Bernanke’s Lip Service

According to the Wall Street Journal, “in a speech Friday, Fed Chairman Ben Bernanke gave new emphasis to the idea of charging the financial industry for the costs of any bailout.”

Unfortunately, this proposal is nothing more than lip service. After all, financial firms in need of such a bailout are bankrupt; therefore, how can one expect them to pay for a bailout? Even if the costs were spread evenly over the entire industry, such an initiative would only reward failure, which would enable banks who were originally ‘too big to fail’ to become even bigger.

But, suppose the entire industry is in need of a bailout. Would the industry be able to pay for such a bailout? No. After all, the industry is broke.

The author of the article then goes on to say that “the Fed isn’t going to give up its long-held power to bail out bank creditors and uninsured depositors. That allows the Fed to prevent the sort of systemic panics that can trigger recessions.”

Really? Bailing out banks prevents recessions? Then what exactly are we in now?

The point of my post is to show that the vast majority of what we hear and read from the news media concerning economics is flat-out wrong. One doesn’t even need knowledge of economics to show that two quotes above are entirely false.

The first quote is essentially a circular argument while the second quote ignores reality.

In the end, these statements are nothing more than lip service to economic ideologies that have been proven wrong, yet again. May Austrian economics prevail.

Published in

Post a comment