Going through today's pertinent Q&A with Bernanke, initially we focus on Fed nemesis #1, Ron Paul. First question of relevance: "Do you Mr. Bernanke think that rates were hold too low for too long?" The degree of Fed delusion is easily seen by the response: "the bottom line is nobody really knows for sure, but the evidence is quite mixed." Obviously the bald one has never attempted to sell a home in the Inland Empire. The evidence sure would be a little less mixed in that case. But at least Bubble Ben has given a speech on it (which incidentally caused John Taylor to almost have a conniption against the stupidity of the Fed's chairman). Yet just in case you thought the man may have at least one screw unloose in his voluminous cranial hollow, Bernanke opens his mouth and says "Even if rates were too low for too long, the magnitude of the error was not big enough to account for the huge crisis we had. I think what caused the crisis was a failure in regulation.".....And this is the man who determines monetary policy....Only now do we find out he has never actually ever opened an Econ 101 textbook, instead opting to go straight to writing them. Luckily Ron Paul proceeds to give the Princeton "expert" a much needed lesson in monetarism, and what happens when rates are zero for far too long.
To be expected, Bernanke certainly did not appreciate being schooled in Econ 101. After Paul rips Bernanke's face off with the Chairman's constant excuse that regulation is the answer to everything, arguing instead that artificially low rates merely send constantly flawed price signals, Bernanke retorts "Well you need some system to set the money supply. I guess you are a gold standard supporter." At this point Paul gives the most priceless response ever: "I am for the constitution." (4:50 into the clip)... A flabbergasted Bernanke again proceeds to cast the blame... This time everywhere but the Fed: "Every major country in the world uses a Central bank to make some decision about the money supply." We ask the philosophy experts among our readers to tell us just what type of fallacy this is. Ron Paul once again has a brilliant response: "Then there is no good information for the investor unfortunately." What are you talking about Ron - there is Cramer. At least until such time as his particular regulators wake up... Which they seem to have done so today finally.
Next up, California's Brad Sherman asks the current-former Fed Chief duo the following runner up to the most critical question of the day: "Bureaucracies hate bad headlines, they'll often do desperate things behind the scenes to avoid that big headline from breaking. Prudential regulators are going to get bad headlines if a big institution fails, particularly under some circumstances, and if they can prevent that failure, if they can just put it off for six months, their reputations and careers can be saved. Monetary policy, just cutting the interest rate by quarter point can save a troubled institution. So how can we be sure that monetary policy is not influenced by the natural human desire of bank supervisors, to save one or two institutions, for at least long enough for them to move over to another department. How do we make sure that monetary policy does not meet the career needs of bank supervisors?" And the token bullshit response from the follicularly confused one: "I don't think that's a very realistic scenario." Oh really? We think it is, and in fact we think that the probability of influence on monetary policy arising from this line of thinking is much, much greater than all that other BS we have been hearing about how an audit will make the Fed become an engine of hyperinflation, the argument that Barney Frank, Chris Dodd, Mel Watt and all the other bought and paid for Wall Street cronies are using to prevent Ron Paul's audit the Fed initiative from ever passing. Bernanke elaborates on what one day will be an amusing case study: "I suspect the Central Bank Chairman will be around and concerned about his or her reputation when the economy has excessive inflation or whatever problem might arise from bad interest rate policy. I don't think there is much evidence for that particular issue." How about the issue that every reputation can be bought and paid for by someone with a big suitcase full of brand new $100 trillion bills, with a portrait of Supreme Chancellor Blankfein on the front? This is post the hyperinflation - certainly the Central Bank chairman will not be dumb enough to want to be paid in Pre-Petition money.
Yet of all questioners, Rep. Scott Garrett asks the truly most relevant questions of the day. First among them: "Are the GSE obligations sovereign debt?" Bernanke's response: "We stand behind it, but whether it is legally sovereign debt or not, I am not equipped to tell you." Same thing from Volcker, who adds that it is a "bad arrangement where you have this quasi private organization and the government stands behind it." So not even the wannabe uber regulator knows how to account for an amount equal to half of the total US Federal Debt. Swell.
On Lehman Garrett asks "The Fed was there on scene, your folks were there at Lehman's. Was the Fed aware of the Repo 105 and the accounting irregularities going on?" Bernanke answers "No - they were hidden. We are currently, for example, the principal regulator of Goldman Sachs, and we have about a dozen people on site, and another dozen who are looking at the company. We had in this case two people assigned to Lehman. And their main obligation was to make sure we get paid back our loans.... Our objective on the discount window loan was to make sure it was safe and they were safe."
Now parse the last few sentences carefully. Not only does the Fed admit that it is and was in the Fed's interest to delegate manpower to make sure that Goldman is fine (in an agent ratio of 6-to-1 "scouring" over Goldman's books), but Bernanke blatantly contradicts himself when claiming the reason for the presence of the Fed's entourage. If the Fed was indeed so focused on recouping its discount window borrowings, then how on earth did Geithner green light that Lehman would be allowed to deposit a nearly $3 billion CDO, which contained loans by CFC, which after a cursory look Citigroup determined was "Bottom of the barrel" and "junk"? What is the basis of this dual standard - why does the Fed pretend to be concerned with safeguarding taxpayer money (with which Bernanke justifies its minimalist presence at Lehman) when it comes from the Discount Window yet is happy to collateralize "junk" paper in the Primary Dealer Credit Facility? Is whoever was in charge of the Lehman account at the FRBNY some schizophrenic (and please let it not be discovered that the person in charge was, just like in AIG's case, again Steven Manzari)? And why does the Fed believe it has any credibility as an uber-regulator when it constantly fails a less than uber-one?
In earlier questioning by Spencer Bacchus, Bernanke answered that the only reason why the Fed had a "couple" of people in the company, was to make sure that Lehman "repaid the money lent by the Fed's Primary Dealer Credit Facility." Yet the Fed had lent out money, as noted above, collateralized by, well, excrement. Once again that is a truly "brilliant" overture by a wannabe regulator of all that has a dollar sign in front of it.
Bernanke digs himself even deeper. When explaining why the FRBNY got paid back, BB says "we took collateral and we took extra large haircuts to make sure it was safe." Oh... so now you care about getting paid back. Was it, perhaps, under the guidance of one Goldman Sachs, who may have at this point decided it was time to rid the world of the pesky Lehman Brothers that made you start enforcing legitimate collateral controls?
Then Garrett asks the key question: "In light of these reports is this something that we should be concerned about? Is activity at these other [banks such as Goldman] is that something that (a) we should be concerned about and (b) something the Fed should be concerned about and are you looking into it." Bernanke's retort "[the banks] are now under our consolidated supervision, so we are now paying attention to these issues." That's the non-answer. As to the answer of whether the Fed is looking at whether shady accounting is going on or was going on in the past, Bernanke's version of the Fifth is as follows: "I don't know. This report just came out this week." In other words if Peck had not agreed to declassify Valukas' report, if there was no pressure to put the Examiner's report in the public domain the Fed would never have expressed any interest into just what kind of shady accounting goes on to mask the Tier 1 and Risk Based Capital of the banks under its supervision, and that leverage ratios by most of the banks it supervises are likely complete shams?
A relentless Garrett keep probing: to the NJ representative's question whether the Fed demanded that Lehman's regulator (whoever it may be since it was not the Fed, even though the Fed had implemented three separate liquidity stress tests, of which Lehman failed every single one) require that Lehman raise its liquidity, Bernanke once again gets an acute case of amnesia: "I don't have the exact information that you are asking." So once again the Fed proves that the only thing it can regulate is the bribery sinking fund at Goldman et al with direct recipient Federal Reserve governors. Everything else will just fall into place once yet more of Goldman's competitors are done away with, and Goldman (and JPM, of course, can't forget Fed, Jr), are left standing as the only two financial firms in the known universe. And this is the Fed that lame duck and financially supremely challenged Chris Dodd wants to put in charge of regulating everything in this country? If that really ends up happening, we are so #&$*ed... but not before Goldman funnels all of Americas' money into its Middle-Class Irredeemable Negative Interest Rate All-market Fund SIV.