"Federal Reserve Chairman Ben Bernanke said Monday that the current economic situation bears "no comparison" to the much deeper crisis of the 1930s Great Depression. Further, he states that you hear a lot of loose talk, but let me just say, as a scholar of the Great Depression; and I've written books about the Depression and been very interested in this since I was in graduate school, there's no comparison."
This same "scholar (and I use the term loosely, given his track record as Fed Chairman)" said in February 28, 2007 to the House Budget Committee that he didn't consider the housing downturn as being a broad financial concern or a major factor in assessing the health of the economy." In other words, he thought the "subprime problem" was contained and under control. So, in 2007, he said that we have everything under control; and now we are to believe him when he states that there is no comparison between our current economic situation and the 1933 depression. I, for one, don't believe the man. His policy of ZIRP (zero interst rate policy) will not work. It will not eradicate all the malinvestments that must be liquidated. It will only prolong our economic pain.
Ok, what should be done by the Fed and Congress? A good start in rebuilding confidence and trust in our economic system would be the following four measures:
1. The Fed should immediately stop its ZIRP.
2. Congress should repeal Gramm-Leach-Bliley Act of 1999, which will reinstitute the Glass-Steagall Act of 1933. The Glass-Steagall Act banned investment banks, which engaged in what was perceived as high-risk securities trading and underwriting, from taking insured retail deposits. In other words, an investment bank could not be a commercial bank. That prohibition was removed on November 12, 1999 by the Gramm-Leach-Bliley Act. Since 1999, there has been a rapid convergence between commercial and investment banking. Did anyone say Citigroup, Wachovia?
3. Congress and Fed should establish the maximum leverage for depository financial institutions at 10:1.
4. Congress should direct that all assets and liabilities, no off-balance sheet items allowed, are to be consolidated upon a firm's balance sheet, and all marking methods, formulas and variables for each asset held must be disclosed accurately. I refer to this as the Transparency Rule.
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