Ben Bernanke is the chairperson of the US Federal Reserve Bank. If he sneezes at the wrong time, the world's sharemarkets take another dive and currency speculators rush for their global roulette table. So when he addressed the US Senate Committee on Banking, Housing and Urban Affairs on April 3 he was choosing his words very carefully. And there was one word he was wary about using: "recession".
When pressed directly about the "R word", Bernanke conceded that the US "might" be going into recession this year. But he rushed to qualify that with a promise of better times ahead:
"Clearly, the US economy is going through a very difficult period … Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," he told the Senate Committee.
Wall Street dived anyway.
But the most interesting part of Bernanke's comments was his explanation for why the US Reserve Bank threw an almost US$30 billion easy loan to JPMorgan Chase to buy the failing Bear Stearns Bank for a pittance.
"Normally the market sorts out which companies succeed and which fail. And that is as it should be. However the issues raised here extended well beyond the fate of one company. Our financial system is extremely complex and interconnected … the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions on those markets and would have severely shaken confidence.
"Given the current exceptional pressures on the global economy and the financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."
This was why Bernanke had to make the $29 billion bad loan to bail out a company crashing because it made even more bad loans.
Economists are trying to get a measure of the global financial crisis that Bernanke admitted to. US and European banks have already depreciated their assets by more than $200 billion dollars. International bankers have estimated the final fallout from this crisis at $1000 billion or more.
So we are going to see many more multi-billion dollar bailouts for banks. But will the ordinary workers who are losing their homes to the banks as a consequence of this crisis be bailed out? Will there be a bail out of the starving Haitians who are being forced to eat dirt? If hundreds of billions can be spent to bail out bankers (and note the sickening fact that the chair of the Bear Stearns board has already walked away with $61 million after selling his shares in the bank), why can't the Third World debt be cancelled? Millions of lives would be saved. Sorry, a fat banker's fate is more important than millions of lives in this sick system.
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