US Fed was naive? World Economic Forum whitewashes last decade’s economic crisis

The true intention of the US Fed can never be revealed

I came across an article this morning from the World Economic Forum (WEF) titled, Two myths about the 2008 financial crisis, debunked, and wanted to mention a few comments with respect to their conclusions.

To better understand the WEF we should take a look at its Leadership and Governance webpage, including its Board of Trustee members. They include, David M. Rubenstein,  Co-Founder and Co-Executive Chairman, Carlyle Group; Christine Lagarde, Managing Director, International Monetary Fund (IMF); Mark Carney, Governor, Bank of England; Al Gore, former US Vice President; Jack Ma, Executive Chairman, Alibaba Group; Queen of Jordan; and Marc R. Benioff, Chairman and Chief Executive Officer, Salesforce.com.

As anyone who is familiar with my blog and analysis, one of my overriding determinations is that the boom/bust cycles are cultivated and allowed to grow until the bust. It is the cycle that allows the insiders to sell high, buy low, and scoop up the world’s assets and consolidate their wealth. These cycles are produced with malice and intent and powered with the fuel of central bank monetary policy. Of course, these central banks are privately owned and do the dirty work for their owners.

Over the last decade, research by many economists, including us, arrived at a broadly shared narrative of the 2008-2009 financial crisis… [T]he fundamental cause of the crisis was the deflation of the housing bubble, starting in early 2007. For several years until then, home prices in the United States rose dramatically, fueled by massive borrowing by homebuyers and banks’ investments in mortgages and mortgage-backed securities. As the housing bubble burst, both borrowers and bankers suffered.

Two myths about the 2008 financial crisis, debunked (WEF, October 1st)

Indeed, the writers state the obvious about the genesis of last decade’s bust. The “deflating” housing market was the primary cause of all the problems last decade.  In explaining its analysis of why so many people and parties could be so careless in allowing it to happen the writers discount moral hazard of the lending banks as the cause and place the blame squarely on the failure of the policymakers (US Fed and government officials) and all the other parties involved to not recognize the warning signs caused by their blind trust in the strength of the housing market.

It is surely the case that the banks, along with rating agencies, mortgage underwriters, investment banks, and others, engaged in unsavory practices. But the moral hazard view misses the central point: as we document in our book, households, banks, rating agencies, investors, and policymakers all believed in the housing market, and all failed to see the risks.

Two myths about the 2008 financial crisis, debunked (WEF, October 1st)

While the article claims the IMF was almost alone in predicting the crash, the writers say the US Fed totally underestimated the impending calamity and fallout from a deflating bubble.

Several institutions, including Bear Stearns, had to be rescued earlier that year. The Lehman failure did precipitate a fast and furious run that was hard to stop once it started. But its occurrence was a growing possibility for months. It did not come out of the blue.

One reason it may have felt that way is that, as late as August 2008, the Fed expected only a small slowdown of the US economy should home prices continue falling. The crisis was a surprise to investors and policymakers because they gravely underestimated the risks building up in the financial system. Lehman was a heart attack, but the patient was already terminally ill.

Two myths about the 2008 financial crisis, debunked (WEF, October 1st)

It wasn’t a surprise to those who understood the agenda.

The true intentions of the US Fed and its reason for existing

How can the US Fed be so obtuse? How could they have been so misguided in their determination that a deflating bubble never deflates as intended? Why did they not reign in speculative loan underwriting years earlier? I have the answers.

The US Fed’s main role is to help facilitate, amplify, and accentuate the boom/bust cycles. We discussed how Ben Bernanke and Alan Greenspan in 2005 stated that while the US Fed did not cause the growing housing bubble they were going to continue raising short term rates until it deflated.

Job well done!

The Fed maintains relaxed policy for much longer than it should. It does this to create the boom that turns into the bust. It’s done with intent, not by ignorance.

Of course, US Fed monetary policy was key in causing last decade’s housing bubble. There are three reasons I can think of off the top of my head;

First, in the wake of 9/11 the US Fed lowered the Fed funds rate to a 40-year low of just under 1% and it remained accommodative long after it should have removed its dovish policy objective.

Second, the US Fed completely misread the tax changes incorporated into the IRC as a result of the 1997 Taxpayer Relief Act (phased in for 1998). The cap gains exclusions to owner-occupied real estate created wild speculation by the average homeowner that remains in place today.

Third, the Fed could have easily instructed its member banks to reign in lending and tighten underwriting criteria. It chose to do nothing.

The WEF says crises can be anticipated, but the US Fed differs

In order for the elites to continue using the central banking concept to corner the world’s wealth they need to condition us to believe that the boom/bust cycles cannot be anticipated and that they are just a product of human behavior. Only the true globalists tell us otherwise, because they can appear to be wise. However, they have no monetary policy power yet.

But I submit they know far in advance and depend on us not spotting the inconsistencies. These elites use the media to help talk up asset markets and get us to be on the wrong side when things either turn up or turn down.

The second misconception is that the crisis could not be anticipated. This argument is most popular with policymakers who acknowledge that they failed to see what was coming. As Timothy Geithner, President Barack Obama’s Treasury Secretary, put it in his memoir, “Financial crises can’t be reliably anticipated or preempted.” Likewise, Hank Paulson, Geithner’s predecessor under President George W. Bush, recently said, “my strong belief is that these crises are unpredictable in terms of cause or timing or the severity when they hit.”

One version of this view holds that the Lehman failure resulted from an unpredictable run, with investors rushing all at once to withdraw short-term financing from the banks. “This crisis involved a 21st century electronic panic by institutions,” as former Federal Reserve Chairman Ben Bernanke put it. In other words, “it was an old-fashioned run in new clothes.”

The evidence does not support this view. Our book shows that deflating asset bubbles, particularly in housing markets, pose a serious danger to the financial system. When highly leveraged banks and other institutions face the abyss of massive losses, the probability of a panic rises sharply. In this respect, the 2008 crisis looked very much like all the others.

Two myths about the 2008 financial crisis, debunked (WEF, October 1st)

The next bust is being carefully planned

Keep in mind that with the advent of the internet and access to immediate news and analysis it is getting much more difficult for the central banks to make obvious mistakes. But, the agenda to consolidate the global wealth must continue. This is why there are so many diversions and red-herrings that keep most readers, even those in the alt-media, flat-footed and expecting collapse around every corner. It will happen, but in due time. We see the signs, so let’s take action. The US Fed and Treasury officials will certainly not warn us in time, nor is it their obligation to tell us.