The Obama Administration's trial balloon of Larry Summers as the next Chairman of the Federal Reserve got shot down quickly and unceremoniously, with members of the President's own party fully and earnestly participating in the blast festival. Considering his credentials that would qualify him as Overlord of the Dark Side, few outside of the sanctum of Goldman Sachs have shed a tear over his announcement that he was withdrawing from candidacy. (For a run-down on Larry's sins, read the article, "Larry Summers: Goldman Sacked," by the ever-delicious muckraker extraordinaire Greg Palast.)
Now that Summers has gone south for the winter, the most likely alternatives will be more difficult to define by their wretchedness and mendacity. The leading candidate, Janet Yellen, comes to mind: How would a financial economics writer, as the author of this article is, explain to the average person that she was a knowing participant in the Fed's secret, multi-trillion dollar big bank bailout program that caused hundreds of millions of dollars in investments to be wiped out because analysts were kept in the dark about the infusions of funds? Until October of 2010, she was the President of the District Bank of San Francisco; she was then elevated to Vice Chairman of the Federal Reserve Board of Governors. That would have been the year before the Fed was ordered by a Federal District Court to reveal the bailout, an order that the Fed and the Treasury fought. As the head of one of the 12 Reserve Banks, she would have known about the off-the-books bailout because banks in her jurisdiction were in the program. Later, as a Governor, she would have had a direct hand in overseeing the program, which had racked up north of seven trillion dollars (that's right, seven trillion dollars) before the covers were torn away by some darned federal judge who just didn't understand how important it is to keep secrets.
To be fair, Ms. Yellen wasn't the only conspirator: obviously, all seven of the Federal Reserve Governors, including Chairman Ben Bernanke, would have known, as would a cadre of upper-level employees of the Fed who implemented, managed, and oversaw the capital injections. So, too, would compliance officials at the Securities and Exchange Commission, given that they would need to turn a blind eye to misleading and materially false representations in required filings by the banks. External auditors, who certified false and misleading financial statements, would also have known about the massive infusions of cash that kept the banks going. Government officials, including former Treasury Secretary Timothy Geithner, would have known. President Barack Obama would have known. In fact, a whole lot of people in responsible positions would have known.
Only the trifling and irrelevant would not have known. Those "trifling and irrelevant" are otherwise collectively called "the public," which incidentally includes investment analysts who used standard, time-honored, responsible tools of technical and fundamental financial analysis to make recommendations to their clients.
Within a year of the 2008 financial industry meltdown, that same industry's top tier of massive banks looked to outsiders like it was teetering on the brink of an imminent, second meltdown, which would have dragged the already crippled U.S. economy into a place eerily reminiscent of the Great Depression (except with better social networks to share misery). Looking at the technicals and fundamentals, a good financial adviser would tell his or her clients to short the market and bet hard against the big banks. Unfortunately, investors who took that advice got financially destroyed. (Investigative reporter Matt Taibbi chronicles the grim story of one such adviser in his article, "Secrets and Lies of the Bailout: One Broker's Story.")
Supporters, planners, and insiders who knew about the secret bailout will say that it was necessary to save those giant banks because the consequence of not doing so would have been catastrophic. Thousand, tens of thousands, or even hundreds of thousands of people losing a lot of money, including their retirement savings, is nothing more than a private cost borne by the few to save the great. The need to carry out the program in secret, inducing a chain reaction of necessary lies and deceptions, is somewhat less clear.
In her upcoming Senate confirmation hearings, Janet Yellen will not be pressed to clarify the rationale behind the secrecy, much less will she be pressed to make an apology to those she and her fellow insiders financially wrecked with that secrecy. That's because she will be in the presence of her fellow insiders: the members of the Senate Banking Committee, before which she will testify, were among the insiders who knew about the secret bailout.
Yellen will be nominated, and she will be confirmed, notwithstanding her role in a secret program that saved the hides of massive, irresponsible, failing banks at the crippling expense of honest investment analysts and their clients. The Senators questioning her will not ask her to explain her role, her rationale, and her actions, much less will they ask her to offer compensation to the people ruined by her and her fellow insiders.
If you're going to be tried by a jury of your peers, make sure they really are your peers. That means, if you've committed the deed of a scoundrel, make sure the names of the jurors are on that deed, too. That way, you know for sure they're your peers.