BERNANKE's CONFIRMATION HEARINGS
"When I make a mistake I have to pay for it. When banks make
mistakes, I have to
pay for it, too."
by William Schmidt, Ph.D.
Without admiting it, Bernanke's economic recovery
has been engineered
by printing trillions of Dollars
and gravely weakening the US Dollar. If it were
producing jobs, perhaps that would
be a good trade-off. But unemployment is
is now estimated to be 17% and
rising. Meanwhile, the stock market has risen
mainly because "Big
Money" is buying stocks, as an escape from the falling
Dollar. Annualized, the
Dollar is losing nearly 14% of its value. America is now for
sale. Not only are the remaining
jobs still being exported by "American"
corporations, but America is now
for sale "Very cheap!"
The Senate, by
and large, are not sufficiently challenging Bernanke and his bank
bailout policies. The cheap money
(1/4% at the Fed Discount window) is NOTbeing
used by banks to make more loans.
It is being used by banks to buy other banks,
cavalierly to give out obscene bonuses
and speculate in stocks. How does that
help Main Street? Does that not
just mean another bubble is being created? Who
will bear the brunt of the next collapse?
Those who can least afford it, as always.
Those who had nothing whatsoever to do
with causing it. And when the bubble
breaks and banks lose money on their
stock market trading, will not these same banks
want and expect yet another Fed and
Treasury handout? Why is no one in Congress
demanding that the biggest banks be
broken up and Glas Steagall be reinstated.
What but more indebtedness and an
inflated Dollar does someone on Main Street
get out of Bernanke's policies? His
smug arrogance exactly matches the
exasperating comparable behavior by Wall
THE STOCK MARKET DEPENDS
UPON INFLATION, WE ARE IN TROUBLE?
is superb. I listened to their broadcast of the Bernanke confirmation
As I listened to Bernanke, I was amazed at his refusal to acknowledge any
responsibility in permittng the housing bubble, in not seeking to prevent the
misuse of excessive leverage by the biggest banks and their
of the risks in the bundled mortgages they sold. I was
by his bold lies. He admitted to no specific mistakes. He would
answer the biggest questions: why were banks aided without conditions on
they use the money and why should banks get help if they will not commit
using the money to make more loans to home owners and small businesses.
Fall, Bernanke and Paulsom stated this was essential to bring about
econiomic recovery. One item in what he said seemed particularly galling.
disingenuously pretended that it was not a "bailout" to allow Wells Fargo or
of America, for example, to use as collateral at the Fed's Dicount Window
most dubious "toxic" housing and consumer mortgages and loans. So
questions were not asked by the pro-Wall Street Democrats. Why, for
was Goldman Sachs allowed to borrow money at 1/4% from the
Discount Window when they are little more than a glorified hedge fund,
not make commerical or individual loans and have just used all this
money to speculate in the stock market.
PREDICTIONS ARE ALWAYS WRONG
one point, Senator Jim DeMint of SC read for 3 minutes a series of quotes
Bernanke from 2005 to 2008 where he denied there were dangers ahead
economy or particular banks. With such a terrible track record, why would
reappoint and the Senate confirm as Fed Governor someone who has
The impact on the broader economy and
financial markets of the problems in the
markets seems likely to be contained.
We do not expect significant spillovers
from the subprime market to the rest of the
to the financial system.
28, 2008, on the potential for bank failures:
Among the largest banks, the capital
ratios remain good and I dont expect any
problems of that sort among the large, internationally active banks that make
a very substantial part of our banking system.
9, 2008: The risk that the economy has entered a substantial downturn
to have diminished over the past month or so.
16, 2008: Fannie Mae and Freddie Mac
are adequately capitalized
in no danger of failing.
"Currently, we dont think it will get
to 10 percent. Our current number is somewhere
were read into the record by Rep Senator Jim DeMint of SC. They also appear in
See also - http://blogs.wsj.com/economics/2009/12/03/live-blog-bernanke-under-fire-in-the-senate/
TO REP. SENATOR BUNNING
FOR CHALLENGING BERNANKE'S HANDLING OF HIS JOB AS FED
"Four years ago when you came before the Senate for confirmation to be
Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I
was the only Senator to even raise serious concerns about you. I opposed you because I
knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know
how right I would be and could not begin to imagine how wrong you would be in the
following four years.
The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide
easy money, and thus inflate bubbles. Not only did you continue that policy when you took
control of the Fed, but you supported every Greenspan rate decision when you were on the
Fed earlier this decade. Sometimes you even wanted to go further and provide even more
easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you
still refuse to admit Fed actions played any role in inflating the housing bubble despite
overwhelming evidence and the consensus of economists to the contrary. And in your efforts
to keep filling the punch bowl, you cranked up the printing press to buy mortgage
securities, Treasury securities, commercial paper, and other assets from Wall Street.
Those purchases, by the way, led to some nice profits for the Wall Street banks and
dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the
Federal Reserve Act only allows the purchase of securities backed by the government.
On consumer protection, the Greenspan policy was dont do it. You went along with
his policy before you were Chairman, and continued it after you were promoted. The most
glaring example is it took you two years to finally regulate subprime mortgages after
Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from
Congress and after it was clear subprime mortgages were at the heart of the economic
meltdown. On other consumer protection issues you only acted as the time approached for
your re-nomination to be Fed Chairman.
Alan Greenspan refused to look for bubbles or try to do anything other than create
them. Likewise, it is clear from your statements over the last four years that you failed
to spot the housing bubble despite many warnings.
Chairman Greenspans attitude toward regulating banks was much like his attitude
toward consumer protection. Instead of close supervision of the biggest and most dangerous
banks, he ignored the growing balance sheets and increasing risk. You did no better. In
fact, under your watch every one of the major banks failed or would have failed if you did
not bail them out.
On derivatives, Chairman Greenspan and other Clinton Administration officials attacked
Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in
changing the law to prevent her or anyone else from effectively regulating derivatives.
After taking over the Fed, you did not see any need for more substantial regulation of
derivatives until it was clear that we were headed to a financial meltdown thanks in part
to those products.
The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say
nothing. Things were so bad one TV network even tried to guess his thoughts by looking at
the briefcase he carried to work. You promised Congress more transparency when you came to
the job, and you promised us more transparency when you came begging for TARP. To be fair,
you have published some more information than before, but those efforts are inadequate and
you still refuse to provide details on the Feds bailouts last year and on all the
toxic waste you have bought.
And Chairman Greenspan sold the Feds independence to Wall Street through the
so-called Greenspan Put. Whenever Wall Street needed a boost, Alan was there.
But you went far beyond that when you bowed to the political pressures of the Bush and
Obama administrations and turned the Fed into an arm of the Treasury. Under your watch,
the Bernanke Put became a bailout for all large financial institutions, including many
foreign banks. And you put the printing presses into overdrive to fund the governments
spending and hand out cheap money to your masters on Wall Street, which they use to rake
in record profits while ordinary Americans and small businesses cant even get loans
for their everyday needs.
Now, I want to read you a quote: I believe that the tools available to the
banking agencies, including the ability to require adequate capital and an effective bank
receivership process are sufficient to allow the agencies to minimize the systemic risks
associated with large banks. Moreover, the agencies have made clear that no bank is
too-big-too-fail, so that bank management, shareholders, and un-insured debt holders
understand that they will not escape the consequences of excessive risk-taking. In short,
although vigilance is necessary, I believe the systemic risk inherent in the banking
system is well-managed and well-controlled.
That should sound familiar, since it was part of your response to a question I asked
about the systemic risk of large financial institutions at your last confirmation hearing.
Im going to ask that the full question and answer be included in todays
Now, if that statement was true and you had acted according to it, I might be
supporting your nomination today. But since then, you have decided that just about every
large bank, investment bank, insurance company, and even some industrial companies are too
big to fail. Rather than making management, shareholders, and debt holders feel the
consequences of their risk-taking, you bailed them out. In short, you are the definition
of moral hazard.
Instead of taking that money and lending to consumers and cleaning up their balance
sheets, the banks started to pocket record profits and pay out billions of dollars in
bonuses. Because you bowed to pressure from the banks and refused to resolve them or force
them to clean up their balance sheets and clean out the management, you have created
zombie banks that are only enriching their traders and executives. You are repeating the
mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next
bubble. In the same letter where you refused to admit any responsibility for inflating the
housing bubble, you also admitted that you do not have an exit strategy for all the money
you have printed and securities you have bought. That sounds to me like you intend to keep
propping up the banks for as long as they want.
Even if all that were not true, the A.I.G. bailout alone is reason enough to send you
back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because
they posed a systemic risk, largely because of the credit default swaps portfolio. Those
credit default swaps, by the way, are over the counter derivatives that the Fed did not
want regulated. Well, according to the TARP Inspector General, it turns out the Fed was
not concerned about the financial condition of the credit default swaps partners when you
decided to pay them off at par. In fact, the Inspector General makes it clear that no
serious efforts were made to get the partners to take haircuts, and one banks offer
to take a haircut was declined. I can only think of two possible reasons you would not
make then-New York Fed President Geithner try to save the taxpayers some money by
seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those
two reasons are incompetence or a desire to secretly funnel more money to a few select
firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I
also cannot understand why you did not seek European government contributions to this
bailout of their banking system.
From monetary policy to regulation, consumer protection, transparency, and
independence, your time as Fed Chairman has been a failure. You stated time and again
during the housing bubble that there was no bubble. After the bubble burst, you repeatedly
claimed the fallout would be small. And you clearly did not spot the systemic risks that
you claim the Fed was supposed to be looking out for. Where I come from we punish failure,
not reward it. That is certainly the way it was when I played baseball, and the way it is
all across America. Judging by the current Treasury Secretary, some may think Washington
does reward failure, but that should not be the case. I will do everything I can to stop
your nomination and drag out the process as long as possible. We must put an end to your
and the Feds failures, and there is no better time than now."