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Wednesday, March 5, 2014

Bernanke Finally Reveals, In One Word, Why The Financial System Crashed -- By Tyler Durden, Zero Hedge

Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that's what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE's largest bank, was hoping for earlier today when they paid an exorbitant amount of money to hear the former chairman talk.

Bernanke confirmed as much when he said he could now speak more freely about the crisis than he could while at the Fed - "I can say whatever I want."

So what was the reason, according to the man who was easily the most powerful person in the world for nearly a decade?

Ready?

"Overconfidence." (no, not "weather")


Yup. That's it.
The United States became "overconfident", he said of the period before the September 2008 collapse of U.S. investment bank Lehman Brothers. That triggered a crash from which parts of the world, including the U.S. economy, have not fully recovered.

"This is going to sound very obvious but the first thing we learned is that the U.S. is not invulnerable to financial crises," Bernanke said.
Actually what is going to sound even more obvious, is that subprime was not contained.

But going back to Bernanke's explanation, brought to us by Reuters, we wonder: did he perhaps get into the reason for the overconfidence? Maybe such as the Fed's endless hubris in believing it knew what it was doing, when time after time and especially over the past 30 years, the US central bank has shown that all it now does is lead the nation from bubble to bubble, from crisis to crisis, and replaces one asset bubble, first the dot com, then the housing, with another, even bigger one, until we get to the biggest bubble of all time - the stock market as you see it currently, where the S&P 500 soars to all time highs and when news of an ICBM launch can barely cause a dent in a ridiculous upward ramp driven by, you guessed it, overconfidence.

Only this time it's different, because the Fed really know what it is doing. Or maybe this time is no different than any other market mania unwinding before our eyes, with the careful nurturing of the the Fed and its chairmanwoman, be it Greenspan, Bernanke or Yellen.

But has Bernanke at least learned something? After all he is supposedly a very smart man from Princeton? Why yes:
He also said he found it hard to find the right way to communicate with investors when every word was closely scrutinised. "That was actually very hard for me to get adjusted to that situation where your words have such effect. I came from the academic background and I was used to making hypothetical examples and ... I learned I can't do that because the markets do not understand hypotheticals."

He concluded that he should "try to simplify the message, but not simplify too much".
Oh you mean something like this, uttered literally moments ago:
  • LACKER SAYS UNEMPLOYMENT THRESHOLD CLOSE TO OBSOLETE
Thank you Fed for admitting the whole premise behind the injection of over $1 trillion in the capital markets, the Fed's "target" of 6.5% unemployment, was really a bizarro bullshit joke perpetrated on the common man, when in reality the threshold was 1900 on the S&P. Or 2000. Or 3000. Or pick some arbitrary nominal number, where people confuse paper assets inflation with real wealth.

But don't worry, it's the "overconfidence" that did us in...

(Click link below to read more)
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