It’s hard to believe that Federal Reserve Chairman Ben “Helicopter” Bernanke is actually as dumb as his statements make him sound. In his testimony to the Senate today, he said that if the government purchases common shares in banks, that it “may or may not” have an impact on shareholders.
Has he never heard of supply and demand? Whenever the supply of something is increased, each individual part of the “something” is worth less. This holds true for everything from apples to zebras – and I’ve never seen an exception to that rule. But Ben doesn’t seem to understand that simple concept.
According to MarketWatch.com, Bernanke spoke in response to questions raised by Sen. Bob Corker, R-Tenn., who expressed concern about how conversion of government capital infusions into common shares could have a negative impact on existing common shareholders of financial institutions. However, Bernanke argued that once converted, the government common stakes “may or may not” dilute common shareholders depending on expectations of the equity shareholders, Bernanke said.
Based on the proposal, preferred shares aren’t converted to common shares until losses that were forecast by the stress test actually occur, Bernanke said. “Only at that time would the ownership implications become relevant,” Bernanke said.
Senate Finance Committee Ranking Member Charles Grassley, R-Iowa., argued in a letter to Treasury Secretary Timothy Geithner that a new approach that involves the government receiving preferred shares that convert into common shares is risky.
“Common stock is riskier than preferred shares,” said Grassley in the letter. “The American taxpayers are already shouldering a lot of risk these days. This move could expose taxpayers to even more risk.”
At least Corker and Grassley are now saying the right things. Hopefully they’ll keep their recently grown backbones and continue to hold these appointed officials accountable. They didn’t have the backbone to stand up and say this when Bush was president, and I don’t care if political differences cause them to do the right thing or if they figure it out on their own. Doing the right thing is what matters in the end.
Bernanke simply can’t be that dumb, but he sure plays the role of a dumbass well.