Defending Bernanke

Wednesday, April 30, 2008 | 07:57 PM

Randall Forsyth does a good job explaining what FOMC Chair Ben Bernanke has done right:

"Yet much of the criticism seems unfair and after the fact. Not only have Bernanke's unorthodox moves staved off a full-fledged financial meltdown, but they also have done so while reducing the inflation risks inherent in the traditional policy response of merely slashing interest rates.

That's not my opinion. It is the one rendered by the currency, credit, Treasury, equity and gold markets. Since the credit crisis peaked (or reached its nadir, depending on your point of view) on St. Patrick's Day, the Monday after the Sunday night special with the Bear takeover by JPMorgan Chase, the extreme tensions in all those markets have eased.

It was not just the Bear deal per se. The Fed established the Primary Dealer Credit Facility, which let Wall Street investment firms to borrow from the central bank, a privilege reserved for commercial banks, except for the rarest instances in the Great Depression.

The PDCF joined other, new Fed instruments to funnel liquidity where it was needed most. Last December, the central bank began the Term Auction Facility, or TAF, which permitted banks to borrow anonymously for longer periods than via the traditional discount window borrowings, which were to cover overnight shortfalls. TAF also permitted borrowing against lesser-quality but still prime collateral.

The Fed also established the Term Securities Lending Facility, which allowed banks and dealers to swap their illiquid but high-quality government and mortgage-backed securities for Treasuries. It was like a pawnshop for the financial system, allowing Wall Street to exchange their (real, not fake) Rolexes for good-as-cash obligations of Uncle Sam."

What say ye? How much of the benefit of the doubt do you want to give Ben Bernanke?

Hey, Bernanke Bashers: His Moves Have Been the Right Ones
Barron's April 29, 2008

Wednesday, April 30, 2008 | 07:57 PM | Permalink | Comments (60) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Zero credit to Helicopter Ben.

The credit crunch has not gone away because the fed facilities are still expanding, treasury finances are dwindling down and although the US$ may show a short-term uptick, foreigners will stop purchasing treasuries precisely at a time when we need them the most.

We will not only see long and deep recession, but it will be associated with high inflation, a.k.a. inflationary recession. If you think stagflation was bad, wait for things to unfold in the next 6-9 months.

Helicopter Ben thinks that by providing liquidity he can stop deflationary recession. In reality, he is leading us right into it.

The Fed is playing the depression book step-by-step - just as they did in 1929.

So, prepare yourself.

As someone once said - If you have to panic, be the first one to panic!

- Shankar

Posted by: Shankar Khadye | Apr 30, 2008 8:08:58 PM

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