Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009).
We wince at congressional ineptitude but in one category legislative aptitude is improving: propaganda. The on-again, off-again finance bill (it’s on-again) was described by the Wall Street Journal as "the most extensive remapping of financial regulation since the 1930s." It is nothing of the kind.
Where to open a critique is as much a problem as where to close it. So, this will start and end at the source: the Federal Reserve. In a single sentence, the Journal captured the most compelling reason to heave the proposed legislation into the BP oil spill: "The Federal Reserve would emerge as the pre-eminent regulator, with responsibility for the most complex financial companies."
The Federal Reserve has less understanding of banking than Bonnie and Clyde. Fed Chairman Ben S. Bernanke is unable to comprehend there was cause-and-effect between the boom the 1920s and the Great Depression of the 1930s. His ineptitude gave then-Federal Reserve Chairman Alan Greenspan the academic cover to reduce the Fed Funds rate to one percent in 2003. The most egregious credit bubble in the history of the world followed. Learning nothing, Simple Ben has now cut the funds rate to zero, creating an even greater credit bubble than the behemoth that collapsed in 2007.
Bernanke and his cohorts have no excuse for their ignorance. Federal Reserve policy in the 1920s was central to the credit write-offs that sank bank balance sheets later. This story was chronicled by dozens of economists in the 1930s. Their contribution is resurrected in "Masses of Worthless Paper," now posted on the AuContrarian.com website, in the "Articles" section. This was originally written for the May, 2010, Gloom, Boom, and Doom Report.
It is too late to escape the consequences of what Greenspan and Bernanke have done. But, there is no excuse for allowing the ruin to continue inflating. Chairman Bernanke keeps adding fuel to the conflagration. He should be handed a one-way ticket on a coal car to Princeton this afternoon.
Frederick Sheehan writes a blog at www.aucontrarian.com