Fed Chairman Lectures While Big Bank CEO's Fess Up: What's Really Going On
Recently, Fed Chairman Ben Bernanke explained why it wasn't his fault that the real estate bubble blew up and exploded. A few days after that, Bank CEO's appeared before Congress to say that maybe they should have seen the bubble blowing up, but they didn't, and if they had they wouldn't have done what they did.
I couldn't figure out whether I should laugh, cry, get angry or just ignore the whole thing and go about my business.
Bernanke, following in the footsteps of his predecessor Alan Greenspan, kept and continues to keep interest rates historically low. That made loans cheap, since banks could lend at super-low interest rates. People couldn't borrow enough of this cheap money. It was like consumers (in the good old days) scooping up bargains in the malls. Money was on sale.
In my previous blog, I discussed the coming commercial real estate crash. I said that one reason normally sane, experienced real estate professionals made the deals that are now falling apart was that cheap money was available. If you read that post, I think you'll agree with that assessment. It's really pretty obvious.
The buying that resulted from the availability of cheap money created a real estate bubble. The bursting of the real estate bubble set the recent financial crisis in motion. But Bernanke, in his comments, chose to blame the bubble on a lack of regulation. He said - with a straight face - that Greenspan's low rates and his low rates weren't the cause of the furious borrowing or the bubble that resulted. Had regulators done their job, things would have worked out just fine.
Really, he said that. It was regulators' negligence that caused all the problems. Not the Fed.
Then, a few days later, the CEO's of the big banks testified to Congress that, while some of them saw the bubble building up, they surely didn't realize the bad things that would happen when it burst. They didn't realize that all their borrowing to make more and bigger investments in real estate, further driving prices up until they simply collapsed, would lead to a financial crisis. How could they be expected to know?
So now you know. No one's to blame. Not Greenspan, not Bernanke, not the banks, the bankers, or their CEO's.
What about the "improper" behavior of some bankers? For example Goldman Sachs grabbed buckets of risky assets (in this case, synthetic CDO's) created by Wall Street (which were based on the real estate bubble) and sold them to clients, then made big bets saying those same assets would collapse in value. Their CEO, Lloyd Blankfein, said this: "I do think the behavior is improper. We regret the consequences that people have lost money in it."
Meanwhile, Bernanke keeps rates at historically low levels and the bank CEO's get to keep paying out their salary and bonuses to themselves and their colleagues. The game goes on.
What's going on here? I think what's happening is that we're seeing the beginning of a coordinated plan to shift blame or at least deflect blame. And I think we're seeing this shifty blame game because of the anger that's been brewing in our country over all this. You have to wonder whether some people - like Bernanke, highly paid bankers and their CEO's, aren't feeling a dose of fear with all the anger out there.
So what are people so angry about? I'll take this up in my next post.
I couldn't figure out whether I should laugh, cry, get angry or just ignore the whole thing and go about my business.
Bernanke, following in the footsteps of his predecessor Alan Greenspan, kept and continues to keep interest rates historically low. That made loans cheap, since banks could lend at super-low interest rates. People couldn't borrow enough of this cheap money. It was like consumers (in the good old days) scooping up bargains in the malls. Money was on sale.
In my previous blog, I discussed the coming commercial real estate crash. I said that one reason normally sane, experienced real estate professionals made the deals that are now falling apart was that cheap money was available. If you read that post, I think you'll agree with that assessment. It's really pretty obvious.
The buying that resulted from the availability of cheap money created a real estate bubble. The bursting of the real estate bubble set the recent financial crisis in motion. But Bernanke, in his comments, chose to blame the bubble on a lack of regulation. He said - with a straight face - that Greenspan's low rates and his low rates weren't the cause of the furious borrowing or the bubble that resulted. Had regulators done their job, things would have worked out just fine.
Really, he said that. It was regulators' negligence that caused all the problems. Not the Fed.
Then, a few days later, the CEO's of the big banks testified to Congress that, while some of them saw the bubble building up, they surely didn't realize the bad things that would happen when it burst. They didn't realize that all their borrowing to make more and bigger investments in real estate, further driving prices up until they simply collapsed, would lead to a financial crisis. How could they be expected to know?
So now you know. No one's to blame. Not Greenspan, not Bernanke, not the banks, the bankers, or their CEO's.
What about the "improper" behavior of some bankers? For example Goldman Sachs grabbed buckets of risky assets (in this case, synthetic CDO's) created by Wall Street (which were based on the real estate bubble) and sold them to clients, then made big bets saying those same assets would collapse in value. Their CEO, Lloyd Blankfein, said this: "I do think the behavior is improper. We regret the consequences that people have lost money in it."
Meanwhile, Bernanke keeps rates at historically low levels and the bank CEO's get to keep paying out their salary and bonuses to themselves and their colleagues. The game goes on.
What's going on here? I think what's happening is that we're seeing the beginning of a coordinated plan to shift blame or at least deflect blame. And I think we're seeing this shifty blame game because of the anger that's been brewing in our country over all this. You have to wonder whether some people - like Bernanke, highly paid bankers and their CEO's, aren't feeling a dose of fear with all the anger out there.
So what are people so angry about? I'll take this up in my next post.
Comments