The bubbles, toils and troubles that nearly wrecked the financial system should've been obvious to the policymaking numbskulls whose monetary tricks made matters worse.
"Arrogant and incapable of learning."
When a teacher uses those words to describe a student, it's an isolated (if regrettable) situation. But the repercussions are widespread when "arrogant and incapable of learning" fits the Federal Reserve like a glove.Still clueless after all these bubbles Frederic Mishkin, a former member of the Fed's board of governors, wrote an article in last Tuesday's Financial Times that displayed that he, and presumably other Fed heads, have learned exactly nothing from the disastrous consequences of their activities in printing money over the past couple of decades.
The headline sort of says it all: "Not all bubbles present a risk to the economy." That is completely false. Any genuine bubble poses great risk, which is why they should be avoided, as I have warned repeatedly since at least 1997.
How the Federal Reserve creates money
In any case, crowd psychology gone mad can produce a bubble in most anything. But when that mentality bumps into central banks like the one that has evolved in the United States under the tutelage of the Fed's Alan Greenspan and Ben Bernanke (who are now being emulated nearly everywhere), incredibly disastrous policies follow. Nothing to fear? Mishkin opens by arguing that a potential new round of asset bubbles would not, contrary to what some people have suggested, "provide a case for the U.S. Federal Reserve to exit from its zero-interest-rate policy sooner rather than later."
So for anyone who ever gets tempted to be sucked in by the Fed's tough-guy talk, this is another example that nothing short of radically higher inflation or, more likely, a far lower unemployment rate will cause the Fed to tighten the money supply by raising interest rates -- unless, of course, the printing press is taken away first. (That, too, is a subject for a different week.)
Video: Financial reform and the Fed
Folks might remember Greenspan's mantra that a bubble couldn't be determined in advance, when in fact the bubbles that I just referred to were impossible to miss for anyone with any common sense (though, as I mentioned, many people did miss them).
Now Mishkin would have us believe that he (and, I guess, other Fed heads) can in fact identify bubbles as long as they're of a particular variety, one that he dubs "credit-boom bubbles." Essentially he describes the recent real-estate bubble, which was fueled by incredibly insane lending policies, the ones I railed against as they were being pursued circa 2001-08. More from MSN MoneyIndia's big vote for a gold rallyNew crisis ahead? 5 things to watchObama team ignores Volcker at its peril9 questions Wall Street must answerThere's no will to fight inflationBad bubbles, good bubbles Mishkin distinguishes that bubble from what he calls a "pure irrational-exuberance bubble," by which he means an equity bubble, like the one that culminated in March 2000. He says that there's a difference (there is -- debt bubbles are far more dangerous) and that a pure irrational-exuberance-type bubble is nothing to worry about, because that tech-driven bubble was "followed by a relatively mild recession."
Of course, that recession was mild because of the government money printing that ensued, which helped precipitate the credit bubble that Mishkin now believes is something we might want to (only) think about preventing.
You see, he isn't really certain that these credit bubbles ought to be stopped. He suggests that if it were determined that a credit bubble was under way, "there might (my emphasis) be a case for monetary policy to step in."Mishkin impossible So after all the job losses and the near-vaporization of the financial system -- which caused the Fed essentially to give money away by driving interest rates basically to zero while simultaneously scaring the Fed and Treasury into spending trillions of dollars in the form of lending and bailout schemes -- the orchestrators of the biggest bubbles in history have learned exactly nothing.
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They had better think about raising interest rates soon or they are going to put millions of people who depend on money market accounts, CDs and etc. to cover living expenses out on the street.
My own brother died in June 09, officially heart attack, but it was really from fear and anxiety of running out of money with no income coming from interest. He got extremely weak, tried to mow his small back lawn, he sat down in a chair and said I can't do it!!!!!
He slumped over, His wife immediately called 911, three minutes later the ambulance came and medics were working on him but they couldn't save him. America must do better.
That's not true -- that nobody saw the real estate bubble.
It happened exactly as predicted by the NY Times in 1999, when the Clinton administration forced an increase in subprime mortgages. The Times said it was risky, and could cause a financial meltdown and bailouts in the event of an economic downturn. Look familiar?
Even worse, C-Span videos are impeccable proof of what happened in Congress. Everything is sourced and documented at:
http://politicallyhomeless.net/?p=283
I had to see it myself to believe it. Despite stereotypes to the contrary, the Bush Administration issued a warning less than three months after taking office. Two years later, that was upgraded to a threat. The administration then sought strict regulation of a market which was then unregulated.
Watch how Democrats fought regulation, even attacking the whistle-blower who reported immense fraud at Fannie Mae.
Yep. It was Republicans trying to regulate, and Democrats fighting it. All recorded by C-Span.
Greenspan (the Fed) jumped in late, but we see him also testifying for regulation. HE knew it was a bubble.
The head of Fannie during the fraud, Frank Raines - former Clinton Budget Director. He was later sued for fraud by the federal government, and settled for $24.7 million in penalties. Raines had also been bribed with a low-interest mortgage from Countrywide.
Democrats accepted $200 million in contributions, from then unregulated Fannie and Freddie.
See Maxine Waters and others, attacking the whistle-blower, and defending fellow-Democrat Raines.
And try to control your rage.
All totally sourced and documented by C-Span.
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