently forecasting a recession.
I expect there will be some failures [among smaller regional banks]… 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.
“In separate comments, Mr. Bernanke went further than he had in the past, suggesting that the Fed would remain aggressive and vigilant to prevent a repetition of a collapse like that of Bear Stearns, though he said he saw no such problems on the horizon.”
The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
[Fannie Mae and Freddie Mac are] adequately capitalized. They are in no danger of failing… [However,] the weakness in market confidence is having real effects as their stock prices fall, and it’s difficult for them to raise capital.
I see the financial markets as already quite fragile. The credit markets aren’t working. Corporations aren’t able to finance themselves through commercial paper. Even if the situation stayed as it did today, that would be a significant drag on the economy.
3/16/09 – Interview on CBS’s 60 Minutes
It’s absolutely unfair that taxpayer dollars are going to prop up a company (AIG) that made these terrible bets, that was operating out of the sight of regulators.
The forecast we have is for the economy, in terms of growth, to begin to turn up later this year, but initially not to grow at the rate of potential, which means that unemployment and resource slack will continue to rise into 2010. We think that the unemployment rate will probably peak early in 2010 and then come down relatively slowly after that. Um, currently, we don’t think it’s going to get to 10 percent, we’re somewhere in the 9’s, but clearly, that’s way too high.
A perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability.
... Or summarized:
And then earlier this year, when we learned that Bernanke's memoir titled "The Courage To Act" is coming out, he added another quote:
“When the economic well-being of their nation demanded a strong and creative response, my colleagues at the Federal Reserve, policymakers and staff alike, mustered the moral courage to do what was necessary, often in the face of bitter criticism and condemnation. I am grateful to all of them.”
Why do we bring this up?
First, tomorrow Ben Bernanke will be on CNBC's Squawk Box to promote his book, the same CNBC which from a credible financial channel has metamorphosed into an outlet whose only purpose is to cheerlead the stock market and get as many people invested in the next and final Ponzi as possible. He will also discuss the disastrous state of the post-post-bubble economy and the latest plunge in payrolls.
Second, today as part of the same book promotion tour (supposedly because nobody wants to pay Bernanke $250,000 to listen to an hour of bullshit now that the Fed no longer has credibility) he had this exchange with the USA Today's Susan Page:
Q. Should somebody have gone to jail.
Bernanke: Yeah, yeah I think so. I have objected for a long time - the Department of Justice is responsible for that.
A quick tangent here: in March 2013 former US Attorney General Eric Holder told Senator Chuck Grassley that the size of some institutions is so big "that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large."
Nuf said. Continuing with Bernanke's answer:
Bernanke: A lot of [the DOJ's] efforts have been to indict or threaten to indict financial firms. Now financial firm, of course, is a legal fiction. It's not a person, you can't put a financial firm in jail. It would have been my preference to have more investigation of individual actions as obviously everything that went wrong, or was illegal, was done by some individual not by an abstract firm.
So something like the Federal reserve being an "abstract firm" versus people like Ben Bernanke who were actual individuals?
The whole thing is 4:20 into the exchange.
We thoroughly agree with Bernanke that more people who were responsible for the biggest economic collapse in history should have gone to jail, starting, of course, with Ben Bernanke himself.
However, as even Bernanke himself now points out, with the entire judicial and legislative system now a supreme farce, explicitly in the pocket of corporations and Wall Street banks, we aren't holding our breath.
Then again, after the next, and final financial crash - one that wipes out the paper wealth of America - and the one that finally destroys the central-bank/central-planning model, putting an end to Keynesian economics as well as fiat currency, ironically the safest place for people like Bernanke as the revolutionary mob approaches would be, well, jail.
We doubt the irony of this will be appreciated by Ben.