kunstler | Mr. Bernanke now says he
“regrets” that nobody went to jail. That’s interesting. More to the
point perhaps he might explain why the Federal Reserve and the
Securities and Exchange Commission did not make any criminal referrals
to the US Attorney General in such cases as, for instance, Goldman Sachs
(and others) peddling bonds deliberately constructed to fail, on which
they had placed bets favoring that very failure.
There were a great many such
cases, explicated in full by people and organizations outside the
regulating community. For instance, the Pro Publica news organization
did enough investigative reporting on the racket of collateralized debt
obligations to send many banking executives to jail. But the authorities
turned a blind eye to it, and to the reporting of others, mostly on the
web, since the legacy news media just didn’t want to press too hard.
In effect, the rule of law was
replaced with a patch of official accounting fraud, starting with the
April 2009 move by the Financial Accounting Standards Board involving
their Rule 157, which had required banks to report the verifiable
mark-to-market value of the collateral they held. It was essentially
nullified, allowing the banks to value their collateral at whatever they
felt like saying.
Accounting fraud remains at the
heart of the fix instituted by Ben Bernanke and the ploy has been copied
by authorities throughout the global financial system, including the
central banks of China, Japan, and the European Community. That it
seemed to work for the past seven years in propping up global finance
has given too many people the dangerous conviction that reality is
optional in economic relations. The recovery of equity markets from the
disturbances of August has apparently convinced the market players that
stocks are invincible. Complacency reigns at epic levels. Few are ready
for what is coming.
