Flogging the Financial Firefighter

January 24, 2010 at 9:12 pm Leave a comment

There we were in the fall of 2008, our economic system burning up in flames, as we all watched century-old financial institutions falling like flies. At the center of the inferno was Federal Reserve Chairman Ben Bernanke. In coordination with other government agencies and officials, Bernanke managed to prevent the worse financial crisis since the Great Depression from completely scorching the economy into ruin. After successfully hosing down the flames (at least temporarily), Ben Bernanke is now being singled out as the scapegoat and getting flogged for being a major participant in the financial crisis.

 Execution Threatened Water Damage

In hind-sight could Bernanke have made better decisions? Certainly. Despite the Federal Reserve dousing out the flames, politicians are pointing the finger at Bernanke for causing water damage. I’m going to go out on a limb and say water damage is preferable to the alternative – a whole community of properties burned down to a large pile of charred ash.

Democrats are now flailing in the wake of the Massachusetts Democratic Senate seat loss to Republican Scott Brown. Even though I question President Obama’s blame-game tax and overhaul tactics (see Surgery or Amputation article), to his credit Obama realizes the instability of mass proportion that would occur if the reappointment of Bernanke were to come to fruition. If the head of the globe’s largest financial system is going to be kicked to the curb after saving our economy at the edge of an abyss, then heaven please help us.

Politics Will Reign Supreme in 2010

“Change” was promised in the 2008 Presidential election and the impatient natives are not seeing results fast enough, given lofty unemployment rates and unsuccessful implementation of other initiatives (thus far). Needless to say, the media is going to be awash in an orgy of political mudslinging and campaign promises that will overwhelm the airwaves for the balance of the year.

From a market standpoint, Republicans and Democrats, alike, do share some common ground…jobs. As a countervailing trend to the forces dragging down the economy, the unified focus on job creation should provide some support to the financial markets.

Unfortunately, the independence of the Federal Reserve is being dragged into the political ring as Ben Bernanke’s reappointment process cannot escape the Capitol Hill circus. Berkshire Hathaway (BRKA/B) CEO Warren Buffett has likely handicapped the market’s reaction to a failed Bernanke reappointment when he recently stated, “Just tell me a day ahead of time so I can sell some stocks.” If the fires of 2008 concerned you, you may want to have your fire alarm and water hose ready for action if Chairman Bernanke is shown the exit.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, and at the time of publishing had no direct positions in BRKA/B. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

Entry filed under: Government, Politics. Tags: , , , , .

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