Bernanke and the Great Depression

It is well known that Ben Bernanke is a student of the Great Drepression. He has studied it extensively and seeks to use its lessons to help stave off a crisis in modern times. He has tried, I'll give him that. But, he simply hasn't succeeded.

In 2002, he stated:

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve," he said. "I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we (the Federal Reserve) did it. We're very sorry. But thanks to you, we won't do it again."

We haven't heard *that* on CNN, now have we?

Determined not to let past mistakes repeat themselves, Bernanke and the Fed has acted in the most appropriate way possible in their eyes. However, they failed to realize the complexity and interrelativity of the current, modern banking system. One example is that they allowed Lehman Brothers to declare bankruptcy. While this in and of itself is not bad (that's capitalism - companies do go out of business), the critical fact is that the Fed chose to bail out numerous other institutions, citing that they were "too big to fail". This means that a bank is so big, their collapse would have severe adverse effects on the banking system as a whole, and subsequently the American and World economy.

Well, in that sense, Lehman was, in fact, too big to fail. Bernanke didn't realize it:
Millions of dollars were invested in Lehman's short-term commercial paper by money market accounts.
Liquidation of assets as dictated by bankruptcy filing caused the already beaten-down mortgage market to further deteriorate.
Any company that did business with Lehman experienced the worst kind of counterparty risk: default.
Farmer Mac owned $48 million of Lehman debt - $48 million now worth $0.

Does that mean that I think the Fed should have bailed out Lehman? Absolutely not. The Fed acted properly in letting Lehman declare bankruptcy - as it should have acted in the cases of Bear Stearns, Fannie, Freddie, and AIG. The effects on the economy would have been disastrous, of course - but, at least we might be seeing some light at the end of the tunnel by now. Instead, our country is trillions more in debt and we still have companies struggling to stay afloat. It is the Legal System in this country that should handle whether or not these companies misled people into investing in them. Do you feel, as I do, that Lehman's exposure to nonperforming mortgages was not accurately presented in company filings with the SEC? Bring suit. It's the natural recourse of the citizens of this country. Don't expect to be bailed out by the government's financial system. But if a bankrupt company is successfully sued, where do the damages come from? I would say that the personal assets of those at the top would certainly be fair game.