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Corker Vs Bernanke

Bruce Krasting's picture




 

 

There was an interesting exchange between Senator Bob Corker (R-TN) and Bernanke at the Senate confab yesterday. Corker was hostile, Bernanke didn't like it one bit.

Corker said that Bernanke was, "creating "faux" stock-market wealth that would be reversed as soon as interest rates started rising". Corker also said that Ben was, "throwing seniors under the bus" with his ZIRP policy. But it was Corker's accusation that Bernanke was subsidizing the banks that took Ben over the top. To me, the exchange sounded like a couple of kids at the playground:

 

Bernanke: "None of the things you said are accurate"

Corker: "Oh yes they are"

 

I say Corker's right; Bernanke's policies have lined the banks pockets. An example:

For the big banks, corporate finance deals are a meat-and-potatoes part of the business. This type of lending falls under the description of "leveraged loans". A good example is the $13B loan that BoA is making to facilitate the Dell LBO. Buffett's Heinz deal will also have some sweet loans for the banks. The Comcast deal for NBC will add to the banker's fat. By Friday, another deal will get teed up.

This chart looks at the pricing for these loans. Look at the spreads that the banks reaped in the post 2008 period:

 

BinaryDisplayData

 

A few observations from the chart:

 

- The green shaded area that starts in 2008 is Original Issue Discount (OID). This means that a bank made a loan for $100, but only loans out $95. The banks keep the $5; it's sort of like the fees for a Payday loan.

 

- The blue data is Libor. This is supposed to be a rate that represents the cost to the banks for the money they lend. But that is not the case. The basis for these loans is ALWAYS based on a minimum Libor rate (floor). The minimum has averaged 1.25% for the past four years while three-month Libor has been around .3%, so the banks picked up another 100BP of spread from their actual funding costs. Bernanke's ZIRP created this arbitrage.

 

- The spreads the banks got for lending in the post 2008 period are much higher than the average spreads for the years preceding 2008. Even after a sharp (100bp) drop in spreads so far in 2013, bank spreads are still higher than they were before 2008.

 

Leveraged Loans are just one example of where the banks got fat as a result of Bernanke's ZIRP money policy. The results for consumer loans and other credit extensions are no different. It was always an objective of the Fed to have the banks increase earnings as a way to offset losses on older loans. The Fed DID achieve this objective. The Fed gave the banks a free ticket to dig themselves out of a hole. I don't think there is any doubt about what was intended; ZIRP was a subsidy for the banks.

 

Notes:

I) Look again at the chart and focus on the run-up in Libor prior to the crisis of 2008. That was Greenspan playing catch up. It was a colossal mistake. The very sharp rise in short-term rates is what killed the economy in 2008. Yet the Fed says to us today that they have everything under control. No worries at all with unwinding a $4T balance sheet. Given the results of the 2004 - 2007 mismanagement of monetary policy it's hard for me to give the Fed any credibility with it's promise for a soft landing this time around.

II) Spreads for Leveraged Loans are down an incredible 100BP so far in 2013. This is why the "Big Deals" like Dell/Heinz are happening. This too is a Bernanke phenomenon. The cut in spreads is a function of QE4 that is pushing $85b a month into cash. When The Fed completes each POMO buy, the credit market has to find someplace to put the cash money to work. More Leveraged Loans are the logical consequence.

Some might argue that the collapse of spreads is a measure of Bernanke's "success". I see it differently. Bernanke is making rich guys like Mike Dell and Warren Buffett richer. There is no value added to that.

III) Today's round-two of the Bernanke grilling might be interesting to watch. I expect more clashes between Republican Congressmen and the "Fearless Dove".

 

bkanimalfight

 

 

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Thu, 02/28/2013 - 00:32 | 3284579 Notarocketscientist
Notarocketscientist's picture

Check out the religious backgrounds of over half of those who attend Bilderberg.  Now check out the background of who owns the Fed (and other central banks)

Bilderbergers are the minions of those who really pull the strings of the world.

Bernanke is a minion of them as well

Did you ever wonder why Bin Laden targeted the Twin Towers?  He was attempting to send a symbolic message to those who are really in control - trying to tell the financiers that he can strike at the heart of their evil empire.

Wed, 02/27/2013 - 21:16 | 3284025 nope-1004
nope-1004's picture

Anyone have any youtube links of this exchange?  Or any others where Bernocchio is getting grilled?

 

Wed, 02/27/2013 - 21:09 | 3283998 QQQBall
QQQBall's picture

the rise in ST rates did not kill the eceonomy in 2008.

 

I watched a bit yesterday. Lots of posturing on sequester. Few pointe dquestions and no meaningful floow-up. Congress-critters are spineless ans stupid.

Wed, 02/27/2013 - 21:31 | 3284065 mt paul
mt paul's picture

dude

did a crocodile

eat your spell check ...

Wed, 02/27/2013 - 22:09 | 3284167 Orly
Orly's picture

The Maker's Mark stole it.

:0

Wed, 02/27/2013 - 20:20 | 3283857 besnook
besnook's picture

this is theater, better than broadway. the cork has to show the boys back home he is serious about "fixing" the situation so bernank is object of empty rhetoric that can be played like a stuck cd back home to improve cork cred.

bernank has free reign to defend the dollar banks because the the dollar has begun to flounder. the tell is the spike the italian elections caused when the euro looked doomed for a second by a comedian  and a deviant.  the dollar will spike before it's collapse because it is the last refuge for the west. i am surprised someone hasn't created a virtual yuan swap. oh yea, the city of london  is working on it. that should pound any dollar bubble francly speaking. mark my words.

Wed, 02/27/2013 - 20:24 | 3283874 Orly
Orly's picture

My, aren't you the 4X quipper?

:D

Wed, 02/27/2013 - 20:44 | 3283930 besnook
besnook's picture

i know diddly about forex so if i can see it then it must be obvious and therefore unnerving....to the world.

Wed, 02/27/2013 - 19:42 | 3283740 kaiserhoff
kaiserhoff's picture

Well done, Bruce.

I'm still waiting for some politician or talking head to point out that the billions given to the banks by Ben, were stolen from US savers.  That should resonate with a few already angry citizens.

Wed, 02/27/2013 - 19:48 | 3283764 fourchan
fourchan's picture

ben is just looking out for his franchises profits.  the "system" is working perfectly.

Wed, 02/27/2013 - 19:21 | 3283664 chump666
chump666's picture

The Fed that should be audited is the NY Fed, last week they dumped a billion into the ECB - so anyone who had the balls to short after Italian 10yrs collapsed, got their balls served to them. 

Wed, 02/27/2013 - 20:58 | 3283965 PAWNMAN
PAWNMAN's picture

The Federal Reserve is a private bank, with international shareholders (aka Rothchilds)  beholden to noone but themselves.

Thu, 02/28/2013 - 07:32 | 3285084 bozzy
bozzy's picture

Is there ANY indication of who might be the shareholders of the Fed?

Thu, 02/28/2013 - 01:16 | 3284678 Notarocketscientist
Notarocketscientist's picture

You will like this - this is the real truth about Israel and who they are beholden to http://www.youtube.com/watch?feature=player_embedded&v=TOaxAckFCuQ

Wed, 02/27/2013 - 20:14 | 3283835 Orly
Orly's picture

Chump, someone had a huge bet on in the overnight that this was the Big Kahuna.  They stepped on the AUDUSD to below the 1.02 barrier then got it handed to them in the US session.

They were looking for risk-off big time and didn't find what they were looking for.

Oooops!

:0

P.S.  I'll be scalping the EJ long from here.  AU is just too squirrelly, as you mentioned.  Hell, everthing is acting squirrelly.

P.P.S.  Here we go again!  http://www.forexlive.com/blog/2013/02/27/3-chinese-ships-enter-japan-wat...

Wed, 02/27/2013 - 20:41 | 3283921 chump666
chump666's picture

I think that is so alarming and slightly missed in the markets as a major problem .i.e war in the South China Sea. 

Wed, 02/27/2013 - 20:25 | 3283875 chump666
chump666's picture

Hell yeah! A 'dumb' smart money trade. Probably on the s&p downgrade rumor, it is good as a rate cut. But...US equity markets are in lala land and the money printers are going all out. 

Wed, 02/27/2013 - 18:29 | 3283474 csmith
csmith's picture

Somehow the fact that the Fed is acting purely in the interest of the banks is a surprise?

"It was always an objective of the Fed to have the banks increase earnings as a way to offset losses on older loans."

4 years and counting...

Wed, 02/27/2013 - 17:38 | 3283309 Fishhawk
Fishhawk's picture

Orly is astute in recognizing that all the Chairsatan's hubris has evaporated.  I think he was played for his arrogance and desire for stardom, and now he sees that he is the designated fall guy for the disaster that has been orchestrated under his direction.  If he ever had any personal values, he checked them at the door, and maybe now, he wishes he hadn't.  Either way, even as the front man for the real evildoers, he still deserves the guillotine for all the damage that has been created.  As to him having some kind of epiphany and throwing Jamie and friends under the bus, there is no chance of that ever happening.  So, sympathy for the devil?  Not here; I'm saving mine for all the humans whose future (and present) he has ruined.  But let us not be distracted into thinking that all can be fixed by killing the Bernank (I agree he will be gone shortly); the real backstory is all the maggots in CONgress and on Wall Street.  And there are dozens more nearly qualified actors to replace Ben.  

Fishhawk

Wed, 02/27/2013 - 21:47 | 3284113 disabledvet
disabledvet's picture

what in fact is happening as per "Paulson Order 65-g paragraph c of subset delta" is EXACTLY what the folks at Treasury wanted to happen...namely the TOTALITY of these so called "excess reserves" are recycled RIGHT BACK TO TREASURY thus driving down interest rates to "at or near zero" and allowing for the "blowed up economy" to still run on trillion dollar deficits. THAT'S the truth. The if the banks have book sizeable profits it sure hasn't shown up on their balance sheet. In fact since Obama's re-elected they've announced layoffs of almost 50,000 employees...which is a staggering number and will do wonders for driving New York City over the fiscal cliff. the only reason we have a growing economy in my view is because of the war effort (which now looks to be going on decade number 2) and "whether or not that Federal Government can stretch that dollar even further to support it." that's what puts the bid in the market...not the "mystical evil Unicorn flying in at 1030 AM then lowering the boom on us at 330 PM." in short...don't ask me how...but indeed "they've got a license to print" as even gold is wilting now. as with anything that is "free" there are trade offs however. Senator Corker is right that SAVERS are getting hosed here...along with seniors who get no COLA but have to live on the fixed income. not only that but GOVERNORS look to be big losers with this plan as well...as their tax base is overwhelming oriented towards final sales and property taxes...WHICH HAVE BEEN CRUSHED by this "far out dude" monetary thingamajig. i'm still trying to wrap my mind around it...so far i've gotten to the point where i think i can "mime" the program...but....can't...seem...to...e...lucid...ate...a.....aaaaaaaaaaaaaaaaaa

Wed, 02/27/2013 - 17:15 | 3283245 MeelionDollerBogus
MeelionDollerBogus's picture

so.... Corker will soon be rooming with Hoffa after having a similar accident to Matt Simmons?

Wed, 02/27/2013 - 17:09 | 3283224 ebworthen
ebworthen's picture

Well of course Bernanke is supporting the banks.

Central banks are designed to prop private banks using Taxpayer money, period.

The "employment" and "control inflation" are the lies they tell the populace so they can rob them blind.

$85 Billion PER MONTH to buy securities instruments that enrich private banks and bankers (MBS's) has NOTHING to do with employment or inflation or helping savers, seniors, or widows and orphans.

Bernanke is an unreformed SCROOGE!

Wed, 02/27/2013 - 17:19 | 3283258 hooligan2009
hooligan2009's picture

40 billion of mbs per month...45 billion of treasuries...just saying..:>)

http://www.newyorkfed.org/markets/ambs/

Wed, 02/27/2013 - 17:19 | 3283254 MillionDollarBoner_
MillionDollarBoner_'s picture

Central Bank Shareholders are...Private Banks. Doh!

Wed, 02/27/2013 - 16:55 | 3283172 negative rates
negative rates's picture

Yea it looked bad Bruce, but just think about it, everything said after Bob talked was simply, well, Qualitative Easing, in a bad way. This can't end well.

Wed, 02/27/2013 - 16:38 | 3283103 hooligan2009
hooligan2009's picture

most of these loans have higher floors than 1.5%...more like 4%, nevertheless..bank loan market is what $3 triillion?...$4 trillion?.,.5 trillion? a 4% margin (orange bars) makes the profit, before loan loss provisions, somewhere between $120 billion and $200 billion EVERY YEAR. How much profit did the banks make over the last 12 year? a few trillion? how much was paid in bonuses? how much was paid in corporate tax? how many years will it be before the banks' "tax losses" are used up? 

europe's bank loan market is a bit different from that of the US and is less than half the size; its problems are less severe because of its market conventions.

if you ever needed evidence that the banking system does not deliver an efficient transfer mechanism, this would be a good place to start. seems ot me that we need a new bank model. ont that works more like some of the movie contracts..share of the takings beyond a minimum...secured convertibles with a lower coupon and a lower interest rate than a loan.

you could argue that borrowers of loans are making more money than they would have done with LIBOR (Fed Funds) at the rate of interest that reflects the creditworthiness of the US Government and the likely inflation track of, say 4-6%. paying the 4% floor (or 1.5% according to Bruce) would be a lot better than paying the 4-6% fed funds rate plus 4% margin. these companies may be paying taxes..or they may not be if they use offshore tax shelters like apple, starbucks and of course, the banks.

the misallocation of capital by the banks as a result of ZIRP means we will never know if the amount of bank loans to zombie corporates (via the Fed to banks) woul have made better use of the capital 

certainly replacing all car finance, student loans, credit card loans, boat loans etc etc at bank loan rates, rather than the double digit rates on these types of loans would have allowed individuals to have more money, rather than the banks. banks exist only to fleece borrowers and lenders and their intermediation simply serves to make everyone poorer, with a fat bonus for the banksters who are best at ripping people off.

Wed, 02/27/2013 - 16:09 | 3282977 Moe Howard
Moe Howard's picture

If anyone thinks Benjamin Shalom Bernake has taken a independent action that he thought of on his own for the entire time he has been at the Fed, you are mistaken. This guy is just another public face sock puppet like Bush or Obama or Gordon Brown for that matter. 

These people are actors. The lines are scripted. Independent thought is not permitted. 

 

They should all be put on trial for treason and hung by the neck until dead, however.

Wed, 02/27/2013 - 16:46 | 3283134 DeadFred
DeadFred's picture

He's a very good actor. Unlike our chief Kenyan he can say his lines without a teleprompter

Wed, 02/27/2013 - 19:48 | 3283768 Moe Howard
Moe Howard's picture

You are correct, DeadFred.

Some actors show up on the set with all lines memorized and rehearsed. Some show up with a need for cue cards or TelePrompTer. Some show up coked up or drunk.

But they are all actors, speaking lines that some other person wrote.

It is difficult to remember sometimes that they are playing parts and are both shaking hands and being nice once the camera stops rolling.

Wed, 02/27/2013 - 16:05 | 3282922 paint it red ca...
paint it red call it hell's picture

"Corker was hostile, Bernanke didn't like it one bit."

Dont think for a moment corker is a good guy here, an enlightened soul, he is not..

Find some video from bernank and corker exchanges predating the last campaign season and you will find cozy little softball throwing, powder puff fluffing, sound bite sessions supplied by corky just being the good ole boy he likes to portray himself as. The good Senator has come under fire from state organizations to stop the public mealy mouthing while giving ben reach arounds during testimony. Oddly enough, he was mayor of Chattanooga where GovTech's Ohio vote rigging operation was headquartered.

"The shift of more than 300,000 votes after 12:20 am election night was a virtual statistical impossibility. It was engineered by Michael Connell, an IT specialist long affiliated with the Bush Family. Blackwell gave Connell's Ohio-based GovTech the contract to count Ohio's votes, which was done on servers housed in the Old Pioneer Bank Building in Chattanooga, Tennessee."http://www.examiner.com/article/real-voter-fraud-set-to-occur-ohio

The public face of the cork has changed its expression when looking at the chairsatan across the bench but do not hold your breath expecting adversarial action toward the fed coming out of either Tennessee senator's offices. Indications to date say both are all on board with the program going down in DC and always have been. Neither would be where they are today if they were not. Political preservation dictates a posturing public facade but what's new about that? How and why else would the photogenic cork gotten a juicy seat on the banking committee as a first term senator and paraded out on CNBC occasionally for his thoughts? Grooming, grooming is going on.

Wed, 02/27/2013 - 17:31 | 3283285 Kayman
Kayman's picture

Nevertheless Corker wasn't throwing marshmallows at Bernanke this time. So somethings up.

Wed, 02/27/2013 - 16:53 | 3283164 binky
binky's picture

I cannot thank you enough for mentioning Michael Connell. His very timely death leaves us wondering... ...who will be next?

Dead pool anyone?

Wed, 02/27/2013 - 17:10 | 3283226 paint it red ca...
paint it red call it hell's picture

Just by chance he was mentioned in the quote I selected for a Chattanooga connection. I had to look him up upon your mention. It a sad state of affairs when who you are connected, what you've see, said or done ends in extermination by unfortunate means. Vehicle crashes, suicides, and heart attacks all seem very popular means of demise on timely basis.

Wed, 02/27/2013 - 15:35 | 3282816 Atlantis Consigliore
Atlantis Consigliore's picture

C-c-c-c-cant we all Fraud along?  and front run?

I like the mortgage spreads margins at record with banks picking only thei high margin, ez ones with harp hump chump dump loans;  ez refi and then theres no buyback risk?

spread.  huge fees,  now JP  lays off 17,000 mortgage people;  what do they know?  LOL  shit man,  they ran out of human sucker beings to get into Subprime F"HA?

 

Wed, 02/27/2013 - 15:31 | 3282797 Clowns on Acid
Clowns on Acid's picture

Bruce - You are on a roll ! Well done!

Corker said that Bernanke was, "creating "faux" stock-market wealth that would be reversed as soon as interest rates started rising".

Someone please tell Sen Corker that the Fed is buying $85B of USTs/mth (maybe more....who would know?). Bernanke is telling him "Interest rates are not going up under my regime".

Wed, 02/27/2013 - 15:23 | 3282756 waterhorse
waterhorse's picture

Does anyone find it strange that Corker (a blatant big bank shill) was "hostile" to Bernanke?  More kabuki?

Wed, 02/27/2013 - 15:21 | 3282738 Downtoolong
Downtoolong's picture

Because, when it gets serious proper etiquette is to first deny, then lie.

 

 

Wed, 02/27/2013 - 15:05 | 3282657 Oldwood
Oldwood's picture

What is so difficult about understanding that the denial of reality is not just an act for most of these people. We would like to believe that they are all simply evil looking to harm us, when most are simply over-educated idealistic fools who because of their rank in elitist circles, have no clue yet are incredibly destructive. This is why retarded adults are of concern, with the mind of a child and the body of a brute, they know not what they do. But don't get me wrong...I agree...fuck Bernanke!

Wed, 02/27/2013 - 16:25 | 3283055 Orly
Orly's picture

Exactly.  All is swell while you're in your monkey-sphere and having cocktails with the boys, laughing it up with the hostess who wears too much perfume.

Then, one day, you look around and say to yourself, "Jeesch, self!  Did I do that?"  When you can only conclude that, yeah, you did that, does it begin to haunt you.

Are they necessarily evil, these mechanics of destruction?  I don't think so.

Are they led into willful misconduct by much, much more eviler dudes than themselves, who entice their egos and lavish them with wealth and power?  I think that's more the ticket.

It's easy to be blinded and shielded from reality by ego and hubris when you're in the thick of it.  The real question is, what do you do when the truth hits home?

Wed, 02/27/2013 - 20:46 | 3283933 monad
monad's picture

Thats polyanna BS. When you cross the line you know it; you are acutely aware of it. After you do it so many times without getting zapped, then you become numb, but its always in the background. If-when they slap the cuffs on, or as you're plummeting toward the ground, you can recite every detail why this is happening to you, like a canary. Only if your head explodes from hydrostatic shock, or possibly a major stroke do you ever forget. They just don't give a shit. Greed is greed.

Wed, 02/27/2013 - 17:45 | 3283321 Oldwood
Oldwood's picture

What ever it is that it takes to allow someone to become a politician also immunizes them from shame. A politician never has to say they are sorry.

Wed, 02/27/2013 - 18:33 | 3283491 Orly
Orly's picture

He's not technically a politician.

Wed, 02/27/2013 - 14:24 | 3282480 NoWayJose
NoWayJose's picture

What Corker needs to do is get irrefutable numbers from the Fed itself, then when Bernank says 'not accurate' he can pull those out. Otherwise, its fun for ZH and just another DC finger pointing that will soon be forgotten.

Wed, 02/27/2013 - 14:24 | 3282476 Lordflin
Lordflin's picture

The GOP is considering handing fiscal authority over to Obama... this is an old theme... Roman senators gave Ceaser all power to avoid accountabilty... it was all about keeping their place in the world. As to ZIRP... no clear thinking individual could see this as anything but a transfer of wealth to the banks and their associates... that there is even an argument about this is farcical.

Wed, 02/27/2013 - 15:25 | 3282764 the grateful un...
the grateful unemployed's picture

i see John Kerry is now saying the US WILL provide arms to the Syrian rebels, which Obama was reportedly against, though it is not really in Kerry's department, which is diplomacy. the timing does coincide with the nomination of Hagel to DOD, Hagel being somewhat outspoken about Israeli policy, and Israel most probably against arming (Al-Qaida) in Syria only because all those weapons will be later used against Israel after that civil war ends and the country is less politically stable. Democrats handed Bush carte blanche in Iraq and he bankupted the country, so giving your opponent enough rope to hang himself is nothing new. i think in this case both parties think sequester is a good move, but can't really say so, so its after you my dear Alphonse. one defers to the other, to take the blame for doing the right thing.

Wed, 02/27/2013 - 14:17 | 3282451 RSBriggs
RSBriggs's picture

Nice picture.   Never bring an alligator to a hippo fight?

Wed, 02/27/2013 - 15:39 | 3282847 Transformer
Transformer's picture

Yeah....  who won?

Wed, 02/27/2013 - 16:19 | 3283020 Lost My Shorts
Lost My Shorts's picture

The croc looks outnumbered, and probably doesn't want to be there.

Wed, 02/27/2013 - 16:41 | 3283114 Bruce Krasting
Bruce Krasting's picture

I was wondering what to use as my closing pic. I thought about two animals fighting, so I Googled that. Many images. I liked this one.

The croc is Bernanke, and he definitely does not want to be sitting in front of hostile congressmen. You've got to like the thought of all those hippos wallowing in the mud as the folks from congress.

Thu, 02/28/2013 - 00:46 | 3284603 monad
monad's picture

Those hippos are too good for congress. What they are doing is eliminating a threat to future generations. Congress is a threat to future generations. Congress is lunch.

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