Wednesday, March 18, 2009

The Financial Sector: "A House Burning Down"

The Financial Sector: "A House Burning Down"
Ben Bernanke’s False Analogy

by Prof. Michael Hudson"On the March 15 CBS show '60 Minutes', Federal Reserve Chairman Ben Bernanke used a false analogy already popularized by President Obama in his quasi-State of the Union Speech. He likened the financial sector to a house burning down – fair enough, as it is destroying property values, leading to foreclosures, abandonments, stripping (for copper wire and anything else recoverable) and certainly a devastation of value. The problem with this analogy was just where this building was situated, and its relationship to 'other houses' (e.g., the rest of the economy).

Mr. Bernanke asked what people should do if an irresponsible smoker let his bed catch fire so that the house burned down. Should the neighbor say, 'it’s his fault, let the house burn'? That would threaten the whole neighborhood with fire, Mr. Bernanke explained. The implication, he spelled out, was that economic recovery required a strong banking and financial system. And this is just what he said: The economy cannot recover without yet more credit and debt. And that in turn requires trillions and trillions of dollars given by 'the neighbors' to the bad irresponsible man who burned down his own house. This is where the analogy goes seriously off track." Read more.

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