Federal Reserve Chairman Ben Bernanke (left) defended the Fed's handling of the financial crisis in 2008 before a federal commission, saying the bailout averted a much greater crisis for the U.S. economy. Speaking before the Financial Crisis Inquiry Commission, Bernanke also explained the Fed's involvement in the collapse of Lehman Brothers in September 2008, saying the federal government did everything it could to avoid the company's death. He repeated earlier statements that the Fed did everything within its legal authority to avoid the company's death. "The only way we could have saved Lehman would have been by breaking the law," he said. "And I'm not sure I was willing to accept those consequences." – Politico
Dominant Social Theme: Ben Bernanke, apologetic, intends to do great things.
Free-Market Analysis: Despite such statements from Ben Bernanke, we would venture the observation that there is an ever-growing perception within the alternative news community (especially among the hard-money websites) that the Fed and central banking in general constitute an illegitimate institution. It is indeed a fine line that the elite walks in our opinion. Society needs to be controlled by money power as the elite seeks to realize its apparent goal of global governance. But such power is a blunt force instrument. An additional dominant social theme might be: "All of us need the centralization provided by a group of functional wise men, but it is not an easy task and we need to cut them some slack."
Why is there a perception that US laws are being broken? The 1913 law authorizing the Federal Reserve eventually gave rise to a Fed that would issue the nation's money and regulate its value. The criticism is that Congress cannot merely bestow constitutional powers on private entities. And yet we find this: the historically controversial final paragraph of Section 8 giving Congress the power to: "Make all laws which shall be necessary and proper for carrying into execution the foregoing powers and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof."
The US Constitution seems always to be written with substantive vagueness giving legislators seemingly broad powers. There are many ways to interpret it. Even within the ambit of its delegation (that what is not specified is forbidden) there is much that can be accomplished – and has been. Ultimately, it is our humble conclusion that the "understandings" surrounding the Constitution were likely almost as powerful as the Constitution itself.
These understandings included the ability of states to secede (that seems fairly clear) and when the Civil War came along and put that comprehension to the test, many other understandings were tested as well. With the conclusion of the war between the states, the federal government itself stood strong. The constitution would henceforth be interpreted in a manner that victors wished. And ever since then, the history of the US has been continually a more centralized power structure and a more aggressive regulatory democracy.
But each generation to some degree writes its own history. And in the era of the Internet, questions settled by the Civil War have become new again as the nation – and even the West – rediscovers history that has been denied to them by dysfunction and disinformation. (One only needs to read the disgruntled feedback attached to the Politico article excerpted above to see the process at work.)
As we have pointed out, the Internet itself has had a very specific effect on central banking and on the Federal Reserve. Because the latest financial crisis occurred "online" people really did have an opportunity to see how it unfolded and to realize, finally, that the Fed was basically printing money out of thin air and then giving it to various "crony banks" using the justification that these entities were too big to fail. The backlash was tremendous in our view and has not yet played out. Meanwhile, the Fed declined to print money to hand out to individual citizens.
It must have begun to dawn on people, in our view, that the banking system itself was a charade, merely a way of justifying money control. This is one reason in our view that the Fed is being so emphatic about the new powers it has just received in the last round of financial reregulation. The UK Telegraph has noted this recently, as follows: "Ben Bernanke, chairman of the Federal Reserve, yesterday told us what he thinks is the most important lesson to learn from the financial crisis. Drum roll. And the answer is? … Putting a stop to banks that are 'too big to fail', according to the testimony he gave yesterday to the Financial Crisis Inquiry Commission in Washington."
And the article adds, "In the US, central bankers and regulators believe an end of too big to fail will result from changed and improved regulation, stemming mainly from the new Dodd-Frank legislation. There is now a framework in the US designed to address so-called 'systemic risk', where dangerous financial practices are identified and curtailed on an economy-wide basis, together with rules on how failing firms should be dismantled in an orderly way plus greater regulatory co-operation."
We are not surprised at the emphasis that Bernanke is placing on "too big to fail" banks. It is probably clear by now to the Fed brain-trust that average people, struggling with mortgages, taxes and unemployment believe what went on in the past two years is morally unpalatable and egregiously unfair. Trillions have been distributed to financial entities but the "little guy" has not received a share of the "free money" that the Fed has been printing by the boatload. The solution is to proclaim that in the future banks will not receive free money but will be broken up instead – punished for their failures.
In fact, what emerges here is a kind of underground conversation in which American central bankers acknowledge the unfairness of the system and vow to punish their friends and colleagues in the future. But it doesn't seem to occur to Bernanke et al. that it is too late. Just as it doesn't seem to occur to Congress, generally, that passing laws giving the Fed MORE power at a time when it is held in historically low esteem is not a way to offer the country satisfactory governance.
We have pointed out that the Fed has lost significant credibility and may not be able to recover. This goes for the larger central banking system and in fact for the entire Western money structure. The Great Recession of the early 2000s is much different than what came before and will eventually result in a different monetary structure, or so we believe. The Fed's credibility has been made worse not only by the new powers it has received but by its resistance to an audit of where and how it has spent the vast sums it has printed in the past few years.
Libertarian Congressman Ron Paul (R-TX) recently asked for an audit of the gold in Fort Knox. The mainstream media pooh-poohs such demands as paranoia. Yet the Fed and its enablers have resisted thorough ongoing scrutiny as well. Instead the institution has received significant additional powers. See the pattern? On the one hand, the Fed resists accountability. On the other, Bernanke et al. present an apologetic front and vow they will do better next time.
This is the kind of crisis control that the power elite practiced in the 20th century; it is today the kind of crisis control being applied to such failed dominant social themes as global warming. But we wonder if it will work in the 21st. In our view, people have already seen too much, know too much and are too upset. When it comes to the law and legislation, Bernanke and Congress may be in the right. But the law can only go so far. Sometimes, such ventures begin to look questionable regardless.
When people know too much, the law itself can begin to seem suspect; and this is how societal upheavals are created. This is in fact an inflection point for the powers-that-be. Creating fear-based promotions in order to generate societal consent for ongoing concentrations of power and wealth – the manufacturing of an authoritarian society in other words – has worked well for the PTB. But when the promotions begin to fail (due to information on the Internet in our view) and the elite continues its programs regardless, then the potential for social tension increases dramatically.
Is there, in fact, a subterranean war that is taking place between an increasingly disaffected Western public and an elite that is ever-determined to impose its will? We think so. It is important on so very many levels – from an investment standpoint, a societal standpoint, a political standpoint, even a historical standpoint. Bernanke may believe that by winning his legislative battles he has emerged with the larger victory as well. That perception may be premature.
