Original Post: May 2008: Book Beat: Who is teaching Who? Lessons for Ben Bernanke from the Observer

Well. It has been a bit unreal. The recent series of books being read in our family. First my wife began reading "Enron." After she read a paragraph silently, she would pause and say, "I just do not understand this part, could you help with it." Then she would read it aloud, and being The Observer, once having been licensed in commodities, should have been able to make sense of it----and I could not.

In school when one has a problem, one goes to the blackboard to diagram it. In the case of a long series of sham transactions and phoney shell corporations, one quickly runs out of blackboard space.

At the same time, I have been reading "Blood and Sport," the history of the Clintons during the early years---you know the ones where Hillary was trading commodities and turned a $1000 investment into $100,000. And it was very touching lately to listen to Chelsea Clinton speaking on the campaign tour, since Chelsea was conceived while Bill and Hillary were traveling in London ---on money made by trading commodities----yes. It all fits nicely together.

At the very time I was taking the commodities test, I remember being bent out of shape because of the notion of making 100,000 out of a thousand dollars was so off the wall. Till I heard the word "REFCO" as the brokers involved in her trading. (Click on the post for a recent article on Refco).

The commodites exchanges traders are not bound by insider trading rules. It is not clear to me what rules they are bound by. If you know of some, let me know. That is precisely why Chairman Ben Bernanke has proposed that the CFTC be placed under the SEC for supervision. It used to be that areas of public trust such as electricity and oil were regulated for the public trust. Now they are simply gambled for hedge fund financial joy. And then when things go skyhigh----we just blame those ethanol folks.

I do not recall if the commodity trades were ever made public that made Hillary such a great success in commodities-----however, in the matter of trading pools, i would suggest a theory of allocation that might make sense when real estate folks and politicians shared a pool-------If rich real estate investors who had passive gains were joining dirt poor politicians who needed cash, it might make sense in a quid pro world that those who needed the cash would get it, and those who needed the passive losses would get it, and then the politicians would be grateful down the road for their success. I do believe that this type of allocation has always been illegal. That being said, I would love to see the trading logs of the pool to determine what really happened.

What about Bernanke? What does this all have to do with Bernanke?

Just Pretend you are the Chairman of the Federal Reserve---You say to the banks "Give my all your worthless junk and I will give you cash." Then create more "Capital" by issuing more bonds and go forth and make more loans. Do not worry about the junk. "

Maybe it was just reading the improper books in sequence. It just seems that Ben Bernanke may have learned how to structure a banking system from the accounting system at Enron. Or maybe he learned it from the hedge funds or commodities traders.

For my part----my blackboard is just not large enough to diagram all this out. My motto has always been:

It the investment concept cannot be contained on a 3X5 index card, it is probably bogus.