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Turning Up The Heat

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December 21, 2009

By now you should be aware of the fact that for his 56th birthday, Federal Reserve chairman Ben Bernanke was named Time magazine’s “Person of the Year”.  Were the folks at Time so arrogant as to believe that this honor would insure the confirmation of Bernanke to a second term as chairman of the Federal Reserve?  More than a few commentators expressed the view that Time’s “Person of the Year” award might actually jeopardize Bernanke’s chance at confirmation.  For example, take a look at what Mike Shedlock (a/k/a Mish) had to say:

That Bernanke is on the cover of Time Magazine means one thing “Bernanke’s Time Is Limited” He is on his way out.  And that is good news.

*   *   *

The quicker this blows up, the quicker we can recover.  And knowing what we know about Time Magazine, Central Banking will blow up sooner rather than later.  Moreover, Bernanke will not be part of the solution, and that is a good thing.

I thank Time Magazine for the information and their kiss of death warning. However, I must also remind readers that Stalin made the cover twice, so immediate results just might be expecting too much.

When Bernanke was grilled by the Senate Banking Committee during the confirmation hearing on December 3, Senator Jim Bunning of Kentucky gave him a magnificent pummeling, most notable for the assertion:  “You are the definition of a moral hazard!”  My only criticism of Bunning’s diatribe was that he should have said:  “You are the personification of a moral hazard” or “You are the epitome of a moral hazard”  —  otherwise, it was perfect.  If that weren’t enough, Senator Bunning demanded that Bernanke answer seventy written questions submitted by Bunning himself.  Those of you who have ever been a party to a lawsuit might recall having to provide signed answers to written interrogatories.  Most jurisdictions place a limit on the number of such interrogatories to the extent of approximately 35.  Senator Bunning propounded twice that many to Bernanke and the nominee answered all of them.  Don Luskin of Smart Money analyzed one of these answers in a way that underscored the necessity of removing Bernanke from the Fed chairmanship.

On December 18, Victoria McGrane reported for Politico that the Bernanke nomination “could be in more trouble than previously thought”.  Although the Senate Banking Committee voted to confirm the nomination, ultimately the entire Seante must vote on the matter.  The fact that six Republicans and one Democrat from the Banking Committee voted against the nomination was portrayed as an ominous signal, casting doubt on the likelihood of confirmation.  Ms. McGrane discussed the reaction to the confirmation hearings expressed by Brian Gardner, a bank analyst for Keefe, Bruyette and Woods:

Two aspects of the two-hour debate that preceded the committee vote struck Gardner as worrisome for Bernanke:  the unenthusiastic — even apologetic — tone from some of the senators who voted yes and a dispute over the Fed’s refusal to release documents about the bailout of insurance giant American International Group to senators on the committee.

The article explained that the AIG bailout documents were available for review by “some banking committee staffers” although the documents have been withheld by the Fed from individual senators and the public, based on the Fed’s claim that the documents are “protected”.

This is apparently an assertion by the Fed that there is some sort of privilege protecting the AIG bailout documents from disclosure.  Nevertheless, if the fight over these records ever gets before a court, it is likely that production of the documents would be compelled, since any claim of privilege was waived once the Fed allowed the “banking committee staffers” to review the items.

The Politico report noted the significance of this matter:

That spat could have legs, Gardner said, and if it resonates with a public already fuming at the Fed, it could sway the votes of yes-leaning senators.

The battle over the AIG bailout documents was also the subject of an opinion piece in the December 19 edition of The New York Times, written by Eliot Spitzer, Frank Partnoy and William Black.  Here’s some of what they had to say:

No doubt, some of the e-mail messages contain privileged conversations among lawyers.  Others probably include private information that is irrelevant to A.I.G.’s role in the crisis. But the vast majority of these documents could be made public without legal concern.  So why haven’t the Treasury and the Federal Reserve already made sure the public could see this information?  Do they want to protect A.I.G., or do they worry about shining too much sunlight on their own performance leading up to and during the crisis?

What will these e-mails reveal about the actions of Ben Bernanke and “Turbo” Tim Geithner during the AIG bailout phase of the financial crisis?  Were laws violated or do they simply exhibit some poor decision-making and cronyism?

Most of us are now getting ready for the coldest month of the year – but for Ben Bernanke, the heat is being turned up  —  full blast.



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