"Big Ben" speaks!!!

Fed Chair Bernanke's comments at the Council on Foreign Relations outlined potential new regulations for the financial markets which seemed to be confidence-inspiring. How is the US Fed Chief 'newsworthy' as it relates to foreign relations? Prior expansion in the US fed a desire for investments in our economy from overseas. Where financial crises in the 1990's (case in point-Japan) were largely regional, this current mess is global. So a lot of $$$ came to the US, and fueled a lot of risky investments. Well, we all see what happened. Big Ben (Bernanke) noted that we obviously have to have free-flowing credit and stability. He also outlined (in specifics!) what needs to happen. In a nutshell-oversight and regulation. He addressed several factors. "Too big to fail" is not a good thing. Large financial monsters grow so big that their tentacles reach into all aspects of our financial markets. Their success breeds additional risk-taking as they have the resources to 'roll the dice' that smaller concerns can't try. BB feels that risk-management practices must be implemented in large companies across all aspects of their inter-related businesses--even non-bank divisions. This authority needs to reach across the entire company-not limited to one division, for example. A second focus would be to strengthen the financial infrastructure (his analogy was to work on the "financial plumbing"). Specifically, the mechanisms that allow trades to occur need to be tightened. Temporary fixes in light of the Bear Sterns collapse and Lehman bankruptcy need to be clarified, expanded and made permanent. He suggests the Fed Reserve system may be the best resource to oversee payment and settlement systems. Next, the word of the day is "proclivity", which means a natural propensity or inclination or predisposition. In simple terms, banks have to keep a lot of reserves. When things are good, they lend a lot of money. When things are bad, they don't. SO, things are bad, which means... no credit. He recommended changing some accounting standards to allow banks to 'go out on a limb' and actually LOAN money without angering the Gods (the bank regulators). Another recommendation was to allow FDIC to build it's reserves over a longer period (from 5 years to 7 years). Finally, he notes that there needs to be a new Sheriff in town, in order to regulate and oversee the entire system in the US, which may take some tweaking of existing authority, as well as new legislative authority from Congress. It appears that he feels that regulatory authority in the US is currently too decentralized and it is time for someone to set the standard(s) and it appears that the Fed is the one to do it! Last shot-all of the above will help smooth the global impact of financial problems, but it cannot end domestic or global crises. It will (hopefully) serve to cut the current tidal wave of market ups and downs to smaller ripples on the world pond. Go Ben, go!

For the text of the entire speech, click this link.