More Grim Comedy from Ben Bernanke

"The incompetence that Bernanke has displayed over the past few years makes the Cincinnati Bengals look like a model of excellence," the always excitable Michael Snyder writes at DailyMarkets.com. "Bernanke kept insisting that the housing market was stable even while it was falling apart, he had absolutely no idea the financial crisis was coming, he declared that Fannie Mae and Freddie Mac were in no danger of failing just before they failed, his policies have created asset bubble after asset bubble and the world financial system is now inherently unstable.  But even with such horrific job performance, Barack Obama and leaders of both political parties continue to publicly praise Bernanke at every opportunity. What in the world is going on here?"

Snyder puts together a list of Ben's best. You've probably seen a few before, but lucky for America's enemies, Bernanke keeps talking, as he did Sunday with the appropriately credulous Scott Pelley of CBS's Sesenta Minutos.

Some choice bits:

#4 (January 10, 2008) "The Federal Reserve is not currently forecasting a recession."

#7 "The money supply is not changing in any significant way. What we're doing is lowering interest rates by buying Treasury securities."

#11 "Although low inflation is generally good, inflation that is too low can pose risks to the economy – especially when the economy is struggling."

My favorite from the 60 Minutes sitdown wasn't a particular gotcha, but a comment that reveals how captive the Federal Reserve Bank chairman is to the meritocratic fallacy:

"This fear of inflation, I think, is way overstated. We've looked at it very, very carefully. We've analyzed it every which way."

More Fed fun: Ford Motor Company goes from hero to zero. The only one of the Big 1.9 U.S. auto makers that did not receive Treasury Department funding in the Obushma bailout turns out to have borrowed $15.9 billion from the Federal Reserve Bank, more than any other U.S. car company. From Jalopnik:

Ford spokeswoman Christin Baker said the two programs "addressed systemic failure in the credit markets, and that neither program was designed for a particular company, or even a particular industry." Ford Credit has disclosed through SEC filings and conference calls with media and investors that it was taking part in both programs.

BMW told Bloomberg that the Fed lending "supported our financial profile and offered us an additional funding source, especially at times when the money markets and capital markets did not function properly and efficiently."

According to the Fed, the commercial paper loans have been paid in full, while some $2 billion remains outstanding on loans for bond investors.

Related: Is the world's greatest central banker (it's like being the tallest munchkin at MGM) holed up in … Lebanon? At RealClearMarkets, C.J. Maloney pays a more-spirited-than-documented tribute to Bank of Lebanon chief Riad Salameh:

Dr. Salameh has been Lebanon's central bank governor since 1993, steering her through multiple foreign invasions, civil war, political assassinations, and the greatest credit bubble the world has ever seen. Unique among all central bankers, he pulled his banking system from in front of the onrushing train of the Great Moderation so it went roaring by Lebanon's banking system and broadsided America's, sitting idle, dumb, and fat on the tracks just up ahead.

With admirable foresight, Dr. Salameh paid attention to the Lebanese banks' off-balance sheet items, forbade (in 2004) sub-prime investments, and required a minimum 30% cash reserve at each institution. The result? (In Dr. Salameh's own words), "Lebanon will not feel the effects of the financial crisis, because we took the necessary measures preemptively" and as they say in Texas, it ain't braggin' if it's true.

In the time since the burst of our bubble, Lebanon's banking system has been doing super, thanks for asking! The first seven months of 2010 saw "unprecedented growth in lending activity" from a Lebanese system made up of "highly liquid deposit rich banks with low leverage".

Is Maloney full of baloney? No and yes. Salameh gets props for maintaining the local currency's dollar peg: It was 1,500-to-a-greenback when Salameh took over the central bank in 1993 (coincidentally the same year I began making occasional journeys to Lebanon), and it's 1,501.4 to the dollar now. And interest rates have dropped substantially in recent years. However, inflation (of real estate in particular) is rampant, unemployment is estimated to be well above the officially claimed (and historically very suspicious-looking) rate of 9.2 percent, and economic opportunity is limited.

I'm also not sure how seriously to take those prohibitions against leverage. In a country where two-thirds of the population is theoretically not allowed to charge or collect interest, all agreements on interest and leverage are going to be to some degree self-declared.

Lebanon's federal budget is of course a total mess -- but a central banker's job is only to allow that kind of stupidity, not to execute it.

And a bonus just for staying to the end: Some interesting comments from a great Deirdre McCloskey interview at National Review. Here the Reason contributor and author of Bourgeois Dignity dismisses hairshirts like me who issue spartan condemnations of our debt-ridden culture:

Conservative romantic nonsense, similar to the cries in the 18th century that commerce would corrupt the Spartan virtues. Dr. Johnson, who was a conservative but no sort of romantic, said in 1778, "Depend upon it, sir, every state of society is as luxurious as it can be. Men always take the best they can get." And the blessed David Hume had said in 1742, "Nor is a porter less greedy of money, which he spends on bacon and brandy, than a courtier, who purchases champagne and ortolans [little songbirds rated a delicacy]. Riches are valuable at all times, and to all men." Of course.

There's a progressive version of the nonsense, the complaining about "consumerism."

A more up-to-date reply is that so long as various Oriental protectionists (in the 1970s it was the Japanese, not the Chinese) are so foolish as to send Americans TV sets and hammers and so forth in exchange for IOUs and green pieces of paper engraved with American heroes, wonderful. Would you personally turn down such a deal? If your personal checks circulated as currency, and the grocer was willing to give you tons of groceries in exchange for eventually depreciated Matt-dollars, wouldn't you go for it? I would, and drink champagne.

Comments

[Tman]

I think PJ O'Rourke put it better in the essay Trading With The Enemy-

There is no such thing as a trade deficit. It doesn't matter if America imports all of its goods from China and exports nothing but pieces of paper. The Americans want the computer monitor, and the Chinese want handsome portraits of Benjamin Franklin. No coercion is involved. Nobody is making Americans buy Chinese goods. It's not like the Opium Wars when the British forced the Chinese to accept shipments of, shall we say, pharmaceutical imports. Maybe the Chinese will fight a war with America--the Consumer Electronics War of 2007, with Chinese gunboats cruising the fountains in America's malls. But it hasn't happened yet............A U.S. dollar is an IOU from the Federal Reserve Bank. It's a promissory note that doesn't actually promise anything. It's not backed by gold or silver. If Hu Jintao brought a $100 bill with him to Washington, and if he took the $100 bill over to the Federal Reserve, what he got for it was a hundred dollars. He may have gotten it in twenties, tens, or dimes. But all the Fed will give anyone for their American money is other American money. Hu Jintao is stuck with his IOU.

Maybe America's policymakers are worried that China will spend that cash and this will somehow damage sectors of the American economy. I spent three weeks eating Chinese regional delicacies, and I'll admit that, if the Chinese spend all their U.S. dollars, our pet shops will be stripped bare. But let us consider the parable of Japan in the 1980s. Japan kept giving America radios, TVs, stereos, and cars, and we kept giving Japan money. The Japanese didn't want anything America made except Michael Jackson tapes, and we didn't even make the valuable part--the tape cassette part--of those. So the Japanese decided to buy America itself. They bought office complexes, hotels, and golf courses. The Japanese bid up the price of American real estate until the bubble did what bubbles do. By the 1990s America had all the radios, TVs, stereos, and cars, and all the office complexes, hotels, and golf courses, and all the money.

[Yonemoto]

Bernanke critics need to be open to the idea that he's not entirely wrong. There should be no fear of short term inflation. I feel confident that we will have either deflation due to private debt market contraction, and a failure to print those benjis "fast enough". In fact, the greatest thing we have to fear is the fear of deflation. Because that will bring about so much political action for quantitative easing in the long term that we're going to suffer hyperinflation. But not before Bernanke and the Krugnuts get their juvenile gotcha moment where they take down the libertarian goldbugs (to the dismay of the libertarians who see deflation on the horizon - not that there's anything wrong with that deflation).

[Warty]

That quote is unfair to the Bungles. Remember, they were a model franchise back when Paul Brown was running things. What the fuck has the Ben Bernanke ever done?

[shrike]

The Fed loaned up to $9 trillion at the peak of the Credit Crash in 2008 - all at a profit.

Ron Paul goldbugs need to shut their fucking stupid yappers.

[wef]

Well, if our personal checks (that once circulated as currency) were to be found a fraud, then we could all change our names from Deirdre to Donald and skip away to start anew. (As long as we had tenure, of course.)

[Brian Sorgatz]

Don't be a hairshirt, Tim. I like you better when you endorse sex, drugs, and rock 'n' roll.

[AA]

"The incompetence that Bernanke has displayed over the past few years makes the Cincinnati Bengals look like a model of excellence,"

I happy that my Arizona Cardinals are not used as a punch line like that as much anymore, especially comparing them to The Ben Bernak. Even though they probably deserve it this year.

[Anonymous Coward]

I guess it's safe to assume Bernanke isn't a prophet.

[P Brooks]

I like the way Bennay reassures us he can just snap his fingers and make the excess dollars vanish; he will never let inflation get out of control. He doesn't mention how he plans to convince the shrieking morons on Capitol Hill when they start whining about "strangling the economy in its crib".

[R C Dean]

I like the way Bennay reassures us he can just snap his fingers and make the excess dollars vanish;

I, too, eagerly await an explanation of how liquidity can be drained from the economy without creating a credit lockup.

You remember credit lockups. They are what set off this mess.