Alan Blinder Continues Drinking Bernanke Green Shoots Cool Aid

This article appeared a few months back in the NY Times.

www.nytimes.com/2009/07/26/business/economy/26view.html

I only reference it because it was again reference yesterday by the author in this article:

www.nytimes.com/2009/09/06/business/economy/06view.html?scp=1&sq=blinder&st=cse

Alan Blinder is a smart guy, but he has to get over the fact that the FED is capable of acting in a non political way. It can't. The Fed is the root cause of the mess, not solution.

The FRB is one the biggest reasons why we had a credit crisis in the first place. These guys totally dropped the ball and looked the other way for 25 years while Wall Street looted the country. Greenspan and Bernanke are so deeply rooted and interwoven into the fabric of Wall Street and DC, that it can not be objective to the needs of the Tax Payer. You cant properly weight Wall Streets needs with the general needs of citizens. This is how US style capitalism works. Its not perfect, it may not even be the best system anymore, but its what we have at the moment, so get used to it. But it also doesn't mean we should give more power and responsibility to the ones who have failed us on such grand scale.

I have written that the Fed shouldn't be given the role of Systemic Risk Regulator.

tradersutra.blogspot.com/2009/07/more-on-too-big-to-fail.html

tradersutra.blogspot.com/2009/07/dismantling-temple.html

tradersutra.blogspot.com/2009/06/obama-financial-regulatory-plan.html

Going back to the original July 26Th piece from Blinder. It just seems that Blinder thinks of the Fed as some larger then life all knowing, all good, all benevolent entity. What planet has he been living in the last 30 years?

Just reading some of his thoughts have me scratching my head:

"Suppose such a regulator had been in place in 2005. Because the market for residential mortgages and the mountain of securities built on them constituted the largest financial market in the world, that regulator probably would have kept a watchful eye on it. If so, it would have seen what the banking agencies apparently missed: lots of dodgy mortgages being granted by non bank lenders with no federal supervision".

This is another fallacy:

"Under one model, the regulator would be like the family doctor, taking a holistic view of the patient, making a general diagnosis and then referring the patient to appropriate specialists for treatment: to the Securities and Exchange Commission for securities problems, to the banking agencies for safety and soundness issues, and to someone for problems with derivatives — once we figure out whom that someone is".

Mr. Blinder obviously doesn't understand that the SEC totally missed the Madoff debacle. The SEC doesn't have any specialists other then lawyers. This is how and why Madoff was able to hogwash the agency.

More ludicrous suggestions:

"An alternative model would work more like a full-service H.M.O., where an internist refers patients to in-house specialists as necessary. To make that work, the systemic-risk regulator would need more power — not just to diagnose problems, but also to fix them. And it would need a huge range of in-house expertise".

"Crucially, when truly systemic problems arise, a lender of last resort is almost certain to be part of the solution — and that means the central bank. So if there is to be a systemic-risk regulator in the United States, it should be the Fed".

Again, these guys are part of the problem, not solution.

A little blind faith here with this statement?

"Furthermore, unlike any other agency, the Fed would not be starting from scratch in performing these expanded regulatory duties. At least in theory, every central bank is its nation’s principal guardian of financial stability. The Fed already has the eyes and ears (though not enough of them) to do this job, and has the broad view (though, again, not broad enough) over the entire financial landscape. It must have such a view to handle monetary policy properly".

There is always an alternative plan. Look for it. Its usually the one where the greatest pain is inflicted for the common good.

Anybody who says there is no alternative plan only wants to delay such action so that their constituency doesn't get hurt.

The Fed, Treasury, and SEC's biggest constituency is Wall Street and the Banking Sector. That is why there is never an alternative plan. That is why Business As Usual and Status Quo has been fossilized for ages to come.