Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan
Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and "The
Coming Collapse of the Municipal Bond Market" (Aucontrarian.com, 2009)
Refreshing was the questioning of Federal
Reserve Chairman Ben S. Bernanke by Congressman Scott Garrett from New Jersey
in "Shooting
Stars." We can hope his influence may spread.
Not to be forgotten are retired
legislators, who did their best. Following is the lashing from Senator Jim
Bunning to Chairman Ben S. Bernanke at his re-fossilization hearing on December
3, 2009, for a second term as Fed chairman.
Right off the bat it was a pleasure not
to hear Bunning thank the Chairman for saving the world during the financial
crisis of 2008. Most of the other senators groveled. ("I believe you are
the right leader for this moment in the nation's economic history and I believe
your reappointment sends the right signal to markets," - Senator
Christopher Dodd, chairman of the Senate Banking Committee, said during his
opening statement. - CNNMoney]
But, Senator Bunning developed the habit
of going straight for the Adam's apple at a young age. Elected to Baseball's
Hall of Fame, the right-handed pitcher won 224 games and hit more batters than
all but 10 pitchers in the history of baseball.
Extraordinary is not so much what he says,
which is true, but that, four years later, there is such a wall of silence, a
stillness, that will not speak of the malignant agglomerations swollen to
proportions unimaginable since 2009.
Fear of the end, one might agree, is why
trivia substitutes for the truth.
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. [FOMC transcripts show Bernanke egged
Greenspan into cutting rates and Bernanke provided the academic [sic] apparatus
for doing so - FJS] 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. [This has not changed in 2013. - FJS] 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 "don't 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. [Today, in 2013, Bernanke brags that he is lifting house
prices to artificial levels. - FJS]
Chairman Greenspan's 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 Fed's bailouts last year
and on all the toxic waste you have bought.
And Chairman Greenspan sold the Fed's
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 government's 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 can't even get loans for their everyday
needs.
Now, I want to read you a quote, Mr. Green-, Mr. Bernanke [laughter, including a smug,
patronizing, chortle from Mr. Green-anke - FJS]. That was a Freudian slip, believe me. :"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. I'm going to
ask that the full question and answer be included in today's hearing record.
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. [This has not changed.
Simple Ben, testifying, July 17, 2013: "If we were
to tighten (monetary) policy, the economy would tank." - FJS] 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 bank's offer to take a haircut, and
you declined it. 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 [Goldman Sachs Chairman Lloyd Blankfein testified he was never asked to
take a haircut - FJS], 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, presently. 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 Fed's
failures, and there is no better time than now. Your Fed has become the
Creature from Jekyll Island.
[End]
Part of Bernanke's response: "Let me
just correct one point.... We absolutely believed that AIG's failure would be
an enormous systemic risk and would have imposed enormous damage, not just on
the financial system, and this is the key point, on the entire U.S. economy and
on every American."
If this was true - on the September 2008
day when Bernanke & Co. nationalized AIG - then, no one present understood
the difference between a holding company and an operating company. See "The
Professor Who Did NOT Save the World", and "David
Boies v. Citizen Ben S. Bernanke". If Chairman Bernanke really
was that detached from how businesses operate in September 2008, he apparently
had no one around who told him the difference by December 2009.
Alternatively,
the Fed chairman operates on the Big Lie Theorem, which, if so, is working like
a charm and he's not a dumb as he sounds.
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