Wikinvest Wire

Did Bernanke mean supervision or bailout?

Thursday, March 18, 2010

Perhaps there is some context, somewhere, that makes yesterday's words from Fed chief Ben Bernanke's prepared remarks before the House Financial Services committee on the subject of the Fed's role in bank supervision seem less filled with hubris than they first appear. But, if there is, I couldn't find them.

The Federal Reserve is uniquely suited to supervise large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole.
...
The insights provided by our role in supervising a range of banks, including community banks, significantly increases our effectiveness in making monetary policy and fostering financial stability.
Maybe he's confusing risk assessment and fostering stability with bailing out the big banks, something that the Fed chief has proven himself quite proficient at over the last few years.

If a few substitutions are made (in bold), this seems to make a whole lot more sense.
The Federal Reserve is uniquely suited to supervise bailout large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole future bailouts.
...
The insights provided by our role in supervising bailing out a range of banks, not including community banks, significantly increases our effectiveness in making monetary policy and fostering financial stability guaranteeing that there will be more bailouts.
Yes, that's much better.

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1 comments:

Anonymous said...

It printing for bailout purposes that is largely responsible for too low interest rates. The early 90s S&L printing bailout was largely responsible for the subsequent Y2K bubble. After that there was no turning back. A new bailout was needed every few years as the debt mediated bubbles popped, with each bailout larger than the one before. Finally, printing alone could not bail the banks out, so they demanded taxpayer assistance.

Reliance on printing bailouts has made the banks uncompetitive, and encouraged stupid business models. The banking system will never adopt sound business models as long as they can just print to bail themselves out. There is no market discipline to eliminate stupid business plans, like in other industries.

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