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  • Writer's pictureJeff Matthews

Jaimie Caruana for Fed Chairman!

Inside the Fed, there were running debates resembling academic seminars, with Mr. Bernanke running discussions but often offering few opinions. —The Wall Street Journal, November 10, 2008

Who is Jaimie Caruana, you ask?

As governor of Spain’s central bank, Mr. Caruana “helped implement dynamic provisioning,” according to the same Wall Street Journal—i.e. this morning’s edition—that also reported on the Bernanke Fed’s predilection for verbal noshing of the academic type.

What is “dynamic provisioning,” you ask?

It is, essentially, a spare fuel tank for banks that siphons off excess cash when an economy is running smoothly, for the day that same economy starts to sputter, as The Wall Street Journal explains:

In 2000, Spain’s central bank introduced a system of so-called dynamic provisioning that forced banks to build up reserves against future, hypothetical losses. At the time, Spanish banks stiffly resisted the regulation, fearing they would lose ground against competitors.

Now the rules are credited with giving Spanish financial institutions with big capital cushions that have helped them ride out the financial turmoil remarkably well, despite the collapse of the country’s housing bubble. Take a gander at the chart on loan-loss provisions in the Journal story for a look at how Mr. Caruana’s efforts prepared Spain for the inevitable. (Sharp-eyed readers may note that Iceland appeared to be well-reserved at the time.)

Imagine, a political appointee who took the time to think ahead!

That’s why our vote is for Jaime Caruana, for Fed Chairman.

Jeff Matthews I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

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