"In Fed We Trust"

I have just finished reading “In Fed We Trust – Ben Bernanke’s War on the Great Panic” by David Wessel of the Wall Street Journal. The book covers the financial system breakdown in the US from 2007 through the mid-June 2009 (the Great Panic), combined with some history on the Federal Reserve and Bernanke’s life. Mr. Wessel also explains the international ramifications of the Great Panic. Mr. Wessel fully explains the term “Whatever It Takes”, Ben Bernanke’s mantra during the critical moments of the Great Panic. If you have any significant interest in finance I suggest you read this book.

I have followed the financial crisis in a fair amount of detail since I have a vested interest on its impact on my family. “In Fed We Trust” explains many of the inside details that I and most of the public did not know. The words that I will use to describe the Federal Reserve, the US Department of the Treasury, Securities and Exchange Commission, the Congress of the United States and the White House during the Great Panic and the years that lead to the Great Panic are incompetent and disgusting. The words I will use to describe the elements of the financial industry that have been involved with the financing and mortgage risk management of the housing industry during this period are greedy (profanity) and incompetent. This includes Fannie Mae, Freddie Mac, the Federal Housing Administration and their supporters in Congress in addition to all of the big and small companies that were involved in creating the housing bubble.I got angrier and more upset as I progressed through Mr. Wessel’s book.

There are some very easy observations to make after reading the book. Ben Bernanke’s team at the Federal Reserve did not have the ability to read the market situation correctly in 2007. Jim Cramer of CNBC knew the real situation and stated his frustration with the Fed on air during his famous diatribe in August 2007. Either Bernanke’s team at the Fed was incompetent or the financial industry can’t be managed by any organization including the Federal Reserve. One of these two observations is correct and action must be taken as a result of determining which is correct. It is very difficult to stomach the thought of Bernanke continuing as the Chairman of the Federal Reserve Board when his term expires at the end of January 2010. Bernanke did “Whatever It Takes” to prevent a total collapse of the system. However, Bernanke was missing in action during the creation and development of the problem. He clearly doesn’t have the vision necessary to see problems developing. He can analyze and solve problems very effectively and must be credited with saving the financial system at some level. He did a great job of saving most of Wall Street from themselves at the expense of the citizens of the United States.

Tim Geithner was a major part of the problem and should be removed as Secretary of the Treasury as quickly as possible. Geithner should have been removed as the President of the NY Fed at the beginning of the Great Panic. Geithner, although a very intelligent man, has been a puppet of the big banks for at least a decade.

President Obama’s support of Geithner and Bernanke is an indication that he has no fundamental understanding of what caused the Great Panic and the role of these two men in the financial system management failures that have occurred. It is another indication that Obama is the wrong leader at this difficult time.

However, we must always be looking forward from an investment perspective and learn from the mistakes of the past. After reading “In Fed We Trust” I have no confidence that any of our major financial regulatory bodies can manage any problem of significance. There is no indication that a decision in support of sound money will be made at any time in the near future. Obama has three more years left on his term. It is not clear that there will be enough turnover in the Congress in the fall of 2010 to get a team of new people involved in the political process that can help the US steer a course in the right direction. I have absolutely no confidence that the “experts” in the financial industry have the foresight to understand the long term ramifications of what has happened during the past few years and how it will impact the future. This is a period where individuals must defend and protect their assets from actions of the US government.

The actions of the Federal Reserve, the US Treasury and Congress have turned every financial investment class into a short term trade from a purchasing power perspective. There is no investment class that can be considered a long term investment. There may be one exception to this statement and the exception is physical gold.

I thank Mr. Wessel for his excellent book. Hopefully, the citizens of the United States of America will act in the coming elections to put a new management team in place to run the country. We badly need to change the fundamental philosophy of our government. We must stop government interference in our economy and let our economy evolve naturally according to market forces.