Appreciating the Greenspan-Bernanke Legacy

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By George Waring  02-19-14

 

                With Wall Street’s current praise for newly retired Federal Reserve Chairman Ben Bernanke, its appropriate to remember our very recent past, our past and present, actually. The unprecedented wealth redistribution upwards from middle class and poorer home owners to the wealthiest Americans is continuing. The great mortgage scam of this century still proceeds. At the very center of this scam have been the policies of the Federal Reserve.

                To celebrate Bernanke’s retirement, the PBS News Hour offered assessments by two economists, a Clinton Democrat and a Bush Republican. They praised Bernanke, crediting him with having stabilized Wall Street’s financial institutions. Thus, PBS trumpeted Wall Street’s view: Bernanke as a hero who helped Secretary of the Treasury, Hank Paulson, save the world during a financial panic and prevented the slide into another Great Depression.

                Bernanke was Alan Greenspan’s colleague and successor at the Fed. He supported Greenspan’s refusal to recognize that homeowners were heading for a huge black hole by relying on the rapid increase in home equity to fuel consumer spending. The bursting of the real estate speculative bubble in 2006-7 caused our Great Recession. By supporting deregulation, maintaining record low interest rates, ignoring Wall Street’s highly leveraged derivative activity and its role in predatory mortgage lending, the Greenspan-Bernanke Fed failed at its job.

                Several good books relate this story, ranging from Michael W. Hudson’s” The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America—and Spawned a Global Crisis” to Simon Johnson’s “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.” However, my favorite is Matt Taibbi’s “Griftopia: Bubble Machines, Vampire Squids, and the Long Con That is Breaking America.” Chapter Two provides a truthful brief survey of Alan Greenspan’s sycophantic and disastrous career.

 

                The biggest attack on the well-being of four-fifths of American households since the Great Depression. That describes the record transfer of wealth upwards during this Great Recession. From 2006 to 2012 the amount of household wealth robbed from average folks was over $16 trillion, from folks paying their mortgages, or securing second, or third, or fourth mortgages. The richest one per cent of Americans received the lion’s share of the looting.

                Last spring, the Federal Reserve Bank of St Louis reported that the loss of $16 trillion in household wealth (2006 to 2010) had been replaced to the tune of $14.7 trillion. However, this rebound in American wealth didn’t restore home ownership assets. Two-thirds of the wealth rebound came from skyrocketing stock prices. Because 80 percent of stocks belong to the wealthiest 10 percent of households, America’s wealth now resides with the cloud dwellers.

                The Wall Street firms making huge profits by slicing and dicing mortgage derivatives and selling them around the world were the same ones facing bankruptcy in 2008. These “too-big-to-fail” banking conglomerates required guarantees of trillions of dollars from the Federal Reserve to regain solvency. They were the corporate faces of the anonymous one percent that emerged from the financial collapse with historic wealth. Our financial plutocrats were the great survivors and thrivers during the bursting of the Greenspan housing bubble of 1996 to 2006.

                The Fed’s activity on behalf of the one percent was kept secret. Defenders of the Fed’s secret creation of $1.2 trillion as global bankers aid maintain it was a necessity. However, it wasn’t done in the interest of the 6.5 million homeowners who were delinquent or had foreclosed mortgages. These were the folks left underwater or homeless by the real estate market collapse.

                When Congress gave approval to Treasury’s 2008 TARP program, that $700 billion of emergency aid to Wall Street was described as necessary to help folks renegotiate mortgages and keep their homes. Pure nonsense. The bankers who had crafted millions of highly leveraged toxic derivatives for a decade now invested their interest free government bonanza in more profitable global ventures.

                Thus were Wall Street bankers doubly rewarded for their mortgage industry scam. They had partnered with such criminal outfits as Ameriquest Mortgage, Countrywide Financial, and First Alliance Mortgage to transform millions of home loans into derivatives with an AAA Moody’s rating, perfect smelling garbage to pass along to state pension funds.

                When the con was blown, Wall Street’s partners in crime played their roles. Congress approved Paulson’s TARP welfare for bankers, and Bernanke ensured his Federal Reserve made trillions in loans available for “too-big-to-fail” banks. No banker has been indicted for criminal activity. The unaccountable financial plutocracy reigns.