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), which was published in Chinese in 2014. He is working on a book about
Ben Bernanke. See more at: http://www.aucontrarian.com
"[Bernanke] gave this stuff out
[inside information -FJS], but I didn't realize what he was saying at the time,
so I didn't do a great trade."
Hedge-fund manager David Tepper, after paying $200,000 to
take former Federal Reserve Chairman Ben S. Bernanke to dinner, quoted in the New
York Times, May 21, 2014
Ben S. Bernanke continues to be a man of his times. His mind never looks
backward or forward. It is as if every day is complete within itself, with no
attachment to precedent; no past, no record, no history, and, in the future, he
will bear no responsibility. Some precedent may be helpful to critique former
Federal Reserve Chairman Ben S. Bernanke's current escapade.
After Paul Volcker
stepped down from the chairmanship in 1987, he made one, solitary public
comment that could in any way be deemed a comment on the Federal Reserve. (It
was a defense of the new Fed chairman, Alan Greenspan, who had raised interest
rates shortly before the 1987 stock-market crash.) Volcker held his tongue for
12 years, until 1999. Then, and only then, he simply could not remain silent
while Greenspan sweet-talked Americans into buying NASDAQ shares at 200 times
earnings. On May 14, 1999, the former Federal Reserve
chairman spoke at the Kogod School of Business commencement at American University:
"The fate of the world is dependent on the stock market, whose growth is
dependent on about 50 stocks, half of which have never reported any
earnings."
Volcker's observation
was obvious at the time but, as usual, the Inner Sanctum never let the public
in on the fix.
After Alan Greenspan
resigned in 2006, he behaved just as we expected. From Panderer to Power:
"On February 12,
2006, two weeks after Chairman Greenspan retired, he received $250,000 to speak
at a dinner Lehman Brothers' hosted for hedge-fund managers. The New York Post
reported Lehman paid $100,000 more than Greenspan's 'customary speaking
fee' of $150,000. It was a surprise to many he spoke at all. Caroline Baum
commented on Bloomberg: "At a minimum, Greenspan evinced bad judgment by
not letting time pass before reasserting himself. His refusal to cede the
limelight gracefully...left a bad taste in people's mouths." That he spoke
publicly, and for money, was undignified. This reflected solely on Greenspan.
Worse, he was interfering with the Bernanke Fed. He told the hedge-fund
managers that short-term interest rates would have to rise. The next day, they
did....
"[C]entral
bankers took their gloves off. Mervyn King, Governor of the Bank of England
(and former colleague of Ben Bernanke at MIT) announced: 'I'll only say
that I am very grateful to Eddie George [King's predecessor] that he has not
been in the newspapers and on radio all the time commenting on what the
monetary policy committee is doing. In due course I will ensure I do exactly
the same thing.'"
It will be
interesting if Mervyn King reprimands his former cellmate from M.I.T. He may.
King has been one of the few central bankers who admits central banks played a
part in the "the worst financial crisis in global history, including the
Great Depression" [B. Bernanke to the FCIC in 2009. This declaration
reminded the Committee "back off, I saved the word" - FJS]
The media has decided
Bernanke is "in play." This is a matter of personal perception,
ratcheted by a New York Times story on Thursday, May 20, 2014. The title
is telling: "After the Fed, Bernanke Offers His Wisdom for a Big
Fee."
The title itself is a
message. "Open season" on Bernanke is now permitted. Elizabeth Warren
explained this distinction in her recent book, A Fighting Chance. Warren
is now a senator from Massachusetts. At the time of the incident she recalls,
Warren was poking holes in the Old Boys impregnable frat house. Larry Summers
decided to sit her down. Warren writes in A Fighting Chance: "He
teed it up this way: I had a choice.... I could be an insider or I could be an
outsider. Outsiders can say whatever they want. But people on the inside don't
listen to them. Insiders, however, get lots of access and a chance to push
their ideas. People -- powerful people -- listen to what they have to say. But
insiders also understand one unbreakable rule: They don't criticize other
insiders."
Permitting the possibility a Times editor was asleep at the wheel,
Bernanke has lost protection. He would be the second insider cut loose in the
past two weeks. On Monday, May 12, 2014, James Freeman teed up Timmy Geithner's
new book, Stress Test in the Wall Street Journal. Freeman is the
deputy editor of the Journal's editorial page. In the world Summers
described, the Journal would hire an outsider to toss Geithner onto the
ash heap of history.
The New York Times and the Wall Street Journal will always
protect their own interests, first. The Times, for instance, was
an early advocate for U.S. military operations in Vietnam. That changed.
The Times lashing lacks historical perspective. It states: "Mr.
Bernanke is following a well-trodden path that his predecessor, Alan Greenspan,
and other Washington policymakers have taken." This is recent, though.
Certainly, getting paid $200,000 to $400,000 for dinner, night after night, is
new.
Particularly revolting is Bernanke selling himself (being a family publication,
a more accurate verb lies dormant) to the .01%. For appearance sake alone, such
blatant money-grubbing offers grist to those who see the Federal Reserve as
hostage to banking interests. Similarly, claims of "Federal Reserve
independence" and other antiseptic nonsense will lose credence to a
jaundiced eye.
A perceptive
Congressman who sits on the Financial Services Committee may wish Bernanke was
still in the penalty box. For instance, Jim Bunning long retired now, could be
his party's pick, after, of course, finance and the economy come unplugged.
(Any day now. You heard it here first, and second, and third...)
On December 9, 2009,
Bunning let loose on the prof: "How can you regulate systemic risk when
you are the systemic risk?" This is funny, but also every word is true,
including "you" - not, the "Fed," the
"FOMC," the "literature" - and "the" - not, his
model or his (non)-theory.
Should some Congressman decide to subpoena the Richard Whitney of 2014, this is
the time to gather C-Span clips for a presidential run in 2016. The following
background may help. It addresses Bernanke's complete lack of understanding -
despite his responsibility - for money-printing without license.
"Using high leverage to improve
corporate performance is much like encouraging safe driving by putting a
dagger, pointed at the driver's chest, in every car's steering wheel; it may
improve driving but may lead to disaster during a snowstorm."
Ben S. Bernanke, 1990
Bloomberg headline: "Bernanke,
Kohn Pledge Fed to Withdraw Credit When Crisis Ends"
April 9, 2009
From the April 9, 2009, Bloomberg
story: "Bernanke's speech yesterday detailed steps that the Fed can
take to remove that liquidity, including soaking up cash by the issuance of
special bills."
Special bills?!?
60 Minutes, March 2009:
60 Minutes voiceover:
"That makes it all the more outrageous when he hears of financial firms
handing out perks and bonuses after they've taken bailout money."
Bernanke: "The era of the high
living, this is over now. And that they need to be responsible and use the
money constructively.... [Bankers need to] have a reasonable sense of humility
based on what's happened in the past 18 months."
60 Minutes, December 5,
2010:
60 MINUTES: "You have what degree of
confidence in your ability to control this?"
BERNANKE: "One hundred percent."
MarketWatch headline: SHE FOUGHT WALL STREET, AND NOW SHE'S OFF TO JAIL: OPINION: UNLIKE CEO'S, THIS 'OCCUPY' PROTESTOR COULDN"T AVOID PROSECUTION. by David Weidner: "Cecily McMillan was sentenced yesterday to 90 days in prison for assaulting a police officer who was trying to clear Zuccotti Park in lower Manhattan, where Occupy Wall Street protesters had gathered. McMillan, 25, denied the second-degree assault charge."
May 20, 2014
To add a populist tone, which Ben Bernanke is so generously encouraging: Nor could Cecily McMillan afford to have dinner with the central banker, which, in any case is most useful to hedge-fund managers such as David Tepper, who paid himself over $3 billion in 2013.
MarketWatch headline: SHE FOUGHT WALL STREET, AND NOW SHE'S OFF TO JAIL: OPINION: UNLIKE CEO'S, THIS 'OCCUPY' PROTESTOR COULDN"T AVOID PROSECUTION. by David Weidner: "Cecily McMillan was sentenced yesterday to 90 days in prison for assaulting a police officer who was trying to clear Zuccotti Park in lower Manhattan, where Occupy Wall Street protesters had gathered. McMillan, 25, denied the second-degree assault charge."
May 20, 2014
To add a populist tone, which Ben Bernanke is so generously encouraging: Nor could Cecily McMillan afford to have dinner with the central banker, which, in any case is most useful to hedge-fund managers such as David Tepper, who paid himself over $3 billion in 2013.
"With all due respect, US policy
is clueless. It's not that the Americans haven't pumped enough liquidity into
the market. Now to say let's pump more into the market is not going to
solve their problems."
Wolfgang Schäuble,
German finance minister, Financial Times, November 5, 2010
"We are learning by doing."
(Or, something similar)
Ben S. Bernanke, lecture at George Washington University, March 2012
Testimony before Senate Banking
Committee, February 2013
SENATOR TOOMEY: "What would the
impact be of actually having to liquidate a big portion of your holdings on the
bond market, on the equity markets?
CHAIRMAN BERNANKE: "We don't
anticipate having to do that."
SENATOR TOOMEY: "Not ever?!"
[Bernanke went on to confirm "not
ever." - FJS]
"First, innovation, almost by
definition, involves ideas that no one has yet had, which means that
forecasts of future technological change can be, and often are, wildly
wrong."
Ben S. Bernanke, May
18, 2013:
"[N]ot only are scientific and
technical innovation themselves inherently hard to predict, so are the
long-run practical consequences of innovation for our economy and our daily
lives."
Ben S. Bernanke, May
18, 2013
"THE FED HAS NO ENDGAME,"
MSM headline, November 4, 2013
"A brief
update on the bloated condition of the Federal Reserve's balance sheet. At
present, the Fed holds $3.84 trillion in assets, with capital of just $54.86
billion, putting the Fed at 70-to-1 leverage against its stated capital. Given
the relatively long maturity of Fed asset holdings, even a 20 basis point
increase in interest rates effectively wipes out the Fed's capital. With the
present 10-year Treasury yield already above the weighted average yield at
which the Fed established its holdings, this is not a negligible
consideration."
John Hussman, November 5, 2013
"Larry Summers is worried that
the Federal Reserves' efforts to stimulate the economy could end up doing damage.
'Low interest rates could become a source of instability down the road,' said
Summers....What's more, Summers said that the Fed's policies are likely making
the income inequality problem in the U.S. worse, by helping wealthy Americans
who hold the majority of stocks, more than the rest of the country. 'A policy
that works by pumping up asset prices is not going to be egalitarian,' said
Summers."
Fortune, May 15, 2014.
Not in the short-term, Larry.
LIFE GOES ON OUTSIDE THE ECCLES
BUILDING:
"Pininterst, Uber - $10 billion
is the new $1 billion."
May 20, 2014
"Anton Purisima has filed a
lawsuit in a Manhattan court for two undecillion dollars. 'The sum,
written as two followed by thirty-six zeros, is likely a new record for a
demand in a lawsuit, the New York Post
says.' It's also more money than even exists in the world by a long shot, Gothamist notes."
May 20, 2014
Not for long, Gothamist.
"60 Minutes" March 2009
"If you had a message for the
American people in this interview what would that be?"
Bernanke: "...I'd say first of
all the Federal Reserve is here and is going to do everything possible to
support the economy."
March 2009
Hi ho, silver.