Bernanke Reduces Uncertainty about whether he is a Shill

September 23, 2008

From the fed chief’s prepared statement today:

Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions.

One need not be an economist to recognize that this is incredibly dishonest. Saying that the plan will “reduce investor uncertainty” about what banks are worth implies that the actual value will remain constant, but that panicky investors will realize just how valuable the banks are once the bailout is enacted. This, of couse, is drivel. The problem isn’t that people are uncertain of these firms’ value, the problem is that all this bad debt makes them much less valuable. Paying them $700 billion for debt that the market doesn’t think is worth anywhere near $700 billion doesn’t make the banks’ value more ‘certain’, it makes the banks much more valuable. If the government doesn’t take an equity stake in the institutions that it bails out, this amounts to a massive transfer of wealth from to shareholders in troubled banks. Even if this were a good idea, it would be nice for the head of our ostensibly independent central bank to be honest about it.

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3 Responses to “Bernanke Reduces Uncertainty about whether he is a Shill”

  1. Tim Ramsey Says:

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  2. Frederick II Says:

    Thank you, Tim Ramsey.

  3. shawn Says:

    A year ago when the homes of poor working class people werre being foreclosed, the government wan’t really interested in helping them too much.

    But, when it became clear that the rich who had lent that money were alos going to loose – then it became imperative to recognize and solve the problem.

    Even today, many don’t think we should help the homeowners. “We must respect the sanctity of the contracts”. But clearly the CDOs, MBSs etc. are also contracts that contained risks. Risks that the rich want the government to take off their hands.


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