Karl Denninger: "None of This Was A Mistake"

"You're going to be unhappy reading this. You've been warned. I said - very unhappy.

Dateline August 2nd, 2002: 'The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.'

Any more questions folks? Unintentional eh, Mr. Ben and Mr. Greenspan? This is the same Pimco whose Bill Gross said this earlier this year: 'PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond.'

Yeah. Oh, and guess where Greenspan works now? That would be PIMCO. This mess was intentional, as I have said all along. Where was Ben Bernanke when Alan was out playing? In the snakepit up to his neck: 'Dr. Bernanke has already served the Federal Reserve System in several roles. He was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005; a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).'

So there you have it folks. A raw statement of intent. Essentially a claim that PIMCO, who has said their strategy is to "shake the hand of government", made the statement at the time that Greenspan "needed" to create a housing bubble in the aftermath of the Nasdaq blowup - the prior bubble that he engineered, to keep the heat off him.

Well, what does history tell us folks? Greenspan did blow the Nasdaq and Housing bubbles. His extreme "Randian" view toward regulation (that none was ever necessary) might have been a good idea in a world where everyone bore the consequence of their own fraud and malfeasance, but he wasn't willing to do that either, as shown by refusing to accept his culpability for the Nadsaq mess, instead forcing the costs on others, hiding furtively in the shadows and claiming that "nobody could see it coming." This sort of Machiavellian approach to "regulation" - allow everyone to pillage, rape and burn and then run like hell before you get caught, was in fact Greenspan's legacy in 2002. We had all the evidence we needed then, and what's worse, Ben Bernanke, the current protagonist, was standing right there next to Greenspan during the housing bubble's creation as a member of the Board of Governors!

These clowns - every one of them - must go. Both Greenspan and Bernanke have been caught lying one too many times, and our nation and its economy have suffered mightily due to their malfeasance and intentional misdirection. You're caught Ben. You should resign, then commit Seppuku. Its the honorable thing to do for destroying the wealth, hopes and dreams of millions of Americans. But you don't have any honor, do you Ben?

And for that reason I call upon Congress to force you from office here and now, today, along with every other Board of Governor's member who served with Alan Greenspan and said nothing, confirming and approving of what he did by both action and inaction, along with what you have done since. If you should refuse to leave office, then Congress must revoke The Federal Reserve Act. You've been caught and the time for excuses has expired.

As for the mess we are now in, there is only one way out, and that's the same way we've had all along: Force the bad debt back onto the balance sheets of those who are responsible for it (e.g. "conduits" and the like) and then force the defaults to be recognized. For those institutions this renders insolvent, shut them down and pay creditors in strict priority order. We need a banking system, but we don't need any specific bank itself. Such a move would allow those banking institutions who have done the right thing through all these years to capitalize on the business opportunity, it would force housing prices to immediately contract to sustainable levels, and it would force GDP to a sustainable level based on consumption not to exceed earnings power less a savings reserve. Force the US Federal and State Governments to live within their means - that's right, austerity, not audacity.

This path would be excruciatiating painful for our nation but fast - and then be over. We can either take this path or we will suffer the consequences of continuing to try to re-inflate yet another bubble. THE LATTER ATTEMPT WILL NOT WORK. You saw what happened with Greenspan's and Bernanke's idiocy blowing a housing bubble to cover their own butt. Do you want something MUCH WORSE if we try that again, or would you prefer that what must, mathematically occur, be over and done with? IT IS TIME TO PAY THE CHECK."

- Karl Denninger, http://market-ticker.org/archives/1124-None-Of-This-Was-A-Mistake.html