Richard Bove is the the best know banking analyst in the USA – seasoned and credible.
Driving the Financial System to Collapse???
Richard X. Bove
Vice President Equity Research
Lack of Business Acumen
Tim Geithner, the head of the Treasury is a bureaucrat. He has actually bragged on television that he has never held a position of responsibility in a bank or a brokerage firm. Ben Bernanke, the head of the Federal Reserve, is an academic. He has never held a position of responsibility in business. Both men are undeniably very bright but:
- Neither has ever developed understanding of how a business works from the inside.
- Neither has taken risk in a commercial setting.
- Neither has had to understand how to develop a business plan in an environment of competing business interests.
- Neither has ever had to understand the meaning of a contract.
- Neither has had to understand the importance of private property in a commercial setting.
- Neither has ever been involved with long‐term planning for a business enterprise.
- Neither has ever had to function as a working capitalist.
- However, both are skilled politicians.
- Both are willing misuse the power of their positions to force the private sector to bend to their demands.
The academic has performed unusually well in understanding the nature of the financial crisis and its potential impact on the economy. He has taken actions at a time of extreme stress that helped avert a financial collapse. Whether these were his ideas or those of a business man, Henry Paulson, the head of the Treasury at the time will be unknown. What is known is that in the fourth quarter of 2008, the concerted actions of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation prevented a run on bank debt from succeeding in breaking the system.
However, the challenge has now changed. Mr Bernanke is facing a crisis of either his own making and or that of the new Treasury Secretary Timothy Geithner. This time there is no business man to assist them in their decision making – only more academics and bureaucrats. Moreover, if the crisis that the government created is not handled properly it will rekindle the run on the banks and crash the financial system. What is very alarming in this situation is that the government has eliminated all options and is plunging ahead toward what could be a fatal denouement.
Read the whole paper here.