This is part II of the entries explaining why the Flying, Fickle Finger of Fate came to rest pointing at Henry Paulson and Ben Berananke, joined by Barack "World" Obama. Part I has already been proven correct over the weekend, as Goldman Sachs and MOrgan Stanley admitted their present business model did not work, and converted into bank holding companies. Who created the Goldman Sachs business model that has failed. It was people like Henry Paulson and Governor John Corzine of New Jersey (former CEO's of Goldman Sachs). As I said in part I, Paulson came directly from Goldman Sachs to fail as secretary of the trasury--failing to bring any recognition from Goldman Sachs that problems were brewing. As Secretary of the Treasury, Paulson coninued that Goldman Sachs blindness for two years. As stated in part I, Paulson and Bernanke are not heroes. They are two of the worst failures in the history of finance. That brings us to that other failure, Ben Bernanke.
There is this developing Big Lie that this financial crisis is the result of "deregulation". That is false. This crisis had to do with government empires and corporate empires incestuously working together. Thus you had finanancial giants created by merger--not alleged to be too big to fail--and government giants (Fannie Mae and Freddie Mac) created by the central planning idea that every American should be able to buy a home. Now Fannie Mae and Freddie Mac were expanded by the Clinton Administration to basically expand mortgage financing to almost everyone, including minorities with questionable credit. They were protected from limitations and restrictions (remember the McCain sponsored "Federal Housing Enterprise Reform Act of 2005") by powerful people in Congress. These people included Democrats Christopher Dodd and Barney Frank, One of the most obscene spectacles around, in fact, is the spectacle of Barney Frank proposing a "surtax" on the "rich", because so many of the 'rich" were involved in getting us into this mess. It was Barney Frank who defended the excesses of Frankline Raines and Fannie Mae up until the very end--blocking attempts to rein in Fannie Mae and Freddie Mac even after the excesses at Fannie Mae forced former Clinton Administration official Raines out as CEO (to which he was appointed out of the Clinton Administration in 1999) out as CEO in 2005 under a cloud of financial impropriety at Fannie Mae.
Ben Bernanke. Bernanke came from academia (Princeton at the end). That indicates academia is just as bad, or worse, a place to look for Fed, Treasury, and budget appointees as Wall Street. Bernannke was a member of the Board of Governors of the Federal Reserve beginning in 2002. The became Fed Chairman on February 1, 2006, or 2 !/2 years ago--just in time to fail miserably.
2002 was about the time that the housing "bubble" gegan to go nuclear. During the Clinton Administration, a policy had developed of promoting mortgages for everyone. Fannie Mae and Freddie Mac had exploded as these massive central planning entities financing mortgages so that banks could lend ever more (as Fannie Mae and Freddie Mac took old mortgages off the hands, and balance sheets, of the banks). When the "Sush expansion" (following the "Clinton dot.com recession" and 9/11) began in 2002, housing prices finally began to take off (as was virtually inevitable, given the expansionist government policies encouraging loans for home ownership). A housing "bubble" was soon obvious to almost anyone--just as obvious as the dot.com "bubble" only a few years before, which had supposedly taught us all "a lesson" (lol).
Where was Bernanke? His sterm at the Fed Board of Governors coincided directly with the housing "bubble" that created this crisis. Remember, housing prices collapsed first, because of excesses in mortgage lending. This caused, and exposed, the excess leverage and empire building on Wall Street. Except for the housing "bubble", Wall Street would not have gotten in trouble. That is why it is ridiculous to "blame" the financial crisis on "deregulation" of Wall Street. The crisis began in mortgage lending and housing, which were areas directly subject to regulation and oversight of the Fed, at least in part, however much Congress frustrated effective controls at Fannie Mae and Freddie Mac.
As stated, Bernanke was there from the beginning of the time that the housing "bubble" began. Where were his warnings? Where were his calls to banks regulated by the Fed to watch out for the developing "bubble" in house prices and mortgages? Where were his calls for more intense scrutiny of housing loans, to make sure that banks were not getting too greedy? Where was Bernanke? He was nowhere to be found. There is no indication that he was demanding reform of Fannie Mae and Freddie Mac. There was no indication that he thought speculation in housing, and in mortgages, was spiraling out of control, where our financial system was at risk for when the housing "bubble" burst. Bernanke had to be aware that every housing boom has been followed by a correction, in his entire lifetime. He was faced with an unprecedented boom, which surely meant an unprecedented bust was on the way. Bernanke did effectively nothing.
Then Bernanke was appointed chairman of the Fed in February of 2006. He still had 2 1/2 years before we would get to this point. He did..................not much.
The Fannie Mae accounting scandal, indicating a mortgage "bubble" out of control, had already happened by the time Bernanke was appoint Fed Chairman. There were mounting signs that the housing "bubble" was about to burst. Where was Bernanke? He was missing in acton--merely reacting to crises as they happened. Countrywide, involved with Obama close advisor Jim Johnson and with Christopher Dodd, went under (had to be bought by Bank of America). Citicorp (fully Fed regulated) had difficulties. Still, there may have been time to act. Bernanke was missing in actioin, except to address each crisis. So was Paulson. The "subprime" crisis was already in its beginning by 2006, and certainly by 2007. Still, Bernanke and the Fed failed to see the developing bursting of the housing "bubble", and what it would do to all financial institutions if systemic, aggressive action was not taken quickly. It should have been obvious that "subprime" loans were not the real problem. The bursting of the housing "bubble", and excesses of all banks and financial institutions in reliance on that "bubble", was the problem.
Enter IndyMac bank. IndyMac was a company in which I lost money (as an investor). I lost money because of the theory that a bank this big, regualted by the Fed, with access to financing provided by deposits from consumers, would not fail. That was wrong, because Bernanke and the Fed failed to do their job in recognizing how banks were, and had, reacted to the greed created by the housing "bubble". IndyMac did not, supposedly, do "subprime" loans. It did not matter. IndyMac still was slammed by the bursting of the housing "bubble". It had gotten greedy, and made too many loans based on inadequate documentation and no downpayment (including second mortgage and refinancing loans). IndyMac went under, despite being fully regulated by the Fed and not--supposedly, like Fannie Mae and Freddie Mac--engaging in "subprime" loans. And there are people who stll blame this on "deregulation". IndyMac went under before Lehman Brothers and the Wall Street problems. Many other banks fully regulated by the Fed are in trouble. This proposed bail out is not just for Wall Street, but for banks as well.
Ben Bernanke did effectively nothing to head this crisis off, despite almost 3 years of warning.
As I have said, Henry Paulson should be fireed. Ben Bernanke should be asked to resign. They both failed in their jobs, despite more than adequate warning. If either, or both, had merely publicly warned about the housing "bubble" three, or even two, years ago, and demanded that everyone take action to cool it down and reduce risk, we would not be where we are.
Nope. These two men failed as badly as two men can fail. Now they want us to "trust" them to know what to do. Why should we? They have proven that that do not know what to do, when they could have done things to save the taxpayers having to put up one trillion dollars.
As previously stated, I can't be sure that Bernanke and Paulson are wrong about what has to be done now. I am sure that (as McCain says, although I said it first) that we should not hand the economy over to these two men to "manage". These two men should not be managing anything. They have proven themselves incompetent.
End of part II. Part III will deal with Barack "World" Obama. Henry Paulson and Ben Bernanke, meanwhile, are conclusively established as deserving recipients of the coveted/dreaded Flying, Fickle Finger of Fate. Part III, on Barack "World" Obama, will be upcoming.
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