more evidence these guys are fucking clueless  

Gretchen Morgenson at the NY Times had an interesting column Saturday, based on the documents the Federal Reserve Bank was court-ordered to publicly release. here's a snip:

The Bank Run We Knew So Little About
By GRETCHEN MORGENSON
Published: April 2, 2011

IN August 2007, as world financial markets were seizing up, domestic and foreign banks began lining up for cash from the Federal Reserve Bank of New York.

That Aug. 20, Commerzbank of Germany borrowed $350 million at the Fed’s discount window. Two days later, Citigroup, JPMorgan Chase, Bank of America and the Wachovia Corporation each received $500 million. As collateral for all these loans, the banks put up a total of $213 billion in asset-backed securities, commercial loans and residential mortgages, including second liens.

Thus began the bank run that set off the financial crisis of 2008. But unlike other bank runs, this one was invisible to most Americans.

Until last week, that is, when the Fed pulled back the curtain. Responding to a court ruling, it made public thousands of pages of confidential lending documents from the crisis.

The data dump arose from a lawsuit initiated by Mark Pittman, a reporter at Bloomberg News, who died in November 2009. Upon receiving his request for details on the central bank’s lending, the Fed argued that the public had no right to know. The courts disagreed.

The Fed documents, like much of the information about the crisis that has been pried out of reluctant government agencies, reveal what was going on behind the scenes as the financial storm gathered. For instance, they show how dire the banking crisis was becoming during the summer of 2007.

Washington policy makers, meanwhile, were saying that the subprime crisis would subside with little impact on the broad economy and that world markets were highly liquid.

These details of this 2007 episode are telling.

The guys in charge, Bernanke, Paulson and Geithner (chief of the New York branch of the Fed at the time), experienced this hidden bank run. And they experienced the collapse of Bear Stearns in March 2008.

Yet, when the shit really hit the fan in September 2008, despite months of forewarning, they were caught completely unprepared.

Learning these details of the fragility of the international banking system due to overextended bad credit, as exposed by these events of 2007, two of my major conclusions are reinforced:

~These guys are truly incompetent. They do not know what they are doing, from one crisis to the next. They just make it up as they go along.

~These guys have exactly two tools for 'managing' the economic crises. Throw money at the problem, and talk a bunch of words to calm the public and markets. Print, lend or lower interest rates to zero. Their response over and over is throw money and bullshit. That's all they got.

People like me expected the adverse effect of all that easy money to be rising costs of borrowing for the US government. Hasn't happened; I was wrong on that one. But other adverse effects--rising cost of oil and food--are coming to bear.

The fed painted themselves into a corner. A different corner than I predicted, but just as bad a corner. Keep printing money, and the economy slows on the back of $100 a barrel oil, and recession returns. Stop printing money, and the economy slows on lower stock prices, lower system liquidity, and probable increased borrowing costs for the govt, and recession returns.

I'll guess they keep throwing money until they are force to stop. And lots of words.