“[Bernanke] gave this stuff out [inside information -FJS], but I didn’t realize what he was saying at the time, so I didn’t do a great trade.”
Hedge-fund manager David Tepper, after paying $200,000 to take former Federal Reserve Chairman Ben S. Bernanke to dinner, quoted in the New York Times, May 21, 2014
Ben S. Bernanke continues to be a man of his times. His mind never looks backward or forward. It is as if every day is complete within itself, with no attachment to precedent; no past, no record, no history, and, in the future, he will bear no responsibility. Some precedent may be helpful to critique former Federal Reserve Chairman Ben S. Bernanke’s current escapade.
After Paul Volcker stepped down from the chairmanship in 1987, he made one, solitary public comment that could in any way be deemed a comment on the Federal Reserve. (It was a defense of the new Fed chairman, Alan Greenspan, who had raised interest rates shortly before the 1987 stock-market crash.) Volcker held his tongue for 12 years, until 1999. Then, and only then, he simply could not remain silent while Greenspan sweet-talked Americans into buying NASDAQ shares at 200 times earnings. On May 14, 1999, the former Federal Reserve chairman spoke at the Kogod School of Business commencement at American University: “The fate of the world is dependent on the stock market, whose growth is dependent on about 50 stocks, half of which have never reported any earnings.”
Volcker’s observation was obvious at the time but, as usual, the Inner Sanctum never let the public in on the fix.
After Alan Greenspan resigned in 2006, he behaved just as we expected. From Panderer to Power:
“On February 12, 2006, two weeks after Chairman Greenspan retired, he received $250,000 to speak at a dinner Lehman Brothers’ hosted for hedge-fund managers. The New York Post reported Lehman paid $100,000 more than Greenspan’s “customary speaking fee” of $150,000. It was a surprise to many he spoke at all. Caroline Baum commented on Bloomberg: “At a minimum, Greenspan evinced bad judgment by not letting time pass before reasserting himself. His refusal to cede the limelight gracefully…left a bad taste in people’s mouths.” That he spoke publicly, and for money, was undignified. This reflected solely on Greenspan. Worse, he was interfering with the Bernanke Fed. He told the hedge-fund managers that short-term interest rates would have to rise. The next day, they did….
“[C]entral bankers took their gloves off. Mervyn King, Governor of the Bank of England (and former colleague of Ben Bernanke at MIT) announced: “I’ll only say that I am very grateful to Eddie George [King’s predecessor] that he has not been in the newspapers and on radio all the time commenting on what the monetary policy committee is doing. In due course I will ensure I do exactly the same thing.”
It will be interesting if Mervyn King reprimands his former cellmate from M.I.T. He may. King has been one of the few central bankers who admits central banks played a part in the “the worst financial crisis in global history, including the Great Depression” [B. Bernanke to the FCIC in 2009. This declaration reminded the Committee “back off, I saved the word” – FJS]
The media has decided Bernanke is “in play.” This is a matter of personal perception, ratcheted by a New York Times story on Thursday, May 20, 2014. The title is telling: “After the Fed, Bernanke Offers His Wisdom for a Big Fee.”
The title itself is a message. “Open season” on Bernanke is now permitted. Elizabeth Warren explained this distinction in her recent book, A Fighting Chance. Warren is now a senator from Massachusetts. At the time of the incident she recalls, Warren was poking holes in the Old Boys impregnable frat house. Larry Summers decided to sit her down. Warren writes in A Fighting Chance: “He teed it up this way: I had a choice…. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.”
Permitting the possibility a Times editor was asleep at the wheel, Bernanke has lost protection. He would be the second insider cut loose in the past two weeks. On Monday, May 12, 2014, James Freeman teed up Timmy Geithner’s new book, Stress Test in the Wall Street Journal. Freeman is the deputy editor of the Journal’s editorial page. In the world Summers described, the Journal would hire an outsider to toss Geithner onto the ash heap of history.
The New York Times and the Wall Street Journal will always protect their own interests, first. The Times, for instance, was an early advocate for U.S. military operations in Vietnam. That changed.
The Times lashing lacks historical perspective. It states: “Mr. Bernanke is following a well-trodden path that his predecessor, Alan Greenspan, and other Washington policymakers have taken.” This is recent, though. Certainly, getting paid $200,000 to $400,000 for dinner, night after night, is new.
Particularly revolting is Bernanke selling himself (being a family publication, a more accurate verb lies dormant) to the .01%. For appearance sake alone, such blatant money-grubbing offers grist to those who see the Federal Reserve as hostage to banking interests. Similarly, claims of “Federal Reserve independence” and other antiseptic nonsense will lose credence to a jaundiced eye.
A perceptive Congressman who sits on the Financial Services Committee may wish Bernanke was still in the penalty box. For instance, Jim Bunning long retired now, could be his party’s pick, after, of course, finance and the economy come unplugged. (Any day now. You heard it here first, and second, and third…)
On December 9, 2009, Bunning let loose on the prof: “How can you regulate systemic risk when you are the systemic risk?” This is funny, but also every word is true, including “you” – not, the “Fed,” the “FOMC,” the “literature” – and “the” – not, his model or his (non)-theory.
Should some Congressman decide to subpoena the Richard Whitney of 2014, this is the time to gather C-Span clips for a presidential run in 2016. The following background may help. It addresses Bernanke’s complete lack of understanding – despite his responsibility – for money-printing without license.
“Using high leverage to improve corporate performance is much like encouraging safe driving by putting a dagger, pointed at the driver’s chest, in every car’s steering wheel; it may improve driving but may lead to disaster during a snowstorm.”
Ben S. Bernanke, 1990
Bloomberg headline: “Bernanke, Kohn Pledge Fed to Withdraw Credit When Crisis Ends”
April 9, 2009
From the April 9, 2009, Bloomberg story: “Bernanke’s speech yesterday detailed steps that the Fed can take to remove that liquidity, including soaking up cash by the issuance of special bills.”
60 Minutes, March 2009:
60 Minutes voiceover: “That makes it all the more outrageous when he hears of financial firms handing out perks and bonuses after they’ve taken bailout money.”
Bernanke: “The era of the high living, this is over now. And that they need to be responsible and use the money constructively…. [Bankers need to] have a reasonable sense of humility based on what’s happened in the past 18 months.”
60 Minutes, December 5, 2010:
60 MINUTES: “You have what degree of confidence in your ability to control this?”
BERNANKE: “One hundred percent.”
“With all due respect, US policy is clueless. It’s not that the Americans haven’t pumped enough liquidity into the market. Now to say let’s pump more into the market is not going to solve their problems.”
Wolfgang Schäuble, German finance minister, Financial Times, November 5, 2010
“We are learning by doing.” (Or, something similar)
Ben S. Bernanke, lecture at George Washington University, March 2012
Testimony before Senate Banking Committee, February 2013
SENATOR TOOMEY: “What would the impact be of actually having to liquidate a big portion of your holdings on the bond market, on the equity markets?
CHAIRMAN BERNANKE: “We don’t anticipate having to do that.”
SENATOR TOOMEY: “Not ever?!”
[Bernanke went on to confirm “not ever.” – FJS]
“First, innovation, almost by definition, involves ideas that no one has yet had, which means that forecasts of future technological change can be, and often are, wildly wrong.”
Ben S. Bernanke, May 18, 2013:
“[N]ot only are scientific and technical innovation themselves inherently hard to predict, so are the long-run practical consequences of innovation for our economy and our daily lives.”
Ben S. Bernanke, May 18, 2013
“THE FED HAS NO ENDGAME,” MSM headline, November 4, 2013
“A brief update on the bloated condition of the Federal Reserve’s balance sheet. At present, the Fed holds $3.84 trillion in assets, with capital of just $54.86 billion, putting the Fed at 70-to-1 leverage against its stated capital. Given the relatively long maturity of Fed asset holdings, even a 20 basis point increase in interest rates effectively wipes out the Fed’s capital. With the present 10-year Treasury yield already above the weighted average yield at which the Fed established its holdings, this is not a negligible consideration.”
John Hussman, November 5, 2013
“Larry Summers is worried that the Federal Reserves’ efforts to stimulate the economy could end up doing damage. ‘Low interest rates could become a source of instability down the road,’ said Summers….What’s more, Summers said that the Fed’s policies are likely making the income inequality problem in the U.S. worse, by helping wealthy Americans who hold the majority of stocks, more than the rest of the country. ‘A policy that works by pumping up asset prices is not going to be egalitarian,’ said Summers.”
Fortune, May 15, 2014.
Not in the short-term, Larry.
LIFE GOES ON OUTSIDE THE ECCLES BUILDING:
MarketWatch headline: SHE FOUGHT WALL STREET, AND NOW SHE’S OFF TO JAIL: OPINION: UNLIKE CEO’S, THIS ‘OCCUPY’ PROTESTOR COULDN”T AVOID PROSECUTION. by David Weidner: “Cecily McMillan was sentenced yesterday to 90 days in prison for assaulting a police officer who was trying to clear Zuccotti Park in lower Manhattan, where Occupy Wall Street protesters had gathered. McMillan, 25, denied the second-degree assault charge.” – May 20, 2014
To add a populist tone, which Ben Bernanke is so generously encouraging: Nor could Cecily McMillan afford to have dinner with the central banker, which, in any case is most useful to hedge-fund managers such as David Tepper, who paid himself over $3 billion in 2013.
“Pininterst, Uber – $10 billion is the new $1 billion.” – May 20, 2014
“Anton Purisima has filed a lawsuit in a Manhattan court for two undecillion dollars. “The sum, written as two followed by thirty-six zeros, is likely a new record for a demand in a lawsuit, the New York Postsays.” It’s also more money than even exists in the world by a long shot, Gothamistnotes.” – May 20, 2014
Not for long, Gothamist.
“60 Minutes” March 2009
“If you had a message for the American people in this interview what would that be?”
Bernanke: “…I’d say first of all the Federal Reserve is here and is going to do everything possible to support the economy.”
Hi ho, silver.
Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009)