Bernanke Under Attack - 6 / 25 / 2009

Finally it would appear that Congress is beginning to wake up. Is this because its constituents, the American People, are finally catching up with the detail of the Fed/Treasury/Executive Branch's gross over stepping of financial powers? Have the American people finally realized that we have simply repeated the same mistakes of the past that brought us to this financial precipice? This government, in combination with investment and commercial banks that brought the American Real Estate, Industrial, and Financial systems to the brink of destruction, has now used leverage yet again to solve ALL problems.

Mr. Benanke is a bunch smarter than me, and he certainly speaks more clearly than Greenspan and, pleasantly is not at all sneaky like Greenspan was. So why would he be knowingly adding leverage in historic proportions to the largest pile of leverage ever created? The simple answer is that the problem is really so big that only the world's faith in US government could keep the US and therefor the world's economies from imploding (and entering a dark age of finance). Perhaps that is a bit dramatic. But this is the argument the US government would have us all believe.

But my fear is that there are darker forces at work here. CEOs of the world's financial corporations that are not only smart like Bernanke, but are exceedingly more street smart. You don't rise to the top of these institutions without being very smart, very expert, and very good at understanding and using pressure points on your employees, bosses, and regulators. And in the case of our recent financial crisis, these players who gamed the system with leverage to create fat returns for themselves, were able to compel Benanke and earlier on Paulson to save their firms..all of them but for a few sacrificial lambs - Lehman and Bear Sterns

Unfortunately for these CEOs, Bernanke is no dummy either. He has quickly caught up and has begun revealing the reality of the past bail out events. And what do the Financial CEO's do when they fear more dark secrets will be disclosed to the public at large? They do what they do best and use pressure points to redirect Bernanke's over all efforts. Somehow, miraculously, right at the moment Bernanke is requesting that Bail Out money not be returned by banks yet, his entire leverage package which has saved all of their jobs, and most of the banks they ran into the ground only 6 months ago - the CEO's are no questioning the merits of their career saving bail out packages.

Queue the anti- Bernanke debate. Drag him out in front of the congressional panel and begin knocking holes in the processes he funded. Remember though, he did not create these payment / bailout solutions - the Treasury did. The Fed's only job is to use economic data to determine the prime interest rate. The Fed can then use its balance sheet to prepare for the needed liquidity or contraction of the money supply as may be required by the regional Fed banks to support the financial markets requirements that a change in the prime interest rate creates.

Now, given the fact that the President uses any opportunity to give a speech (he's already given more televised speeches than Ronald Regan and George Bush I combined), why isn't Obama stepping up and giving a speech or a press conference in support of Bernanke? I am not certain. But I do not like it. It suggests that this engineered solution of the financial crisis is in serious question among the world's financial powers, that regardless of the stock market performance since hitting its March low, there are real concerns about the effectiveness of the financial rescue package. And the Executive Branch knows this well. So being politically astute they have used bi-partisan committees to put hard questions to both the Treasury and the Fed. Whoever cracks first will be the scapegoat should this bailout prove to have limited effectiveness.

So this market, and the near term value of the US economy as a whole remains uncertain. We have created liquid, efficient markets and added to it instant top level information. We have yet to determine the bottom of this market. It may have been in March 2009 - but its a long summer ahead. I still believe that the stock market will bet at 10,000 before the end of the year. But it won't be on fundamentals, it will be on speculation, better than expected dollar strength, a weak pound sterling, and a series of positve government and commercial bank performance releases. If we can't build value we will certainly speculate on its eventual return.

Build Value Every Day

Bradford van Siclen