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Fed didn’t save the economy
AJC ^ | August 22, 2009 | Thomas Oliver

Posted on 08/23/2009 3:37:35 PM PDT by 1rudeboy

As consensus builds that the recession is over, some are crediting Federal Reserve chairman Ben Bernanke’s stewardship and all but re-nominating him by acclamation.

But others worry that declaring the recession over is a tad premature.

“I would be hesitant to declare the recession over while unemployment remains so dire,” said George Selgin, professor of economics at the Terry College of Business at UGA and a senior fellow at the Cato Institute, a libertarian think tank.

Even if the recession were ending, Selgin thinks it would be a mistake to credit the Fed with the recovery. (It’s not a religious notion to believe that an economy might recover without government direction.)

Selgin says the bailouts of investment banks, insurance firms and troubled TARP banks, plus the unprecedented lending to non-financial companies have been counterproductive and delayed the recovery. He is not alone in suggesting the major impact of the bank bailout money has been to allow those institutions to postpone dealing with their bad loans.

The Fed decided, after Wa-Mu and Lehman Brothers went under, that no other big financial institution would be allowed to fail, codifying the notion of too big to fail. But in order to function properly, the marketplace must be allowed to reward the successful while letting the failures fall by the wayside.

Critics of capitalism point to this recession and the Panic of 2008 as proof the marketplace isn’t efficient, that it must be propped up and regulated even more. The counter-argument is that the marketplace wasn’t allowed to work. Government intervened.

Selgin believes the Fed, after helping fuel the housing bubble, has morphed from central banker into central planning agency with a corporate welfare department.

In choosing which firms to save and which to leave to the vagaries of the marketplace, the Fed has gone where no orthodox central bank has gone before in picking winners and losers.

And as sure as day follows night, crises bring on cries for reforms.

More regulation of the financial industry is premised on the charge that this recent crisis was brought about by deregulation that defanged regulators of the power needed to rein in those greedy you-know-whats.

“Those who believe this crisis happened because regulators didn’t have enough power are lacking an historical perspective on financial regulation,” Slegin says. “We’ve been mucking about with regulations of financial institutions since before the Constitution was ratified.”

The history of financial regulation in this country has been a long one, mostly more regulation with a smattering of deregulation every now and then. Almost without fail, regulation has led to new problems, the professor states.

Selgin sees some of the most egregious actors in the most recent financial meltdown as creations of the reforms following the Great Depression. The Glass-Steagall Act, for example, separated commercial and investment banking and gave birth to the world of such freestanding investment banks as Merrill Lynch, Bear Stearns and Lehman Brothers.

We all know where that led.


TOPICS: Business/Economy; Constitution/Conservatism; Editorial; Government
KEYWORDS: banking; bernanke; corporatewelfare; fed; lehman; tarp; wamu
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Merle Hazard sings, Bailout.
1 posted on 08/23/2009 3:37:35 PM PDT by 1rudeboy
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To: 1rudeboy
declaring the recession over is a tad premature

Ya think?

2 posted on 08/23/2009 3:46:24 PM PDT by Rocky (OBAMA: Succeeding where bin Laden failed.)
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To: 1rudeboy

“Selgin says the bailouts of investment banks, insurance firms and troubled TARP banks, plus the unprecedented lending to non-financial companies have been counterproductive and delayed the recovery.”

When I say that the “Fed saved the economy,” I don’t means with those bailouts. I give Congress and the Treasury Department credit (and the blame) for the bailouts. What the Fed did was pump more than a trillion dollars into the economy within a few weeks. That is what prevented a Depression sized collapse—not the bailouts. But now the Fed has got to figure out how to siphon off all that money without causing interest rates to skyrocket. That may be a bigger trick.


3 posted on 08/23/2009 3:47:38 PM PDT by Brilliant
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To: 1rudeboy
But others worry that declaring the recession over is a tad premature.

Nattering nabobs of negativity? When unemployment is down for 12 months straight we'll talk. My bet is somewhere in 2012......of course we could print more money and string it out til '15.

4 posted on 08/23/2009 3:47:42 PM PDT by ninonitti
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To: 1rudeboy

>>As consensus builds that the recession is over<<

Reminds me of the global warming consensus. We’ll see, soon enough in this case.

The very existence of the consensus tells me it ain’t over.


5 posted on 08/23/2009 3:47:59 PM PDT by RobRoy (This too will pass. But it will hurt like a you know what.)
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To: 1rudeboy
Pardon me for reproducing my reply from another thread concerning auditing the Fed:
... Bernanke has exposed his idiocy on more than on occasion. The latest was this past Friday, 8/21, when he said "After contracting sharply over the past year, economic activity appears to be leveling out, both in the US and abroad, and the prospects for a return to growth in the near term appear good." Source.

The Fed should be audited. If for no other reason than because Bernanke is an idiot. And an idiot has no business running an enterprise like the Fed.

Audit the Fed hard.


6 posted on 08/23/2009 3:48:54 PM PDT by upchuck (Neuter them in 2010 - Send them packing in 2012.)
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To: 1rudeboy

Maybe if Bernanke tries clicking his ruby red slippers together while saying “the recession is over” then that will turn the trick?


7 posted on 08/23/2009 3:49:21 PM PDT by The Duke ("Are you now or have you ever been a member of the Democrat Party?")
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To: Brilliant

>>That is what prevented a Depression sized collapse—not the bailouts. But now the Fed has got to figure out how to siphon off all that money without causing interest rates to skyrocket. That may be a bigger trick.<<

IOW, they put off the inevitable for a few weeks/months. And the longer they try to put it off, the more my tagline applies.


8 posted on 08/23/2009 3:49:22 PM PDT by RobRoy (This too will pass. But it will hurt like a you know what.)
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To: 1rudeboy

“As consensus builds that the recession is over,...”

I guess this is by the same consensus builders who have foisted the globull warming and massive, world-threatening CO2 propaganda onto a largely undereducated public.


9 posted on 08/23/2009 3:50:22 PM PDT by SuzyQue (Remember to think.)
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To: upchuck

I have yet to see someone explain, concisely, what auditing the Fed would accomplish.


10 posted on 08/23/2009 3:52:34 PM PDT by 1rudeboy
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To: 1rudeboy
Interestingly, it was precisely of the existence of the 1933 Glass-Steagall Act that the stock market crash of 1987--despite losing 25% of its value in one day!--recovered so quickly. Why? Because bank assets were not subject to the up and down valuations of equities in the stock market. As such, when the stock market collapsed on that day, the banks became de facto "economic backstops" that held up the economy as the stock market worked through the effects of the crash. What happened in 2008 was an exact repeat of what happened in 1929, where the stock market crash also catastrophically took down the banks with them, since so much of the bank assets were tied up in equities.

This is why besides my call for a complete kiboshing of our current income tax system through repealing the 16th Amendment and replacing the Internal Revenue Code (Title 26) with FairTax, we need these financial system reforms:

1) Require actual liquidity backing to trade in new, "exotic" investments like hedge funds, derivatives, and default credit swaps.
2) Raise the minimum margin requirements for trading in stock futures and commodities futures from 5% to 15%, with as high as 25% on strategically critical items like crude oil, natural gas, certain foodstuffs, certain industrial metals, and precious metals.
3) Revise the Sarbanes-Oxley Act to better balance the need for initial public offerings with account reporting requirements.
4) Reimpose the full provisions of the Glass-Steagall Act to protect bank assets from the ups and downs of the stock market.

11 posted on 08/23/2009 3:52:51 PM PDT by RayChuang88 (FairTax: America's economic cure)
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To: 1rudeboy

The Fed has billions of our tax dollars it can’t/won’t account for.

I’d like to know where my money went. Wouldn’t you?


12 posted on 08/23/2009 4:15:14 PM PDT by upchuck (Neuter them in 2010 - Send them packing in 2012.)
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To: upchuck
The Fed has billions of our tax dollars it can’t/won’t account for.

The Fed doesn't have any of our tax dollars.

I’d like to know where my money went. Wouldn’t you?

I'd like to know where you get your info.

13 posted on 08/23/2009 4:19:35 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: ninonitti
[...] of course we could print more money and string it out til '15.

It's already been printed, or rather, created. Just wait for the inflation. Can't tell you how soon it will show up in the Gubmint numbers, because they'll be busy cooking those like never before. But it is coming.

14 posted on 08/23/2009 4:29:10 PM PDT by Erasmus (Barack Hussein Obama: America's toast!)
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To: 1rudeboy
The recessions over? Sure.

Gosh, I wonder what's coming next?...


15 posted on 08/23/2009 4:34:14 PM PDT by Gritty (GM's a welfare project masquerading as economic activity. Post Obama, America will be, too-Steyn)
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To: Erasmus
It's already been printed, or rather, created. Just wait for the inflation. Can't tell you how soon it will show up in the Gubmint numbers, because they'll be busy cooking those like never before. But it is coming.

Well, I can tell you that it's already starting to show up at the stores. A little price bump here (Smart Balance Buttery Spread up $.40 or so), a little smaller package there (Carolina Pride Smoked Sausage from 16 to 14 oz.) and pretty soon, you're talking real inflation.

16 posted on 08/23/2009 4:36:22 PM PDT by meyer (Do not go gentle into that good night - Rage, rage against the dying of the light.)
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To: 1rudeboy

it’s arrogant when the u.s. congress and former goldman sachs employees

created the mess.


17 posted on 08/23/2009 4:36:54 PM PDT by ken21 (i am not voting for a rino-progressive.)
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To: 1rudeboy
I have yet to see someone explain, concisely, what auditing the Fed would accomplish.

The Fed creates money out of thin air, thereby decreasing the purchasing power of every dollar in existence. As someone who has spent his lifetime doing the right thing, saving for my future so that I can take care of myself and my family, it would be nice to know who receives these dollars created out of thin air, since they are the ones who benefit from monetary inflation - since they are the ones stealing some of the the purchasing power of every dollar I have ever worked to save.

18 posted on 08/23/2009 4:43:23 PM PDT by Swing_Thought (The doorstep to the temple of wisdom is a knowledge of our own ignorance. - Benjamin Franklin)
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To: 1rudeboy
Our economy has been saved?

Is this one of those Charlie Brown fake-outs?

19 posted on 08/23/2009 4:45:56 PM PDT by TheThinker
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To: Swing_Thought
The Fed creates money out of thin air, thereby decreasing the purchasing power of every dollar in existence.

The Fed doubled their balance sheet, have prices doubled yet? Why not?

20 posted on 08/23/2009 4:49:31 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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