Financial Freedom SG

Time Magazine saw fit to award the Person of the Year 2009 accolade to Ben Bernake. It isn’t that much of an award as past winners of person of the year includes Adolf Hitler and Josef Stalin (twice).

The citation for the award came from the Time magazine managing editor, Richard Stengel, who said that Ben Bernake won it because “The recession was the story of the year. Without Ben Bernanke ... it would have been a lot worse”.

To complete the picture, one of the financial villains of 2009 should be Rep. Barney Frank who is leading a bill to squash the Federal Reserve powers to loan banks from collapsing.

Under the 1932 law for the Federal Reserve, it can grant and give emergency loans to recapitalised crippled banks and prevent it from going under.

It means that firms like AIG, Citibank, Bank of America etc, would all have gone the way of Lehman Brothers, Northern Rock, Bear Stearns etc.

Let’s think about it for a moment.

Instead of finding ways to prevent another major financial crisis of the type we have just seen, or passing a bill to cap the pay or bonuses of financial firms, the politicians are taking away power from the one institution who has saved us all from Great Depression 2.

This power was given to the Federal Reserve in 1932, when the Great Depression was in full swing and everyone realised the massive effect the widespread bank failures was having on everyone. It deepened the recession and the widespread collapse of banks in USA turned the recession to the first full fledged depression in the history of Mankind in 1931-1932 which lasted till under World War 2 was over.

The other bill passed in 1932, was the Glass-Steagall Act which separated the depository role of banks from its investment. This bill was repealed in 1987 by Gramm and Leach of the Republicans during Clinton’s term of presidency. This repeal “contributed to the Global Financial Crisis of 2008-2009”.

The symmetry with this now is that this repeal of the other 1932 bill is supported by two Democrats, Barney Frank and Chris Dodd. You can read more about Chris Dodd’s part in this from an article at MSNBC on “Senate Democrat move to curb Fed’s Powers”.

With the Fed likely to become powerless in the next financial crisis and being unable to quickly save banks on the brink of collapse, history is poised to repeat itself if the Fed becomes chained.

Maybe I should look to take out my investments in S&P and put it back in Asia instead if those bills are passed and signed.