sidster
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I thought this was a great read. A friend of mine fwd it to me and
hopefully you'll enjoy it as well. Quick search didn't show a duplicate
post and so hopefully it isn't one
Source: http://www.moneymorning.com/2008/04...y-men-rob-wall-street-to-pay-off-main-street/
Tuesday, April 8th, 2008
Bernanke and His Merry Men Rob Wall Street to Pay off Main Street
By Peter D. Schiff
Guest Columnist
Those who were blindsided by the recent financial meltdown are now
loudly blaming the "free market" for its failure to police its own
excesses, and are calling for greater regulation to prevent future
disasters. But for those who clearly observed the problems developing
[no doubt in high definition slow motion], the blame can be directed
squarely at the policies of the Greenspan/Bernanke Federal Reserve
regimes. As has been the case countless times throughout history, the
free market will now pay the price for government incompetence.
During Senate hearings last week, all parties involved completely
ignored the Fed's own culpability in igniting the speculative fever
that caused the current conflagration. It's as if a senior prom had
turned into a wild bacchanalia, and angry parents are now asking why
the chaperones failed to notice the disrobing or why the DJ played
provocative music, even as they ignored the bearded gentleman pouring
grain alcohol into the punch bowl.
The Inflationary Shuffle
A perfect illustration of the Fed's failure to take responsibility can
be found in central bank Chairman Ben S. Bernanke's explanations
regarding inflation, which he solely attributes to the effects of the
rapid increase in global commodity prices. He failed to mention that
commodity prices are rising as a direct consequence of his monetary
policy, which is debasing not just the U.S. dollar, but currencies
around the world.
Rather than accepting the blame for creating inflation, Bernanke is
shifting the blame to the free market. Senators seemed happy to let
him get away with the subterfuge, since it provides more evidence to
support the "need " for more government to save the economy from the
disastrous effects of unbridled capitalism.
When asked how we got into this mess, Bernanke replied that our
problems resulted from an excessive credit bubble characterized by
aggressive leverage, reckless lending, and extreme risk taking.
Absent from his laundry list of catalysts was the Fed's role in
irresponsibly setting interest rates below market levels, which
mispriced risk, got the party started and kept it raging into the wee
hours of the morning. After drinking that potent punch, it's little
wonder that Wall Street investment banks were stripped financially.
For much of this decade, the objective of the Fed has been - and
continues to be - to encourage and facilitate borrowing and lending.
Defending a Bailout
During his testimony, Bernanke continued to claim[1] that The Bear
Steams Cos. (BSC[2]) was not bailed out. His reasoning: Shareholders
only received about $10 per share. Of course, $10 is better than
zero, which is what they surely would have received if the Fed hadn't
thrown taxpayer money around. What about Bear's creditors though?
Although the collapse of Bear Stearns would have cost bond holders
dearly, the bailout essentially makes them whole. Here again, the Fed
creates an even greater moral hazard by encouraging excessive risk
taking. By bailing out lenders who extend excessive credit, the Fed
simply invites more of that behavior. The free market must be allowed
to properly price risk. Lenders need to know that when they lend
money, whether to highly leveraged investment banks and hedge funds,
or to over-stretched homebuyers or credit-card users, they run the
risk of not getting paid back. By interfering with this process, the
Fed simply guarantees more losses and even bigger bailouts in the
future.
Also, leveraged speculators need to know that it is not "heads they
win, tails the taxpayers lose." Wall Street executives amassed
fortunes by making extremely risky bets. Now that those bets have
soured, why is it that the taxpayers have to eat the losses? Wall
Street billionaires earned their bucks on the backs of the middle
class, who made little on the way up, but are now forced to foot the
entire tab for this mess on the way down.
While Bernanke talked about the underlying strength of our economy, he
cried "necessity" in deciding to save Bear Stearns from bankruptcy,
claiming the failure would have brought down our entire financial
system. How sound can our economy be if the failure of one investment
bank can cause it to topple? Does this now mean that no more major
banks or brokerage firms will be allowed to fail? Since we routinely
accused Japan of practicing "crony capitalism," what do you suppose we
should call our own version?
Not to be outdone in rewarding reckless behavior, Congress earlier
last week passed $15 billion in tax breaks for homebuilders, who had
made their fortunes overbuilding during the bubble and unloading their
shares to a gullible public. By threatening to hold back on their
political contributions, these same homebuilders are awarded still
more billions. The last ones we should be subsidizing are
homebuilders. After all, the last thing we need right now is more
homes.
The legislation also contained a provision that offers generous tax
credits to individuals who buy homes out of foreclosure. While this
is billed as a benefit to homebuyers, it is just another handout to
lenders, since the prospective buyers qualifying for the tax breaks
will simply pay more at auctions as the tax breaks subsidize higher
bids. The real winners are the creditors who will now get more in
foreclosure than they would have had buyers not been counting on
having their bids subsidized by the government.
Of course, for all the talk about taxpayer bailouts, none of the
Senators bothered to mention that - for the moment - no tax increases
actually are on the table. Instead, the bailouts are being financed
by savers, pensioners, wage earners, investors and the elderly on
fixed incomes, who all suffer staggering increases in their costs of
living, as the Fed uses inflation to rob Main Street to pay off Wall
Street.
[Editor's Note: Money Morning Guest Columnist Peter D. Schiff[3] is
the president of Euro Pacific Capital Inc., a Darien, Conn.-based
broker/dealer known for its foreign-markets expertise. A well-known
financial author and commentator, Schiff is a regular Money Morning
contributor, and has most recently written about the ineffectiveness
of the U.S. Federal Reserve[4], the fiction of the Bush
Administration's professed "strong dollar policy"[5], the futility of
"juicing" the economy[6] and soaring gold prices[7]. In mid-August,
when analysts were touting beaten-down financial shares, Schiff said
the stocks were "toxic," were destined "to get hit hard," and advised
investors to "stay away." Investors who heeded that advice, and
avoided such shares as Merrill Lynch, also avoided some stressful,
subprime-induced losses. Check out Schiff's first book, "Crash Proof:
How to Profit from the Coming Economic Collapse,"[8] which was
published by Wiley & Sons last February.]
News and Related Story Links:
* BusinessWeek:
Bernanke Defends Bear Stearns Rescue.[9]
* Money Morning Market News:
Midday Market Update: Markets Swing on Bernanke's Testimony.[10]
Profits Are Up 1,056.2% for This Wisconsin Company
Commodities are on a tear - and so is mining equipment. This
"pick-and-shovel" company has already sold out two-thirds of its
equipment for 2008. Australia, Canada and China are battling for
orders. And the Street hasn't figured it out yet. All the details are
in our Power Plays Report[11].
[1] http://www.businessweek.com/ap/financialnews/D8VQGDD80.htm
[2] http://finance.google.com/finance?q=bsc
[3] http://www.europac.net/team.asp
[4] http://www.moneymorning.com/2008/03...e-send-the-u.s.-economy-down-the-rabbit-hole/
[5] http://www.moneymorning.com/2008/03/04/hear-me-now-believe-me-later/
[6] http://www.moneymorning.com/2008/02...can-only-lead-to-inflationary-pains-tomorrow/
[7] http://www.moneymorning.com/2008/01...bble-is-the-force-behind-soaring-gold-prices/
[8] http://www.europac.net/report/index_crashproof.asp
[9] http://www.businessweek.com/ap/financialnews/D8VQGDD80.htm
[10] http://www.moneymorning.com/2008/04/02/midday-market-update-markets-swing-on-bernankes-testimony/
[11] http://www.oxfonline.com/MMR/ROG0108.html?pub=MMR&code=WMMRJ101
hopefully you'll enjoy it as well. Quick search didn't show a duplicate
post and so hopefully it isn't one
Source: http://www.moneymorning.com/2008/04...y-men-rob-wall-street-to-pay-off-main-street/
Tuesday, April 8th, 2008
Bernanke and His Merry Men Rob Wall Street to Pay off Main Street
By Peter D. Schiff
Guest Columnist
Those who were blindsided by the recent financial meltdown are now
loudly blaming the "free market" for its failure to police its own
excesses, and are calling for greater regulation to prevent future
disasters. But for those who clearly observed the problems developing
[no doubt in high definition slow motion], the blame can be directed
squarely at the policies of the Greenspan/Bernanke Federal Reserve
regimes. As has been the case countless times throughout history, the
free market will now pay the price for government incompetence.
During Senate hearings last week, all parties involved completely
ignored the Fed's own culpability in igniting the speculative fever
that caused the current conflagration. It's as if a senior prom had
turned into a wild bacchanalia, and angry parents are now asking why
the chaperones failed to notice the disrobing or why the DJ played
provocative music, even as they ignored the bearded gentleman pouring
grain alcohol into the punch bowl.
The Inflationary Shuffle
A perfect illustration of the Fed's failure to take responsibility can
be found in central bank Chairman Ben S. Bernanke's explanations
regarding inflation, which he solely attributes to the effects of the
rapid increase in global commodity prices. He failed to mention that
commodity prices are rising as a direct consequence of his monetary
policy, which is debasing not just the U.S. dollar, but currencies
around the world.
Rather than accepting the blame for creating inflation, Bernanke is
shifting the blame to the free market. Senators seemed happy to let
him get away with the subterfuge, since it provides more evidence to
support the "need " for more government to save the economy from the
disastrous effects of unbridled capitalism.
When asked how we got into this mess, Bernanke replied that our
problems resulted from an excessive credit bubble characterized by
aggressive leverage, reckless lending, and extreme risk taking.
Absent from his laundry list of catalysts was the Fed's role in
irresponsibly setting interest rates below market levels, which
mispriced risk, got the party started and kept it raging into the wee
hours of the morning. After drinking that potent punch, it's little
wonder that Wall Street investment banks were stripped financially.
For much of this decade, the objective of the Fed has been - and
continues to be - to encourage and facilitate borrowing and lending.
Defending a Bailout
During his testimony, Bernanke continued to claim[1] that The Bear
Steams Cos. (BSC[2]) was not bailed out. His reasoning: Shareholders
only received about $10 per share. Of course, $10 is better than
zero, which is what they surely would have received if the Fed hadn't
thrown taxpayer money around. What about Bear's creditors though?
Although the collapse of Bear Stearns would have cost bond holders
dearly, the bailout essentially makes them whole. Here again, the Fed
creates an even greater moral hazard by encouraging excessive risk
taking. By bailing out lenders who extend excessive credit, the Fed
simply invites more of that behavior. The free market must be allowed
to properly price risk. Lenders need to know that when they lend
money, whether to highly leveraged investment banks and hedge funds,
or to over-stretched homebuyers or credit-card users, they run the
risk of not getting paid back. By interfering with this process, the
Fed simply guarantees more losses and even bigger bailouts in the
future.
Also, leveraged speculators need to know that it is not "heads they
win, tails the taxpayers lose." Wall Street executives amassed
fortunes by making extremely risky bets. Now that those bets have
soured, why is it that the taxpayers have to eat the losses? Wall
Street billionaires earned their bucks on the backs of the middle
class, who made little on the way up, but are now forced to foot the
entire tab for this mess on the way down.
While Bernanke talked about the underlying strength of our economy, he
cried "necessity" in deciding to save Bear Stearns from bankruptcy,
claiming the failure would have brought down our entire financial
system. How sound can our economy be if the failure of one investment
bank can cause it to topple? Does this now mean that no more major
banks or brokerage firms will be allowed to fail? Since we routinely
accused Japan of practicing "crony capitalism," what do you suppose we
should call our own version?
Not to be outdone in rewarding reckless behavior, Congress earlier
last week passed $15 billion in tax breaks for homebuilders, who had
made their fortunes overbuilding during the bubble and unloading their
shares to a gullible public. By threatening to hold back on their
political contributions, these same homebuilders are awarded still
more billions. The last ones we should be subsidizing are
homebuilders. After all, the last thing we need right now is more
homes.
The legislation also contained a provision that offers generous tax
credits to individuals who buy homes out of foreclosure. While this
is billed as a benefit to homebuyers, it is just another handout to
lenders, since the prospective buyers qualifying for the tax breaks
will simply pay more at auctions as the tax breaks subsidize higher
bids. The real winners are the creditors who will now get more in
foreclosure than they would have had buyers not been counting on
having their bids subsidized by the government.
Of course, for all the talk about taxpayer bailouts, none of the
Senators bothered to mention that - for the moment - no tax increases
actually are on the table. Instead, the bailouts are being financed
by savers, pensioners, wage earners, investors and the elderly on
fixed incomes, who all suffer staggering increases in their costs of
living, as the Fed uses inflation to rob Main Street to pay off Wall
Street.
[Editor's Note: Money Morning Guest Columnist Peter D. Schiff[3] is
the president of Euro Pacific Capital Inc., a Darien, Conn.-based
broker/dealer known for its foreign-markets expertise. A well-known
financial author and commentator, Schiff is a regular Money Morning
contributor, and has most recently written about the ineffectiveness
of the U.S. Federal Reserve[4], the fiction of the Bush
Administration's professed "strong dollar policy"[5], the futility of
"juicing" the economy[6] and soaring gold prices[7]. In mid-August,
when analysts were touting beaten-down financial shares, Schiff said
the stocks were "toxic," were destined "to get hit hard," and advised
investors to "stay away." Investors who heeded that advice, and
avoided such shares as Merrill Lynch, also avoided some stressful,
subprime-induced losses. Check out Schiff's first book, "Crash Proof:
How to Profit from the Coming Economic Collapse,"[8] which was
published by Wiley & Sons last February.]
News and Related Story Links:
* BusinessWeek:
Bernanke Defends Bear Stearns Rescue.[9]
* Money Morning Market News:
Midday Market Update: Markets Swing on Bernanke's Testimony.[10]
Profits Are Up 1,056.2% for This Wisconsin Company
Commodities are on a tear - and so is mining equipment. This
"pick-and-shovel" company has already sold out two-thirds of its
equipment for 2008. Australia, Canada and China are battling for
orders. And the Street hasn't figured it out yet. All the details are
in our Power Plays Report[11].
[1] http://www.businessweek.com/ap/financialnews/D8VQGDD80.htm
[2] http://finance.google.com/finance?q=bsc
[3] http://www.europac.net/team.asp
[4] http://www.moneymorning.com/2008/03...e-send-the-u.s.-economy-down-the-rabbit-hole/
[5] http://www.moneymorning.com/2008/03/04/hear-me-now-believe-me-later/
[6] http://www.moneymorning.com/2008/02...can-only-lead-to-inflationary-pains-tomorrow/
[7] http://www.moneymorning.com/2008/01...bble-is-the-force-behind-soaring-gold-prices/
[8] http://www.europac.net/report/index_crashproof.asp
[9] http://www.businessweek.com/ap/financialnews/D8VQGDD80.htm
[10] http://www.moneymorning.com/2008/04/02/midday-market-update-markets-swing-on-bernankes-testimony/
[11] http://www.oxfonline.com/MMR/ROG0108.html?pub=MMR&code=WMMRJ101
