Federal Reserve Board chairman Ben Bernanke inherited a real mess from Alan Greenspan and the Bush Administration who were all asleep during their watch when noteworthy financial minds Warren Buffett of Berkshire Hathaway (NYSE: BRK.A) and John Bogel, the founder of the Vanguard Group, and numerous other people of substantial financial knowledge and integrity were sounding the alarms.
'My pal Warren' went as far as to call derivatives toxic waste and the true weapons of mass destruction. In the design and construction industry we commonly hear the phrase, "There is never enough time to do it right but there is always plenty of time do do it over!" Perhaps it is a common refrain in other professions too.
Well today, the Fed Chief urged preventive action. This is a crying shame. I do not doubt his wisdom on this matter, unfortunately the horses have long left the barn and now he wants to close the doors simply to prevent the barn from collapsing. We will need the barn if we can ever round up those horses again. Mr. Bernanke was none too fast to react to the serious nature of our economic problems but he is plenty serious now.
The single biggest problem on Wall Street and in the government is that the scale of the business activity is so huge that both factions are totally disconnected from reality and from their respective constituencies. Wall Street financial houses were simply driving short term revenue and outrageous bonuses to a level they could retire on, with little long term perspective, concern for depositors or investors and understanding of downside risk.
I guess it is hard to see anything but the skys's the limit when your nose is always in the air. We live in astounding and unpredictable times. Today the market is in positive territory even though retailers posted sluggish sales in March and the trade deficit widened and still gas, diesel prices were at record highs, so go figure. It will all be rationalized on the news shows and it will all be ridiculous.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
4-10-2008 @ 5:26PM
David Huston said...
Again, Chairman Bernanke didn't seem to be saying anything about derivatives and the Bear Sterns mess that nearly collapsed the free market system. Certainly, he didn't even mention "credit default swaps" which presently burden JP Morgan to the tune of $7 Trillion, and sat astride Bear Sterns for more than $2 Trillion. So, he wasn't closing barn doors, which remain wide open for other investment bankers to come running when things go awry for them.
4-10-2008 @ 5:37PM
Sheldon L said...
David,
I agree with you that we have not seen any action on the part of the government yet to prevent the same fiasco from happening again. This will have to be done by congress and the SEC; if it is done.
4-10-2008 @ 6:24PM
al coholic said...
God help us if we have to rely on Congress to straighten anything out.
A good case can be made that Phil Graham's deregulation bills in the early 90's was the beginning of this mess.
4-10-2008 @ 6:38PM
Charlie said...
Im in realestate and i read this stuff every night and also read the comments.I understand the subprimes lending problems, but from reading your comments and others thats only a part of this huge mess.My broker had set up a country wide presentation for thier new products that was set up for the morning of 04/09, when i got the memo i said i would be there but as a heckler,she said what do you mean,I said i would take my buyers to a loan shark before i would use them and mentioned the fact of them ruining the lives of millions of familys and the fbi investagations on top of the stock sales of the head honchos and tax dollar infusions, anyways they canceled it.
4-10-2008 @ 6:41PM
winslow said...
The current administration has never correctly evaluated the current crisis and has always drawn the incorrect conclusions. Unfortunately, this is due to their limited idealogy and the inability to process any other views. However, the more serious question is that they still believe they are correct in their assumptions and responses, thus all the US suffers.