Man Of The Year Speaks.......

Is this a "Tell" from Uncle Ben on where rates are going?

http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm

Bernanke is defending Fed monetary policy during the housing bubble while blaming the lack of regulatory oversight for the economic crisis. Its just in time monetary policy at its finest.

Its a classic defense of the "Irrational Exuberance" speech that Greenspan made in the mid 90's, that monetary policy is not the right tool to fight asset bubbles. Its kind of strange that Bernanke is now stating that the lack of regulation caused the housing bubble. Really? That is funny coming from a guy who didn't think housing was a bubble in the first place.

When will this guy realize that when rates are so low, money gravitates to higher yielding investments? Investors borrow short then lend long. This leads fund managers to rotate to higher current yield. Form this sub prime grew. Form this lending standards fell apart. From this the ratings agencies forgot how to do their jobs. From this Wall Street needed to securitize garbage with lip stick on it. From this the leverage grew exponentially. From this they grew into the off balance sheet vehicles that Wall Street then created to put these pigs. Put it all together and what do you get?

Failure to regulate was a problem. But that problem came after the Fed kept rates so low. The Fed is in the cross hairs and they just don't want to take any responsibility towards what happened.

I see a much bigger problem when it comes to the legacy of Bernanke/Greenspan. The Fed is also the chief regulator of the financial system and they have the primary responsibility in protecting consumers. So why was Bernanke specifically lobbying against the Consumer Financial Protection Agency? His claims that a lack of regulation was the root cause of the crisis is superficial and disingenuous.

But what is extremely dangerous and downright scary are these thoughts form Time Magazines "Man Of The Year."

"If adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplementary tool for addressing those risks proceeding cautiously and always keeping in mind the inherent difficulties of that approach."

Basically if we don't get financial reforms or a road map for reforms then rates are going higher. He is making the point that bubbles are not caused by monetary policy. Goodness! This guy has learned nothing! He is thoroughly convinced of this and will only use this as a weapon if in the case that proper reforms are not made. Everyone knows that there is no real reform and that getting anything done in 2010 is fruitless. What we have is gridlock and money printing.

Bernanke should not be confirmed.
But then again what we have seen from Obama so far is the next guy will probably be as worse.

No wonder the markets are flying this morning.