A new name for Bernanke: Hero

It's hard to see Gentle Ben as a hero. He was presented with only one realistic option - save Bear Stearns or trash the entire economy. Someone mentioned this before on another post -- this is blackmail, or a hostage situation... "pay or you lose your beloved economy."

Ben and those that made the decision with him (or for him) faced no real dilemma: there was only one course of action. So, no real choice, no hero.

As for the "high hard one," no one really has any expectations anymore of leadership from that neck of the good ol' party, do they?

If you follow Krugman's blog at NYTimes.com, you might have seen an article on Iceland getting its bubble popped. Their politicians have been claiming manipulation by hedge funds. Supposedly Bear Stearns organized a junket to Iceland for Hedge Fund honchos a while back and they have conspired to devalue the ISK and jack up interest rates.

Large fortunes have been made in the arbitrage between the ISK and the Yen recently. The question over the last few days is who is going to bail out the entire country now that their newly highly leveraged economy is tapped out. (It's not big, but certainly worthy, and full of fresh fish and fish oil).

Last Musings: People are and will be making large fortunes playing the same games with our shrinking dollars. These people are the enemies of slow steady growth. We really need slow steady growth.

Debasing the currency in order to bail out a bunch of multi-billionaire fat-cats on Wall Street does not a hero make, sir. Nor is he a hero for keeping interest rates artificially low, when clearly, higher interest rates and a market correction are so sorely needed. Much like in the 60's and 70's, this plan for "guns and butter" are going to lead to a recession that's going to make past recessions look like a walk in the park. The longer it's put off in this manner the worse it will be in the long run. Already, many foreign nations are refusing to accept the dollar, the first sign of impending collapse, caused by printing money from thin air to make up for absurd federal budget shortfalls and to create new bubbles from credit that doesn't really exist. Seen the price of gas, food and housing lately? Keep watching your hero Bernanke, sir, because those prices and our inevitable economic collapse are the direct result of government and Federal Reserve policies. It's not even a matter of "if" anymore, it's a matter of "when" and I suspect that it won't be much longer.

"He also chucks a high, hard one directly at the president, for failing to provide economic leadership at a time when it is so clearly needed."

No one should be surprised at this. Look at the absolutely reckless way Mr. Bush has "managed" financial matters since becoming president. He's run up more national debt than any president in US history. He decreased revenues with a highly preferential tax break, while radically increasing spending and debt. He expected some kind of magic to make up the difference, apparently. Bush is making the exact same financial mistakes as LBJ, and we'll be paying for them for decades. So no surprise Bush is utterly clueless about the present debacle.

Can't decide whether the issue here is the pleasure of seduction, or just codependence. Maybe two sides of the same coin. I don't believe for a minute the Mr. Bernanke deserves anything even remotely close to 'hero' status. 'Saving the financial system' by handing over $29 billion of the public money, please. If anything, Mr. Bernanke has stirred the kind of panic that the JP Morgan bailout is purported to avoid.

Rather than get into specifics, here's a little note I sent off this morning;

Dear Senator _________;

I am writing to express my strong concern regarding the transactions involving the acquisition of Bear Stearns by J.P. Morgan with the assistance of public funds provided by the Federal Reserve System (Fed). The socialization of business and credit risk send a terrifying message to the citizens and taxpayers of this country that will, if not corrected in a meaningful way, lead in the future to dramatically greater risks being absorbed by the public. Put bluntly, I am strongly concerned that the Fed action is something that is to be expected in 'banana republics' with all the economic, financial, and societal features exhibited by such countries.

In brief,

the Fed acted illegally in providing $29 billion of public funds to J.P. Morgan in exchange for collateral provided by assets owned by Bear Stearns,

the public has been provided no auditable records by which any judgments of the reasonableness of the transactions can be made, a basic feature demanded of democratic nations with transparent government institutions,

the Fed has set a terrifying precedent that will in the future expose taxpayers to the further credit risks, particularly troubling at a time in the nation's history when the obligations of the government's social contract with its citizens, namely the Social Security and Medicare programs, are at the threshold of providing the 'baby boom' with the benefits that have been promised and paid for, and

the Congress and Federal agencies, especially the Fed and the Securities and Exchange Commission, failed to provide any meaningful oversight of the off-balance sheet activities of the nation's money center banks during which time the present scandal was produced.

While I have looked through your website for information on your views regarding the current mortgage and banking scandal, I see no references to your having taken any position regarding these outrageous events, and in particular, the failure of any meaningful oversight by the government whose job it is to protect the people who are now being forced to absorb the risks of the Fed actions in the Bear Stearns transactions.

I would appreciate your taking the time to inform your constituents that you will a) actively oppose any further actions by the Fed to provide public funds to protect any banks and investment companies from realizing the credit and business risks that they have taken on behalf of their shareholders, b) affirm your support for aggressive pursuit of mortgage companies that engaged in fraudulent business practices during the past ten years, and c) strongly support legislation that will provide effective meaningful federal regulatory oversight of banks' and financial institutions' off-balance sheet activities, including requirements to standardize 'structured credit products' and 'collateralized structured debt ' mechanisms, and the creation of formal markets for the trading of these products.

In the recent Bear Stearns transactions, I can see no evidence to support Fed Chairman Bernanke's contention that the bankruptcy of Bear Stearns would threaten the nation's financial system. In fact, I strongly believe that the nation's bankruptcy laws would have afforded the company to either restructure, recapitalize, or liquidate itself without jeopardizing other parties' that relied on Bear Stearns' business activities or acted as counterparties to transactions involving Bear Stearns. However, the absence of any reasonable amount of transparency in these transactions make it impossible for the public to determine whether Mr. Bernanke's claims can be verified. I do see Mr. Bernanke's statements as thin veils for a desperation and panic to cover the Fed's failed 'asleep at the switch' monetary policy posture that includes the entire term of Mr. Greenspan.

Failures by the Federal government to effectively oversee the financial markets generally, and mortgage brokers and investment companies that created complex and opaque structured credit products in particular, have resulted in the setting of a very troubling precedent for this country. I would very much appreciate that you will oppose in your voting and advocacy, any and all legislative attempts to reduce the United States to 'banana republic' status, with all the attendant features of such hopeless states of being.

I am at your service should you or your staff wish to discuss the issues with me in more detail, or have any questions.

Yours very truly,

You are kidding right? unless you mean last action hero.

Bernanke couldn't find his ass with both hands.

"Patsy" sounds more accurate...