Having Removed Money Competition, Bernanke Contemplates an Artificial Moral Hazard
By Staff News & Analysis - November 11, 2013

Bernanke Says Failing Bank Process Needed to Reduce Crises … Federal Reserve Chairman Ben S. Bernanke said a process under development that would allow regulators to take down a failing bank will help ensure investors discipline weak firms and prevent them from taking risks without consequence. "As we try to make the financial system safer, we must inevitably confront the problem of moral hazard," Bernanke said today in remarks at an International Monetary Fund conference in Washington. "Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs." – Bloomberg

Dominant Social Theme: We need more competition, even if we have to fake it.

Free-Market Analysis: Bernanke wants to scare the bankers, as we can see from the above article excerpt. But why not just let the marketplace do it? Competition can provide the necessary discipline.

This is part of the frustration of reading such articles appearing in mainstream editorial channels such as Bloomberg. NOWHERE in this article do the writers or editors make the point that the modern Federal Reserve is sustained by monopolist congressional and Supreme Court decisions that allow it to implement its endless, inflationary money-printing programs.

It is central banking that supports the current economic system in the West, which is controlled by a handful of elites at the top of the banking pyramid. The money they have at their disposal has allowed them to consolidate power over multinational industrial companies and sociopolitical and military entities, as well.

This is how they propagate their dominant social themes, via an echo chamber of controlled outfits such as the UN, the IMF, the World Bank, the EU, the BIS and sundry parliamentary and military systems.

The idea that there is any meaningful confrontation to this – other than what we call the Internet Reformation – is a fairly fanciful one. Even Russia and China utilize Western-style financing and both have been controlled politically in the past, though Russia's control by Wall Street, according to Edward Griffin and others, is not generally known.

As a result, the bought-and-paid-for media continues to act as a sounding board for the most ridiculous sentiments. Having participated in the continued suspension of market money and competitive currencies, Bernanke now wants to reduce a moral hazard because – no doubt – he is really a champion of free markets! Here's more:

Federal Reserve Chairman Ben S. Bernanke … spoke as part of a panel discussion that included Harvard University's Kenneth Rogoff, the co-author of the history of financial crises titled "This Time Is Different: Eight Centuries of Financial Folly"; former Bank of Israel governor Stanley Fischer; and former U.S. Treasury Secretary Larry Summers.

… In his prepared remarks, Bernanke said regulators have been working to devise so-called orderly liquidation authority that would allow a systemically important financial institution, or SIFI, to be closed down without the chaos that surrounded the failure of Lehman Brothers Holdings Inc. and the bailout of American International Group Inc. in September 2008.

"In the crisis, the absence of an adequate resolution process for dealing with a failing SIFI left policy makers with only the terrible choices of a bailout or allowing a potentially destabilizing collapse," Bernanke said. "A credible resolution mechanism for systemically important firms will be important for reducing uncertainty, enhancing market discipline, and reducing moral hazard."

In the last paragraph above, Bernanke speaks of "enhancing market discipline" by reducing a "moral hazard." What this means in practice is that US central bankers will provide some sort of agreed-upon protocol that they can use to justify letting a large financial firm or two fail.

But, again, the larger question that the Bloomberg article never takes up is why the US's economic system functions under a generalized regime of price fixing. This creates either a queue or a distortion in the marketplace, or both.

Let's summarize:

  • The quasi-money monopoly of central banking is sustained by state force, precluding market competition.
  • The issuance of central bank super-money results in artificially fixing the price and volume of money, which creates endless, cyclical economic distortions – booms and busts.
  • Central bankers issue their dictates by examining where the economy has been and then using this information to guess where the economy is headed. Inevitably, they guess wrong.

These are perhaps the largest issues undermining the central banking paradigm. Examine them together to comprehend that central banks are statist, price fixing entities that reach endless, irrational conclusions about economic and monetary trends.

This is the facility that Ben Bernanke heads. No wonder he wants to deal with "moral hazard."

But wouldn't it be easier to allow the system itself to compete? Why does Bernanke have to run a monopolist enterprise that must introduce an occasional failure to frighten market participants into behaving as if the laws of commerce had not been suspended?

The Fed will not be able to inject "moral hazard" into the complex system it supposedly supervises, no matter the sophistication of the protocol. Only legitimate competition and doing away with the central bank's money monopoly can reintroduce some semblance of market rationality.

Worse still, this faux moral hazard will merely become another weapon of political and economic intimidation. Controlled by men, it sill inevitably to be aimed at certain targets and not at others.

After Thoughts

This is the result of building authoritarian systems that are consistently expanded but never questioned.

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