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Posts Tagged ‘Bernanke

Fed chair Bernanke grilled over BofA-Merrill deal

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BernankeTestimonyonBAMer-dealJune252009

It is always a special day when the powerful and mighty are commanded to defend their innocence in front of  a panel of congressional judges. The judges are appointed by the American public and form the House Oversight and Government Reform Committee and the defendant is chairman of the Federal Reserve, Ben Bernanke. In question is the alleged role of the Federal government, which the Fed is part of, in the takeover of investment firm Merrill Lynch (MER) by Bank of America (BofA) in December of last year.

Some lawmakers accuse the Fed and Bernanke in particular to have Ken Lewis, chairman of BofA, pressured into the deal with Merrill. Earlier this month Lewis testified in front of the same panel and left committee members in doubt about the Fed’s role during the acquisition.

After analyzing a number of email conversations between Fed officials, Ben Bernanke and then Secretary of the Treasury, Henry Paulson, one of the key questions for the Fed chairman centered around an email from Jeffrey Lacker, president of the Richmond Fed, about a conversation he had with Bernanke regarding a potential withdrawal of BofA from the Merrill deal on the grounds of a material adverse change (MAC) clause.

“Just had a long talk with Ben (Bernanke). Says that they think the MAC threat is irrelevant because it’s not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone,” Lacker wrote, according to the sources.

In his sworn testimony Bernanke assured the panel that he did not tell BofA’s management that the federal reserve would take action against the board or management if they decided to invoke the MAC clause.

Initially the brisk questioning from lawmakers about the Lacker email seem to physically upset Bernanke. For the most part he denied any accusations and could not recall any details about the conversation. After being asked if he thinks that Lacker is incorrect in his statement Bernanke again stated that he did not know the details of that conversation.

Being asked by Congressman Burden if he believes that Mr. Lacker is lying he again insisted that he did not know if he did say these things or not. Annoyed by Bernanke stonewalling the investigation Burden asked him: “Are you sure you cannot remember?”, and the Fed chairman answered: “I am sure that I can’t remember”.

After it became known that losses at Merrill would be higher than previously thought CEO Lewis intended to evoke the MAC clause. This provoked the Fed and Bernanke to conclude that BofA exerted a serious lack of due diligence and misjudgment in the course of the deal. Congressman Chaffetz from Utah asked Bernanke if he had the power to replace the board, which he affirmed. Chaffetz continued and asked if claiming misjudgment could not be seen as a threat to BofA, which Bernanke again denied by reiterating that he never said anything about firing the board to Lewis.

Congresswoman Kaptur from Ohio touched on an interesting point regarding the relationship of investment firm BlackRock with the Fed in purchasing toxic mortgage related assets. The Fed has several contracts with BlackRock involving programs to purchase and manage a portfolio of toxic mortgage assets the Fed has acquired in the course of diverse bail-outs. Kaptur asked Bernanke if the Fed will support an FBI investigation of BlackRock handling Freddie Mac paper? Bernanke replied that the Fed will certainly not stand in the way if there is an appropriate FBI investigation.

The rest of the questions were rather benign. The chairman seemed to be able during this hearing to pull his head out of the noose, at least for this time , but it seems clear that his reputation is bruised. Even if he did not personally press Ken Lewis into this deal he certainly made his wishes been forcefully known. Whether that constitutes an overreach of government power is not clear at this point. It is too early to see if this will impact his reappointment in January of next year. President Obama has already lent his support to Bernanke. Of great interest will be a hearing before the same committee of Henry Paulson and his recollection of the events around the Merrill-BofA deal next month.

Written by Alfred

25. June 2009 at 11:34 pm

Update on deepest global recession in over 60 years

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Yesterday US president Obama for the first time offered a passionate defense of Ben Bernanke, chairman of the Federal Reserve. Bernanke did a fine job and performed well during the crisis. This support is supposed to strengthen Obama’s position on reform and oversight of the financial-services industry. He plans to vest almost unlimited power with Bernanke and the Federal Reserve and this has drawn some criticism. Many blame the Fed for the current financial and economic crisis and despite drastic actions by the Fed and other central banks around the world, global growth has continued to contract. Here is an update on the most recent forecast for global growth and despite some improvement it ain’t looking good.

Weltbank Kahlschlag bei Euro-Zone-Prognose:

World Bank lowers Euro-zone GDP growth forecast dramatically from minus 2.7 to minus 4.5 percent GDP growth for 2009. US GDP will also contract by 3 percent, worse than the previous 2.4, and Japan by 6.8 percent versus 4.3 percent contraction of GDP in 2009. According to WB the recovery in 2010 will also be more tepid than previously thought. A modest better growth uptick is expected for China, Russia and India.

Weltwirtschaft erholt sich laut IWF schneller:

According to the International Monetary Fund (IMF) the recovery from the global recession will be stronger than previously thought but deleveraging of private and public households, slow credit growth, unemployment and shrinking private wealth will slow down recovery. For 2009 global growth will contract by 1.3 percent according to the IMF.

World Bank cuts 2009 global growth forecast:

Global trade is expected to plunge by 9.7 percent this year, while total gross domestic product for high-income countries contracts by 4.2 percent, the bank said. Economic growth in developing countries should slow to 1.2 percent — but excluding relatively strong China and India, developing economies will contract by 1.6 percent. The WB sees a projected recovery beginning at the end of 2009 but expects it to be much less vigorous than normal.

Global recession nearing bottom, OECD says:

The deepest global recession in over 60 years is close to bottoming out, but recovery will be weak unless governments do more to remove uncertainty over banks’ balance sheets, the Organization for Economic Cooperation and Development (OECD) said Wednesday. The economy of OECD countries will shrink by 4.1 percent in 2009, slightly better than a 4.3 percent from the previous forecast. But the recovery "is likely to be both weak and fragile for some time” . The OECD forecasts return to an average of 0.7 percent growth across its member countries in 2010. In the US recovery "could be uncharacteristically weak and insufficient" .

 WachstumsprognosenJun2009

Written by Alfred

24. June 2009 at 10:11 pm

Bernanke’s ‘shotgun marriage’ got him an invitation

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Few institutions enjoy such powerful position and reputation of the highest order like the Federal Reserve Bank in the US. The men who chaired it like Volcker, Greenspan and now Ben Bernanke are among the foremost economists and most influential people on the face of the Earth. While Greenspan’s role in the crisis, that has destroyed Wall Street and crippled the global economy, has been criticized the bank and its current chairman seemingly were left unharmed. To the contrary in the course of the crisis the Fed’s balance sheet has doubled and tripled and the role as lender of last resort has lifted Bernanke into the status of the almighty savior. 

That Ben Bernanke is no saint has now even reached into the halls of the US Congress. Last week Lewis CEO of Bank of America, a financial institution hit very hard by the crisis on Wall Street, testified before The House Committee on Oversight and Government Reform to the acquisition of investment bank Merrill Lynch in September of 2008. This panel has now ‘invited’ Bernanke to speak about the government’s role in this acquisition. This time it will be quite different though for the chairman, nothing like any of his scheduled testimonies before members of the House and the Senate.

The accusation is serious. According to Lewis government officials threatened to remove BofA’s management if they would step down from the Merrill deal. The House Committee’s questions will focus on numerous emails between Bernanke and other Fed officials from last December. Representative Darrell Issa, a Republican from California, stated at the hearing with Lewis that government officials do not have the power to ‘force shotgun weddings’. The Bernanke hearings will be held on June 25, certainly a day to mark in the calendar.

In another development a Congressman from Texas who is a notorious critic of the Federal Reserve has finally won sufficient support for his bill. Ron Paul and 221 of his colleagues signed on to the Fed Transparency Act, which would require a fresh outside audit of the Federal Reserve. It will now go to the Senate and should it pass it would mean for the first time in history sunshine could fall on this mighty institution. We can only chime in and sing in the age of Aquarius ‘Let the sunshine in’.

Written by Alfred

17. June 2009 at 6:15 pm