Here’s Edward Harrison’s take on the Bernanke hearings. – Ilene
Throwing Bernanke under the bus
Courtesy of Edward Harrison at Credit Writedowns
In case you missed it, Federal Reserve Chairman Ben Bernanke was on Capitol Hill this morning making his case in regards to the Bank of America – Merrill Lynch deal. The Chairman stated in unequivocal terms that he did not pressure anyone. Rather, he stated that he cautioned Ken Lewis about the prudence of invoking a MAC clause and doubted whether Lewis could be successful in extracting himself from the deal (I agree that the MAC clause was not going to help BofA).
Whether Bernanke is justified in his defense is irrelevant at this juncture. What is relevant, however, is that the Bank of America – Merrill Lynch deal has become a central episode for political recriminations and posturing. As I said two weeks ago:
My take here is that the Bank of America case has become very political – and that means the blame game is going to be played. Someone — Bernanke, Lewis, Thain or Paulson — is going to take the fall. The knives are out.
Indeed, the knives are out and it is looking increasingly likely that Bernanke will be the scapegoat. Below is a Bloomberg News video with Rep. Edolphus Towns (D-NY), Chairman of the House Oversight Committee. If you listen to what Towns is saying, it does not look very good for Ben Bernanke.
Next on the hot seat: Hank Paulson.
Earlier today at Credit Writedowns, courtesy of Edward:
Is Bernanke Toast? If he is, Summers is a shoo-in
Here’s a conspiracy theory for you. As I am not much of a conspiracy theorist, I ill keep this one pretty simple. Here’s the chain of events.
Back in late September when the world was falling apart, Ben Bernanke, Tim Geithner and Hank Paulson were all desperate to keep things from unravelling. As a result, they were pleased that Ken Lewis and Bank of America were willing to pony up massive $44 billion to take over Merrill Lynch. They might even have encouraged the deal (i.e. we will smooth the way. There will be no FTC hurdles. We will soft peddle investigation into Countrywide mortgage fraud, etc)
The problem, of course, was that Merrill Lynch was a bottomless pit of asset writedowns. Lewis, the deal maven, must have been crestfallen when he learned how poorly things were shaping up in Q4 2008- sour enough to cancel the deal outright. Enter Bernanke and Paulson. Depending on who you believe, Lewis was going to cancel this deal, only to be coerced by Paulson and/or Bernanke into allowing it to proceed. Let’s forget that this suggests Lewis was not minding his fiduciary responsibility. If true, we should all be very troubled that government officials were abusing their power in order to manipulate actions in the private sector. By the way, Tim Geithner was already transitioning to his new role as Treasury Secretary, so he gets a bit of free pass on this one.
Now comes the allegation from a Republican congressman that Ben Bernanke, the soft spoken Southerner, was not only coercing, but he was covering it up too. This does not look so good. Of course, Gentle Ben acquitted himself of these charges today before Congress. But, with his term as Federal Reserve Chairman up in January, his re-appointment is increasingly being called into question. And Larry Summers is the front runner for his seat (see Mark Thoma’s article).
The Republicans smell blood. But — here’s where my conspiracy theory comes in – so does Larry Summers. Remember the White Paper that Obama just released? Doesn’t it give sweeping powers to the Federal Reserve? Didn’t Summers have a strong hand in crafting this white paper? And doesn’t Larry Summers know his name has been bandied about as a replacement for Bernanke? You see where this is going, right?
Update: Below is a video of Chairan Bernanke’s testimony. There are 3 full minutes of audio problems to begin his testimony – a sort of metaphor for how things are going for Bernanke of late.
