Tuesday, January 13, 2009
In reading through Federal Reserve Chairman Ben Bernanke's most recent treatise on the ongoing financial crisis and what the U.S. gubment along with its central bank are doing to remedy the situation, it struck me that if G. Edward Griffin ever does a comprehensive update to The Creature from Jekyll Island, he will have his work cut out for him.
Those of you who have read this fine tome will recall the following essential parts:
Chapter Three: Protectors of the Public
Of course, these follow the even more essential Chapter 1 that discusses just how the legislation for the formation of the Federal Reserve was crafted on a secret retreat to Jekyll Island with the world's most powerful Wall Street bankers and Senator Nelson W. Aldrich, the chairman of the National Monetary Committee and father-in-law to John D. Rockefeller Jr.
Chapters two details the real purpose of the Fed (at least in the view of the Mr. Griffin) and chapter three chronicles the many bailouts that have been conducted over the years, that list growing much, much longer in a very short period of time over just the last year and, hence, the extraordinary effort that would be required to bring it up to date.
As this relates to today's speech, from the chapter two summary comes the following:
The final solution on behalf of the banking cartel is to have the federal government guarantee payment of the loan should the borrower default in the future. This is accomplished by convincing Congress that not to do so would result in great damage to the economy and hardship for the people. From that point forward, the burden of the loan is removed from the bank's ledger and transferred to the taxpayer.This is important since, apparently, some members of Congress need a bit more convincing these days and, in today's speech, the Fed chairman seems happy to do his duty.
After recapping some of the important events of the financial crisis, Fed chief Ben Bernanke then goes on to talk about the Fed's new ZIRP (Zero Interest Rate Policy) "toolkit" which consists primarily of "lending to financial institutions, providing liquidity directly to key credit markets, and buying longer-term securities", and then on to the "Exit Strategy", which will surely be much more difficult than he lets on.
But, the most intriguing part follows.
However, with the worsening of the economy's growth prospects, continued credit losses and asset markdowns may maintain for a time the pressure on the capital and balance sheet capacities of financial institutions. Consequently, more capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets. A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions' balance sheets. The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending. Should the Treasury decide to supplement injections of capital by removing troubled assets from institutions' balance sheets, as was initially proposed for the U.S. financial rescue plan, several approaches might be considered.Some lip-service is paid to the problem of financial institutions deemed "too big to fail", but surely, Ben Bernanke knows that "The Name of the Game is Bailout".
The public in many countries is understandably concerned by the commitment of substantial government resources to aid the financial industry when other industries receive little or no assistance. This disparate treatment, unappealing as it is, appears unavoidable. Our economic system is critically dependent on the free flow of credit, and the consequences for the broader economy of financial instability are thus powerful and quickly felt. Indeed, the destructive effects of financial instability on jobs and growth are already evident worldwide. Responsible policymakers must therefore do what they can to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest.