As expected, Ben Bernanke is not going to taper in the final months of his term. Too risky. Instead, laissez les bons temps roulez…!
The Dow jumped 144 points yesterday. And look at gold. It soared $56 an ounce yesterday.
The newspapers are full of retrospectives on the Lehman Brothers bankruptcy and what it meant. We have an observation of our own: Five years after the financial crisis hit the headlines it’s amazing how so much fantasy, delusion and conceit have built up around the event.
According to Nancy Pelosi – then Speaker of the House, and always Tommy d’Alessandro’s daughter – she called then Treasury secretary Hank Paulson at 3 p.m. on Tuesday, September 18, 2008. She asked him to come by the next morning and explain what was going on.
The headline on Pelosi’s article in USA Today is: “The Day I Heard Our Economy Might Fail.”
It is not clear whether she means that she learned that the economy might someday fail… or that she learned that it might fail that day. No matter. Either way is ridiculous. Economies don’t fail. They do exactly what they want to do exactly when they want to do it.
Fed chiefs fail to improve them. Politicians fail to understand them. And everybody fails to appreciate them.
By 5 p.m. Pelosi had gotten together the leading failures in town – including Paulson and Ben Bernanke. Paulson laid out what he had seen, as any blind man might.
Then Pelosi turned to the man who had enabled the biggest financial bubble in human history – still in a fog – and asked what he thought. Naturally, he completely misunderstood the events going on in front of him. He took a deflating bubble to be a disappearing economy.
“If we don’t act immediately, we will not have an economy by Monday,” he famously said.
Where did he think it was going? It was silly to think that a $16 trillion economy might “fail.” It was downright nutty to think it would vanish in a matter of days.
Hacks and Hallucinators
But these hacks and hallucinators nevertheless worked hand in hand, like mental defectives headed for the short bus…
…to avoid an outcome that couldn’t happen…
…and pervert an outcome that was actually underway into a twisted and grotesque debacle.
In September 2008, the world’s economy had had enough of the Fed’s credit bubble. Companies had drunk too deeply from that cup. Their legs wobbled and their brains turned fuzzy. They collapsed.
A great correction had begun. It should have been allowed to continue. It should have been allowed to wash out bad debts and trim back good ones. It should have been allowed to do its work.
Instead, the feds came up with a quick $700 billion and spread it out among their friends and campaign contributors. The Fed cut its target rate to zero… and as much as $23 trillion in US credit guarantees were put to work on behalf of Wall Street’s reckless risk-takers.
This sequence of mistakes and corruptions was greeted by the press and by its perpetrators with high fives… and big bonuses. Even now – after five years – Bernanke, Paulson and Pelosi regard it as a great triumph, in which they bravely came together to save the US economy… and the world.
Something Went Wrong on the Road to Recovery
But wait. Something went wrong on the road to recovery. We just sent Ms. Pelosi the following email:
Dear Ms. Pelosi,
I’m here in Baltimore enjoying your native city. The weather’s real nice, thank you.
But I have a question. It relates to your article in Tuesday’s USA Today. You pat yourself on the back so hard I was afraid you might have dislocated a shoulder. Hope you’re alright.
But since you think your efforts to rescue the US economy in 2008 were such a success, I thought you might like to respond to the front-page story of yesterday’s Financial Times.
It says the typical American family now earns less in real terms than in 1989 after family incomes fell for the fifth consecutive year.
Here’s my question: What kind of a recovery is it where family income goes down every single year? What kind of a recovery leaves family income lower than it was 24 years ago? And how does a consumer economy expect to grow when its consumers have less and less spending money?
I know you’re busy. So, I’ll propose an answer. Isn’t it possible that the US economy was in no danger of “failing” or disappearing? Isn’t it possible that you were just writing down that huge mountain of debt that had been built up over the previous half a century?
And isn’t it possible that, by stopping the correction, you also stopped the healing process – leaving ordinary Americans with an economy burdened with too much debt… weak growth… few jobs… and little real prosperity?
I hope you will think about this. And the next time you’re in Baltimore please let me know. We’ll have dinner at The Prime Rib right up the street.