The Bernanke Deception and the Stirring of American Populism

Chris Whalen captures an interesting aspect of change that not only the august US Senators are missing, but most of the mainstream media in the States as well, at least judging by the discussions on their Sunday political shows. All of them seem equally out of touch, arrogantly aloof and insulated from the mood of the nation.

It is interesting also to hear the financial princes growling from lofty Davos about 'Obama's outburst' regarding the Volcker Rule and the impertinence of the Americans in daring to set national regulations for their banks.

Is this an historic moment? Are the people challenging the rule of a burgeoning financial elite, which is puzzled at the sudden rebellion against their enlightened rule?

I think that the answer might be yes, and this is what Ron Paul alluded to in his video regarding 'revolutionary changes.'

And one can only marvel at the way in which the Democrats are committing political suicide after being handed the reins of power with an overwhelming majority, out of what appears to be sheer, almost incomprehensible arrogance and fundamental incompetence. Watching the toad Geithner testify is painful beyond expression.

Will the Americans lead the storming of the Banking Bastille? And will the cowed Brits dare to defy their ubiquitous surveillance cameras and raise their voices for change?

Surely a politician's worst nightmare, a crisis gone wrong. This is the point at which the people ought to be laying down their liberty for the security of a return to credit lending, and a banking system that defers from crashing their markets.

I also have to wonder how the politicians forget the lessons of the past, and the downfall of once mighty leaders of popular governments. It is never about the first offence, the original act itself which may seem trivial.

What brings down governments is the cover up, the conflicts of interest, the pettiness of tone deaf arrogance, and the ensuing loss of confidence.


Fed Deception of Congress Regarding AIG

"Even as the Senate prepares to vote on the Bernanke nomination, Rep. Darrell Issa (R-CA) has asked the Chairman of the House Committee on Oversight and Government Reform to subpoena AIG-related documents from the Fed, documents which apparently prove that Chairman Bernanke played a major role in deciding to bail out AIG and, indirectly, Goldman Sachs (GS) and other large bank dealers.

In a January 26, 2010 letter obtained by The IRA, Issa claims that Bernanke overruled a recommendation by Fed staff that AIG be allowed to declare bankruptcy "just like Lehman Brothers" and instead authorized the bailout of the crippled insurance giant over the objections of Fed staff in Washington. The Fed appears to be withholding these documents from Congress until after the Senate votes on the Bernanke nomination.

Rep. Issa, the ranking member of the Committee, refers to a statement by Senator Jim Bunning (R-KY), whose staff has been examining these same documents under strict rules of confidentiality imposed by the Fed's staff, to the effect that Chairman Bernanke overruled the recommendation of his staff and pushed the bailout of AIG. How can the Senate vote on the Bernanke nomination when the Fed is refusing to comde clean on AIG?

Members of the Senate need to ask themselves a question: With the current disclosure by the Fed, what further revelations will surface regarding the central bank, AIG and the bailout of the large New York banks between now and November?

So given the above, why is Chairman Bernanke seemingly en route to confirmation? Why do members of the Senate seem to indifferent to the mounting popular anger at Chairman Bernanke and the Fed? There are several reasons the Senate is making a major political and economic miscalculation in its appraisal of Ben Bernanke's role at the Federal Reserve. The most significant is that Senators think that the Federal Reserve and the bailouts are not voting issues, because there are no traditional organized constituent groups that lobby around them.

Staffers who frame issues for Senators do not know that Fed and its profile in American politics has changed in a way reminiscent of the days of President Jackson and the battle over the Second Bank of the United States. After all, issue groups have an incentive to mislead incumbent Senators in a way biased towards the interest of incumbent financial interests. This is a terrible mistake for the political health of any Senator who wants to get reelected in 2010 or 2012. The bailouts happened from 2008-2009, and voters now understand them and loath them. And this applies equally to Democrats and Republicans in the Senate.

Look at how the Fed and AIG are changing the dynamic for incumbent GOP Senators. Republicans are seeing bailout-themed primary campaigns, where incumbents like Utah Senator Bob Bennett and Arizona Senator John McCain are explicitly attached to the bailouts. As noted above, democrats saw losses in Virginia, New Jersey, and Massachusetts. And Brown voters in Massachusetts showed significant dissatisfaction with Democratic ties to Wall Street. But the same populist wave will carry away Republicans as well.

Bottom line: A "yes" vote for Chairman Bernanke raises the likelihood of defeat for every member of the Senate standing for election in 2010 and 2012. And in any event, the rising tide of popular unhappiness with Washington and Wall Street promises to remake the American political landscape in a way not seen in the post WW II era. The comfortable assumption of stability in American political life is about to be replaced by instability and change, but that is what democracy is all about."

Political Risk: The Bernanke Nomination and the Return of American Populism - Institutional Risk Analyst