Thread: Bernanke Insists Fed Innocent In Financial Crisis

Financial crisis was not the Fed's fault, Bernanke insists

Watchdogs must become smarter to prevent repeat of credit crunch, says chairman

By James Moore, Deputy Business Editor

Monday, 4 January 2010

The chairman of the US Federal Reserve last night blamed poor financial regulation for the financial crisis and defended the record of America's central bank.

Ben Bernanke also called for urgent improvements to financial oversight to prevent a repeat of an economic storm that he said could ultimately prove to be "the worst in history".

In a speech to the American Economic Association in Atlanta, Georgia, Mr Bernanke argued that low interest rates in the first five years of the new millennium were "appropriate" for the time and had not caused the "bubble" in US house prices. The Fed has been criticised by some economists who argue that it kept rates too low for too long, encouraging the property boom. The subsequent crash led to a surge in repossessions, leaving lenders with huge losses and the financial contagion quickly spread around the world.

Mr Bernanke suggested that the bubble was inflated by poor mortgage underwriting and weak supervision of lenders, and he said this must change.

"Surely, both the private sector and the financial regulators must improve their ability to monitor and control risk-taking," he added. "The crisis revealed not only weaknesses in regulators' oversight of financial institutions but also, more fundamentally, important gaps in the architecture of financial regulation around the world.

"Stronger regulation and supervision aimed at problems with [mortgage] underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.

"Moreover, regulators, supervisors and the private sector could have more effectively addressed building risk concentrations and inadequate risk-management practices without necessarily having had to make a judgement about the sustainability of house prices."

Mr Bernanke insisted the Federal Reserve had been "working hard to identify problems and to improve and strengthen our supervisory policies and practices", adding: "The lesson I take from this experience is not that financial regulation and supervision are ineffective for controlling emerging risks, but that their execution must be better and smarter."

However, despite his remarks, he said policymakers should not rule out using interest rates as a measure to prevent any future build-up of asset price bubbles. "If adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous build-ups of financial risks, we must remain open to using monetary policy as a supplementary tool for addressing those risks," he explained.

"Clearly, we still have much to learn about how best to make monetary policy and to meet threats to financial stability in this new era."

Mr Bernanke's speech comes as the US Senate prepares to debate regulatory reforms that would remove the Fed's responsibility for overseeing large financial institutions and leave it to focus on interest rates, a move that has already happened in Britain. Here, the Conservative Party has pledged to reverse this policy and return to the Bank of England its responsibility for supervising lenders.

Mr Bernanke has argued against the Senate's move, saying it would damage oversight of the system by removing a crucial monitor. The Fed chairman, who took office in February 2006 following the long reign of Alan Greenspan, has been nominated for another term by President Obama. The Senate Banking Committee voted in his favour last month and, while his nomination remains contentious with some, it is expected to be confirmed.

http://www.independent.co.uk/news/busin ... 56952.html

The whole basic fundamental flaw certainly is the Federal Reserve AND our government using them as their credit card instead of having to come to us for money.

Maybe this will help make the danger of fiat money clear.

Imagine you and me are setting across from each other. We create enough money to represent all of the world's wealth. Each one of us has one SUPER Dollar in front of him.

Maybe this will help make the danger of fake money clear.

Imagine you and me are setting across from each other. We create enough money to represent all of the world’s wealth. Each one of us has one SUPER Dollar in front of him.

You own half of everything and so do I.

I’m the government though. I get bribed into creating a Central Bank.

You’re not doing what I want you to be doing so I print up myself eight more SUPER Dollars to manipulate you with.

All of a sudden your SUPER Dollar only represents one tenth of the wealth of the world!

That isn’t the only thing though. You need to get busy and get to work because YOU’VE BEEN STIFFED with the bill for the money I PRINTED UP to get YOU TO DO what I WANTED.

That to me represents what has been happening to the economy, and us, and why so many of our occupations just can’t keep up with the fake money presses.

They have been beating us with our own stick!!!!1