Posted on 08/11/2009 12:56:28 PM PDT by Rufus2007
Ben Bernanke's able use of monetary policy to steer the economy during the current financial crisis sometimes makes it easy to forget that Bernanke helped steer the ship into that crisis early in his term as Federal Reserve Chairman and a member of the Fed's Board of Governors. That's a point Strategic Forecasting (Stratfor) founder and CEO George Friedman made when asked the likelihood of President Obama reappointing Bernanke.
"The probability of Bernanke being reappointed to the Fed is near zero," Friedman said during an interview on CNBC's Aug. 11 "Squawk Box."
...more (w/video)...
(Excerpt) Read more at newsbusters.org ...
Lawrence Summers. The idiot, Fed Chairman? ugh
not likely. The Feminist crowd from Harvard would be burning effigies on the White House lawn.
The person most responsible for today’s world wide economic mess is not Bernanke; it’s Congressman Barney Frank and his support for an unfettered Community Recovery Act (CRA).
“Ugh” is not the proper word to describe the epic disaster that will be Lawrence Summers.
“Ugh” is a word one uses when one has discovered something mildly distasteful in one’s day, such as “Ugh, I do believe I’ve stepped in a fresh cow pie.”
No, the words to describe Summers’ possible appointment to Fed Chair cannot be used on FR without an immediate take-down by the moderators. Summers will be a disaster.
But it is WELL known that Summers is angling for the job.
Sorry, no, the one man most responsible is Greenspan. He took rates too low post-9/11 and kept them there for far too long, fueling the binge of lending by Wall Street into such things as the mortgage market and high leverage on mortgage portfolios.
Also, Greenspan BACKED these “unconventional” mortgages in testimony and policy. The Fed had within their regulatory power the means to thwart or restrict bogus mortgage lending, and under Greenspan, the Fed encouraged it.
We are doomed. It’s going to be Larry Summers
Summers is a POS, of course, and it would be enormously frustrating to have to hang on his utterances should he succeed Bernanke.
BUT the Fed is now just another govt organ that's been captured by those it notionally regulates, and the worst elements of the political class. It really no longer matters who sits in the Chair.
If Baraq is running in 012 with 10% unemployment and 15% inflation, even all the ACORNs and union members may not be enough to put him back in.
Outside candidate Jon Corzine???
= : O
Given the limited powers invested in Greenspan as Fed Chairman, I think he did the best he could. I also think that he foresaw the CRA disaster that Congress (principally Barney Frank) refused to control. And so it was that Greenspan retired; in 2006, at the end of his term.
In his 2007 book (page 232), “The Age of Turbulence,” Greenspan writes: “More recently, the unwinding of the housing boom has hurt some groups ... But many low-income familes who took advantage of subprime mortage offerings to become first-time homeowners joined the boom too late to enjoy its benefits.”
Except that Bernanke, being a W appointee, gives Obama cover whilst he continues to implement strategies that run the capitalist infrastructure into the ground...and rewards the looters...all for Obama to later demonize and run against.
The CRA didn’t infuse the entire financial system with the liquidity needed to do what has been done. It was mere regulatory inducement to loan money to people who ostensibly could not pay it back.
The fact is that right now, prime mortgages are defaulting at a higher rate than sub-prime mortgages that might have been made under terms of CRA and in previously red-lined neighborhoods. Commercial real estate debt is defaulting in a wave that is going to utterly eclipse the sub-prime meltdown. Commercial real estate wasn’t covered by CRA.
Corporate bonds are starting to default in higher numbers. Corporate debt wasn’t any part of the CRA.
The only way a bubble this large could have been inflated, and a Minsky event precipitated, was that the central bank was too loose with lending.
Ben is out and The Obammunist gets his pick. Plus, he is trying to put more authority in the Fed's hands?
yitbos
Ben is out and The Obammunist gets his pick. Plus, he is trying to put more authority in the Fed's hands?
yitbos
No, it didn’t. It might have aided it, but all debt bubbles burst simply when the amount of debt issued exceeds the aggregate borrowers’ ability to service the debt.
That’s what has happened here: we’ve created an unsustainable bubble of debt, and with the lack of wage growth in the post dot-com years, the bubble was going to burst sooner or later, no matter what. Real estate was the first area where the debt became unsustainable, simply because real estate has attributes which lends itself to bubble formation:
- it is illiquid
- there are cherished nostrums about real estate, many of which are wrong (eg, “it always goes up in value”)
- we had widespread corruption in lending, borrowing, appraisal/valuation practices, and in this area, CRA was one small contributing factor, but absurdly relaxed lending standards in general are a much bigger factor
- the securitization practices of Wall Street, eg, the CDO’s/CMO’s, attempts to turn sub-prime crap paper into AAA paper
- the bond ratings agencies played their part in hanging AAA ratings on instruments they never understood or bothered to objectively evaluate
CRA wasn’t around in 1873, when we had a crash and debt deflation due to railroad real estate and railroads failing to service bonds. We didn’t have the CRA around in the 1930’s, when banks that had lent far to generously on ag real estate went under as farm commodity prices crashed due to over-production. The S&L crisis was due to over-valuation of real estate in the oil patch.
Real estate debt bubbles are a repeating fixture in the US, and the only thing that is common among all of them is that lenders are far too willing to ignore the risk of non-payment by borrowers because they think that their notes are “safe” as a result of the highly inflated real estate being the collateral on the debt.
“CRA was one small contributing factor, but absurdly relaxed lending standards in general are a much bigger factor”
What makes you think the two aren’t related?
The CRA, thanks primarily to Jimmy Carter and secondarily Barney Frank, forced lenders to absurdly relax lending standards.
Because the CRA had NO impact on the Federal Reserve, their standards for lending by member banks, capital ratios, etc. None. Without the absurdly loose standards set by the Federal Reserve for injection of liquidity into the US economy, the money would not have existed to lend in the first place.
CRA affected direct lenders, not the secondary market, not the Fed, not the securitization of debt, nor the rating of debt instruments, nor the leverage used in bond funds and hedge funds owning the illiquid debt instruments both here and in Europe.
The whole of the debt market is so much larger than anything that the CRA legislation addressed, that if I were trying to put this into physical perspective, it would go like this:
The secondary residential mortgage backed securities market is a dog. The sub-prime market was the tail of the dog. CRA was a flea on the tail of the dog.
The tail can wag, the flea can bite, but neither the tail, nor the flea, determine whether the dog runs, sits, turns left or right, sleeps, eats or takes a dump.
This is an issue of size. The number of loans that would have been affected by the CRA was so small in number, compared to the vast amount of debt that is in the process of going to default (residential, commercial, development, ag, revolving credit, commercial bonds, etc) that it shrinks into irrelevance in the big picture.
Read your last paragraph again ... to wit ...
“This is an issue of size. The number of loans that would have been affected by the CRA was so small in number, compared to the vast amount of debt that is in the process of going to default (residential, commercial, development, ag, revolving credit, commercial bonds, etc) that it shrinks into irrelevance in the big picture.”
I think you’re right in that CRA involved far less mortgage money - residential - than that in the remainder of your list, but I also think the hit associated with CRA induced lending to unqualified buyers is the straw that broke the proverbial camel’s back.
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