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.

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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