Fed Chairman Ben Bernanke admitted the central bank created $1.3 trillion out of thin air to buy mortgage backed securities. This shocking admission came from the Joint Economic Committee hearing on Capital Hill last week. I was dumbfounded when I saw Bernanke shake his head in the affirmative as Representative Ron Paul said, “Well, where did you get the money? You created this money. So you did monetize debt, and that went into the banking system.” I was amazed he admitted this. I looked up the original hearing on C-Span to make sure the clip was not edited. It was not.
BILL MOYERS: And you say they continue to hold the global economy hostage?
JAMES KWAK: Exactly. Because what’s happened- what we learned in 2008 were certain institutions are so big and so interconnected that if they were to fail, they would cause systemic shocks throughout the economy. That’s essentially what happened in September 2008 when Lehman Brothers collapsed. And what’s remarkable, and I think what essentially proves the point of our book is that almost two years later, nothing has changed.
Or the only thing that has changed is that these banks have gotten larger, more powerful, both economically and politically. And they’ve been flexing their muscles in Washington for the last year and a half. So Neal Wolin, the Deputy Treasury Secretary gave a blistering speech to the U.S. Chamber of Commerce in which he said, look, the financial sector has been spending more than one million dollars per day lobbying against the reforms we need to fix the financial system. Now, Simon and I think those reforms that the Administration has proposed do not go far enough. But we think they’re certainly better than nothing. What Wall Street wants is they want nothing. They want to stop this in its tracks and go back to where we were five years ago.
