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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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Wed, 02/27/2013 - 16:13 | 3283003 Orly
Orly's picture

I am hardly a bleeding soul having pity on the man.  All I am saying is maybe he was blinded by his ego and is feeling torn about what to do.

I say, if he wants to talk, let's stand back and give him the floor.  Once we get him talking, well then the whole can of worms unravels pretty quickly because he is the center of that universe.  Give him the opportunity to throw them under the bus, that's all.

They do this every week on CSI, you know.

Wed, 02/27/2013 - 16:23 | 3283017 Renfield
Renfield's picture

Hmmm. Obviously I misunderstood your "starting to feel bad for the man" and "show understanding to those unknowing participants" comments above then. But yours were not the only comments that inspired my soapbox.

Marked you Up for the sake of discussion but I think if you're looking for rope to hang him with, we already have more than enough to hang him a dozen times, both from his words and from (more important) his actions and their treasonous consequences.

And, I don't watch CSI either. :-) True crime is one of my lifelong hobbies and it's WAY too magical and unrealistic for me to stand more than the first five minutes.

Just to be completely at odds today!

Wed, 02/27/2013 - 16:43 | 3283121 Orly
Orly's picture

No worries.  I was just making a funny.

The bottom line is in order for the truth to finally be exposed, we have to realise that everyone can't be found hanging from the rafters or sporting the latest Columbian necktie.

If the Chairman has something to say, he should be allowed to say it.  He is hardly Meester Big here and I think everyone knows it.  If you can't get him in the room, then let's go for Kissinger, da Zbig and maybe GHWB himself.  Maybe we can get them all at once, who knows?  We can tell them there's...hors d'oeuvres?

I feel that we should be empathetic to someone who may have found himself in the position the Chairman has possibly found himself in.  There could be great rewards for that.

Wed, 02/27/2013 - 17:46 | 3283323 g speed
g speed's picture

jeez Orly-- don't ya know a guy on pain killers when you see it--- this guy is an Oxy addict-- wise up.

Wed, 02/27/2013 - 22:01 | 3283185 Renfield
Renfield's picture

<<I feel that we should be empathetic to someone who may have found himself in the position the Chairman has possibly found himself in.  There could be great rewards for that.>>

Well, there we disagree, on my part most emphatically.

He's had plenty of airtime and said PLENTY of things already. His is hardly one of the many voices that have been silenced. Knowing or not, voluntarily or not, he is a kingpin, one of a very small handful of men who have directly done the most harm. He is not a small fry.

If I were judging I'd be willing to consider "remorse" or "ignorance" or "Nuremberg defense" for the SMALL fry. The sheriff who evicts someone from their own home or who refuses to protect the constitution, the border guard who demands to see papers 50 miles from the border, the smalltime crooked mortgage brokers and realtors, the Assistant Manager to the Regional Manager at the Treasury who embezzles for vacations and a mcmansion. Hell, even the odd Congressperson might be deserving of "remorse" consideration.

NOT Bermonkey. I don't care if like Hitler he was good to his mistress or like Hitler he was kind to animals. (I wonder how many consider that Hitler was probably a puppet, too.) The worse he looks the happier I am. I hope he never gets a full night's sleep again. I hope his marriage breaks up and his children grow up despising him, ashamed of him, for the international criminal he is. And at the end of it, I hope he hangs, nice and public, isolated and fully humiliated with his evil exposed for the world to see. He is the Head Bankster for the government, but for his enabling they could not continue with their destruction. He is the consiglieri to the bank and govvy mafia and I hope he never knows another day's peace until his time for roasting in the afterlife comes. The possibility that he may have a conscience only makes me judge his actions HARSHER than before. At least Dimon could have the excuse of being a genuine sociopath who was born without one, and the excuse of NOT purporting to uphold a position of public trust.

Oh, and he didn't "find himself" anywhere. He volunteered.

<spitting on the ground and leaving off here, not directed to you, but b/c if I think about that piece of filth any more I might have to go punch a pillow or burn a car or something>

Wed, 02/27/2013 - 14:46 | 3282564 Toolshed
Toolshed's picture

Bernanke is filth. If as you say, he is an unwitting facilitator of TPTB and is now feeling remorse for his part in their grand scheme, he needs to come out and speak the truth. Otherwise he deserves absolutely no sympathy whatsoever. His actions are literally killing people. Lots of people. And materially harming many, many more. Execution for Ben and his ilk would be far to merciful. A life sentence of forced hard labor would be more akin to justice in my opinion. Naturally the sentence would also include confiscation of all assets.

I admire your optimistic and positive views Orly. I truly do. The harsh reality of modern life has stripped me of those character assets.

Wed, 02/27/2013 - 14:58 | 3282622 Orly
Orly's picture

"...he needs to come out and speak the truth."

I agree with you completely.  The sad fact is, though, that human nature is fraught with self-preservation over the good of the masses.

For Dr. Bernanke, it may not be so shameful to admit, in his own mind, that he was duped into playing a major role in such unprecedented global carnage.  It would not do to have it made public, for he may believe that he would personally be trashed, perhaps outted as a closet homosexual, for instance.  Maybe that would be worse for him than having his name erased forever from textboks and replaced with "Krugman."

Fear is the greatest motivating factor used to control the actions of one's minions.

I hope he can steel himself against whatever is cast before him and come clean.  There's still time.  We should have hope that the truth will come out and show understanding to those unknowing participants...if that is indeed the case here.

Wed, 02/27/2013 - 15:45 | 3282874 fonzannoon
fonzannoon's picture

Market up massively while PM's are being pummeled. All while we have confirmed QE4eva. You know why? Because the same people who come on here bitching about what a rigged casino this whole thing is can't help themselves from buying a few shares of VXX and getting scalped again and again. Wake up people.

Wed, 02/27/2013 - 13:38 | 3282285 Jack Sheet
Jack Sheet's picture

...what's eating the man up so badly that he would go into a national forum clearly perturbed?...

Ben-Anky probably fears that before his term is up or shortly afterwards the dollar will crash, the gold vaults will be found to be empty or tungsten-gutted, and his academic reputation would be in smoking ruins.  A bit of like the assortment of political figures in Germany whose PhD theses were found to be plagiarized.  Contrast his demeanour with the smugness of figures like Dimon who have no such fears grounded in ivy-league academic activity, they are driven only by money.

Wed, 02/27/2013 - 13:36 | 3282278 Toolshed
Toolshed's picture

Egomaniacs like Benanke live or die by thier publicly percieved reputation. Remember how lovely he looked when he was appearing on magazine cover's being heralded as the savior of the economy? Now? Now, he is probably the most despised human in the USA, if not the planet (possibly second to Dimon). And it shows. I think he needs to be tested for intoxicants. His current appearance is very indicative of substance abuse. Cocaine is my guess. Gotta get back up there!!

Wed, 02/27/2013 - 14:14 | 3282434 Joe moneybags
Joe moneybags's picture

Bernanke is only despised in the blogosphere.  To the general public, he is either unkown, or generally admired and respected.

Wed, 02/27/2013 - 19:33 | 3283709 Intoxicologist
Intoxicologist's picture

I've been making monthly payments on a back surgery for a number of years.  Out of the blue, they turned me over to collections asking for payment in full.  It's a lot of money, even now.  When I contacted the collection agency I asked them, "Who do you think I am, Ben Bernanke?"

After a pregnant pause, the rep replied, "Errr, who?"

Wed, 02/27/2013 - 14:28 | 3282487 Toolshed
Toolshed's picture

Ummmm.....wrong. You obviosly are not living on a fixed income. Ask anyone living on asset interest what they think of Ben. They will likely be less kind than I.

Wed, 02/27/2013 - 16:28 | 3283065 bigkahuna
bigkahuna's picture

In the aggregate - people have no clue who the chairman is or what he does. Go ask some random people you know (neighbors etc), I bet you get about 25% who even know who Ben is. Don't stack the deck either ;-)

Wed, 02/27/2013 - 16:26 | 3283061 rustymason
rustymason's picture

No, most of those just want to blame anyone who is in charge; there's nothing like real thinking going on for most of these people because they are incapable or uninterested.  Remember when things were booming? Only the real thinkers saw what the result was gonna be. Americans are especially ignorant, being so plugged into the MSM fake news and so absorbed by TV sports and reality shows, and being naturally herd animals with voting rights.

Wed, 02/27/2013 - 14:35 | 3282520 akak
akak's picture

When my elderly mother, who lives on a fixed income and who continually asks me "Why can't I just put money into a safe CD or bond to earn a little money?", can finally figure out why she is utterly screwed by Bernanke's zero interest policy, then the average American should be able to figure it out as well.  However, the psychological barriers to admitting that one's former faith in authority was not only factually and morally wrong, but actually self-defeating, are quite formidable to overcome, and a significant percentage of the population will NEVER make such a mental leap.

Wed, 02/27/2013 - 14:43 | 3282555 walcott
walcott's picture

no doubt. They hold their ignorant belief systems up as virtuous too.

Look at Penn State with Paterno or the pope and CNN agenda propaganda.

Wed, 02/27/2013 - 18:01 | 3283378 tip e. canoe
tip e. canoe's picture

God Save the Queen

Wed, 02/27/2013 - 21:46 | 3284111 moroots
moroots's picture

The Fed is doing exactly what it was established to do: protect the banking system's monopoly and drain real capital out of the rest of the economy.  Mission nearly accomplished.

If it wasn't the bernank it would be some other useful idiot.  The flaw is not in Ben's morals or lack thereof, or even of his lofty "education" and his hubris.  It's in the Federal reserve system itself.  

Directing all this anger at one man is part and parcel of being a frontman like the bernank is.  He knew it when he took the job.  

 

Wed, 02/27/2013 - 11:17 | 3281685 XitSam
XitSam's picture

Ben said in prior testimony that ZIRP was putting pressure on people reliant on their savings. He's just a flat out liar.

Wed, 02/27/2013 - 10:59 | 3281599 bank guy in Brussels
bank guy in Brussels's picture

Bruce you've added to the evidence pile that the US Fed is 'owned' by the private sector banks

Against the interests of the people

« The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks. »

- Lord John Emerich Edward Acton (1834 - 1902), the Lord Acton who also said:

« Power tends to corrupt, and absolute power corrupts absolutely. »

---

Re the Heinz deal, Martin Hutchinson (Prudent Bear) has an interesting comment

« When Cash is Trash, Beans are Queens ! »

He takes it as a sign that Buffett himself agrees with the doomers and preppers - With Buffett too loyal to the US regime to goose the gold price by openly buying tonnes of gold, Buffett is going to the #2 prepper conviction -

Food price inflation is where much future 'value' will be found

http://prudentbear.com/index.php/thebearslairview?art_id=10765

Wed, 02/27/2013 - 16:21 | 3283036 hooligan2009
hooligan2009's picture

jimmy dean in "Giant"?

Wed, 02/27/2013 - 14:58 | 3282628 nofluer
nofluer's picture

If Buffet thinks he's going to make any money off of catsup when the SHTF, he's senile. Not only is catsup an "optional" condiment (as opposed to a staple), but anyone who can grow a tomato can make their own - and make it without all the chemical sludge that the commercial companies put in it.

Wed, 02/27/2013 - 17:08 | 3283217 Kayman
Kayman's picture

" anyone who can grow a tomato can make their own "

 Wait until you hear that Buffett is going to get Obama to regulate private gardens.  Once you need an FDA license Buffet jacks up prices. sarc/

And if you're making your own Ketchup (catsup) don't forget the secret ingredient- sugar, and lots of it.  It is what separates Heinz from the others.

Wed, 02/27/2013 - 19:12 | 3283621 Ratscam
Ratscam's picture

or buy the partially (i think 50%) publicly traded SNB stock market cap for a measly 120 MM chiffs.
http://www.finanzen.ch/Aktien/Schweizerische_Nationalbank-Aktie
good luck on that. Any buyers out there?

Wed, 02/27/2013 - 13:47 | 3282321 Toolshed
Toolshed's picture

"Bruce you've added to the evidence pile that the US Fed is 'owned' by the private sector banks"

Evidence? Where have you been? Whereas, there has never been, to my knowledge, a complete list of the FED's owners made public; it is a documented fact that the FED is a private entity and owned, in part, by the Wall Street banks. I think that pretty clearly explains their behavior.

I am not trying to be snarky as I enjoy and respect bank guy's comments, but I am surprised, because I thought this was common knowledge.

Wed, 02/27/2013 - 16:21 | 3283035 rustymason
rustymason's picture

It's easy to lose touch with the common folk if you spend too much time on ZH and similar open sites. Many of the elderly still think America is only slightly changed from its 1950's or 1960's state, and that a simple change from BlueTeam to RedTeam can fix everything.

Wed, 02/27/2013 - 16:21 | 3283032 bigkahuna
bigkahuna's picture

Yep, it's common knowledge for anyone who looks into it. It is a revelation for the sheep although the supermajority in the sheep category just plain couldn't care less, even if you explained it to them.

Wed, 02/27/2013 - 17:43 | 3283215 ATM
ATM's picture

 

Who owns the Federal Reserve?

The Federal Reserve System fulfills its public mission as an independent entity within government.  It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."

The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

 

Sort of like my Green Bay Packers stock, except for that last part.

 

Wed, 02/27/2013 - 19:39 | 3283729 john39
john39's picture

operated for the profit of the crony wallinternational bankers, but set up to appear on paper as something else.  its all bs.

Wed, 02/27/2013 - 13:07 | 3282184 Zer0head
Zer0head's picture

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".

 

clashes? you mean faux clashes... Bruce this is theatre and nothing more

America is insolvent but nothing that a little more printing won't fix

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