Tuesday, August 25, 2009

Bernanke Reappointed, Court Order and FDIC

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Federal Reserve Chair Ben Bernanke is going to be reappointed for another 4 year term. Obama decided to reappoint Bernanke because he wanted to keep together the team that had weathered the Credit Crisis, an administration official said. This is of course like reappointing the team that did such a 'good job' handling Hurricane Katrina. Just as Bush praised those incompetents, 'change you can believe in' Obama praised Bernanke for preventing another depression. Bernanke was first appointed by Bush and didn't foresee the Credit Crisis coming, nor did he respond appropriately once it did. There is of course also no evidence that another depression has been prevented . So far, it is just some fantasy that politicians inside the Beltway keep repeating to each other.

In other Fed related news, a federal court in New York has ordered the Fed make available information from 11 of its Credit Crisis programs to the public. The court ruled that the Fed improperly withheld records under the Freedom of Information law. Bloomberg News sued (kudos to them) and is trying to find out how much money was given to which banks. In its defense of the case, the Fed (which I would like to remind you is only a quasi-governmental entity - the big banks own stock in it and have their representatives sit on the Fed's regional board of directors) essentially maintained that it was above the law. Undermining our democratic system - just another example of the 'good job' that Ben Bernanke has been doing.

The FDIC is also in the news again. For some reason, even though the Credit Crisis is supposedly over and the economy is recovering U.S. bank failures are skyrocketing. The agency needs new bidders for failed banks because existing banks are now avoiding purchasing them. The FDIC's deposit insurance funds are also getting depleted. The FDIC is proposing a rule change that will allow private equity firms to buy failed banks and maintain capital ratios of 10% instead of 15%. This will of course make the failed banks likely to fail again - and I bet the private equity firms will scream for a government bailout when this happens. Indy Mac and Bank United were already sold to private equity firms earlier this year. Based on this news, we can presume that the FDIC is not using the Bernanke approach of threatening to fire any bank president that doesn't agree to the government's proposed takeover demands, as happened with Bank America. Since these banks are NOT too big to fail, they are not being directly nationalized as was AIG or indirectly nationalized as was the case with most of the big U.S. commercial banks and brokers. Undermining our capitalist system - just another example of the 'good job' that Ben Bernanke has done.

The biggest danger in any crisis is leadership that is oblivious and is in denial. The crisis only gets worse under such circumstances. Bernanke has been a disaster as a federal reserve chair by any criteria that you wish to measure his tenure by. Obama is not only totally ignorant of basic economics and devoid of any ideas for handling our current situation, but is even oblivious to what the current situation is. His actions remind me of Herbert Hoover's famous June 1930 press conference stating the Depression was over. Hoover was more than a decade early.

NEXT: Consumer Confidence Game and Housing's False Bottom

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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