Kevin Depew’s Five Things

Bernanke pointing the finger of blame at Greenspan’s expansive monetary policies, while the fed itself stages a massive power grab.  And another irony — had the fed done nothing, we would be experiencing  economic disaster.  Just like we are now.

Five Things You Need to Know:

Bernanke Fingers the Culprit, An All-Encompassing Credit Boom

Courtesy of Kevin Depew at Minyanville

But fails to mention that the Fed created it.

In a speech delivered before the London School of Economics today, Federal Reserve Chairman Ben Bernanke outlined a subtly more in-depth and critical view of the origins of the financial crisis than anything he has publicly stated previously. According to Bernanke, although the subprime debacle triggered the crisis, the developments in the U.S. mortgage market "were only one aspect of a much larger and more encompassing credit boom whose impact transcended the mortgage market to affect many other forms of credit." Indeed.

This view further explicates and builds on the one he first stated before the Economic Club of New York in October, 2007. At that time, Bernanke, like many public finance officials, had just spent months and months prior to October 2007 describing the financial crisis as "well contained" to subprime lending; an isolated outlier of what, at that time, were routinely accepted as perfectly normal credit market conditions. Of course, now Bernanke knows differently.

In today’s speech he confidently asserted that the negative aspects of this "more encompassing credit boom" involved "widespread declines in underwriting standards, breakdowns in lending oversight by investors and rating agencies, increased reliance on complex and opaque credit instruments that proved fragile under stress, and unusually low compensation for risk-taking."

Well, shucks. No mention of who was responsible for that all-encompassing credit boom (The Fed), but let’s not ruffle any feathers over mere semantics, especially while the apologist is still at the bar buying rounds. 

I’m sorry. That was my embarrassing way of winking at Bernanke to let him know I’m onto the scam. It didn’t work. For one thing, he doesn’t even know me, so it just came across as some sort of weird eye twitch, or worse, a lame pickup attempt. Nevermind all that. Just start reading from here.

Fed In Massive Power Grab

"I’m in control here."
– Secretary of State Alexander Haig to reporters after President Ronald Reagan’s attempted assassination

As is customary, Federal Reserve Chairman Ben Bernanke’s speech before the London School of Economics today was long on words, short on meaning. But there was one crucial takeaway from it that bears mention; the massive power grab the Federal Reserve is asserting.

I understand that people who compose sentences like that are automatically viewed as 1) nuts, 2) conspiracy theorists and 3) nuts, but before you deliver the verdict take the chairman at his own words:

"The world today faces both short-term and long-term challenges. In the near term, the highest priority is to promote a global economic recovery. The Federal Reserve retains powerful policy tools and will use them aggressively to help achieve this objective."

There are only two appropriate responses to the assertion that the Federal Reserve is prepared to aggressively use its "powerful policy tools" to promote its highest priority, a global economic recovery. If you are an American, the appropriate response is, "Gosh, thanks… and good luck!" For everyone else, it’s to wait and hear how your government intends to respond to the fact the U.S. Federal Reserve has apparently seized control of your country’s economy.

Bernanke: "We Ain’t Going Nowhere"

"Pick up your money
And pack up your tent
You ain’t goin’ nowhere"
– You Ain’t Going Nowhere, Bob Dylan

Under ordinary circumstances, once a crisis has passed people come together to try and sort through the causes, cures and to make sure it never happens again. But that’s under ordinary circumstances.

Under our extraordinary circumstances, we have come together to demand that the people who caused this crisis first give us money, and then start over doing exactly the same things that caused the crisis in the first place. Also, give us money.

Bernanke, in today’s London speech, acknowledged that perhaps not everyone would share this view.

"The public in many countries is understandably concerned by the commitment of substantial government resources to aid the financial industry when other industries receive little or no assistance," Bernanke said. "This disparate treatment, unappealing as it is, appears unavoidable," he added.

In other words, this is how we do it. And you will like it.

Irony Alert: What if the Fed Had Done Nothing?!

Today Federal Reserve Chairman Ben Bernanke outlined the Fed’s wide-ranging and, in many cases, unprecedented response to the crisis. Following a cut in the discount rate (the rate at which the Federal Reserve lends to depository institutions) in August, 2007, the Federal Open Market Committee began easing monetary policy the following month, reducing the target for the federal funds rate by 50 basis points.

Indeed, the FOMC brought down its target for the federal funds rate by a cumulative 325 basis between September 2007 and the spring of 2008.

"In historical comparison," Bernanke said, "this policy response stands out as exceptionally rapid and proactive."

So what if the Fed had done nothing?

Well, it’s a good bet that if the Fed and fiscal policymakers had done nothing we would be experiencing nothing short of economic disaster. Financial firms would go bankrupt. The government would have to assume control of the mortgage market. Massive foreclosures would ensue. Millions of people would lose their jobs. Stocks would plummet by 40-50% or more. Commodities would decline by 50-60% or more in some cases. Entire industries would fold.

In other words, exactly what is happening today.

Wal-Mart Sees Shift in Consumer Preferences

One of the themes I believe will continue to gain traction this year is the long-term, structural shift in consumer patterns that many retail analysts are either failing to notice, or assuming are merely temporary and cyclical.

However, Wal-Mart (WMT) CEO H. Lee Scott recently made comments suggesting that he at least is a believer in this long-term shift.  According to Women’sWearDaily.com, Scott said he has found that nearly everyone has been forced to give up something in this economy, but here’s the thing: “They feel good about it,” Scott said. “The appetite is toward living a little differently. I wonder whether shopping habits haven’t changed. I’m not convinced that [consumers] are going to have this same immediate desire to go right back to consumption and debt," Scott said.