BernieHund: The Political Watchdog

Ordinarily, Ben Bernanke would tell the world that he believes in following the rules.  Well, that was until an investment bank found itself drowning in bad investments and greed.

Policy states that the Federal Reserve Bank is an institution designed to regulate and assist Commercial Banks, not investment banks.  The difference… commercial banks, backed by the FDIC, are accessible to almost everyone.  Investment banks seem to be limited to those investors who can prove they have money, lots and lots of money… we are talking millions with a steady income flow.

But in the present case, Bear Stearns is an investment bank, one that you and I wouldn’t walk into to cash our paychecks.  But, Bernanke decided that the rich couldn’t sustain a loss, so he danced around the investment bank over to JP Morgan, a commercial bank.  And, lo and behold, JP Morgan suddenly came to the rescue of Bear Stearns.

According to a NYT article

As chairman of the Federal Reserve, Ben S. Bernanke has long argued that a central bank should base its policies as much as possible on consistent principles rather than seat-of-the-pants judgment.

But now, as the meltdown in credit markets threatens major institutions on Wall Street and a recession appears inevitable, Mr. Bernanke is inventing policy on the fly.

Additionally

On Friday, the Federal Reserve seemed to toss out the rule book altogether when it assumed the role of white knight, temporarily bailing out Bear Stearns, one of Wall Street’s biggest firms, with a short-term loan to help avoid a collapse that might send other dominoes falling.

That move came just days after the Fed announced a $200 billion lending program for investment banks and a $100 billion credit line for banks and thrifts. In a move that would have been unthinkable until recently, the central bank agreed to accept potentially risky mortgage-backed securities as collateral.

If you or I took money from one bank to another for the benefit of yet another, I’m sure someone would call it money laundering.  Or maybe it would be called “structuring”.  Isn’t that the term that has been used in reference to Eliot Spitzer moving money from his bank to another bank to wire to his prositute? 

After his past comments I wonder how comfortable Mr. Bernanke can be bailing out the greedy investment banks.

The mounting crisis has forced Mr. Bernanke, a former professor of economics, to discard the sanguine view of the nation’s economic health that he expressed last summer. He has also abandoned his skepticism about the need to calm financial markets and set aside his concerns about the “moral hazard” of bailing out big financial institutions.

In Washington and in New York, Fed officials were expected to work through the weekend, analyzing the books of Bear Stearns and trying to prevent its troubles from setting off a chain reaction of failures among its lenders and trading partners.

It was just 10 months ago that Mr. Bernanke, in discussing his reluctance to regulate the booming market for arcane credit instruments, declared: “Central banks and other regulators should resist the temptation to devise ad hoc rules for each new type of financial instrument or financial institution.”  [emphasis added]

It seems that Mr. Bernanke has reached that level of being above “moral hazard” and has decided that his own “ad hoc rules” are best for the Bear Stearns institution.

I don’t want to see the economy collapse, but it seems to me that the $300,000,000,000 (that’s $300 Billion) to save the banks is really a scheme to save the rich and powerful.  Remember the debate over the $160 Billion to be divided up among all the rest of us?

Most of us, the everyday Americans, who are looking for work or counting our change to get enough gas in the car to get to the minimum wage jobs have been left holding the bag… and it’s empty.

But… the check’s in the mail.