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Warren Graham's Legal Blog: A Friend Like Ben
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Location: New York, New York, United States

I am a practicing lawyer who lives and works in Manhattan, and specializes in Bankruptcy, Corporate Restructuring and Creditors' Rights, Commercial Litigation and Real Estate Law. I grew up in the New York City Area, and am a graduate of the University at Buffalo (B.A. 1976) and Fordham University School of Law (J.D. 1980). I have a wide variety of interests, but am particularly interested in history, politics, economics/finance and religious affairs, and am a frequent writer on a variety of those topics, and others. On a personal note, I'm a 54 year old man, married for 27 years, with two daughters, ages 24 and 20, respectively. Legal topics of interest may be found on my blogsite,, while non-legal commentary may be found at The content of these sites will be centralized and easily accessed locations for both legal and non-legal analysis and commentary, as well as a description of my legal practice for clients and potential clients. Keep checking back, as I expect the content to change and grow regularly.

Friday, August 31, 2007

A Friend Like Ben

Ben, most people would turn you away
I don't listen to a word they say
They don't see you as I do
I wish they would try to
I'm sure they'd think again
If they had a friend like Ben

From the Song Ben
Copyright 1972 Walter Scharf/Don Black
Performed by Michael Jackson

Beautiful words, right? The tune, if you know the song, is quite lovely as well. The irony, of course, is that Michael Jackson is singing this beautiful song to a RAT. That’s right, a large, hairy, dirty, nasty (and aggressive) rat! The song is the musical theme for the film of the same name.

The “Ben” I wish to speak about, however, is Ben Bernanke, Chairman of the Federal Reserve Board. He is no rat. Quite the contrary, although I do not know him personally, he exudes, to all outward appearance, integrity and professionalism.

The Wall Street Bulls, however, may well view him as a rat. Unlike Alan Greenspan, who bowed (kowtowed, even) to political pressure after September 11 and reduced the Fed Funds Rate aggressively, to prop up panicked capital markets, Bernanke is, for the most part, keeping his powder dry, in order to determine whether the recent turmoil and sub-prime mess is, indeed, a threat to the overall economy.

Greenspan’s actions did, in fact, help to buoy a sinking market, as well as to minimize and shorten the recession of 2001-2002, just long enough for the tech bubble to be replaced by a real estate bubble. The latter bubble was, it seems, almost entirely a function of historically low rates brought to us by Mr. Greenspan. It also was the source of the sub-prime loan fiasco and predatory lending practices, which enabled people with questionable creditworthiness either to purchase homes they could not afford, or to use their existing homes as “piggy banks” for seemingly limitless consumer spending sprees. In the interim, these lenders raked in huge origination fees, and the economy hummed, as the people spent, and spent and spent. All the while, the lenders knew (and the borrowers should have known) that a day of reckoning awaited; a day on which the teaser mortgage rates would reset. Those days are upon us now, and nearly everyone, it seems, from the sub-prime borrower to the lenders, to the hedge fund managers want Mr. Bernanke, Greenspan’s successor to bail them out. Thus far, though under unimaginable pressure from the Bush Administration and the aforementioned business and consumer groups, it appears that Bernanke may not be so willing to play ball.

Bernanke, you see, does not seem to understand the Fed’s brief as being a bulwark against the foolishness of consumers and the greed and irresponsibility of the business community. On August 30, second quarter GDP was revised upward to 4.1%. That suggests robust growth in the economy. Unless the sub-prime situation has totally reversed that trend (and there is simply no data, one way or the other on that point, as of yet), a responsible Fed would certainly have to question the wisdom of lowering rates into such a burgeoning economic engine. Interestingly, many of the “talking heads” of the business community tell us that the economy continues to be strong, and the envy of the world while, in the same breath, frantically urging Bernanke to ease. Why? Are they persuaded that a recession is upon us? Perhaps a few are. But most economists tell us that we should expect growth (slower growth, but growth, nevertheless) through the end of 2008.

No, I believe that the agenda behind these calls to arms is much more parochial and transparent. The concern for marginal homeowners on Main Street exhibited by the very highly compensated denizens of Wall Street is touching, to be sure. But what is really driving this train is that the economic and political power centers want the capital markets saved from their own excesses. They want the bull market to continue its previous meteoric rise, and they want the financial services industry to evade the consequences of its mismanagement and greed. Significant rate reductions will likely achieve these results, but will also trigger a further collapse of the U.S. Dollar and, if the underlying economy is really as sound as the numbers would suggest, such a move risks overheating it, and bringing back that which the Fed claims to detest above all: inflation.

Bernanke is resisting, but the jury is still out as to whether he can take the pressure. What is at stake is not only the potential danger of an overly accommodative Fed outlined above; Mr. Bernanke’s role as the Chairman of an institution supposedly independent of political forces is being put to the test.

So, for the Bulls, the question is, is Ben a Friend or a Rat? Only time will tell.

Warren R. Graham
Copyright 2007


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