Benanke is looking for a big rug

“Helicopter Ben” Benanke gave a speech yesterday (Jan 13th, 2009) at the London School of Economics. You can read the whole text of it here if you’d like.

I’d like to comment on part of the speech near the end, where Bernanke says this:  Public purchases of troubled assets are one possibility.  Another is to provide asset guarantees, under which the government would agree to absorb, presumably in exchange for warrants or some other form of compensation, part of the prospective losses on specified portfolios of troubled assets held by banks.  Yet another approach would be to set up and capitalize so-called bad banks, which would purchase assets from financial institutions in exchange for cash and equity in the bad bank.  These methods are similar from an economic perspective, though they would have somewhat different operational and accounting implications.

My main comment is in regards to his “so-called bad banks” statement.  Let’s say we do that.  The IMF (or UN or US Fed some other government organization) sets up a bank to purchase “assets” (pronounce “assets” as “toxic crap”) from banks in trouble.  Some questions immediately come to mind:

  1. How do they “capitalize” the bad bank?
  2. Doesn’t there need to be “capital” in order to “capitalize” something?
  3. Who do they buy it from?  All banks?  Just those deemed too big to fail?  Those who would otherwise fail?  Those with investors who are Ben or Hank’s buddies?
  4. If the “bad bank” actually had “cash and equity” why is it bad?
  5. What do they do with the toxic crap?
  6. Why bother to set up a new “bad bank” for this?
  7. Why not let the existing bad banks fail on their own?

I’m guessing that there are no answers for these questions – or at least Helicopter Ben would not truthfully answer this questions – which is the same thing.

Something else comes to mind.  Maybe Ben is just trying to find a big rug.  A big enough rug to sweep the whole mess under.  A mess that he inherited and is making worse by his idiotic policies.  Bush and  Greenspan started the process, but Bernanke is considered to be a student of the Great Depression.  And he’s dragging us closer and closer to a repeat performance – a so called “Greater Depression.”

How do people this ignorant get into positions of power?  Oh yeah, we elected Bush.  So as Buffett (Jimmy, not Warren) would say – “It’s our own damn fault!”

gk

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