CNBC Guest Blog

Published: Tuesday, 1 Sep 2009 | 12:01 PM ET

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Andrew Busch
Global Finance Strategist
BMO Financial Group

Since it’s the anniversary of “Very Bad Things Happening Quickly”, I thought I’d point out a few: Lehman, Fannie Mae, Freddie Mac, AIG, and Primary Reserve Fund. This is the time when the Federal Reserve and the US Treasury decided to break the glass and get out the axe for the financial fire that was engulfing the world.

Now almost everyone will come to the defense of Bernanke and Paulson and their actions at that critical time. It’s almost impossible to be against what they did given that the outcome so far has been exactly what we wanted at this time. The equity markets have recovered, the economy has recovered, and the financial system has recovered.

• Special CNBC.com Report: The Financial Crisis: This Day—One Year Ago, Sept. 1

However, I find it ironic that these men are seen as saviors when their departments were in charge of overseeing and regulating most of the financial system that was in need of saving. Even if you make the SEC and NY state insurance regulators the fall guys, the dynamic duo did something else extremely questionable. They committed vast sums of taxpayer money without approval of the taxpayers.

Taxpayers give approval to what is done with their money via the election process and the legislative process. This is the job of Congress. This gives the taxpayers a say when they don’t like what is happening and they can effect change by electing a new representative. In this, the Fed is seen as an unintended fourth branch of government.

What these men did was “Allocation Without Representation”.

Last September when Federal Reserve chairman Ben Bernanke was asked by members of Congress on how much money the Fed could bring to bear on the financial problems, he stunned them by saying, “$800 billion.” This numbers reflected the total assets of Treasury holdings that the Fed had at the time.

Normally, the Fed buys and sells assets to influence interest rates in the United States. Bernanke was telling Congress he could pledge all of these to make loans or to takeover companies like AIG. Remember, the Fed and Tsy thought AIG would only cost $50 billion. After $183 billion, we’re still not sure what it’ll cost.

On the anniversary of “Bad Things Happening Quickly”, this is exactly the point.

Bernake and Paulson committed almost infinite taxpayer funds to emergency measures that we can’t tell what the costs will be when it is finished….. Something to ponder as we reflect on the sequence of events that almost collapsed the global financial system.

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