re: A Who's Who of the Money Board...

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I'd actually be very interested in reading that, as there aren't many who have that view. Always love reading differing viewpoints on this board.

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So here's my take on Bernanke.

He first took office in 2005 we were already in the midst of a speculative bubble of which size nobody could've imagined the magnitude at the time. He did see the inflationary pressures and started hiking rates. He, however, did note the pressures in the housing market early. Nothing really to note in this time period.

Crisis - It was obvious that Lehman was the only shock that the market could handle at the time. He basically force fed BofA Merrill because he knew how bad the Countrywide mortgage portfolio was on Merrill's balance sheet. If that stuff went on fire sale after Bear and Lehman than all bets were off. The biggest things he did to help us from going over the edge into a deflationary spiral was (1) guaranteeing CP issuance because funding had completely frozen up. Everyone was so scared at this time if corporations couldn't even issue CP then they would cease to run as entities, and the economy was cease to exist as we know it. (2) Advising the FDIC to guarantee all non-interest bearing deposits (the TAG program). If the FDIC didn't do that than you have a run on the banks of epic proportions, and the entire financial system ceases to exist as we know it. (3) He helped smooth out the mortgage losses by buying all the illiquid CMBS, CMOs, and ABS that were toxic on banks balance sheets to where they could actually deploy capital and get the economy's gears turning again with QE1. There is a laundry list of more programs: TARP, TALF, money market fund guarantee, etc.

Actions beyond this point must be thought of in this context, Ben would do anything and everything to hold back a deflationary spiral. The market was and is so fragile, moreso in '09, so the one thing that could send us back into a deflationary spiral was a market shock. This is the key, everyone thinks Bernanke is focusing on the Treasury or mortgage markets with QE programs, but there is one market that has been the most affected by these programs by far, VOLATILITY. If you look at normalized swaption volatility since the start of the QE programs, its been a nose dive down. Bernanke essentially took out those 1 or 2 standard deviation moves from the market so you don't have the same threat of a market shock. When people are scared you have to calm them down, taking out volatility does this.

In my opinion, that was his main goal and one he succeeded at brilliantly. The only time since then we've had huge bouts of volatility was last August because senior traders weren't on their desks. In most of the fixed income and funding markets, trading is done by people that just know each other and call to trade. So in early August when these guys weren't on their desks and banks had to raise capital, junior guys turned to their most liquid assets, equities. That's why you had the 500 point moves back and forth. Nothing to do with Bernanke, politics messed this one up with the fiscal cliff debacle and started those back and forth swings.

Now to the specifics with the QE programs. There were three goals for QE2 and OpTwist, flatten the forward yield curve, reduce interest rate volatility, and push investors into riskier assets. The consequential goals, those that Ben can't control, didn't work out as well as he'd hoped. With rates so low in the market and pension liabilities so high, one thing makes perfect sense that not many pension plans did and I am still at a loss why, issue debt to fund pension liabilities. I mean, the freaking 10-year was lower than most plans servicing costs. Ben can't force them to do this but he did everything but, and they still didn't. They were too worried about tax uncertainty due to government regulation (ObamaCare, Dodd Frank). Once again, politics screwed this one up and corporations are partly to blame too.

QE3 and the mortgage market. So Ben first tried to spur risk assets from treasuries, worked but not how he would like. Same story for OpTwist. He knows the mortgage transmission mechanism that was used by so many previous Fed president's is broken because mortgage rates are so low. So how do you spur banks to lower their mortgage rate? Soak up as many lower coupon treasuries as you can so that par coupon (what banks pay at) is so low that they can lower the mortgage rate and still keep their spread. Houses pay less on their homes, which is the largest portion of equity for households, and consumers have more cash to spend. However, once again, regulation has screwed this one up too. Uncertainty about regulation on banks and STILL pending litigation from the government over mortgage lending and settlements have made banks very scared to lower their mortgage rates, because thats really the only portfolios that banks are making money on.

This is why Bernanke continues to ask the government to take some action, because all they've done is frick everything he's tried to do up. He has set the country up to come out of this funk so well: Rates are low for borrowing, rates are low for homes, markets are stable, and we didn't have a big deflationary threat before the fiscal cliff (thanks again government). He has literally done everything to save this country, and now he is a punching bag for those frickstick politicians that have done literally everything to frick this country over for what? Political bickering and power.

Bernanke is a real leader, one that will make the tough decisions and willing to take the blame because he knows what is best for the country. He'll be the punching bag all day as long as the country's arms have energy to punch. A true leader.

Politicians, take notes you fricking cowards.