Federal Reserve Chairman, Dr. Ben Bernanke must be reading my blog.

Posted on 17. Oct, 2008 by in Featured

One month ago today I wrote a post on the AIG fiasco. In it I said:

…but why does the US Fed care enough to cough up 85 billion dollars for a “small” bridge loan?

Because the anti-trust laws of this country have been discarded. What does that have to do with the financial bail outs? The SEC/Justice Department have allowed companies through mergers and acquisitions to grow so large; so monolithic that their failure would bring down Wall Street.

Two days ago Dr. Ben Bernanke agreed in his speech to the Economic Club of New York. Am I a trained economist? Nope, it is just plain ol’ common sense. AND, as I said in my post last month, a taboo in Flight Test. In Flight Test it is called a single point of failure. In English that means if one item fails an entire system or the aircraft is lost. The biggest single point of failure is the engine. If you lose an engine in the F-16; you will ride the silk. Lose one in the FA-18; and you fly home with the other. In a sub-system a very small box can affect an entire system. In the EA-6B Prowler for example there was a small mixing box that all six of the radios went through. If it failed you lost all communication. Not too smart of a design.

The Federal Government has allowed, even encouraged massive mergers for years. As I sit here the next mega-merger is being Tee’d up; General Motors and Chrysler. How long before they come to us, the taxpayer, for a loan? A year, a month? Here is the mantra: “The new GM is too big to allow to fail!”

If there had been ten AIG type insurers instead of one, do you think we would be paying for another junket for their crack management team? I suspect they would have heard “too bad so sad, perhaps you should not have been so incompetent.” Now we the taxpayers virtually own the banking system for the exact same reason; too big to allow to fail.

I don’t know if I should be relieved or very scared, that a dumb-ass pilot from Missouri saw it a month prior to the “best and brightest” running our economy.

No Responses to “Federal Reserve Chairman, Dr. Ben Bernanke must be reading my blog.”

  1. Mark Anderson 17 October 2008 at 16:02 #

    I have to disagree with you. Just like “sub-prime” mortgages didn’t bring the economy down. In fact, let’s take handing out bad loans to their logical conclusion: people engage in acts of charity and give away money. Does charity cause sudden revelations of malinvestment? Hardly.

    Anti-trust laws are not about creating competition (i.e., the anti-thesis of monopoly). Anti-trust laws are used to actually create monopolies and cartels. It is through government power that yet more power is consolidated. The way to ensure fair competition is through an unbridled free-market.

    I particularly disagree with your explanation of the problem. What does the SIZE of a firm have anything to do with anything? There is a serious problem when firms so LARGE fail entirely. That the ENTIRE firm fails, rather than just CUTTING BACK, means that it wouldn’t matter if it was one entity, or broken up into 10 different entities. So the SIZE of the firm has nothing to do with anything.

    The CULPRIT IS BEN BERNANKE HIMSELF. The problem is the debasement of our currency, i.e., inflation, which artificially suppresses interest rates, thus triggering malinvestment and malconsumption. The recession was unavoidable as soon as the Fed created “liquidity.” The problem is now being made worse EVERY time Ben Bernanke or Henry Paulson or the Congress act. We need to get these people to stop acting out, STOP creating “liquidity,” and LET THE FREE MARKET SET INTEREST RATES. By keeping interest rates artificially low, this is only going to create many more severe problems.

  2. Chip 18 October 2008 at 10:59 #

    I agree that the free market forces should be allowed to correct. I also think everytime the Prez or Fed speaks it spooks the market, in fact it is the subject of my next post (Post Stall Gyrations).

    Government interference is what started this mess via the sub-prime market. However I stand by my thesis that the size of the companies involved is the cause of government interference now.

    Had AIG just been one of many companies insuring Wall Street they would have been forced into Chapter 11. The free market would have been allowed to correct.

    I don’t think that a free market can operate in a monolithic enviroment. For example; if the auto industry combines into one company or if the airline industry combined into one airline, neither would ever be allowed to fail.

    No matter how poorly they were managed the Fed would never let them fail, that is the political reality. One monolithic company for each industry is not an unbridled free market, it is communism. Competition is an important tenant of capitalism; let the weak fail.

    But again, I’m not an economist, I’m just a knucklehead pilot. I see things through the aviation prism. Thank you for your insightful response. I enjoy the discourse. chip

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