Financial Regulation and the Big Fat Very Visible Hand

[EJ]

Financial Regulation and the Big Fat Very Visible Hand

Financial Regulation and the Invisible Hand
April 11, 2007

Remarks by Ben S. Bernanke

At the New York University Law School, New York, New York

"Market forces determine most outcomes in our economy..."

Buzzer

AntiSpin: Thanks to google alerts, over the years I read nearly all of the docs issued by the Fed. I don't know why I bother. Usually the fallacy is buried in the speech. This time it's in the first eight words.

Government determines most of the outcomes in our economy. Who wins, who loses. The creation of stock market bubbles, credit bubbles, housing bubbles, currency bubbles.

Who wins when they rise. Who loses when they collapse.

What is a house without low interest rates that push LIBOR down to 2.5% (on which adjustable rate mortgages are based), a Fed chairman on the sales team pushing ARMs in February 2005 when fixed rate mortgages are at a 40 year rock bottom, and tax incentives such as the write-off of $500,000 of capital gains for homes owned by a couple for more than two years? Nothing more than a very complex product that breaks a lot and requires a lot of maintenance to maintain its value, and which, according to Robert Shiller's research, appreciates only at the rate of inflation.

What is ethanol without government subsidies?

What is the bonar without foreign central banks supporting it? A promise to pay that will not be fulfilled. A symbol of a nation that produces a massive economic surplus but does no more. Without the support of foreign central banks–government–the dollar will decline.

I could go on.

"Market forces determine most outcomes in our economy..."

What is a Fed chairman who tells The Big Lie in the very first eight words of an important speech?

[Sapiens]

Re: Financial Regulation and the Big Fat Very Visible Hand

A very good one. Remember, only those that know and understand the fundamentals can tell he is lying.

[Tet]

Re: Financial Regulation and the Big Fat Very Visible Hand

Financial Regulation and the Big Fat Very Visible Hand

Financial Regulation and the Invisible Hand
April 11, 2007

Remarks by Ben S. Bernanke

At the New York University Law School, New York, New York

"Market forces determine most outcomes in our economy..."

When someone threatens you with a nuclear bomb, threatens to rape your wife or kill your children if you don't sell something at a certain price or give it away for free, this is indeed a market force, with the key word being force in this case. This is how Pirate Economies work, I don't view this as a lie, he's telling the truth. Free Markets are a very expensive thing to maintain.

[vinoveri]

Re: Financial Regulation and the Big Fat Very Visible Hand

Bernanke states in the article ...

"Regulatory oversight of hedge funds is relatively light. Because hedge funds deal with highly sophisticated counterparties and investors, and because they have no claims on the federal safety net, the light regulatory touch seems largely justified"

and then goes on to use the LTCM episode as supposed evidence of this claim !...

"Perhaps because of the stellar reputations of LTCM’s principals, banks and broker-dealers provided credit on generous terms, even though LTCM took exceptional risks."

I had thought that the Fed's direct intervention in organizing the bail out of LTCM was accepted by all (including the fed), but evidently not. Double-speak or delusional?

Link below to a 1999 Cato paper on the fed role in the LTCM bail-out.
http://www.cato.org/pubs/briefs/bp52.pdf

[Tet]

Re: Financial Regulation and the Big Fat Very Visible Hand

Bernanke states in the article ...

"Regulatory oversight of hedge funds is relatively light. Because hedge funds deal with highly sophisticated counterparties and investors, and because they have no claims on the federal safety net, the light regulatory touch seems largely justified"

and then goes on to use the LTCM episode as supposed evidence of this claim !...

"Perhaps because of the stellar reputations of LTCM’s principals, banks and broker-dealers provided credit on generous terms, even though LTCM took exceptional risks."

I had thought that the Fed's direct intervention in organizing the bail out of LTCM was accepted by all (including the fed), but evidently not. Double-speak or delusional?

Link below to a 1999 Cato paper on the fed role in the LTCM bail-out.
http://www.cato.org/pubs/briefs/bp52.pdf

LTCM was busy doing national security business in Russia trying to wipe-out the Rouble which they were able to do, there was absolutely no risk involved. Thinking that LTCM didn't have guarantees that they would be bailed out for doing this is laughable at best. Wall Street, London and the Russian Oligrachs were able to rape Russia for hundreds of billions thanks to this. The things you can get away with when you know you're going to get bailed out is pretty amazing. Certainly no free market in regards to LTCM and the $40 billion that the Wall Street hypsters lined up to bail out LTCM was a drop in the bucket compared to the profits they were pulling out of Russia at the time, Yelsin the drunk takes office and the rape of Russia continued. Wall Street bailed out LTCM, at the urging of the Fed it was a done deal before it was ever required, so in effect the Fed directly did not bail out LTCM.

[Spartacus]

Re: Financial Regulation and the Big Fat Very Visible Hand

Darn ... you should have emailed this to Eric as a question to ask before the Hudson interview.

LTCM was busy doing national security business in Russia trying to wipe-out the Rouble which they were able to do, there was absolutely no risk involved. Thinking that LTCM didn't have guarantees that they would be bailed out for doing this is laughable at best. Wall Street, London and the Russian Oligrachs were able to rape Russia for hundreds of billions thanks to this. The things you can get away with when you know you're going to get bailed out is pretty amazing. Certainly no free market in regards to LTCM and the $40 billion that the Wall Street hypsters lined up to bail out LTCM was a drop in the bucket compared to the profits they were pulling out of Russia at the time, Yelsin the drunk takes office and the rape of Russia continued. Wall Street bailed out LTCM, at the urging of the Fed it was a done deal before it was ever required, so in effect the Fed directly did not bail out LTCM.

[akrowne]

Re: Financial Regulation and the Big Fat Very Visible Hand

When someone threatens you with a nuclear bomb, threatens to rape your wife or kill your children if you don't sell something at a certain price or give it away for free, this is indeed a market force, with the key word being force in this case. This is how Pirate Economies work, I don't view this as a lie, he's telling the truth. Free Markets are a very expensive thing to maintain.

And it's governments that tend to do those things, at a ratio around a gazillion-to-one.

If free markets are so expensive to maintain, why is it that the more money we pour into maintaing one, the worse it gets?

[akrowne]

Re: Financial Regulation and the Big Fat Very Visible Hand

I had thought that the Fed's direct intervention in organizing the bail out of LTCM was accepted by all (including the fed), but evidently not. Double-speak or delusional?

The Fed likes to think it was just "facilitating" a bank-driven bailout; though I don't see how one could acknowledge the Fed's participation and still call this "the market self-correcting".

Also, the Fed forgave LTCM's short sale of 400 tonnes of gold, allowing them to break the lease agreement and substitute about $4 billion in cash (worthless to the Fed).

[akrowne]

Re: Financial Regulation and the Big Fat Very Visible Hand

LTCM was busy doing national security business in Russia trying to wipe-out the Rouble which they were able to do, there was absolutely no risk involved.

And Soros broke the pound, right?

Are you one of those "evil capitalists destroyed a beautiful experiment in communism" people?

Our system may be screwed up, but as this site documents, that's because of most of the intervention, not in spite of it.

What is a shame is that the US is becoming more and more like Russia... both in the communist and oligarch days.

[medved]

Re: Financial Regulation and the Big Fat Very Visible Hand

Tet, your Occam's razor needs serious sharpening.

m.

[Tet]

Re: Financial Regulation and the Big Fat Very Visible Hand

Tet, your Occam's razor needs serious sharpening.

m.

LOL, I'm certainly not going to trade my returns for yours. Why don't you pick up a copy of Paul Klebnikov's book Godfather of the Kremlin and see for yourself, I do admit that involves work which I'm sure is something you're not familiar with. Russia got raped, looted and plundered and to think there was no plan for that is not how the game is played.

[Tet]

Re: Financial Regulation and the Big Fat Very Visible Hand

And Soros broke the pound, right?

No, Soro's boss broke the pound

Are you one of those "evil capitalists destroyed a beautiful experiment in communism" people?

Communist Central Bank or Capitalist Central Bank, I guess I don't see the difference.

Our system may be screwed up, but as this site documents, that's because of most of the intervention, not in spite of it.

What is a shame is that the US is becoming more and more like Russia... both in the communist and oligarch days.

We long ago moved past the Oligarch days, now we have men with protection from the law stealing from widows, orphans and idiots in broad daylight, it doesn't get any better than that, recognize who the victim is going to be and bet accordingly. Get in early on the chain letters, recognize that trashing it means buy and hyping it means sell, don't send cash to nigerian princes and most importantly when the press says jump make sure to duck. Everything is just another version of yesterday's scam, so it does require some research.

[Tet]

Re: Financial Regulation and the Big Fat Very Visible Hand

If free markets are so expensive to maintain, why is it that the more money we pour into maintaing one, the worse it gets?

For who? Still plenty of big boats, fancy cars and summer cottages being bought, looks like somebody figured out how the money should be spent.

[medved]

Re: Financial Regulation and the Big Fat Very Visible Hand

Thanks Tet, really liked your post. Let's go over it in details, so you will have a chance to learn something.

LOL, I'm certainly not going to trade my returns for yours.

How can you be so sure? I had very good returns for the last 10 years (read further, and you will understand, why 10, and why they were pretty good).

Why don't you pick up a copy of Paul Klebnikov's book Godfather of the Kremlin and see for yourself, I do admit that involves work which I'm sure is something you're not familiar with.

Again, how do you know? I did quite a lot of work to learn e.g. English, and many, many things an immigrant needs to learn in a new country (including investing, which was totally impossible in the old country when I left it).

If you paid attention, you would realize, English is not my first language. If you paid a little bit more attention and did a bit of simple work, like googling my username (which I'm sure is something you're not familiar with), you would realize, the 'medved' is Russian for 'bear'.

So, my first language *is* Russian. Since I learned enough of English and earned enough money to invest (which happened around 1997), I was bearish on the market. It turned out to be a pretty profitable strategy (together with investing in PMs and currencies).

Russia got raped, looted and plundered and to think there was no plan for that is not how the game is played.

The Russians keep complaining about it for the last 300 years. Not that this is totally wrong, but Russia is, definitely, not at the top of the list of raped, looted and plundered countries. Besides, this is a two-way street, so Russia did its share of rape, looting and plunder. Russians really like blaming foreigners for their own problems. I got sick of it back in Russia long before I left it.

You need to know a bit more about the country, before you jump to your conclusions. This is precisely the problem with conspiracy theorists: they take their theories out of context.

You do need more work on your Occam's razor.

m.

[Tet]

Re: Financial Regulation and the Big Fat Very Visible Hand

Thanks Tet, really liked your post. Let's go over it in details, so you will have a chance to learn something.

Wow, something other than one line good to see.

How can you be so sure? I had very good returns for the last 10 years (read further, and you will understand, why 10, and why they were pretty good).

I wouldn't trade sixteen years, but sixteen is all I've got, first investment was all hard work and good luck.

Again, how do you know? I did quite a lot of work to learn e.g. English, and many, many things an immigrant needs to learn in a new country (including investing, which was totally impossible in the old country when I left it).

Me I've been away from home for thirty years, when I go back I get lost and that's here in the US, I don't even recognize the place. One always seems to think what you leave stays the same but it always seems to change.

If you paid attention, you would realize, English is not my first language. If you paid a little bit more attention and did a bit of simple work, like googling my username (which I'm sure is something you're not familiar with), you would realize, the 'medved' is Russian for 'bear'.

Not surprising on an english forum don't you think? I've learned to google Russian tie-ins for future reference. Silly me I thought Medved was some Dittohead radio personality.

So, my first language *is* Russian. Since I learned enough of English and earned enough money to invest (which happened around 1997), I was bearish on the market. It turned out to be a pretty profitable strategy (together with investing in PMs and currencies).

What market was this? Bearish in '97 means you missed out on all the fun for the dot.bomb rocket launch. PM's and currencies have been movers, I do have a bag full of Euros. I'm more inclinded to sell the bag than buy more of them.

The Russians keep complaining about it for the last 300 years. Not that this is totally wrong, but Russia is, definitely, not at the top of the list of raped, looted and plundered countries. Besides, this is a two-way street, so Russia did its share of rape, looting and plunder. Russians really like blaming foreigners for their own problems. I got sick of it back in Russia long before I left it.

Russia certainly did their share of plundering, we're in agreement.

You need to know a bit more about the country, before you jump to your conclusions. This is precisely the problem with conspiracy theorists: they take their theories out of context.

I think it's you taking this out of context, Gangster Capitalism is alive and well.

You do need more work on your Occam's razor.

m.

Will do.