There's something particularly delicious when a politician has to start cashing the checks they've been writing with their mouth for more than a decade.
Representative Ron Paul, Texas Republican and author of End the Fed, will take control of the House subcommittee that oversees the Federal Reserve.
House Financial Services chairman-elect Spencer Bachus, an Alabama Republican, selected Paul, 75, to lead the panels domestic monetary policy subcommittee when their party takes the House majority next month, the committee chairman said today.
I've sat through years of watching Mr. Paul during Humprey-Hawkins "testimony" where he has spent most of his alloted couple of minutes railing about the gold standard and inflation, never putting forward to Mr. Bernanke - or anyone else - an actual question that can be answered, or allowing the deponent to prattle on with abject nonsense.
The excuse of "limited time" and "mission creep" is now gone.
Here's the problem, as I see it. Mr. Paul has an allegedly-laudable claimed goal - ending The Fed, or at least shackling its excesses and outrages.
But he hasn't done anything with this goal, despite multiple years of attempts, other than filing his "End (or Audit) The Fed" bill every session.
Yes, there was some traction this last legislative session with that, and part of it got into Dodd-Frank. And yes, legislation is the art of making sausage - and it's pretty messy.
But that doesn't change the fact that the most-outrageous acts are not about audits at all, but rather intentional blindness when it comes to supervision and allowing essentially-unlimited leverage to be taken by institutions doing knowingly-unsound things.
Such as, for example, having 80% of your loan production be unsound - which we now have under oath testimony on related to one of the TBTF banks under the Fed's putative "supervision."
Then, as Janet Tavakoli put forth in withering detail yesterday, you have the essential characteristics of a Ponzi Scheme, where a more-and-more frenzied pace is necessary to maintain the pyramid as the top of the inverted cone becomes heavier and heavier - lest it all collapse. And Janet did not mince words - she essentially charged criminal conduct occurred and that an organized cover-up was perpetrated.
But perpetrated on whom?
Well, not on the regulators such as FRBNY. That's impossible when you're posting collateral on a daily basis and clearing transactions. Either they clear or they do not! And incidentally, that was Geithner's gig during that period of time - he's complicit here too, although nobody wants to talk about that either.
Bernanke has claimed all along that "nobody could have seen it coming." But we now know this lacks credibility of any sort - not only both did he and Geithner have to have the ability to see it coming it is a near-certainty that they were both explicitly aware. That is, unless you believe that Rubin and others in Citi shared nothing and FRBNY knew nothing to share with the FOMC. Like, for instance, that Lehman had been unable to post good collateral for overnight loans weeks before they blew up, as Citi, among others, had rejected their repos.
That this somehow remained "a secret" from The Fed is flatly impossible. The Fed has alleged supervisors in all these big institutions and every one of them deals with FRBNY on a literal daily basis for routine repo and other overnight operations.
So now we find out - does Mr. Paul have a sack?
And more importantly, is he willing to go where we must if we're going to drain this swamp - to use the "F" word ("Fraud"), to use the "C" word ("Criminal"), to use the "I" word ("Indict") and to use the "P" word ("Prosecute")?
We shall soon see.
Yes, The Fed should lose it's "dual mandate." Yes, The Fed should lose the 13.3 authority it still has (most of which is gone under Dodd-Frank. The Fed should be forced to disgorge all of the instruments it took in and holds that, through any devices, are out of compliance with Section 14, which is all of the MBS and all of the Maiden Lane LLCs. The Fed's "mandate", if we're going to keep something like The Fed, should be zero price inflation over an intermediate (e.g. 5 year) term for core goods and modest deflation in all other goods that reflect advances in technology and decreases in cost. That's what we have in computers and other areas of technology - why is this not part of policy? After all, we have an entire business model in the form of WalMart that is dedicated to the idea of modest deflation and they're "in your face" about it! (What else is "falling prices"?)
Let's cut the crap - if we have sound money - which simply takes an honest accounting and a zero-price-change foundation, then expansion of credit as a means of faking "growth" disappears and so does the ability to run nearly all financial Ponzi schemes. You either actually produce more or you don't - there is no more fake "wealth" produced through asset bubbles (one of which Bernanke publicly claims to be trying to produce right now!), because borrowing becomes relatively expensive - too expensive to do for other than either essential or productive purposes. That is, nobody borrows 100% of a house's price any more, nobody borrows 100% of a car's purchase price over 7 years, and almost nobody borrows except on an emergency basis (e.g. to fix said car) for "retail" purchases. They certainly don't use their house as an ATM machine nor do we have kids borrowing $150,000 for 4-year degrees in Sociology.
Without all that bubble-style credit creation prices contract back to a balance point with actual consumer surplus - that is, extra funds available after the necessities of life are paid for.
I'd love to see Mr. Paul actually do what he claims he wants. For years he and his supporters have been able to hide behind the "I'm only one of 435." That's no longer true - now, with a subcommittee chair seat, he's got a bully pulpit and, assuming the committee chair accedes, subpoena power.
The time for excuses is over, and the time for action has arrived.
You can bet I'll be reporting on whether or not the checks written by Mr. Paul over the previous years actually get cashed, now that he's got the keys to the drawer holding the cash to make 'em good.
I'm skeptical, but willing to be convinced.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.