Charlie Rose

REMant  01/14/2010 11:25 AM Report

The Fed's actions helped hold up a collapsing house of cards, but the house still remains, it is still made of cards, and a lot of ppl are still getting fat off it. In my mind that is as unconscionable as the dubious ethics of promoting stock while short-selling it or whatever variation is taking place these days. Just yesterday the Fed claimed a huge profit, mostly as a result of buying mortgage securities with money they printed. The money to buy these securities, which make up the bulk of the amount deemed profit, has no value except and unless the value increases through real economic improvement, thus, so far from being profit, either it represents a loss to the public who are forced to accept these dollars, or it is as yet unrealized. It is no different than the Fed printing money to give to the big banks to offset the securities they hold, resulting in their profits. Either those will appreciate in value or they will not, and if they do not, or if they appreciate due to inflation, the loss has been passed to the public, but even so the public lost by paying their inflated price to begin with. What this maneuver represents is the Treasury's "bad bank," done by fiat when it was seen the idea would not pass Congress. If the Fed is expecting a great increase in productivity as a result of their actions, I think they will be waiting a very long time. Each time the Fed reflates in response to a crisis of this sort, it makes the general population a little poorer, and at the moment it is very poor indeed. Until this distributional problem is addressed we can, I believe, expect nothing good to come of these machinations, because it is the concentration of wealth that is at the heart of our financial problems, and the Fed's approach only makes it worse. A more sensible course of action would have been to increase interest rates and progressive tax rates, while reducing spending to balance the budget, extend necessary unemployment benefits, and force the refinance of what can only be seen as extortionate mortgages. In other words, the problem should have been backed out of the system, not treated as if it can simply be "grown" or inflated out of. To a large extent that is what deflation accomplishes all by itself. Bernanke wants to blame all of this on the trade deficit with China and OPEC, et al, and the financier's cupidity, but it won't wash, because it is unlikely that leverage could have built to this height without the Fed's complicity in providing easy money over a period of years, if not decades, and it is clear that fundamental inflation has been rampant for at least the last half-century. For instance, I'd guess that the president of Columbia's salary is 10-15 times what it was in 1960. Besides, who has provided a better model for greed and irresponsibility than the govt, itself?