What Bernanke Should Have Done in 2008, But Didn’t

[Inside Wall Street with Nomi Prins]( Welcome to Inside Wall Street with Nomi Prins! It’s the only daily newsletter featuring the insights of renowned author and former Wall Street insider, Nomi Prins. Every day, Nomi shines a light on a massive wealth transfer she calls The Great Distortion. That’s the true cause of the permanent disconnect she sees between the markets and the real economy. And she shares ways you can come out ahead, if you know where the money is flowing. You’ll find all Nomi’s Inside Wall Street issues [here](. If you have questions or comments, send Nomi a note anytime [here]( or at feedback@rogueeconomics.com. What Bernanke Should Have Done in 2008, But Didn’t By Nomi Prins, Editor, Inside Wall Street with Nomi Prins Welcome to our Friday mailbag edition! Every week, we receive some great questions from your fellow readers. And every Friday, I answer as many as I can. This week, I answer your questions about Ben Bernanke, the former Federal Reserve chair who just won the Nobel Prize… as well as the likelihood of an economic depression. (Catch up on my recent essays on that [here]( [here]( and [here]( Recommended Link [Retire Rich from This Document]( [image]( See the document above? It’s a list of the 500-fastest growing companies in North America right now. The companies on this list are growing 200%... 1,000%... 10,000%, plus much, much more… And one small-town millionaire says [a secret inside this document helped him make back his millions after he lost it all.]( And he’s not alone. A few people he’s shared this secret with have reported incredible results like… - “My portfolio last year beat the Dow and S&P.”* - “30K last year.”* - “This has helped me build a seven figure portfolio”* If you’d like to see how to get rich too from these fast-growing companies… [Click here for the full story.]( *Verified customer. Past performance doesn't guarantee future results. -- Up first, reader Maria C. wants to know what I would have done differently, had I been in Bernanke’s place during the 2008 crisis… I would like to hear from Nomi, what would she have done differently at that point and time in history? I am not an economist. I am a scientist, marine biologist. I was born in Madrid, grew up in Venezuela in the golden era, and lived in the U.S. on and off for the last 35 years. This is the only country in the world where in times of crises, the government’s act like they do crazy things, like bringing down interest rates to almost zero, which somehow stimulates other parts of the economy. The bailing of the banks sounded outrageous, especially because they protected the BIG WIGS’ salaries but did not protect the families from losing their homes. But if he would have not bailed out, what would have happened? So instead of just criticisms, I would like to hear which other realistic strategy would have kept the U.S. as the strongest and safest country in the world! – Maria C. Hi Maria, thank you for your question and comments. I wrote about the alternatives to bailing out the banks in my 2009 book, It Takes a Pillage. If you have a copy, it’s in Chapter 2, called “This Was Never About the Little Guy.” I also shared an excerpt in these pages, which you can read right [here](. The alternative, to me, comes down to the numbers. There were about half a trillion dollars’ worth of subprime loans that were in default. That’s out of $1.5 trillion that were extended to borrowers during the years that led up to the financial crisis of 2008. Yes, some of those loans should not have been extended because the borrowers could afford to repay them from the beginning. But a lot of the risks inherent to those loans weren’t properly disclosed to borrowers. Also, certain lenders were very loose with the information that they required from borrowers to provide these loans. That was one major fault of the Fed: not regulating the bank lending process when it could have. But nonetheless, the large Wall Street banks were able to engineer assets using these loans to the tune of $14 trillion. That’s a factor of 28 times. Even if the subprime loans that banks bought to stuff into these assets had not defaulted, the entire exercise was a house of cards. Or like an upside-down pyramid destined to topple over. Imagine you have a flat tire, and you can only pump in 1/28th of the air the tire needs to function properly. The tire isn’t going to be safe. Plus, Wall Street was lending money to institutional buyers of those assets – using the assets as collateral! [Featured: “You can follow the money… all the investors are smelling it.” - Nomi Prins]( When the subprime loans at the bottom of this upside-down pyramid scheme stopped paying interest out as expected, the entire scheme toppled. I would not have bailed out the banks for doing that. Instead, I would have made those mortgages whole to stop the defaults, and fined the banks for that difference. The cost would have been half a trillion dollars and not the trillions we have spent since. Perhaps one or two more banks would have toppled during that time as a result. But that was the risk they took. And it would have been a whole lot cheaper. Recommended Link [Epic Billionaire Showdown: Elon Musk vs. Gates, Ma, Branson, Bloomberg, & Bezos]( [image]( The world’s richest men are squaring up. 5 billionaires are backing [this tiny $4 company…]( In an epic battle for control of a trend Forbes reports is worth $130 trillion. The only thing standing in their way? Elon Musk. And Tesla. Musk’s already spent over $10 billion in a bid for complete control. So why do these 5 billionaires – Bill Gates, Jack Ma, Richard Branson, Michael Bloomberg, & Jeff Bezos – believe this tiny $4 company could beat Tesla? [Click here to watch a 30-second demo for the answer.]( -- Next, reader Mark K. wants to know whether the economy might go into a deep depression anytime soon… I agree with you that giving a Nobel Prize to Bernanke is not just unjustified but close to insane. The real question is, how likely are we to get not just a deep recession but a real depression out of what's happening today? The indicators seem numerous that we are in deeper trouble than the pundits and the Fed are letting on. – Mark K. Thanks for writing in, Mark! This is an important question. A recession is generally when a country sees negative GDP growth for two quarters in a row. This has been [an objective measure, which most economists and politicians have taken as a given]( for at least half a century. Well, we just received new gross domestic numbers yesterday. The GDP report showed U.S. returning to growth. It marked a 2.6% annual rate of growth in the third quarter. This certainly sounds like excellent news. Especially coming after two back-to-back periods of negative GDP growth (-1.6% in Q1 and -0.6% in Q2). Plus, it slightly exceeded the markets’ expectations. So, by traditional measures, we’ve just pulled out of a recession. Great. But here’s why that doesn’t mean we’re fully out of the woods just yet. To start – if you look past the headline number – growth rates are undeniably slowing. Consumer spending, the bedrock of the U.S. economy, inched up 0.4% in the third quarter. But it was down from a 0.5% increase in the quarter before. Gross private domestic investment fell 8.5%. That was after tumbling 14.1% in the second quarter. Residential investment, a gauge of homebuilding, plunged 26.4%. That was after falling 17.8% in Q2. This reflects a sharp slowdown in the real estate market. [Featured: Wall Street “loser” becomes the trader for the Top 1%.]( In other news, weekly jobless claims edged higher to 217,000 but were still below the 220,000 estimate. So, why was the headline number up at all? In a word: trade. International trade accounted for the bulk of rebound in growth. As U.S. retailers imported fewer goods, the biggest contribution to growth in Q3 came from a shrinking of the trade deficit. The problem is that this is a one-off thing. Most economists agree that it likely won’t be repeated in future quarters. All in all, this paints a rather bleak picture of the U.S. economy. So, you are right about that. That said, I remain optimistic that whatever economic troubles we face going forward will be short-lived and relatively shallow. This is down to the Federal Reserve, and its policy of tightening in response to rising inflation. But, as I explained in a [recent essay]( the Fed responds to the market. It understands that if it continues on a path of aggressive rate hikes, it could thrust the U.S. economy into a severe and prolonged downturn. And that’s not good for the market. I’ve been saying for months that the Fed will have to pivot before the year is out. Now, don’t get me wrong. We’re probably still nowhere close to seeing the Fed start slashing rates. But after [signaling]( initial stages]( of its pivot to the media (and, by extension, to the big banks and the market), it’s only a matter of time before the Fed changes tack and walks back its hawkish stance. Recommended Link [“The 10-Second Trading Method That Helped Me Change My Life” (Live Demo Below) – Jeff Clark]( [ad_img]( “Hi. My name is Jeff Clark. For the past 36 years, I’ve helped people from all walks of life retire wealthy. Retired school teachers, doctors, even the occasional pro athlete. But I haven’t done it the usual way. My method is different. It’s unlike anything you’ve probably ever seen before. We’re offering it right now for just $19. That’s the lowest price currently offered for a trading research service. And it won’t be available for long. [Watch this 10-second “live demo”]( to see how it works. This 10-second method helped me change my life. And I still use it to generate tens of thousands of dollars every year.” [Learn how to get it here for just $19 for a one-year subscription.]( -- And finally, reader Abel has some choice words for Bernanke… Bernanke did what all high-ranking politicians do. They lie when things are going well to scare off the little investor who has little information, and they lie when things are going very badly so that friendly whales have time to get out alive and swimming. This is how it has always been and will continue to be. They have the information and they have the power. Therefore they keep the money of those who are looking for a few crumbs for a better future for themselves and their children. Thanks and a hug. – Abel Hi Abel, thanks for writing in and for your comments. It is true that Bernanke lied or willingly ignored the information that he had access to or that was given to him when the housing market was first showing signs of extreme instability. It's also true that smaller investors have less of that information, and this is how it has always been. That’s why it’s important to me to share what I know from my 15 years on Wall Street, and what I’ve learned as an investigative journalist since then. It’s my mission here to not only share investment ideas… but to also share the information, and the interpretation of that information, that I see in the markets. That way my readers can feel more confident with understanding what's going on around them. And that’s all for this week’s mailbag! Thanks to everyone who wrote in. If I didn’t get to your question, look out for my response in a future Friday mailbag edition. I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice. And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: What Bernanke Should Have Done in 2008, But Didn’t). Happy investing… and have a fantastic weekend! Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: The Cozy Power Relationships That Drive The Great Distortion). --------------------------------------------------------------- IN CASE YOU MISSED IT… [Market Wizard who made $95 million for his clients in 2008 – and predicted the 2022 collapse back in January – reveals his strategy:]( The One-Ticker Retirement Plan How to make all the money you need – in any market – using a single stock. [Click here for the name of the ticker…]( [image]( Get Instant Access Click to read these free reports and automatically sign up for daily research. [The Trader’s Guide to Technical Analysis]( [The Ultimate Guide to Taking Back Your Privacy]( [The 101 Guide to Pre-IPO Investing]( [Rogue Economincs]( Rogue Economics 55 NE 5th Avenue, Delray Beach, FL 33483 [www.rogueeconomics.com]( [Tweet]( [TWITTER]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. 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