James Pethokoukis

Politics and policy from inside Washington

The Grilling of Ben Bernanke

Jun 25, 2009 21:51 UTC

Ben Bernanke’s testimony to Congress about his involvement in the Bank of America-Merrill Lynch  merger was a lot like an FOMC statement: short and unadorned, yet open to much interpretation. When the Federal Reserve wasn’t repeatedly saying “I don’t remember” or “I don’t recollect,” he was matter-of-factly stating that he didn’t intend to threaten Bank of America CEO Ken Lewis with termination if he didn’t go through with the Merrill deal.

Yet both Republicans (all) and Democrats (some) seemed astonished that Bernanke wouldn’t admit that having the Fed outline all the negative repercussions of invoking the “material adverse change” clause to escape the Merrill deal was a de facto threat to BofA management. Whether or not Bernanke actually believed his script was impossible to prove, since the Republicans, particularly Representative Darrell Issa of California, didn’t have evidence that Bernanke did intend to directly threaten Lewis.

It was Issa who said on television that Bernanke was engaged in a “cover-up” to disguise his actions in pushing the merger. Great claims require great proof. And Issa didn’t have great proof, just a bit of hearsay.
Yes, there was an email showing that Richmond Federal Reserve President Jeffrey Lacker claimed he told Lewis, after having a long talk with Bernanke, that BofA management was “gone” if it played the MAC threat. But Bernanke said that was a misinterpretation of his chat with Lacker.

So unless there is a transcript of the Lacker-Bernanke chat floating around somewhere, a dead end has been reached. Issa clearly overplayed his hand if what he actually meant to prove was that an outright deception had taken place. (Even if he had a smoking gun and Bernanke was somehow forced to resign, Issa would probably not like Fed Chairman Lawrence Summers any better.)

Then again, perhaps what the Republicans were actually trying to do was to paint Bernanke as an enabler of President Obama’s supposed big government policies. There has been a conservative backlash against the notion of the Fed operating as a “systemic risk” regulator that could serve as a catalyst for government takeovers of financial institutions — or bullying them, as the GOP charged Bernanke with doing in this case.

Of course, another criticism of the Fed as super-regulator would be that such a role would overly politicize the central bank. Indeed, it did seem weird that after grilling Bernanke for three hours and implying that he was lying, one Republican offered up a question about M2 and monetary policy.

Perhaps the one bit of evidence that did come out of the Bernanke interrogation was that having the Fed regulate banks and conduct monetary policy is a bad idea if you care about central bank independence.

Obama’s stimulus trap

Jun 25, 2009 18:28 UTC

It was, potentially, the most explosive question asked at President Barack Obama’s news conference. Just nine words: “Do you think you need a second stimulus package?”

Now Obama seems to pride himself on his logical nature, so the logical building blocks of the question were surely appreciated.

Consider: The president’s nearly $800 billion stimulus plan was predicated on a particular economic forecast. According to that forecast, the stimulus package would prevent the U.S. unemployment rate from exceeding eight percent. (Even without the stimulus, Team Obama thought nine percent was the upper joblessness limit.)

The unemployment rate is already 9.4 percent, and Obama himself said that number will exceed 10 percent before long. Ipso facto, the stimulus package — Obama’s signature achievement as president so far — was either too small, improperly structured, or both. To admit the need for a “second stimulus” is to admit the first one failed.

So Obama didn’t. After replying “Well, not yet” to the original question, Obama admitted only that the White House forecast has been way too optimistic:

“I think it’s fair to say that, keep in mind the stimulus package was the first thing we did, and we did it a couple of weeks after inauguration … If you recall, it was only significantly later that we suddenly get a report that the economy had tanked. And so it’s not surprising, then, that we missed the mark in terms of our estimates of where unemployment would go.”

So “not yet” is certainly a correct, if limited answer. No need for a second stimulus package, since the first one hasn’t really even gotten going yet.

Some two-thirds of the $787 billion American Recovery and Reinvestment Act was planned to be spent after 2009, so immediate “stimulus” was never really the primary intent of the package. If it had been, the plan would have been front-loaded (massive payroll tax cuts being one possible mechanism) to boost the economy at the nadir of the recession.

As it is, the economy will likely be growing (hopefully) when the bulk of the money hits, though unemployment may still be rising or stuck at a high level.

No, the main goal of the ARRA was to make a downpayment on the Obama healthcare, energy and education agenda, leaving it mostly to monetary policy to bolster the economy in 2009.

Not surprisingly, Obama didn’t highlight the uncomfortable reality that this economic bug was really an intended feature. And most Americans surely don’t realize the political and economic subtleties at play, and so to them the “stimulus” plan doesn’t seem to be very stimulative. Of course, it was not intended to be.

Indeed, a Rasmussen poll earlier this month found that by a 45-to-36 percent margin, Americans think the rest of the stimulus plan should be canceled.

(And, of course, quickie stimulus programs programs have a poor track record. Back in 2008, only a third of the $100 billion Bush stimulus was spent by consumers, according to the Economic Policy Institute. Economist Martin Feldstein estimates that only 15 percent was spent.)

Is it any wonder, then, that if a growing number of Americans think the president’s major economic achievement should be dumped, that a growing number also disapprove of his handling of the economy?


Kind of a dumb question. If Americans think that his “major economic achievement should be dumped”, then of course they disapprove of his handling of the economy. “If you recall, it was only significantly later that we suddenly get a report that the economy had tanked”. I don’t know who gives him his information but I knew the economy was in the tank when they started campaigning and it definitely went down significantly well before he got elected. I do not believe Obama’s intentions are pure for the good of the American people nor the Constitution he’s sworn to defend to the best of his abilities.

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Thoughts on Bernanke, Lewis and Bank of America-Merrill Lynch

Jun 25, 2009 18:22 UTC

I sat through most of the Ben Bernanke/BofA hearing before having to duck out to do some CNBC. But these are my takeaways

1) It sure would be great to have a transcript of the conversation between Richmond Fed President Jeffrey Lacker and Bernanke that led Lacker having a chat with BofA’s Ken Lewis that then led Lewis to claim he was being threatened.

2) Without #1, there is no smoking gun. Rep. Issa overreached when he said there was a coverup.

3)  Some Dems, particularly Elijah Cummings, indicated frustration with Bernanke’s narrow, legalistic answers.  Bernanke to Lewis was like asking your mechanic if you need new brakes and he says, “I wouldn’t drive the car with these brakes, but that’s me. It’s up to you.” Lewis read between the lines. Bernanke said he should not have, that the Fed was merely outlining the market reaction to BofA trying to scuttle the deal with Merrill.

4)  A three-hour grilling where the GOpers basically accused Bernanke of lying and perjury. And then at the end, a question about M2 and monetary policy. Still think having the Fed as a super-regulator is a good idea?


Having the fed period is a horrible idea.

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Bernanke/BofA hearing … live blogging

Jun 25, 2009 14:08 UTC

11:55: I dont know what Paulson said to Lewis; but always Lewis’ decision

11: 51 elijah cummings (D) didnt get the Dem memo that lewis, not bernanke is the bad guy

11:49 BB repeats  “I never told anyone to threaten Mr. Lewis”

11:41 BB: concerns about quality of BofA due diligence

11:40 BB asked rhetorically, where did TARP $$$ go? This again …

11:33 TALF was called TARF. Heh.

: The “I don’t recall” “I don’t recollect” stuff looks bad

Me: Anyone who wonders whether more regulatory powers for the Fed might politicize it, should have their questions answered by this hearing. Yes.

11:24 BB worries that too much Congress oversight, GAO would amount to a congressional takeover of monetary policy

11:22 BB says total Fed bailout $$$ $100 billion; balance sheet is $2.2 trillion and MBS;

11:20 Dems making point that Lewis was a wily CEO trying to shakedown taxpayers

11:10  BB says “the market” would have leveled threat at Lewis and board, not Fed

11:08 BB: doesnt regret anything about BofA/ML deal

11:03 B now explaining why Lehman was left to fail; says he had no authority

11:00 BB says Bank CEOs didnt have to take TARP

10:58 Jordon (R) says there is a “pattern of intimidation” by government/Fed/Treasury

10:52 Burton (R) makes suggestion of perjury by BB and his “I don’t remember” phrases … wow

10:50 BB: wont say Lewis is lying; says he was merely expressing concerns; also wont say Paulson lied that board would be fired; says he and paulson had frequent conversation and he wouldnt have told paulson that lewis/management would be axed

10:48 Kucinich is questioning, trying to make points about executive compensation limits pushed or not pushed by the Fed on BofA

10:40 BB said he does not remember details of conversation that email suggest was the genesis of a supposed threat to Lewis

10:39 Issa starts to question BB

10:35: BB denies threatening to fire Lewis, management, nor promising specfic $$ — just a plan

10:33 BB: need a new framework to give Fed more tools

10:30 BB: I did not tell BofA that Fed would try to remove management if they went through with MAC

Obama’s healthcare informercial

Jun 25, 2009 14:07 UTC

This exchange was not good for Team Obama:

Dr. Orrin Devinsky, a neurologist and researcher at the New York University Langone Medical Center, said that elites often propose health care solutions that limit options for the general public, secure in the knowledge that if they or their loves ones get sick, they will be able to afford the best care available, even if it’s not provided by insurance.

Devinsky asked the president pointedly if he would be willing to promise that he wouldn’t seek such extraordinary help for his wife or daughters if they became sick and the public plan he’s proposing limited the tests or treatment they can get.

The president refused to make such a pledge, though he allowed that if “it’s my family member, if it’s my wife, if it’s my children, if it’s my grandmother, I always want them to get the very best care.

“There’s a whole bunch of care that’s being provided that every study, that every bit of evidence that we have indicates may not be making us healthier,” he said.

Gibson interjected that often patients don’t know what will work until they get every test they can.

My spin: This raises a nasty populist element to the whole debate. Expect a closer focus on the health plan of Congress.


The elites lived differently under communism too.

If any Senator’s family member is diagnosed with a difficult or rare ailment, you can bet that all the tests in the world would be ordered. The Senator might even make personal appeals to the bureaucrats if needed. Can you see the picture I’m trying to paint?

The free-market while imperfect is still the best way to go. Socialistic medicine has more drawbacks.

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