Took some time to watch the testimony earlier. It started with some intensity and it ended with a softer and more understanding note towards the end of the testimony. I wouldn't want to be on Bernanke's hot seat if given a chance.
Chairman Bernanke expressed his anger towards AIG, and explained that AIG's investment operations were operating like a hedge fund, and because of such unmanaged risk that were taken by them, where it also went through the regulatory loopholes, thus causing the worries. If AIG is to fail now, the effect may be catastrophic and detrimental to the current financial woes of the economy. The Fed did really think and consider about the consumers of such insurance products who had given premiums to the insurer, and the possible effect if AIG is to fail, there will be another vacuum that could cost adverse effects in the health care system as well.
One of the Senator did bring up to Bernanke's attention to ask if AIG was labeled as a 'zombie institution'. I thought that was a pretty interesting one, but Bernanke replied neutrally to the question, which panned out to be a 'no'.
As for future plans to AIG, they hope to be able to break up the company, and subsequently sell the company at a later stage.
After the testimony today, where I will express in my personal opinion, I feel that the U.S economy is currently going through a very rough patch. The existing problem on hand is indeed extremely challenging for the Obama Administration and Ben Bernanke:
1) They have a huge deficit that may take 2 generations to clear.
2) They have to find ways to acquire national income and maintain a healthy Debt to GDP ratio for the country. In my opinion, now, not only the big financial institutions are technically insolvent, I think the U.S economy is technically in it as well.
3) They have to work hard to maintain the credibility of the U.S government securities.
4) They are still currently using good money (TARP, Stimulus Package, TALF and more to come) to chase after bad money (Citibank, AIG, GM and etc), after 8 months of rescue to the economy.
Simply, such problems could not be resolved over the next 2 years. It will take a longer than expected time to recover from this impact. If you had followed closely, Dow at 7,100 was the 50% mark between the high in Oct 2007 to the low in 1932. Thus by taking less than 2 years, all these gains were simply wiped out.
Continue to look into the stock market for clues for the recovery, as this is where most sovereign wealth funds, governments, great investors and gurus' monies are in now. If you have time to watch a 6 part (10-min) clip, I urge you to watch this interesting video documentary on the Great Depression of 1929.
Here is the video link to the testimony
Wednesday, March 4, 2009
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2 Responses to "Video Link & Summary of Fed Chairman's Testimony"Hi,
i truely agree with you.
Right now, by pumping money to help those troubled companies wont do much. Its like trying to cover holes in the short term to solve a big problem.
And to really save the world, like what Jim Roger mention, eliminate all the bad debts, start from everything again.
Yes.. I agree with your comment.. I have to add, but if they were to do that, their first worry would be if other countries will continue to finance their debts, and also, as seen from Lehman Brothers last year, the CDS which they commented as a complex instrument, would worsen their downfall. There are too many strings tied to their downfall, and it will take many more years to rebuild the credibility of such a big nation. Not an easy task mate.. Phew...
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