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In a Burst of Glory --Part I

By Henri - Posted on 04 March 2009

Or How Federal Reserve Bankers End Their Glory Days

After working so many long years at the Federal Reserve. Preserving nothing, conserving nothing, and really, reserving nothing for later what does a former Fed Chief deserve? If you are talking about Alan Greenspan the whole world of journalism knows. They are sprinkling a little gasoline on the fire that is consuming Alan's undeserved reputation for fiscal probity and wisdom.

Every once in a while someone kind of reflexively defends him against the press. Most of the time though the people doing so were caught up in the irrational exuberance of a Fed Chief who bought the Bush tax cuts. Or they missed the fact that Real Estate was generating unreal growth in equity. Or they, wined and dined repeatedly by lobbyists, spoke out for looser and looser fiscal policies.

Now we are stuck with Gentle Ben and he is stuck with trying to stem a tide of losses in equity. A rising tide that far exceeds the vision of nearly anyone who knew up had a downside. Oh a few of us had our eye on reality. Our voices were overwhelmed by the economists telling the world about the newest security with no risk and an unbelievable rate of return. What is unbelievable should sometimes be questioned.

Nobody loves a budget. Trying to tell me that we cannot afford that nice bottle of cognac or the box of cigars that I consume at the end of every year is a ugly job. The main job of the Federal Reserve is not to bail out sinking Insurance Behemoths and Banks. (Putting all of the AIG's and CITI's in one basket and dropping it overboard at thirty thousand feet is looking a whole lot better.) It is to keep the Banking System working and keep the economy sound.

Perhaps we need a budget for the Fed. The Fed is the keeper of the banks as the Treasury is the keeper of the value of the dollar. Maybe both need more scrutiny and a real plan that explains the cost of all these bailouts. The real worry here is that we may be trying to bail the Titanic out with a teacup. This flood of losses could be caught up in a self-accelerating spiral that will suck everything down the drain with it.

If we are not a bit more careful, and I mean that in the kindest gentlest way possible, We are going to make all of this a whole lot worse. It is clear we are between the rock and the hard place here. The rock is descending on us pretty fast now. Maybe we need to step out from under it for a minute and contemplate our options.

Oops that rock is a meteorite and descending a lot faster than it looked like it was from directly underneath it. The earth will just have to absorb the shock. Even if it ends the reign of the fiscal dinosaurs that led us to this point in time and space this will not destroy the planet. The only real question here is what will survive.

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