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Title: False Profits: We Will Be Suffering from...Ineptitude for a Long Time Post by: WhiskeyGirl on February 11, 2010, 08:30:02 AM Quote False Profits: We Will Be Suffering from Greenspan and Bernanke's Ineptitude for a Long Time An $8 trillion housing bubble fostered by the Federal Reserve has burst, and with it much of the wealth of America's middle class. February 9, 2010 The following is an excerpt from Dean Baker's new As the nation struggles to recover from the worst economic downturn since the Great Depression, the people who got us here are desperately working to rewrite history. The basic story of this economic collapse is very simple. The Federal Reserve Board, guided by its revered chairman, Alan Green span, allowed an $8 trillion housing bubble to grow unchecked. Quote A massive wave of foreclosures and mortgage-loan defaults are also an inevitable parts of this story. Millions of people would have lost their homes even without the tsunami of junk loans the banks issued during the bubble years. When house prices plunge below the value of the mortgage, homeowners have less means and incentive to struggle to meet their payments. The huge job loss from the recession also propelled the massive wave of foreclosures. None of this is complicated or mysterious. Anticipating this disaster didn't require brilliant insights or complex models. In fact, a good student in an introductory economics course would have possessed all the knowledge needed to see this train wreck coming. However, the political elites do not want the official story to be that simple. They don't want the public to know that the people holding the top economic policy positions are incompetent, corrupt, or both. By burying the story in complexity, these elites are trying to confuse the American public. The confusion begins when the media and the politicians routinely refer to the recession as a "financial crisis." Quote The implication is that the financial system is at the root of the problem and that fixing the financial system is the way to restore the economy to its normal growth path. Although the failings of financial regulation certainly allowed the bubble to grow much larger than otherwise would have been possible, and the troubles in the financial system have aggravated the downturn, the current economic situation would be little changed if the financial system were instantly restored to perfect health. Who made that $8 trillion that disappeared? Who were the people behind the AIG counterparties? Quote Creating new agencies is not the answer; forcing the agencies that are responsible for maintaining economic and financial stability (first and foremost the Federal Reserve Board) to do their job properly is. The Fed could have and should have stopped the growth of the housing bubble long before it reached such enormous proportions. Its failure to do so was perhaps the single most consequential error in economic policy in the history of the world. I think the biggest problem is the JOB ROTATION between the Federal Reserve, hedge funds, Goldman, Wall Street, Treasury, and the presidential administration. What good does any of the regulations do if the same people are driving the bus? What good does it do if the central bank, a private bank that makes money, continues to go unaudited? read more here - http://www.alternet.org/economy/145248/false_profits:_we_will_be_suffering_from_greenspan_and_bernanke%27s_ineptitude_for_a_long_time (http://www.alternet.org/economy/145248/false_profits:_we_will_be_suffering_from_greenspan_and_bernanke%27s_ineptitude_for_a_long_time) |