Bernanke and Geithner, the gang that couldn't shoot straight. Your comments are welcome

I wanted to share this with you this morning to show that  the only thing you can count on is yourself and the market. When you listen to the hype and not the market you are going to lose money. This from our news partner AP.  We welcome your comments.

Adam

(AP:WASHINGTON) Ben Bernanke presided over his first meeting as Federal Reserve chairman in March 2006 believing the nation's economy could pull off a "soft landing" from falling home prices. Three months later, Bernanke had begun to grasp that he and others had underestimated the risk housing posed to the economy.

Newly released transcripts of Fed meetings during Bernanke's first year as chairman show that, among Fed officials, he often expressed the most concern about housing. But no official, according to the transcripts, recognized the extent of the damage a housing bubble would cause. A year later, the housing market's collapse helped send the nation into its worst recession since the Great Depression.

In fact, Treasury Secretary Timothy Geithner, then a Fed official, expressed confidence in September 2006 that "collateral damage" from housing could be avoided. The transcripts released Thursday covered the eight meetings of the central bank's chief policy-making body, the Federal Open Market Committee, during 2006. That included the last meeting of Federal Reserve Chairman Alan Greenspan in January of that year and Bernanke's first meeting in March after he had succeeded Greenspan as chairman.

The Fed releases minutes of the FOMC discussions three weeks after the meetings but full transcripts do not come out until five years later.

The transcripts for 2006 show that at first Bernanke did not express concern about the cooling of the housing market after a boom that had pushed sales and home prices to record levels.

"I agree with most of the commentary that the strong fundamentals support a relatively soft landing in housing," Bernanke told his follow FOMC members at his first meeting as chairman in March.

Also in March, Bernanke said, "I think we are unlikely to see growth being derailed by the housing market, but I do want us to be prepared for some quarter-to-quarter fluctuations,"

At his second meeting as chairman in May, Bernanke still seemed fairly confident. "So far we are seeing, at worst, an orderly decline in the housing market; but there is still, I think, a lot to be seen as to whether the housing market will decline slowly or more quickly.

However, by the June meeting, Bernanke was expressing more caution saying that the slowdown in housing was "an asset price correction" that bore watching.

"Like any other asset-price correction, it's very hard to forecast, and consequently it's an important risk and one that should lead us to be cautious in our policy decisions," Bernanke said.

By the September meeting, Bernanke sounded even more concerned about the impact on the broader economy from the slowdown in housing.

"I don't have quite as much confidence as some people around the table that there will be no spillover effect," Bernanke said.

By contrast, Geithner, who was then president of the Fed's New York regional bank, expressed more confidence that the economy could weather the troubles in housing, saying the issue would be the impact on consumer and business spending.

"We just don't see troubling signs yet of collateral damage and we are not expecting much," Geithner said at the September FOMC meeting.

The discussion by the members of the FOMC, the Fed board members in Washington and 12 regional bank presidents, gave no indication that any of them foresaw the devastating impact that the collapse of the housing bubble would have. The country fell into a deep recession and severe financial crisis that led to the loss of more than 8 million jobs.

Bernanke and other Fed officials have said that they failed to see the severity of the shock waves from the housing bust. But the transcripts of their closed-door discussions in 2006 provide new details about how the central bank was responding to the unfolding crisis.

The transcripts of the final meeting of the year, in December, showed that Bernanke was still expecting that the economy would experience a "soft landing" in which growth would slow enough to cool inflation but not drop into a recession.

His comments came a year before the start of the Great Recession, which economists say began in December 2007 and lasted until June 2009.


24 thoughts on “Bernanke and Geithner, the gang that couldn't shoot straight. Your comments are welcome

  1. It's hard to believe that after the CDS blowup a few disaaterous years ago we would revisit the risk once again. Because of that we see a situation that defies free markets. Federal attached Agencies(Federal Reserve is now apparently forced to manipulate financial structures throughout the world to protect private bank positions. At least that's how it appears to outsiders.

    Is the Fed working with Greece and othere to protect large Bank CDS positions in Sovereign debt?

    1. It is difficult to know whether you are serious or ironic. 2008 was the equivalent of the 1925 Florida housing bubble bursting, 2011 was the equivalent of the 1928 stock market rumblings, and the year end of 2012 plus early 2013 will be our equivalent of what happened in 1929.

      Only this time there is $56 trillion of imploded housing wealth in the US creating poverty and a fall in aggregate demand in the economy which is why there is such sluggish growth despite the payout of food stamps. Plus a mountains of sovereign debt in both the US and Europe. Plus that the financial system is now global and interconnected so everyone on the planet will be affected at each successive collapse.

      The Greek banks are baulking at taking the haircut of 50% demanded by the agreement between the EU and the IMF in return for more loans (these loans will only last a couple of months anyway), and that should not surprise anyone. The Greek banks are being offered loans from the IMF to make up for their loss of income stream. But who would want to lose an income stream only to replace it with debt to someone else? How would you like it if you had to give up your salary or pension coming in and replace it with loans carrying a 4% interest rate?

      The Greek banks know that they will ultimately be wiped out since they will fall into severe debt to the IMF. The IMF is made up of member countries whose governments have pledged their citizens' tax money for easy interest streams of 4% as long as the Greek banks last, and then get the delicious prospect of taking over those Greek banks when they fail. So in effect this is a forced take-over of the Greek banks, made to look as if the IMF is so nice that it is helping the poor Greeks. The Greeks look like being the first in the Western world to fall into economic slavery under what will be their future foreign bank owners.

      The cheek of it is that the other banks and other countries in the IMF are actually baulking at supplying Greece loans at only 4% interest because they want more when lending to such a risky project as saving Greece.

      The fact is that due to the historically inherited fear of inflation held by the Germans due to their experience of inflation in the 1920s when a million marks could not buy a loaf of bread, the EU has a dysfunctional central bank. One of the major customers of a central bank is government, and a central bank is the lender of last resort to both commercial banks and the government. However the Europeans have put in place a one-leg, one arm central bank that only does half the job and does not lend to EU governments.

      The insolubility of the European crisis is solely down to this insane structure which goes against 200 years of painfully acquired banking experience and practice, since the poorer countries in Europe are instead being forced to borrow at rates of 7% when they are already in trouble. The demands on their populations that they cut down their salaries and sack government employees is reducing their citizens' buying power and thus reducing their demand for goods and services, thus reducing their tax revenues, making it even more difficult for their governments to raise the cash to pay the interest on the loans, let alone pay them back.

      This can only become a downward spiral into default while simultaneously transferring wealth from the already poor countries to the richer countries' banks and governments. But ultimately what creates wealth in a society is the extent to which the population is engaged in profitable employment.

      The European population as a whole is heading for the loss of jobs, loss of wealth, reduced goods and services, greater government deficits, bringing closed schools, hospitals and in the very last stage, more expensive costs and inflation. What we are seeing now is a very cleverly designed recipe for bringing about a collapse and a depression for the European population as a whole.

      When Europe goes down the crash in the US and China will be inevitable. The EU has 750 million people and both the US and China are highly dependent on the EU not falling into a depression. Already Germany is in recession because Europeans are de-leveraging and cutting down on their purchases to make ends meet.

      The irony is that the Germans are so rigidly terrified of inflation that they now have brought about deflation and a recession instead. Now their demand that the European Central Bank should not lend to various EU countries will be tested. Either they will realise their mistake and allow the ECB to lend to EU governments - which is the normal state of affairs in a modern civilised economy, or Germany will have to leave the euro. If Germany does neither, then the collapsing administrations of Greece, Italy, Ireland, Spain and Portugal will bring about default in these countries and they will have to leave the Euro instead. Hungary is still outside the euro but it will collapse anyway since it is also in discussions with the IMF with unresolved issues.

      If you want to know what the effect of Ron Paul's idea of getting rid of the US Central Bank (the Fed) would be then look at Europe.

      Widespread default in Europe will bring down a lot of banks both in Europe, the US and China. Ben Bernanke will launch a QE3. That is more or less all he has time for before the elections, so he will hire a fleet of helicopters and drop $100 bills in all the major cities in the US. He may do a miserable half QE4, but I doubt it. He is after all a Republican, and he wouldn't want to be propping up Obama.

      The only people happy about all this QE are the secret families who own the Federal Reserve and the Bank of England. Those two Central Banks are not owned by the people but are privately owned. Every time Bernanke makes available $1 trillion by going into the Fed computer and typing in the amount (it is literally created from nothing) and then sending it to Timothy Geithner in return for Treasury bonds, the shareholders in the Fed become $1 trillion dollars richer. Who has to foot the bill for that Treasury purchase? The US taxpayer, who is the ultimate debtor to the Fed.

      Never before has the Fed such a vastly expanded balance sheet. The US population owes them several trillion dollars, and that does not include what the Fed has collected during the centuries. If there is world war and astronomical amounts of money are spent then they will have a ball.

      The problem is not the Fed as a central bank, as Ron Paul would have it, the problem is that it is privately owned. Normally a central bank is state-owned with ultimate control of the central bank by Parliament or in the case of the US by government, which creates the legal framework for the day to day operations of the central bank over which it has more recently been given operational control.

      However, when the central bank is state owned the Treasury debt to the Central Bank can be cancelled or the Central Bank can take a 99% haircut.

      How is this possible? Since the Treasury is part of the state the debt can be simply be cancelled because the Central Bank is also part of the state. The debt is one part of the state owing another, and the money the Central Bank lent out was created from thin air anyway. But you cannot do this when the Treasury is part of the state apparatus and the Central Bank is privately owned. Then the debt becomes real, and you are in hock to the legal persons who own the shares in the Central Bank.

      Woodrow Wilson probably realised as much when he regretted having driven through the law in 1913 allowing the privately owned bank to become the central bank, calling itself the Federal Reserve. It is neither federal since it is not owned by the federal states, and it is not a reserve, since any funds lent to the Government puts the government in debt to the Federal Reserve. If the government is in debt it is the taxpayers who are in debt and have to foot the bill, as the US population will painfully have to suffer for the rest of the century. It is no secret that the US population is inexorably sliding into poverty.

      If Greece goes into default any day now, then all the relevant credit default swaps kick in, and there will be financial mayhem. Not forgetting that the $65 trillion unregulated derivatives are outside the stock market, making it impossible to see what is happening. A lot of bets will come unstuck. Who knows which banks and companies will be left standing after the wreckage.

      If it does not happen now it will very likely happen a bit later. If sanity does not return to the European ruling class, 2012 will be a momentous year. By June we should have an inkling of what we are heading for. The likelihood of massive roiling in the markets, entire regions going into default and world war will be very high this year and is increasing by the day.

      In more senses than one, if you want to know what is in store for you in the US, just study what is happening in Europe. When Europe has collapsed in economic slavery, they will come after you.

      1. I agree that it was an enormous mistake of historical proportions to allow a private central bank control the currency of the United States. Sometimes I think the greatest crimes are those which take place in the open, in plain sight of everyone, but are successful because almost no one recognizes them as such. Most of the citizens of the US unquestioningly pay half their annual income, in the form of interest on the "national debt", to the invisible owners of the Federal Reserve. Of course, they have to obey the law, but few bother to question or attempt to understand how the system works, after all, they learned about that in school.

        I would point out, however, that the system of laws that have governed such things as property rights and the conduct of bankers, Wall Street, the Treasury Department and the Federal Reserve . . . well at the highest levels, these laws just don't seem to apply anymore. There is no real prosecution for really enormous crimes, they appear to be government-sanctioned, and the media creates euphemisms to describe them. Privately owned funds are no longer stolen, they are "missing"; funds of another nation are "frozen", accounts just "disappear". The entire land-ownership system of the US has been severely disrupted through Mortgage Electronic Registration, mortgages (like private accounts) are kept track of electronically and become impossible to track down after they are bundled and sold and resold.

        What I am getting at is that the "rules" no longer work or even seem to apply, they are being rewritten on a daily basis. When a functioning legal system disappears along with constitutional government, and is replaced with fascism --ownership of government by an individual, by a group, or by any other controlling private (corporate) power -- then debt can be disavowed, money can be created out of the stroke of an electronic pen, and military forces can be dispatched in the blink of an eye, with the push of a button.

        US citizens have little to say in this process, since their state and national legislators are already bought and sold by corporate interests before they reach office. We have government of the corporation, by the corporation, for the corporation. Look for increasing discontent in the populace, as they see their savings and jobs disappear, and a government that is progressively more unworkable and unresponsive to individual needs.

  2. We knew along time ago when they started sub prime lending that this fiasco wouldn't work and was most likely planned by our treasury Dept. Representative's then...
    In addition to the unconscionable march toward socialism by our current President..It's time for the true leaders of America sheepal to stand up and be herd and seen. We are America and I want respectability, accountability,and Loyalty in our leaders and the Constitution. Without an Attorney's free use of mislead elusive amendments for there own greed. In addition the Banking and treasury financial system should become transparent utilities with accountability of criminal offence.

  3. Sure lends credibility to Ron Paul's platform to do away with the fed completely! Do we traders/investors really need a committee of self-interested, arrogant, mega-beaurocrates to tell us where interest rates are going, or should be? THROW THESE BUMS OUT TOO!!!

  4. Does anyone really think that the "govt" should have told the people exactly how bad it was in 2006? The politicians weren't trying to fool anybody. It just makes sense to keep a happy face in the midst of any tragedy.
    I wonder how many commentators took advatage of their wisdom and made money then?

  5. There was a confusion in goals with a liberal bunch praising the spread of home ownership and backing the effort to restrict loans to ones that could be repaid. I think Maxine Watters expressed appreciation for all the home sales that Freddie made to those not qualified by traditional standards. I grew up n WW I war plant housing that my father could afford.

  6. PLEASE PULL YOUR HEAD OUT OF THE SHEEP IN FRONT OF YOU, AND GET THAT BRAIN FUNCTIONING AGAIN. IF YOU VOTE DEMOCRATIC AGAIN, THIS COUNTRY IS DOOMED. WE ARE NEARING THE POINT WHERE ALMOST HALF OF THE POPULACE IS EITHER WORKING FOR THE GOVERNMENT, OR IS BEING FED WITH THE GOVERNMENT SPOON. JUST LOOK AT THE DEFICIT SINCE THE DEMOCRATS TOOK OFFICE....THE VORACIOUS MACHINE CONTINUES EATING YOUR TAX DOLLARS!!
    OBAMA IS JUST NOW ON TV DOING A HEAD FAKE, PRETENDING TO ELIMINATE SOME GOVERNMENT DEPARTMENTS. THIS WILL ALL JUST NET OUT EVEN, AS WE WILL NOT GET RID OF THOSE PEOPLE, BUT JUST TRANSFER THEM TO SOME OTHER VAST CAULDRON OF WASTE DEPARTMENT.
    ON THE OTHER SIDE OF THE COIN, HOW ARE WE GOING TO DEAL WITH THE BANKS AND THE GEITHNER PUPPETS.... YOU CAN BE ASSURED THAT THE SWEET TALKING REPUBLICANS WILL KEEP THE BANKING COMMUNITY THRIVING WITH THEIR ILLICIT, BEHIND YOUR BACK DEALINGS AND CONTRIBUTIONS. IT IS ALMOST HOPELESS, AS WE ALL KNOW THAT THESE ELITE ARE WOVEN TOGETHER IN ONE MASSIVE, TANGLED WEB THAT IS SPUN BY OUR GOVERNMENT. OUR ONLY HOPE IS TO START TEARING THAT WEB DOWN BY VOTING FOR LESS GOVERNMENT AT EACH ELECTION. MAYBE, ACTUALLY LISTEN TO WHAT RON PAUL HAS TO SAY...AT LEAST HE IS TRYING TO MAKE GOVERNMENT SMALLER AND GETTING SOME OF OUR LIBERTIES BACK. THINK, PEOPLE..............PLEASE........

    1. Yeah, things were going along splendidly in 2008 when bush and dick were still poisoning America.

      I'll believe we have a government that is actually working to improve the mess that has been created the day they repeal the raygun and dubya tax cuts for the rich. Until that happens, this country is under the thumb of the CEOs. Will it happen? Not if Americans continue to be as economically illiterate as they proved in 2010.

  7. This was a planned take-down of the US. Geithner ran all the deals through NY FED.

    Just a standard sheering of the sheep.

    Paying for people's down payment ( Las Vegas -2002) meant the next step would be to pay people to buy a house. Clearly there were no more buyers.

    Ron Paul and many others warned of this early on.

  8. I feel that both the Federal Reserve and the treasury are so removed from reality they could not see this coming. One year before the housing collapse the signs were apparent, auto lending, consumer debt up 24 percent consumer income up one tenth of one percent, credit card defaults up, mortgage late pay up who if you were looking could not see this. The problem is that it was not in the best interest of Gitner and Bernanke’s constituents to stop the party; but rather to attempt too control the party.

  9. The B&G gang as you call them are not to blame for failure. The humpty-dumpty story says it all. No one can put together something previous leaders broke by their careless handling of a fragil entity called the economy.
    The villians are countless and many still don't get it.
    Look at Japan and you look into a mirror.

  10. The government created the housing bubble and now suppresses business through exhausting regulation. If we don't get the government off our necks in 2012 America as we knew it is over and done.

  11. 2006 was still early days with respect to discovering that the sub-prime loans were being issued through mis-selling and fraud.
    Targeting sub-prime was a political goal from the Clinton Administration onwards.

    However early in 2008 (23rd April 2008) at least one person was reading the Fed's spreadsheets and realised that houses like Lehman were in trouble. See

    http://redstateeclectic.typepad.com/redstate_commentary/2008/04/the-alt-a-shoe.html

    I don't think that the FOMC was as aware of the likelihood that the stock bubble would burst, and in April 2008 neither was the stock market!

  12. By just looking at the HGX index, you can see the smart money were already getting out by the end of 2005. How can these officials who hold PHD be so stupid and not even realized this. Beside, when you give someone a loan without skin in the game will definitely end badly (basic common sense). Last but not least, this country is no different than any others, the people in control are there to fill their pockets more than altruism that all of them proclaim to be. That's all folks.

  13. TRYING TO MANIPULATE A FREE MARKET ALWAYS ENDS BADLY BUT THE ELITE WILL DO IT AGAIN AND WALK AWAY UNSCATHED.

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