Friday, February 21, 2014

21/2/2014: Fed Transcripts, 2008: Icebergs, Titanic, Violins...

Marketwatch are running a live blog on Fed's release of 2008 transcripts

My comment: Fed transcripts from 2008 show a circus hit by a hurricane drowning in a surge of self-delusion.

Bernanke waffling on, in September 2008, about 'moral hazard' in a virtually academic exercise that is more about him being 'decidedly confused and muddled' shows the extent to which the Fed (and do keep in mind - this is the most competent Central Bank out there) was left completely unprepared for a systemic crisis. Forget the nature of the crisis or specific causes of it. The point is that some 14 months into huge pressure pilling up in the markets, the Fed was utterly unprepared to face a crisis.

Now, observe that having done the deed of acting outside any confidence about the impact of his actions, Bernanke subsequently defends his choices by saying that "I just don't believe that you can allow systemically critical institutions to fail in the middle of financial crises and expect it to be not a problem." Which, of course begs the question: does he believe that he should fail these institutions ex post after the crisis is over? And how the hell does he propose we go about that restoration of 'zero moral hazard' state? By sending in the FBI?..

In short, the man is still out of touch with reality. First, with the one he was thrown into in September 2008, second, with the one he constructed in response to September 2008 events.

Poor Ben... he goes on: "“We did not have—as the Europeans have or as we have FDICIA for banks—a system that was set up to allow a reasonable and responsible orderly resolution of nonbank systemically critical institutions. I think we now have made a lot of progress there. The TARP will provide a good interim solution.”"

Come again? What is that that 'the Europeans' have? "a system allow a reasonable and responsible orderly resolution of nonbank systemically critical institutions"? Dear, oh dear... he needed retirement rest and relaxation back in 2008.

Still, the Fed transcripts show how the Central Bank did move to face the reality, unlike 'the Europeans' who basically used the Mongols' tactic for capturing Beijing - throw bodies against the walls. Even though Fed's 'data' included Yellen's quotes about plastic surgeons reporting customers delaying elective procedures... and she subsequently followed up on this pearl by expressing (in December 2008) concern about rising labour force participation...

In short, the transcripts make us, macroeconomists, look decidedly scientific and impossibly human, compared to the Central Bankers... And this before we get any transcripts from that bastion of surreality in Frankfurt, called the ECB...

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