Bernanke in Congress, April 1-2 2008
NOTE: Today's Debt Rattle will follow shortly
Ilargi: Bloomberg obtained Bernanke’s March schedule under a Freedom of Information Act request. It was "sanitized", mind you, before they received it.
Yesterday, they published -some of- what they found. It provides some interesting background, in particular about a March 11 lunch meeting with all Wall Street powerboys, with the very notable exception of Bear Stearns’ representatives.
First, I’ll post a comment below on the article Bloomberg published about it today, after that the article itself, and finally, a second comment. Bit of an upside down, but I think it reads best that way.
The issue I see here, to get to the point, is what everybody, including the commenters below, apparently dare not speak by name. From what I digest, reading these three pieces, there’s only one possible conclusion: It is very likely that Ben Bernanke has lied to Congress. And if that is true, so has Tim Geithner, the president of the New York Fed.
Which leads me to an issue that we’ve had some earlier conversations about here, and that I talked about with Karl Denninger and others. When the Chairman of the Federal Reserve testifies, makes statements and answers questions in Congress, is he under oath? I don’t think he’s sworn in.
Now, it has been suggested that all testimony before Congress is subject to perjury. But if that were true and/or enforced, there’d be no need ever for people to be sworn in before testifying. And some people really are sworn in. Government officials are stuck, they swear an oath when they start on their jobs. Chairman of the Federal Reserve is not a government job.
Ergo: perhaps Bernanke is free to lie in Congress.
Here’s a timeline of the Bear events:
- Friday March 7 2008: ”..one bank (which has not been identified) refuses to make a short term loan of $2 billion to Bear.”
- Monday March 10: Bear Stearns publicly denies rumors about its alleged liquidity troubles.
- Tuesday March 11: In chronological order:
- Bernanke announces plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities.
- Big Wig lunch, Bear Stearns absent. See articles below.
- “Hours after the meeting every bank on Wall Street reportedly began refusing to issue credit protection on the debt of Bear.”
- Bernanke announces plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities.
- Thursday March 13: The day Bernanke said he first heard of Bear’s problems, according to his statement before Congress. Or, alternatively, one might give the interpretation that he testified that Bear first notified the Fed of its problems om this day.
This may be seen as two different things, but I don’t think it’s really important. If Bernanke knew about Bear’s predicament before the company contacted him about it, he should have said so in Congress. Certainly in view of the meeting he organized two days earlier. The meeting, and Bear's absence, very strongly suggests he did know.
- Friday March 14: Bernanke and Geithner set up a $13 billion emergency loan to Bear Stearns.
- Sunday March 16: Fed agrees to take on $30 billion of mortgage-backed securities and other assets from Bear Stearns, facilitating a take-over by JPMorgan and Chase.
It’s of course not even possible to exclude the biggest rumor of the day from the conversation in a meeting like this. Neither is it possible to set up such a meeting in anything less than 12 hours. There were quite a few people present, and they all have to be tracked down and many flown in.
And that means Bernanke must have known about Bear’s problems around lunch time, Tuesday March 11. At the very latest. Because the meeting had to be organized, though, Monday, March 10, looks far more believable as a “latest” time for him to have known.
Read through the articles and let me know what your impression is.
I’d say, let Congress call all those present at the meeting to testify, under oath. Whether Ben lied or not, it’s obvious Congress wasn’t told the whole story about the Fed and Bear, while they were justified in presuming they were. Otherwise, why was Bernanke there? To waste more taxpayers’ money?
Let them ask every single person present if Bear Stearns was a conversation topic, either officially or off the record. Let them ask Bernanke why Bear Stearns was not present. And demand he prove that Bear Stearns was not talked about March 11, and he knew of Bear’s only on March 13. This time, put him under oath.
I don’t think they'll do any of this. I think Congress, like Ben, is happy to just go through the motions.
The Wall Street Big Wig Lunch Bear Didn't Get Invited To
On Tuesday, March 11, Federal Reserve Chairman Ben S. Bernanke lunched with what Bloomberg is describing as a “Who's Who of Wall Street leaders.” Attendees JPMorgan Chase 's Jamie Dimon, Goldman Sachs’s top dog Lloyd Blankfein, Lehman Brothers boss Richard Fuld, Morgan Stanley President James Gorman, Citigroup’s consigliore Robert Rubin, Blackstone Group’s little big man Stephen Schwarzman and Merrill Lynch’s John Thain.
Guess who wasn’t at the lunch? If you answered “anyone from Bear Stearns” you’d be absolutely right. Now some are speculating that Bear Stearns may have been purposefully excluded because its fate was one of the topics of discussion.
“It doesn't seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn't about Bear Stearns, who had rumors swirling about them since Monday,” Eric Salzman at the Monkey Business blog says.
What was discussed at the luncheon has not been revealed. Bloomberg News obtained Bernanke’s schedule and the list of attendees in response to a request under the Freedom of Information Act. But the timing seems jarring. Rumors of liquidity troubles at Bear had prompted the bank to issue a denial the day before for the lunch. On the preceding Friday, one bank (which has not been identified) refused to make a short term loan of $2 billion to Bear.
The meeting came hours after Bernanke announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities. Hours after the meeting every bank on Wall Street reportedly began refusing to issue credit protection on the debt of Bear. Two days later Bear Stearns chief executive Alan Schwarz would be forced to call Dimon to seek $30 billion in emergency funding.
Update: Was Bear left out because its top two men were out of town? If we recall correctly, Schwarz was down at the Bear Stearns Media Conference in Palm Beach around this time, and chairman Jimmy Cayne was flying out for a bridge tournament in the midwest.
Bernanke Lunched With Dimon, Rubin Before Bear Rescue
Federal Reserve Chairman Ben S. Bernanke lunched on March 11 with a Who's Who of Wall Street leaders, including JPMorgan Chase & Co.'s Jamie Dimon, three days before the central bank rescued Bear Stearns Cos. from bankruptcy.
Other guests included Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein, Lehman Brothers Holdings Inc. CEO Richard Fuld, Morgan Stanley President James Gorman, Citigroup Inc.'s Robert Rubin, Blackstone Group CEO Stephen Schwarzman and Merrill Lynch & Co. CEO John Thain. Alan Schwartz, the CEO of Bear Stearns, was not listed among the attendees.
The luncheon at the New York Fed gave Bernanke a chance to hear from chiefs of some of the biggest U.S. financial companies and hedge funds in the middle of his most tumultuous month as central bank chief. The meeting came hours after he announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities.
The collapse of the subprime-mortgage market has led to $323 billion in asset writedowns and credit losses at financial institutions since the start of 2007. The situation calls for the Fed chairman to cultivate "increased contacts and understanding with Wall Street," said Kenneth Thomas, a lecturer in finance at the Wharton School of the University of Pennsylvania who has researched Bernanke's schedule.
Bernanke also briefed Republican presidential candidate John McCain on the Bear Stearns episode over the phone, according to Bernanke's schedule for March and Douglas Holtz- Eakin, McCain's economic adviser. Bloomberg News obtained the schedule in response to a request under the Freedom of Information Act.
Bernanke and New York Fed President Timothy Geithner, seeking to avoid a financial-market meltdown, orchestrated a $13 billion emergency loan to Bear Stearns on March 14. Two days later, they eased the company's sale to JPMorgan after the Fed agreed to take on $30 billion of mortgage-backed securities and other assets from Bear Stearns.
The chairman's March 11 lunch with financial-industry executives was held at the New York Fed, with Geithner also attending. Bernanke and Geithner told Congress last month that they were informed of Bear Stearns's troubles on March 13. Dimon, Fuld and a third guest, Stone Point Capital LLC Chairman Stephen Friedman, are on the New York Fed's board of directors.
Other people at the gathering were Citadel Investment Group LLC CEO Kenneth Griffin, American Express Co. CEO Kenneth Chenault, Duquesne Capital Management LLC CEO Stanley Druckenmiller and Caxton Associates LLC Chairman Bruce Kovner. Two executive vice presidents at the New York Fed also attended: William Dudley, head of open market operations, and Terrence Checki, who oversees emerging markets and international affairs.
The daybook, as released and redacted by the Fed, otherwise contains few new details about the events surrounding deliberations to rescue Bear Stearns and create two emergency- lending programs for Wall Street bond dealers.
Bernanke traveled to New York on March 7 for three meetings, including one over lunch. The Fed blacked out the identities of attendees at all three sessions.
Some information was withheld because it "includes commercial or financial information obtained from a person and privileged or confidential," according to a letter to Bloomberg News from the Fed's associate secretary, Margaret McCloskey Shanks.
McCain, an Arizona senator, called Bernanke on March 24 for a briefing on Bear Stearns, Holtz-Eakin said in an interview. They spoke at noon for about 15 minutes, according to the daybook. Bernanke, who was appointed by Republican President George W. Bush in 2006, called Holtz-Eakin the next day to find out if McCain got what he wanted, Holtz-Eakin said.
The daybook doesn't list any contacts with Senator Hillary Clinton or Senator Barack Obama, who are fighting for the Democratic presidential nomination. "That's pretty telling that McCain was savvy enough to make a formal inquiry and talk about this," Thomas said. "It's good that he was aware of it."
"Hi Fellas, What Y'all Talking About?!"
You ever have one of those awful social moments when you walk into a group of people you know and they go from busy conversation to uncomfortable silence? Not that its happened to me (except that time in 6th grade..) mind you! It seems as if a moment like that may have occurred between Bear Stearns and THE REST OF THE FINANCIAL WORLD on Tuesday March 11, 2008!
Bloomberg News broke a story late today that Federal Reserve Chairman Ben Bernanke, New York Fed President Tim Geithner had a lunch meeting in New York on March 11 with, Jamie Dimon (JPM Chase), Lloyd Blankfein (Goldman Sachs), Richard Fuld (Lehman Brothers), James Gorman (Morgan Stanley), John Thain (Merrill Lynch), Robert Rubin (Citigroup), Steve Schwarzman (Blackstone Group) and Ken Griffin (Citadel Investment Group). Bloomberg obtained Chairman Bernanke's day book under the Freedom of Information Act. The day book was released and redacted (a fancy word for "cleaned up"). The details of the meeting were not released.
So the Fed, who maintained that they only became aware of Bear Stearns dire liquidity situation Thursday night, March 13, had a meeting with every major commercial and investment bank on March 11....EXCEPT BEAR STEARNS. Hell, even Blackstone and Citadel were there! Last I checked they aren't ANY KIND OF BANK! Everybody but Alan Schwartz of Bear. The question that is now hanging heavily in the air is what exactly did the Fed know about Bear Stearns and when did they know it?
Also, what were all these guys talking about? Bear Stearns was not insolvent. Bear Stearns had a huge liquidity problem, as did Lehman and to some extent Morgan Stanley. Why were they allowed to attend and weigh in and not Bear? I am going to assume that Blackstone and Citadel were there for two reasons.
- 1. They were probably questioned as to whether each had the desire or the ability to buy Bear.
- 2. In the case of Citadel, who used Bear as one of their main prime brokers, just how much money was being yanked out of Bear by its prime brokerage clients? I believe Citadel had taken out a considerable amount a week or two earlier.
Something just doesn't add up. It doesn't seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn't about Bear Stearns, who had rumors swirling about them since Monday. Somebody is not telling the truth.
According to both Chairman Bernanke and President Geithner, they did not know of the gravity of Bear Stearns situation until Thursday night March 13. By then the liquidity crisis was out of control and Bear had no choice but either take a horrendous deal or declare bankruptcy.
Bear took the deal Sunday night March 16 and that was that. Immediately afterwards, the Fed opened the discount window to investment banks, saving Lehman and maybe Morgan Stanley too. If the Fed knew on Tuesday afternoon, (and I think they knew earlier than that because this doesn't seem like some hastily prepared night meeting) why did they not open the discount window to investment banks that day March 11 and float Bear for a month or two so a suitable deal could have been achieved?
Was it because somebody had to get torched so as not to make it look like a bailout of "the fat cats"? I don't know the answer but I think there's a lot more questions that need to be asked and a lot of conflicting stories that need to be straightened out.