Robert Higgs on the Federal Reserve’s “Zombification of High Finance”

Economist Robert Higgs was not impressed by Federal Reserve Chairman Ben Bernanke’s recent Washington Post editorial defending the Fed’s recent actions:

Bernanke describes the Fed’s frantic, flailing, near-panicked actions, especially from September 2008 through the early months of 2009, in calm, measured terms, as “strong and creative measures to help stabilize the financial system and the economy.” This begs the question of whether the Fed’s actions actually did “stabilize the financial system and the economy.”

A strong argument can be made that, instead, the Fed’s actions created immense uncertainty and confusion about which commercial banks, investment banks, and other big firms would be bailed out and, if they were to be bailed out, how they would be bailed out. This uncertainty deterred private parties from undertaking the necessary revaluation of assets and from devising new arrangements, including reorganized post-bankruptcy firms, that would be able proceed on a sounder basis, as a rule under new, more prudent managements. In short, many mortally wounded firms were kept on life support by the Fed, and others clung to the hope that with some creative accounting to carry them for a while, they might ultimately secure a bailout. Think of it as the zombification of High Finance.

Read the whole thing here.

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  • Old Mexican||

    Economist Robert Higgs was not impressed by Federal Reserve Chairman Ben Bernanke’s recent Washington Post editorial[...]

    Was anybody?

  • Jason||

    Barack Obama?

  • Old Mexican||

    Too easy.

  • Tim Geithner||

    No comment.

  • Warty||

  • ||

    Goblin's theme to the alien possession flick Contamination:

    http://www.youtube.com/watch?v=MjUOxvPaJuE

  • Warty||

    The 80s were a splendid time, weren't they?

  • ||

    Indeed. I enjoyed the shit out of Argento's Opera the other day.

    Now I need to get some RGB primary lamps to place outside the windows of my flat.

  • Amakudari||

    This is what we have now. Fuck, comparing metalcore and 80s death metal makes me sad.

  • ||

    Here's an example of a problem caused by government intervention: Banks would've taken their lumps and dealt with all of the property they should've foreclosed upon, driving down housing prices even more, and likely shortening the recession.

  • Jeffersonian||

    There's nothing wrong with our economy that a few trillion bucks thrown down the rathole won't prolong.

  • ||

    More Ron Paul type Libertarian idiocy about the "scary" Federal Reserve.

    "G. Edward Griffin (born November 7, 1931) is an American film producer, author, and political lecturer.[1] Starting as a child actor, he became a radio station manager before age 20. He then began a career of producing documentaries and books on often-debated topics like cancer, Noah's ark, and the Federal Reserve, as well as on Libertarian views of the U.S. Supreme Court, terrorism, subversion, and foreign policy. Since the 1970s, Griffin has promoted laetrile as a killer of cancer cells, a view not accepted by a majority of scientists.[2][3] He has also promoted the Durupınar site as hosting the original Noah's ark, against skeptics as well as near-Ararat Creationists. He has opposed the Federal Reserve since the 1960s, saying it constitutes a banking cartel and an instrument of war and totalitarianism.[4] In 2002, Griffin founded the individualist network Freedom Force International."

    (Wikipedia)

    The author of 'The Creature from Jekyll Island' is the patron saint of Bircher/Ron Paul fuckwads.

  • hehe||

    We're poisoning the well
    We're poisoning the well
    Hi ho the dairy-o
    We're poisoning the well

  • Old Mexican||

    Re: Shrike,

    The author of 'The Creature from Jekyll Island' is the patron saint of Bircher/Ron Paul fuckwads.

    "And that's how we argue in the Leeeeeft!"

  • ||

    I think I can add this to my list:

    Signals like the Fed’s frantic actions which zombified high finance which created immense uncertainty and confusion about which commercial banks, investment banks, and other big firms would be bailed out and, if they were to be bailed out, how they would be bailed out? actions which deterred private parties from undertaking the necessary revaluation of assets and from devising new arrangements, including reorganized post-bankruptcy firms, that would be able proceed on a sounder basis, as a rule under new, more prudent managements?

    Signals like the government will loan banks money for free then buy it back for a 2% return and then say the banking industry needs to be regulated because they are keeping there money rather then loaning out?

    Signals like a health care bill that we will not know what is in it until it passes?

    Signals like Obama telling us that perverse intensives manufactured by government sponsored entities will now be forever called Wall Street greed?

    Signals like if you run a tight, clean and safe oil rig operation and your competitor fucks up the government will shut you down for 6 months?

    Signals like if your competitor loses money on every car it sells the government will bail it out and then attack your cars in the media as unsafe to drive?

    Signals like Obama calling small business trade groups like the US Chamber of Commerce are the bogymen of foreign special interests?

    Signals like your income taxes will go up Jan 1 2011?

    Signals like employing people will cost you more for their health insurance?

    Signals like Obama starting a trade war with China over car tires?

  • ||

    Dow on Jan 20, 2009 was 8.281 and is now 11,356.

    Capital spending was up 22% in q2 - biggest jump in over 10 years.

  • Jordan||

    And yet U6 is about 17%. Just wait for the next leg down after the junk bond bubble bursts.

  • ||

    Get real. Junk bonds are in no bubble - they are just back in a sign of a recovering economy. Investors are willing to take on a bit more risk now instead of investing in low-yield Treasuries.

    UE at 17% and China's is worse despite their annual 7% GDP growth rate.

    UE here is merely reflecting the worldwide labor surplus.

  • sevo||

    shrike|11.10.10 @ 6:24PM|#
    "UE here is merely reflecting the worldwide labor surplus."
    Please explain this concept of worldwide labor surplus.
    Oh, and BTW, great job cherry picking data larded with glib 'explanations'.

  • Apogee||

    Of course you'll mention unemployment along with your other statistics, right?

  • ||

    Dow on Jan 20, 2009 was 8.281 and is now 11,356.

    If the US government gave me a trillion dollar interest free loan i think i could do better at increasing my net worth then the Dow has been doing.

    Of course in this economy i would probably play the safe game and only buy treasury bonds and get that easy 2% interest.

    Do not be surprised if you do the math and find the gains are exactly proportional to what the Dow did.

  • Old Mexican||

    Re: Shrike,

    Dow on Jan 20, 2009 was 8[,]281 and is now 11,356.

    Inflation
    Like the corners of my wallet
    lightly colored inflation
    suck the way we were...

    Repeat after me, kids:

    MONEY IS NOT WEALTH. VALUATIONS IN INFLATED DOLLARS ARE GOING TO BE INFLATED THEMSELVES.

    Good, children! Very good!

    Capital spending was up 22% in q2 - biggest jump in over 10 years.

    We're in the bubble!
    We're in the bubble!

    Let us party like it's nineteen ninety nine! Oh oh oh oh!

  • Jason||

    Signals like the US government subsidizing Brazilian farmers to compensate for US farm subsidies?

  • Rich||

    [Bernanke] fails to see that the unemployed labor and capital are concentrated in places to which they were drawn as a result of malinvestments made during the (Fed-fueled) boom, especially in housing construction and finance and related industries. When the Fed now creates new bank reserves via QE2, the banks ... only inflate new asset bubbles.

    This. The Fed cranks out distortion after distortion, hoping to hit upon some combination that will straighten everything out.

  • Apogee||

    But they've got to do something!

  • ||


    “Zombification of High Finance”

    Would that be "The Night of the Living Bailout", "Attack of the TARP Companies", or "Detroit Lives Again?

  • ||

    Ben is printing them now!

  • ||

    When I read the word "malinvestments" not used pejoratively, I know the writer is an Austrian economist

    When I read the word "eh" not used pejoratively, I know the writer is damn Canadian. Just because they have lower taxes, faster growth, and balanced public finances does not mean they can lecture US.

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