EconomicCrisis.US

A trial in New York that seemed like a sideshow may hold pivotal lessons for lawmakers reshaping the regulatory system for U.S. financial firms.

Two Bear Stearns hedge fund managers, Mathew Tannin and Ralph Cioffi were found not guilty of conspiring to defraud investors, despite e-mails in which Tannin said he was so worried about the fund he had begun taking anti-depressants.

Prosecutors charged the pair knew the fund was in trouble, yet sold its merits with confidence to investors. The defendants lawyers contested that claim, saying prosecutors had used e-mails to provide “misleading sound bites” about the nature of working in finance.
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Since rolling out his anti-Great Depression policies in 2002, Ben Bernanke has had the dubious distinction of being the major contributor to the worst financial and economic crisis to hit in the post-World War II era. His theory and practice was to fight an enemy that did not exist in 2002 – deflation. As a result, he ended a long period of economic prosperity.

As chairman of the Council of Economic Advisors and a Federal Reserve governor, Bernanke strongly supported policies that pushed the federal funds rate to 1% and inundated banks with liquidity during 2002-2005.
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We’ve always been impressed by David Einhorn, the young manager of Greenlight Capital. Einhorn made our Ten To Watch list this past August for his prescient shorting and outspokenness about the shenanigans going on at Lehman. (His fund had been up by more than 20 percent in the first half of this year, fueled by his bearish bets; he had almost no long positions. Wonder how he is faring these days.)

In a speech to the Value Investing Congress yesterday (the speech was called, “Liquor Before Beer, in the Clear”), he paints a dim view of our financial system and the government’s role of enabler. Einhorn didn’t use the word bankruptcy, but he thinks the stimulus package is a “black hole” that, in the long run, will not produce long-term economic value. It’s all short-termism, so that elected officials can say they are doing something—and seek reelection.
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Federal Reserve Chairman Ben Bernanke called Monday for the United States to whittle down its record-high budget deficits and for countries like China to get their consumers to spend more.

Bernanke said those moves would help reduce “global imbalances” — uneven trade and investment flows among countries that contributed to the financial crisis.

The Fed chief’s remarks to a Fed conference in Santa Barbara, Calif., came after the government said Friday that the U.S. budget deficit hit a $1.42 trillion deficit for the 2009 budget year that ended Sept. 30. The previous year’s deficit was $459 billion.
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