Global Research
by Mike Whitney
Fed chief Ben Bernanke has embarked on the most radical and ruinous financial rescue plan in history. According to Bloomberg News, the Fed has already lent or committed $12.8 trillion trying to stabilize the financial system after the the bursting of Wall Street's speculative mega-bubble. Now Bernanke wants to dig an even bigger hole, by creating programs that will provide up to $2 trillion of credit to financial institutions that purchase toxic assets from banks or securities backed by consumer loans. The Fed's generous terms are expected to generate a flurry of speculation which will help strengthen the banking system while leaving the taxpayer to bear the losses. It is impossible to know what the long-term effects of Bernanke's excessive spending will be, but his plan has the potential to trigger hyperinflation or spark a run on the dollar.
Bernanke's zero-percent interest rates, multi-trillion dollar lending facilities and bank bailouts do not fit within the Fed's narrow mandate of "price stability and full employment". With unemployment soaring to 8.5 percent and increasing at a rate of 650,000 per month (with 15 percent under-employed) it is a wonder that Bernanke hasn't been fired already. There are also myriad problems with Bernanke's lending facilities which are nothing more than a crafty way of transferring wealth from the Fed to private industry via low interest loans. The Central Bank is not supposed to "pick winners" as it is blatantly doing through its market-distorting facilities. Businesses outside the financial sector cannot exchange their downgraded garbage with the Fed for semi-permanent, rotating loans; so why should underwater investment banks and hedge funds get special treatment? The facilities represent a gift to financial institutions giving them an unfair advantage in the marketplace.
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