Fed Liquidity to Keep the Financial System from Collapsing

Aug 31, 2009 - 02:03 AM

By: Mike_Whitney

Ben Bernanke never should have been reappointed as Fed chairman. Obama made a big mistake. The main thing to remember about Bernanke is that, in the two years since the financial crisis began, he's made no effort to force the large banks and financial institutions to write-down their losses. Nor has he pushed for the regulations that are needed to restore confidence in the system. The credit system is still clogged because the banks are buried under $1.5 trillion in toxic assets and non performing loans which are defaulting at the fastest pace on record. At the same time, Bernanke has failed to push for reform of derivatives trading, off-balance sheet operations, securitization or capital requirements for financial institutions.


The good news is that Bernanke has demonstrated great creativity in providing sufficient liquidity to keep the financial system from collapsing in a heap. The bad news is that the core problem is not liquidity at all, but solvency. A good portion of the banking system is underwater. That's why Bernanke's actions have been a complete flop.

The banks can't fix themselves, because--to do so--would drive many of them out of business. If the FDIC doesn't sort them out, they will continue to be a drain on public resources. Lending will continue to contract and GDP will shrink. That's what is happening now, except Obama stimulus has triggered a slight uptick in growth that is being confused for recovery. But there is no recovery. Things are simply getting worse at a slower pace. That's to be expected. Housing prices will not go to zero; they flatten out over time. That doesn't mean things are getting better. They're not; they're getting worse. Personal consumption is in the tank, business investment has never been lower, the rate of bank failures is accelerating, and unemployment is headed higher. So where are the "green shoots"?

http://www.marketoracle.co.uk/Article13111.html

Maybe there's a tiny little OTHER reason Obama wants Afghanistan?

And the PENTAGON of all people want us out?

Could be the Bush Cartel didn't believe Obama-The-Liberal would double-down?