Fed Head Wants More

Fed chairman, Ben Bernanke, appeared before the Financial Crisis Inquiry Commission yesterday and has been acknowledged for his conciliatory tone. As the New York Times translated it, “…he was worried at the time about contributing to panic in the markets.” And while it might be viewed that the central bank chief did concede that he failed to produce an effective solution, he put some spin on the ball stating that it was the result of “…failing to make it clear to Congress at a hearing shortly after the bankruptcy that the Fed did not have other options.” Which in layman terms might be read as ‘Give us more control’.

Bernanke did justify his actions by stating that he was worried about causing panic in the markets. Thanks, Ben.

The most troubling aspect of the testimony was the repeated reliance on the term ‘risk management’ and the angle that insufficient oversight of smaller banking firms led to the economic crisis. The cadre of uncontrolled financial organizations he characterized as Shadow Banks in an apparent effort to appeal to the popularity of conspiracy theories about unseen forces which wield negative control. He essentially said that if those smaller entities had been under (Fed?) control they would not have been able to gamble on the riskier subprime products which was, in his words, a significant contributor to the crisis.

Apparently he also appreciates the Obama administration’s policy of not letting a crisis go to waste.

Here’s a sample…

Causes of the Recent Financial and Economic Crisis

Before the Financial Crisis Inquiry Commission, Washington, D.C.

September 2, 2010

Chairman Angelides, Vice Chairman Thomas, and other members of the Commission, your charge to examine the causes of the recent financial and economic crisis is indeed important. Only by understanding the factors that led to and amplified the crisis can we hope to guard against a repetition.

Appropriately, the problem of too-big-to-fail, and the policies that the government uses to address that problem, will be a particular focus of your forthcoming report and in the hearing today. In my view, the too-big-to-fail issue can best be understood in the broader context of the financial crisis itself. Accordingly, this testimony provides an overview of the factors underlying the crisis, as well as some of the problems that complicated public officials’ management of the crisis. Too-big-to-fail financial institutions were both a source (though by no means the only source) of the crisis and among the primary impediments to policymakers’ efforts to contain it. As you requested, I will also briefly discuss monetary policy during the period prior to the crisis. Before proceeding, I should state that my testimony reflects my own views and not necessarily those of my colleagues on the Board of Governors of the Federal Reserve System or the Federal Open Market Committee (FOMC).

You can enjoy Mr. Bernanke’s sales pitch for more power in full by clicking through to the Federal Reserve’s own web site where the entire speech is transcribed in full.