This week, I am inspired by the awarding of the Nobel Prize in Economics to our own highly regarded Ben Bernanke, one of the world’s greatest economists who recognized, contrary to the average dolt who felt otherwise, that we were not in a recession in the summer of 2008 and that, in fact, there was no recession as far as the economist’s glass eye could see. Silly, ordinary people believed otherwise. So, thank God we had the guidance of Uncle Ben.
To this day, standing now nine months into falling GDP, BB continues to exhibit that shiny little pellet of economic insight he had back then, though he notes today we are at some risk of falling into a recession on the far horizon this time due to the Fed running without him and not seeing inflation as it should have.
As Jeffery Tucker comments,
Our times are stuffed with daily ironies all pointing to the same grim reality: the failure of experts, particularly those in charge of the many systems that manage our lives.
And, so, the Nobel team awarded the honor to Gentle Ben on the basis that he masterminded the sales pitch for bailing out banksters who broke their banks with years of reckless and greedy gambling. Ben Burn-the-banky did let a few banks like Washington Mutual go up in smoke, but that was because they were not on his friends list, being risk-rolling upstarts from far outside the New York scene.
That is why the cigar smokers on Wall Street designated them with the condescending label “thrift banks,” as if they are the Salvation Army Store of banks, never mind that WAMU was one of the largest banks in the world, so as “too big to fail” as any, I should think. Yet, fail it did, and no one is the worst today for simply letting it fail and part out in bankruptcy! It was just not as important as the ivy-league banks like JPMorgan and Chase (not at that point Siamese twins as they are today) and Goldman’s Sacks of Gold in Ben’s neighborhood.
JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — were the recipients of 63 percent of the Fed’s average daily borrowing, representing about a half-trillion dollars at peak periods just for those firms. The bailout plan not only didn’t really help community banks, it massively accelerated their disenfranchisement, by placing them in a separate economic class from those deemed Too Big to Fail. This is why the Independent Community Bankers of America supported the bill introduced by Sherrod Brown (D-OH) and David Vitter (R-LA) in 2013 to break up Too Big To Fail banks.
That bill failed, thanks in part to the diligent work of Bailout Ben, who saved the “too-big-to-fail” by forcing them to merge in secret weekend meetings; thereby making them twice as too big. Those banks Ben helped “save” — a word that nostalgically now used to be associated with the core business of banks but is no more, thanks to those like Bernanke who have remodeled them as casinos with government banking– went on to give their CEOs massive bonuses for saving their banks by socializing their risks upon the taxpayer. The loans they took out with taxpayer banking and applied to their bonuses were, of course, eventually paid back … with new loans backed by tax-payers as the insurers of last resort made out of new free money created for them by the Fed and with various other direct deposits of the free Fed funds. US Treasurer Hank Paulson worked in collusion — I mean collaboration … I mean cooperation — with Bernanke to make sure the bankers they knew best got the full support of the government.
What we learned from this, as part of the moral hazards involved, was that these CEOs deserve even larger bonuses than the obscene incomes they formerly had to live with back then because of their unique business skills. You see, to become CEO of a major American global bank, one has to have the uncanny ability to crash his bank into bankruptcy in order to convince the government it must be saved in order to save America and the world in order to turn it within a year to even greater prosperity as a result of all the new free money one acquires from Fed and Feds.
Not every CEO has the audacity to capsize something the size of the Queen Mary or the skill to do a complete roll and right-side it topside again as a glimmering palace on a sea of turmoil without even getting the passengers wet. It is for those outanding manuevering abilities that these captains of industry get the big bucks. Geniuses like Jamie Dimon (pronounced, I think, “demon,” not “diamond”) have the unique cachet in the world of business and politics to pull that off. And the kingpin of them all, the president of Club Fed, just got the world’s biggest award in economics for masterminding the salvation of these banksters.
Thanks to Uncle Ben’s perverted rice, the US was able to reinflate the crashed housing bubble and make it grander and more precarious than ever before so that we can now re-pop the bubble all over again — something they said couldn’t be done when they told us there was no moral hazard from bailing out bubble crashes.
People say that if Bernanke had not acted in 2008, the financial system would have collapsed. That’s what they always say. What it really did was forestall an important teachable moment for market actors. It bailed out a whole range of institutions that had lost concern over risk and rationality. The result was a massive moral hazard that applies to banks, politicians, and policymakers generally.
A moral hazard occurs whenever a policy response reinforces and perpetuates exactly what it is designed to prevent. It is a reward for bad behavior. That’s exactly what happened, and the lesson echoed into the future and was picked up again in 2020….
As a result, you had the political class and central bankers all working together to perpetuate one of the great policy catastrophes of the modern era….
Look where we are today: soaring credit card debt, collapsed savings, and relentless declines in real income.
That is all because, with Bernanke’s steady hand, we rebuilt the entire bubble and added several more even grander bubbles around it, all of which we are now getting to crash again — the stock bubble, the zombie corporation bubble (inflated by bailouts and Fed-funded cheap credit), the gargantuan bond bubble (recreated again out of mortgage-backed securities), and what one might call “the money bubble,” itself, which is now crashing currencies all over the world and causing massive inflation.
Bernanke also helped assure that all banks that were “too big to fail” were spared from being made smaller and actually came out far more too big to fail than ever before so that there would be no way they could fail again because they are bigger! Then when 2020 came and bubbles started popping, inspired by all that Bernanke had done, we doubled down on all of it and blew them up bigger still.
That is because the genius of the Bernanke plan was that it assured major banksters that congress, which was afraid to let big banks fail from 2008-2010, would be absolutely horrified at the prospect when it came again, guaranteeing ready bailouts in the future in order to protect the bonuses of the world’s most-skilled CEOs. Of course, it came again in 2020, and now it’s coming again, again, as the bubbles foam up faster and higher and explode all over the place.
So, a Nobel Prize in Economics for Beneficial Ben, the Benefactor of Banksters!