They Were Wrong (Where We Were)

Can any impartial and unprejudiced mind doubt the motive? Was it not to compel the people to continue its monopoly and privileges, not on account of the benefits conferred by it, but to escape from the suffering which the [Bank] had the power to inflict?

- Roger Taney to Andrew Jackson regarding manipulation of the nation’s money supply

I am reminded of the tragic fate of the Titanic, in which the rich elite of the time rebuke any attempt to save their sorry hides by invoking the brilliance of the ship’s design and seaworthiness, thereby nullifying any supposed misinformed proclamation of perceived danger.
It was if they were trying to say in their snooty sort of way 'Let’s not be hasty, shall we?'

Fast forward to today and it appears that supreme arrogance is still in good form. Let’s review the grand picture, shall we?

Over the past year we've had a funding crisis, namely the inability to continue the over-leveraged positions that most people and institutions have created. This crisis was invasive and extended to the stock market, government, manufacturing, commodities; you name it and it was affected severely.

But just how did the establishment perceive this situation going in? What was there take on the now obvious "economic crisis" as it was developing? More specifically, how did the Federal Reserve, our designated knights in shining armor, perceive this issue?

Here are some Bernake quotes -
On housing:

July 1, 2005 (responding to a CNBC question about whether there was a housing bubble and whether it could cause a recession): “It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

On employment:

July 18, 2007 (a month before the subprime mortgage market began having problems and five months before the recession began): “Employment should continue to expand. … The global economy continues to be strong. … Financial markets have remained supportive of economic growth.”

On the banks:

Feb. 28, 2008: “Among the largest banks, the capital ratios remain good, and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

July 16, 2008: Chairman Bernanke said that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”

On business:

February 15, 2007: "Overall economic prospects for households remain good. The labor market is expected to stay healthy. And real incomes should continue to rise. The business sector remains in excellent financial condition."

During the crisis:

May 5, 2009: “Currently, we don’t think [the unemployment rate] will get to 10 percent.” (Five months later, the rate reached 10.2 percent.)

McCain on the economy:

I’m very strong on the economy. I understand it. I have a lot more experience than my opponent. (July 2, 2008, on Good Morning America)

But let me just add, Peter, the fundamentals of America’s economy are strong. (Apr. 17, 2008, interview with Peter Cook)

You know, that there’s been tremendous turmoil in our financial markets and Wall Street and it is — people are frightened by these events. Our economy, I think, still the fundamentals of our economy are strong. (Sept. 15, 2008, from a campaign speech aired on CNN)

... And by the way, I don't believe we're headed into a recession. I believe the fundamentals of this economy are strong, and I believe they will remain strong. This is a rough patch, but I think America's greatness lies ahead of us. - January 10, 2008

Hank Paulson:

“The long-term fundamentals of our economy are strong," but "[w]e believe the economy is going to continue to grow slowly here. This is not an emergency.“ - January 18, 2008

'The worst is likely to be behind us . . . . ” - May 7, 2008

George Bush:

"In the long run, we can be confident that our economy will continue to grow, but in the short run, it is clear that growth has slowed." - March 15, 2008 in his weekly radio address.

Morgan Stanley:

We believe that with our strong capital base and liquidity, we have a strategic advantage to capture the many opportunities arising in the midst of this market turbulence." (February 6, 2008 - CFO Kelleher of Morgan Stanley at the Credit Suisse Group Financial Services Forum) - Morgan Stanley later posted record losses

The Washington Post:

“Anyone who says we’re in a recession, or heading into one —- especially the worst one since the Great Depression —- is making up his own private definition of “recession.” —- commentator Donald Luskin, the day before Lehman Brothers filed for bankruptcy, The Washington Post, Sept. 14

What we have here is a scene out of Monty Python and the Holy Grail in which The Black Knight of government being mortally wounded states that it’s "merely a flesh wound". This attitude reveals the attitude and perhaps the intent of our great leaders. And how does it stack up? It belies common sense and worse yet, it’s not even funny.