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View Diary: Ben Bernanke Says He's Sorry, And He Won't Do It 'Again' (220 comments)

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  •  I'm confused. (2+ / 0-)
    Recommended by:
    panicbean, Athenocles

    Is your criticism that the Fed hasn't been independent enough, or that it's been too independent? Given the way Congress has addressed the situation, I'm not sure having more congressional involvement is the answer.

    Economic Left/Right: -4.00 Social Libertarian/Authoritarian: -6.82

    Your argument is not Scottish.

    by AaronInSanDiego on Sat Nov 28, 2009 at 08:56:35 AM PST

    •  From an article in The Nation. (5+ / 0-)

      Given Congress's weakened condition and its weak grasp of the complexities of monetary policy, these changes cannot take place overnight. But the gradual realignment of power can start with Congress and an internal reorganization aimed at building its expertise and educating members on how to develop a critical perspective. Congress has already created models for how to do this. The Congressional Budget Office is a respected authority on fiscal policy, reliably nonpartisan. Congress needs to create something similar for monetary policy.

      Instead of consigning monetary policy to backwater subcommittees, each chamber should create a major new committee to supervise money and credit, limited in size to members willing to concentrate on becoming responsible stewards for the long run. The monetary committees, working in tandem with the Fed's board of governors, would occasionally recommend (and sometimes command) new policy directions at the federal agency and also review its spending.

      Setting monetary policy is a very different process from enacting laws. The Fed operates through a continuum of decisions and rolling adjustments spread over months, even years. Congress would have to learn how to respond to deeper economic conditions that may not become clear until after the next election. The education could help the institution mature.

      Congress also needs a "council of public elders"--a rotating board of outside advisers drawn from diverse interests and empowered to speak their minds in public. They could second-guess the makers of monetary policy but also Congress. These might include retired pols, labor leaders, academics and state governors--preferably people whose thinking is no longer defined by party politics or personal ambitions. The public could nominate representatives too. No financial wizards need apply.

      Dismantling the Temple

      In a nutshell.  

      Rec'd and tipped, once again.  Thanks!


      If you can't fix it with a hammer, then you've got an electrical problem.

      by panicbean on Sat Nov 28, 2009 at 09:37:42 AM PST

      [ Parent ]

    •  well................Congressional involvement has (2+ / 0-)
      Recommended by:
      xaxado, thethinveil

      not exactly worked now has it?

      The financial sector invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse, according to a 231-page report issued today by Essential Information and the Consumer Education Foundation.

      The report, "Sold Out: How Wall Street and Washington Betrayed America," shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation. Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. The report documents a dozen distinct deregulatory moves that, together, led to the financial meltdown. These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.

      "The report details, step-by-step, how Washington systematically sold out to Wall Street," says Harvey Rosenfield, president of the Consumer Education Foundation, a California-based non-profit organization. "Depression-era programs that would have prevented the financial meltdown that began last year were dismantled, and the warnings of those who foresaw disaster were drowned in an ocean of political money. Americans were betrayed, and we are paying a high price -- trillions of dollars -- for that betrayal."

      "Congress and the Executive Branch," says Robert Weissman of Essential Information and the lead author of the report, "responded to the legal bribes from the financial sector, rolling back common-sense standards, barring honest regulators from issuing rules to address emerging problems and trashing enforcement efforts. The progressive erosion of regulatory restraining walls led to a flood of bad loans, and a tsunami of bad bets based on those bad loans. Now, there is wreckage across the financial landscape."

      America is the only nation in history which miraculously has gone directly from barbarism to degeneration without the usual interval of civilization.

      by Badabing on Sat Nov 28, 2009 at 10:51:47 AM PST

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      •  Daylight disinfects (2+ / 0-)
        Recommended by:
        Badabing, ohmyheck

        Excellent analysis in this link -- thank you.  My understanding is that the SEC rule change regarding reserves in 2004 (Item 5 in this report) effectively increased allowable leverage on securitized mortgages, compared to traditional bank loans held on the balance sheet as such.  This created a rush by the banks to ditch their loan inventories into securitization vehicles, permitting them to show greater asset valuations in their portfolios from the same asset base.  This in turn created a push to expand securitized mortgages as a class of high-leverage assets.  Not enough of those existed to satisfy demand so they were just pushed across desks at the speed of light.  And it all had to do with a rule change in reserve requirements.

        Which brings up the point: the Fed is charges with controlling interest by controlling the money supply.  So what is the money supply?  By any measure, debt is included as a monetary class.  Cash in a paper money regime represents a measure of obligation, as does debt.  So at what point can we say that insurance and derivatives, two other vehicles for measurable financial obligation, are not part of the money supply?

        In fact many financial obligations are now held secretly in off balance sheet holdings, foreign banks, unvaluable securities, and dark pool investments.  The true volume of the money supply is vastly underrepresented and unknown, which has contributed materially to the fragile instability we now experience.  Ben Bernanke and the Fed cabal are keenly aware that their legal mandate has been deeply eroded by the emergence of new classes of monetary instruments.  The solution is to update regulatory autority to include all of those.  

        Failing to do so has made it impossible to assess the true scope of the money supply.  This is especially true when Fed special programs end up funding things like construction projects in Dubai.  In such circumstances a game with rules, like musical chairs, simply becomes a shoving match in which the small are roughly cast aside by the large.

        Ben knows all of this.  He's an enabler of the system that pauperizes the rest of us.  The first rule in any creative enterprise is to observe.  We are a creative people who are not afraid to roll up our sleeves and fix things.  But first we need to recognize that monetary instruments take many forms that are entirely integrated.  We need good data about that integration to effect repairs.  Those who would blind and obscure, like Ben, need to be pushed aside.

        The Shock Doctrine by Naomi Klein -- best book ever, I nominate for a Nobel Prize!

        by xaxado on Sat Nov 28, 2009 at 11:48:17 AM PST

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