Bernanke, Paulson Lies

Thursday, June 18, 2009

Par for the course. Reflate those popped tires and keep driving towards that vast chasm in the distance.

Who trusts anyone right now?

From Austrian Filter via Zero Hedge:

February 28, 2007 – Dow Jones @ 12,268

March 13th, 2007 – Henry Paulson: “the fallout in subprime mortgages is “going to be painful to some lenders, but it is largely contained.”

March 28th, 2007 – Ben Bernanke: “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,”

March 30, 2007 – Dow Jones @ 12,354

April 20th, 2007 – Paulson: “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.” , “All the signs I look at” show “the housing market is at or near the bottom,”

April 30, 2007 – Dow Jones @ 13,063

May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”

May 31, 2007 – Dow Jones @ 13,627

June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”

July 12th, 2007 – Paulson: “This is far and away the strongest global economy I’ve seen in my business lifetime.”

August 1st, 2007 – Paulson: “I see the underlying economy as being very healthy,”

October 15th, 2007 – Bernanke: “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

December 31, 2007 – Dow Jones @ 13,265

January 31, 2008 – Dow Jones @ 12,650

February 14th, 2008 – Paulson: (the economy) “is fundamentally strong, diverse and resilient.”

February 28th, 2008 – Paulson: “I’m seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street.”

February 29th, 2008 – Bernanke: “I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”

March 16th, 2008 – Paulson: “We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.”

March 18th, 2008 – Bear Stearns Bailout Announced

May 7, 2008 – Paulson: ‘The worst is likely to be behind us,”

May 16th, 2008 – Paulson: “In my judgment, we are closer to the end of the market turmoil than the beginning,” he said.

May 30, 2008 – Dow Jones @ 12,638

June 9th, 2008 – Bernanke: Despite a recent spike in the nation’s unemployment rate, the danger that the economy has fallen into a “substantial downturn” appears to have waned,

July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, “… in no danger of failing.”,”…adequately capitalized”

July 20th, 2008 – Paulson: “it’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

July 31, 2008 – Dow Jones @ 11,378

August 10th, 2008 – Paulson: “We have no plans to insert money into either of those two institutions.” (Fannie Mae and Freddie Mac)

September 8th, 2008 – Fannie and Freddie nationalized. The taxpayer is on the hook for an estimated 1 – 1.5 trillion dollars. Over 5 trillion is added to the nation’s balance sheet.

September 16th, 2008 – $85 Billion AIG Bailout “Loan”

September 19th, 2008 – $700 Billion Bailout Plan Announced

September 19th, 2008 – Paulson: “We’re talking hundreds of billions of dollars – this needs to be big enough to make a real difference and get at the heart of the problem,” he said. “This is the way we stabilize the system.”

September 19th, 2008 – Bernanke: “most severe financial crisis” in the post-World War II era. Investment banks are seeing “tremendous runs on their cash,” Bernanke said. “Without action, they will fail soon.”

September 21st, 2008 – Paulson: “The credit markets are still very fragile right now and frozen”, “We need to deal with this and deal with it quickly.”, “The financial security of all Americans … depends on our ability to restore our financial institutions to a sound footing.”

September 23rd, 2008 – Paulson: “We must [enact a program quickly] in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses, both small and large, and the very health of our economy,”

September 23rd, 2008 – Bernanke: “My interest is solely for the strength and recovery of the U.S. economy,”

October 31, 2008 – Dow Jones @ 9,337

March 31, 2009 – Dow Jones @ 7,609From


Stiglitz Hates Good Bank/Bad Bank

Wednesday, April 1, 2009

And so do I.

This is the age of the moral hazard. There is no absolutely incentive to do the right thing.

From Stiglitz in the NY Times:

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Ya got that? 1-to-4 odds for that wager. Stiglitz continues:

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses.

When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.

With no good options, Obama, while staving off desperation, is courting true, epic disaster. You spell it with four letters and it got us into this mess in the first place.

Where, I ask, are the criminal prosecutions for AIG, Bear, Lehman, Citi, WaMu, Merrill, etc?

And why is Chris Dodd still in office?

I am not placated by congressional hearings. I want blood.


Fed Taking New Collateral From Banks

Saturday, May 3, 2008

There are a three things that are disturbing about yesterday’s announcement that the Federal Reserve Bank’s new Term Securities Lending Facility will begin taking student loans, car loans, home equity loans, and credit card debt as collateral (in addition to the sub-prime mortgage debt they’ve been taking since the Bear Stearns meltdown).

1) This indicates to me that the credit crunch has spread to the derivative products based on these type of loans and that because of this banks are faced with additional liquidity issues. Scary.

2) The Fed – meaning you and me – will now be on the hook for this potentially bad debt should any borrowers default. This is the moral hazard writ large; another government bailout.

3) The announcement was made just before the bigger story on unemployment figures was released yesterday, and on a Friday, ostensibly to protect against a torrent of unflattering press.

What does this tell you about Wall Street’s rebound? And the Fed’s take on the risks to our economy?


Wall Street Journal

Friday, May 2, 2008

It’s not often that I find myself in agreement with the Wall Street Journal’s editorial page. But yesterday, I found, in the Review & Outlook section, two opinions that I agreed with. The first was about Bernanke’s rate cut mistake. Readers of this blog know where I stand on that.

The second was about New York’s impending tax on Internet sales. This, to me, is just a profligate money grab that demonstrates zero fiscal responsibility on the part of Albany (what else is new). In a time when revenues are sure to fall short and budget deficits will be the norm, raising money this way, rather than cutting budgets, is a weak-willed capitulation to the status quo (what else is new).

Unfortunately, I can’t link to either opinion because they are only available to subscribers. I thought Murdoch was going to make the whole thing free?


Fed Cuts Rate to 2%

Wednesday, April 30, 2008

As expected, and against my wishes, the Fed cut the federal funds rate a quarter point to 2%.

Signals are mixed as to whether or not they are done cutting.