10 April 2008

"Nothing Fundamentally Broken on Wall Street" - Bernanke

If this is ANYTHING like the assurance that Benny gave us last year about the minimal impact of the subprime mortgage situation we'd have to conclude that the markets are probably screwed up beyond all recognition, and that a major Depression lasting twelve years and a day is on our doorstep.

Nothing fundamentally broken on Wall Street: Bernanke
By Greg Robb, MarketWatch
Last update: 1:58 p.m. EDT April 10, 2008

WASHINGTON (MarketWatch) -- There is nothing fundamentally broken on Wall Street that a little regulation and incentives for participants to be slightly more honest couldn't fix, said Federal Reserve Chairman Ben Bernanke said Thursday. (You could have said the same thing about Ma Barker and her boys - Jesse)

Bernanke's comments put him at odds with former Fed chairman Paul Volker, who said in a speech earlier this week that the financial turmoil that began last summer showed that the "new Wall Street" hadn't passed the market test. (Our money is on Volcker. Ben is Bush-Paulson's schmendrick. Volcker is always and everywhere a no BS econo-asskicker. - Jesse)

At issue is the move by Wall Street over the past twenty years to an "originate to distribute" business model, where commercial and investment banks create new complex forms of securities and sell them to investors looking for high yield. This replaced the old "originate and hold" model. (Bring back Glass-Steagall. Bring it back today. - Jesse)

In a speech to the World Affairs Council in Richmond, Bernanke said that it is clear the originate-to distribute model "broke down at a number of key points." (No shit, Shalom. - Jesse)

But he quickly added that "these problems notwithstanding, the originate-to-distribute model has proved effective in the past and with adequate repairs could be so again in the future." (Our unquestioned nominee for Meshugener of the Year - Jesse)

This model "seems likely to remain an important component of our system of credit provision," he said. (The Wall Street three card monty system feeding bad debt to the world. These guys are like herpes. - Jesse)

The Bush administration and the Fed have poured billions of dollars into financial markets since August seeking to restore the flow of credit to consumers. (Its all about confidence, children. You can't buy back a good reputation - Jesse)

The Fed is concerned that a lack of credit is creating a vicious downward growth spiral. (That's what happens when a Ponzi scheme collapses, propeller head - Jesse)

"Healthy, well-functioning financial markets are essential to sustainable growth," Bernanke said.(Hence our almost-certain-to-be-severe recession - Jesse)

The turmoil has led some to raise fundamental questions about Wall Street. (Would y'all like that Necktie party with or without tar and feathers on a rail? - Jesse)

In a speech in New York on Tuesday, Volker said that in his view, simply stated, the bright new financial system, for all its talented participants, for all its rich rewards, has failed the test of the marketplace."

But Bernanke argued against any need for radical reform. (What would it take to require some serious reform? The dollar worth .20 euros and the Dow Industrial at parity with gold? - Jesse)

He trumpeted a recent road-map released by the President's Working Group on Financial Markets, chaired by Treasury Secretary Hank Paulson and which includes the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The PWG plan called for several steps to strengthen federal oversight of the mortgage and credit markets and a complete overhaul of the market for mortgage derivatives. (Their track record has been so outstanding, right Elliot? - Jesse)

The plan also said that credit-rating agencies must differentiate between ratings for derivatives and corporate bonds. (Grading on a curve? Let them eat CAPM model and only exchange traded products to be held by government regulated entities like banks - Jesse)

In addition, international financial market reform will be spearheaded by the Financial Stability Forum, set to release their recommendations this weekend.

Bernanke stressed that the financial crisis was not over. But he said it was not too early to draw some conclusions about the turmoil on public policy.

"We do not have the luxury of waiting for markets to stabilize before we think about the future," Bernanke said. (And we're not sure we have the luxury of waiting for you to quit being a spineless putz - Jesse)

He dismissed suggestions that markets should be left to sort the crisis out without government interference.

Bernanke, a student of the Great Depression, said that, although there are similarities between the current credit crunch and the 1930s, the U.S. "will not experience" anything like the Depression, which lasted for 12 years. (We are so fucked - Jesse)

Greg Robb is a senior reporter for MarketWatch in Washington.