Tags: Money | Presidential History

Bernanke Ducks Crash Responsibility in New Book

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Thursday, 08 Oct 2015 11:53 AM Current | Bio | Archive

Former Chairman of the Federal Reserve Ben Bernanke shows self-effacing humor by titling his new memoir "The Courage to Act."

Does this mean the courage to take action? Or the courage to go on stage before the public as an actor playing a fictional role? In Bernanke's case, both meanings fit.

His memoir is about the financial crisis that began months after he became the head of America's Central Bank in 2007. This crisis sank Lehman Brothers, one of our nation's largest financial institutions, because the Fed chose not to act decisively to save it.

During the ensuing panic, the Bernanke-led Fed made or facilitated tens of trillions of dollars in loans to prevent banks here and abroad from likewise going under and causing a global economic collapse.

By such bold actions, along with the dumping of up to $8 trillion in various kinds of stimulus spending, Bernanke takes modest credit for saving our economy.

Others are to blame, he suggests, both for the 2008 near-crash and for the slowest recovery from a deep recession in America's economic history.

Despite vast stimulus, annual economic growth since 2008 has averaged less than 2 percent, and today we have many Americans without jobs, possibly not seen since the depths of President Jimmy Carter's recession nearly 40 years ago in 1977.

In 1913 President Woodrow Wilson signed into law the quasi-private, quasi-governmental Federal Reserve System. Prior to that, presidents such as Andrew Jackson fought to prevent a European-style Central Bank that could issue, manipulate, and politicize a paper fiat American currency.

A young America prospered by using hard, honest gold and silver as its money, which constrained how much government could spend or grow. The 1913 congressional authorization of the Federal Reserve launched its power to "furnish an elastic currency" that politics could vastly expand.

Where did the 2008 near-crash come from?

Under President Jimmy Carter the government began the Community Reinvestment Act (CRA) to force an end to racial discrimination in bank lending.

Under Carter and then President Bill Clinton, CRA became a weapon to intimidate banks into lending hundreds of billions of dollars to people who had been un-creditworthy. Banks called such people NINJAS, which stood for "No Income, No Job or Assets."

These politically-coerced subprime, no-money-down loans were susceptible to easy default, and banks sought to shed this risk by bundling such mortgages, getting underwriters to vouch for and insure them, and then selling them to others, including banks in Iceland and Norway.

As long as real estate prices kept rising, people turned their homes into ATMs — as banks lent up to 125 percent of market value.

But as this rocket fuel began to sputter in 2006, homeowners who had no equity in their homes began to bail out. This virtual Ponzi scheme softened and by 2008 collapsed, leaving millions underwater with mortgages bigger than the suddenly much-lower value of their homes.

Bernanke now blames the major banks for this crisis and suggests that President Barack Obama imposing fines and penalties of more than $100 Billion on banks was not enough. Bankers should not be "too big to jail."

Investor's Business Daily proposes jail time for some others, including politicians who imposed reckless CRA lending as wealth redistribution.

The Fed itself aggressively slashed interest rates, which, as IBD notes, "stoked risky subprime cash-out refinancing."

And during this period, 2002-2006, Bernanke was a member of the Federal Reserve Board and shares responsibility. Why not jail Bernanke?

The Fed may have killed capitalism in 2008 by money-warping us into ZIRP, zero interest rate policy, an alternative universe where interest rates are zero; government is addicted to free money; thrift pays no interest; borrowing is free, at least to giant entities; and the stock market casino goes up while the real economy wallows.

Craig R. Smith and I explain all this in our latest book, out this month: "We Have Seen The Future and It Looks Like Baltimore: American Dream vs. Progressive Dream."

Can we ever return to pre-Bernanke, non-crony capitalism; or would the attempt blow up our economy and future? Thus far the Fed lacks the courage to act, to raise interest rates above zero.

Lowell Ponte is co-author, with Craig R. Smith, of "The Great Withdrawal"; "Crashing the Dollar: How to Survive a Global Currency Collapse"; "The Great Debasement: The 100-Year Dying of the Dollar and How to Get America's Money Back"; "The Inflation Deception: Six Ways Government Tricks Us . . . And Seven Ways to Stop It"; and "Re-Making Money: Ways to Restore America's Optimistic Golden Age." Read more reports from Lowell Ponte — Click Here Now.








 

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His memoir is about the financial crisis that began months after he became the head of America's Central Bank in 2007. Can we ever return to pre-Bernanke, non-crony capitalism; or would the attempt blow up our economy and future?
Money, Presidential History
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2015-53-08
Thursday, 08 Oct 2015 11:53 AM
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