The Federal Reserve and a Recession
Federal Reserve and a recession- Opinion
We don’t need the Federal Government to regulate Wall Street. What we need is the Federal Reserve System to quit preventing the free market from regulating Wall Street. And that’s exactly what Ben Bernanke’s continued cheap credit policy at the Federal Reserve System is doing as we speak–preventing the free market from regulating Wall Street.
When Wall Street loses money doing something and then has to absorb the loss, Wall Street stops doing that. When Wall Street loses money doing something and the Federal Reserve System avoids the loss, then Wall Street continues doing that. What we need now is a recession. And a recession is exactly what Ben Bernanke and the Federal Reserve System’s continued cheap credit policy is designed to avoid.
A recession is really a nothing more than a free market correcting itself.
A recession is the free market saying to itself: “Wait a minute; we did something wrong here; we must figure out what it was; take our losses; reorganize our activities; and avoid doing the same thing in the future.”
February 4th, 2008 at 4:27 pm
It wasn’t the availability of cheap credit, it was caused by banks ignoring the credit risks of the loans they made. The same thing happened which caused the Great Depression, banks allowed people to leverage their stock purchases. The same thing happened in the S&L crisis only it was the S&Ls lending long term when their deposits were short term and then warehousing their loans. The same thing happened in international finance about 25 years ago. The same thing happened with the REITs.
How many examples do we need?
The Government has a role in regulating banks. The Government should not bail out banks. There should be a risk assessment made on every new financing innovation and it should be available to the public. It should be included in the bank’s financial statements.
But it won’t matter because the public is a pathetically uneducated and apathetic herd who will put their hard earned dollars into any half assed investment scheme that promises high investment returns and then will complain about it when they go broke. Wall Street is not holding a gun to their head to invest, Wall Street is just an unusually successful carny barker.
Bernake is trying to convince the banks to satisfy the need for safe credit worthy mortgage loans. Banks are doing what they always do when things get bad, they stop all lending. Available fixed rate credit at this point will greatly speed up the recovery of the housing market.
Do your really think the Fed is opening its vault and pouring out cash? That is not how it works, besides cash represents only a very small percentage of assets in this country.
February 22nd, 2008 at 12:18 pm
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