Tuesday, May 18, 2010

Monetary Policy Is No Match For Criminal Activity

I have just finished reading another article about the Chairman of the Fed, Ben S. Bernanke, in the Sunday New York Times. The article discusses Mr. Bernanke's role as the head of our central bank and talks about the fact that even the smartest men in the room did not see the crisis coming. I agree with that to a point.

The problem, as I see it, was not purely economic, but rather criminal. Yes, criminal. No amount of regulations can prevent a financial crisis that is born of criminal activity. Whether counterfeit money overwhelms the system or phony Triple-A mortgage-backed bonds overwhelm the system, makes little difference. I would go so far as to suggest that the counterfeit money problem would have at least had the Department of the Treasury and the FBI working on the matter. Unlike the phony Triple-A mortgage-backed bonds that had no one any the wiser until the mortgages started going belly up.

A few bright people realized that all these mortgage-backed bonds could not be Triple-A in quality, and created the credit default swaps that permitted the doubters to bet against these bonds from eventually paying off. Those that realized the huge problem that was going to take over the whole housing market - the bubble that was unsustainable, became very wealthy from betting against these phony Triple-A bonds.

While there are other facets of the financial system that needs attention, the credit rating agencies that bestowed their elegant Triple-A rating on billions of dollars of mortgage-backed bonds, is in my opinion, the biggest and most critical pothole in the road to financial stability. But what do I know, I am just an old man writing a blog.

Stay tuned.


Butch said...

Criminal? Oh yea. I posted a comment on FB about an article that I found this AM about GM making a buck now after three years.

Wow! How did they do it. Let's see, the help of MR. and MRS. taxpayer, the help of current employees given concessions to their contracts and the loads of help with the former spun-off Delphi salaried employees that gave all promises up (sorry no contract) but absolutely nothing from the heads of state. No one was demoted or fired. None of the elite were reprimanded for their failures. I referred to them, the company bosses and or the company as the intership for our congress.

I ask you, do you see a parallel of the goings on in our businesses that are "too big to fail" and our government leaders. There are a few that are fired at election time but no one and I mean no one, is fired reprimanded or anything else to our government leaders. Well, that is unless they have an intern under the desk or get caught doing weird stuff in the mens restroom at the airport.

Those that were our watchdogs, those that are now still if office and plan on returning, have been running low on the radar. Barnie F. and company have never said, damn, I'm sorry for letting you, the public, down for my failure to do the job.

Tiger was the big story looking for someone to take his place and along comes Charlie Sheen or Jesse James. Financial messes start and oil messes cover it up. Slick cover up, and yes, it was intended.

We will never see justice done in this matter. IF we are lucky we will get some protection from it happening again for a little while. However, as before, when you go back in hitory to the Nixon era and find that the break down started during his administration and continued a little at a time then I figure I will be long gone and won't get to say.....told ya so.

Julie Schuler said...

Nice analogy. It IS like counterfeiting.

Cloudia said...

You got my vote!

Aloha from Hawaii

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