Since 1999, Time magazine has ignorantly lauded the blunders of Fed chiefs and their clueless cohorts. No wonder it named Ben Bernanke its Person of the Year.
As this will be my last column before the decade ends, and given that Time magazine has chosen to anoint Ben Bernanke as its Person of the Year, I thought I would share my opinion on the subject.
First of all, Bernanke's selection is an intriguing bookend to the Fed's decade. A little more than 10 years ago, in February 1999, his predecessor, Alan Greenspan, appeared on Time's cover as a member of "The Committee to Save the World."With Greenspan were Robert Rubin -- another financial operator who seemed to have little actual understanding of the financial system, as he was paid tens of millions of dollars to help preside over Citigroup's (C, news, msgs) destruction -- and Larry Summers, then deputy Treasury secretary and now a top economic adviser to President Barack Obama. That 1999 cover focused on the way these men led America's economy and, by extension, the world's economy through the fallout of the Long-Term Capital Management hedge fund fiasco of late 1998.
Of course, the eventual trouble precipitated by the anything-goes mentality then brewing in the wild and crazy banking system -- and by the failure to realize that speculation run amok can threaten the financial system -- caused Greenspan to behave as he did.
His actions and words fomented the stock mania that followed. That mania sent stock prices high enough such that now, a decade later, the market has generated a total return, including dividends, just shy of minus 10% -- the worst decade for stocks in the past 100 years. For perspective, the 1930s yielded a modest loss of about 0.3%.More from MSN MoneyFind a better broker and trade online7 companies that may not see 2020Why the Fed loves inflation Farewell to Wall Street's decade of hubrisArrogant Fed hasn't learned a thing All of which reminds me that, during the stock mania, I tried to explain to people that while printing money seemed like so much fun, the attendant consequences would never be worth it. That argument was lost on most people, as they were delirious with chasing stocks and uttering the battle cry "Where else can one put one's money?" As though that meant it had to be a good idea.
Now that we've seen that bubble and the subsequent real-estate bubble pop, I think that some people are beginning to understand that the consequences of money printing are never worth the supposed benefits, since eventually all of it turns to disaster. Big banks and black holes That said, the consequences have been dodged by many of the big banks' executives, who are now giving back the government's Troubled Asset Relief Program bailout money so that they can pay themselves huge bonuses. To do so, they're issuing new stock, which tends to bring down the value of existing stock. They don't really care that this might be bad news for stockholders, from the standpoint of this share dilution.
Rochdale Securities analyst Dick Bove had the right idea when he said in a recent New York Times piece, "Management has shown that it is willing to take any action to harm shareholders as long as the executives get paid more money."
The history of Time's Person of the Year
It's not because they want to do the right thing from a business perspective or because doing so will make them better able to behave as lenders. Rather, by getting rid of the government, executives can pay themselves whatever they wish. They operate in unique businesses that utilize immense leverage. Thus, heads, they win, and the key people make millions. Tails, the taxpayers lose trillions.Banking is not speculating It's high time that we head back to the future (think a return to strict Glass-Steagall regulations), separating the "banking" business from the "speculation" business. Then people in the speculation business ought to be allowed to go bankrupt when they fail.
The public outrage on this subject is only just building, and the backlash over the behavior of the big banks, which also includes the big brokerages, is going to be felt for a very long time.
I believe that this lost decade is worth thinking about. Had Time magazine actually understood the financial system, it might have looked elsewhere for a Person of the Year.
Video: A second term for Bernanke?
Because if the country is ever to get away from the dangers created by a group of bureaucrats being allowed to try to pick the right interest rate with which to run the world, the public first has to recognize the consequences of letting them do that.
Perhaps other people will think about this line of logic, and perhaps that will help promote change. I hope so. King World News interview I was interviewed by Eric King once again, and, thanks to his great questions, this may have been the best interview I have ever done.
Click here to hear the interview.Holiday open house (sorry, no eggnog) From now until Jan. 3, while I'm on vacation, I invite folks to a holiday open house on my Web site, FleckensteinCapital.com, where you can peruse past daily columns and Q&As.
A complimentary user name (MSN) and password (MSN) will give readers free access to the site.
At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.
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bgdog are you kidding me? stabilize the mess they created, do you not realize greenspan and Bernanke caused the financial mess. low interest rates to bail out the imprudent is a recipe for disaster. these foolish fed presidents also prevented any regulation on cdo,siv ect... which destroyed our financial system. greenspan and Bernanke caused more damage to america than bin ladin. fleck has tried to inform his readers on the true state of the economy. Give him a little credit ,he's been right on almost everything
Thin cat you ain't too bright are you? Reagan set a new record pretty much every year he was in office for the amount the government spent. He tripled the national debt in his eight years in office and what did we have to show for it? STAR WARS, unfortunately not the movie but some failed trillion dollar welfare handout to big defense contractors. Get a clue and a couple facts before you post.
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