Bernanke Proves he is a Complete Fool

There really should have been no doubt about this before, but there was and by someone whose opinion I highly respect as well. Just two days ago this person asked "Mish, what's your gripe with Bernanke?"

Bernanke Gripe List

• I think interest rate targeting to the CPI is complete foolishness.
• I think ignoring asset bubbles and dealing with them later is complete foolishness.
• I think he set very bad precedent about what the Fed is willing to hold as collateral.
• I think he is an extremely poor study of the causes and cures of the great depression.
• I think a policy of positive inflation is a policy of blatant theft that benefits those with first access to the money (banks and the wealthy) to the detriment of everyone else.

Other than that what's not to like?

Of course the big market participants like what he has done. Bailing out the markets on options expiry open.... What's not to like about that? Taking risky collateral and being willing to roll it over forever.... What's not to like about that? (For more on this topic please see Now we know who and why.)

But today we get to add to the list. Please consider New mortgage products could help, Bernanke says.

The private sector and Congress should create new, affordable mortgage products that would help some homeowners refinance their mortgages and keep their homes, Federal Reserve Chairman Ben Bernanke suggested in a letter released Wednesday.

In the letter to Sen. Charles Schumer, D-N.Y., Bernanke repeated that the Fed is closely monitoring markets and stands ready to act if needed. The Fed issued a statement with almost identical wording on Aug. 17 after it cut the discount lending rate to 5.75%. The letter from Bernanke was dated Aug. 27 and released by Schumer's office on Wednesday.

In his letter, Bernanke called for creative thinking to get the nation out of its subprime mess.
"It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance," Bernanke wrote.
"Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms," Bernanke wrote. "They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example."

Congress is considering legislation that would reform the Federal Housing Administration, which is a federal agency that provides mortgages to low-income buyers. FHA loans have been largely supplanted by subprime lending from the private-sector. But FHA loans, with tighter lending standards and less onerous terms, have not defaulted at the rates recently seen in subprime loans.
Under current law, the FHA cannot lend to those who are behind on their mortgage payments.

Bernanke cannot Distinguish Problem from Solution

With that proposed "solution" Bernanke proves he is a complete fool. Once again we see he is totally incapable of distinguishing the problem from the solution. That is why he is wrong about the great depression and that is why he is wrong again now.

The cause of the great depression was an enormous expansion of money supply and credit leading up to the economic collapse. Bernanke insists the solution was more monetary stimulus by the Fed. He is completely misguided.

He is now repeating the same mistake. The Housing bubble was created by too loose monetary policy by the Fed in conjunction with Congressional meddling.

Problem or Solution?

• Fannie Mae and Freddie Mac are the problem not the solution.
• Innovative lending products are the problem not the solution.
• 300+ Congressional bills to make housing affordable is the problem not the solution.
• Repeatedly bailing out the markets is the problem not the solution.
• Creative thinking sponsored by the Fed and embraced by both Greenspan and Bernanke is the problem not the solution.
• Greenspan embracing ARMs and derivatives is the problem not the solution.
  
• Being "Ready and Willing to Act" is the problem not the solution.
• The HUD is the problem not the solution.
  

No Mr. Bernanke, It's most assuredly NOT "worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance."

The Fed and this Congress and that general attitude are the problem not the solution. Every passing day, more and more government intervention is piled on top of government intervention on top of government intervention all in an effort to correct what went wrong with the last government intervention. No one ever bothers to figure out that it was the original government intervention that created the original problem.

The "Original Sin" in this case goes way back, all the way to 1913 when Congress created the Fed. With that in mind, it should be perfectly clear what the problem and the solution is.

THE problem is the Fed.
THE solution is Ron Paul.

It's time to abolish the Fed and restore fiscal and monetary sanity with money backed by hard assets such as gold. Ron Paul will do just that.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/