Bernanke testimony recap

Submitted By Tim Iacono
After catching a few bits and pieces earlier today of Ben Bernanke's testimony on the subject of the Bank of America/Merrill Lynch deal before the House Oversight Committee, it seemed best to let the "professional" bloggers over at the Wall Street Journal do the heavy lifting and go for a nice afternoon hike instead - that turned out to be a good decision.

Here's recap of today's events, first, from the Real Time Economics:

The Fed chairman is used to harsh treatment from some corners — Sen. Jim Bunning (R., Ky.) and Rep. Ron Paul (R., Texas) are two persistent Fed critics — but usually has a few friendly faces in front of him. That wasn’t the case during today’s hearings on Bank of America’s takeover of Merrill Lynch.
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The onslaught was near universal, but the attacks came on different flanks. Republicans railed against what they perceived as a government imposing its will on business. Rep. Jim Jordan (R., Ohio) kept bringing up the October 2008 meeting where Treasury Secretary Henry Paulson, alongside Bernanke, presented bank CEOs with the TARP capital injections. “Do you see how a reasonable person could reach the conclusion that there, in fact, was this pattern of pressure from the government?”

Hmmm... That sounds kind of interesting.

Actually you can watch the whole thing over at CSPAN, but, one glance down at the elapsed time/total time counter reveals that, at over three hours, it would be a substantial investment of time to find out what happened via that method.

Back to the folks at the WSJ, this time when the subject of inflation was briefly discussed.

How will the Fed prevent its huge influx of money into the financial system from sparking an inflation outbreak? The question didn’t exactly open the door for new insight from Mr. Bernanke, but we’re sure he was pleased to reiterate to his view that everything would be just fine in the end.

“The money is electronic deposits from banks sitting in the Federal Reserve accounts — they’re not being used, not being loaned, they’re not circulating,” Mr. Bernanke explained to lawmakers who had all sorts of other gripes for three hours.

“They key issue here is, can we unwind this money creation and low interest rates in time to head off inflation when the economy begins to recover?” he said. “We have all the tools we need to do that. We believe we can do that. We will certainly remove that stimulus in time. And we are committed to price stability and we will make sure that it happens.”

You know, next year could turn out to be quite a test for the Fed chairman, assuming he gets nominated for another four year term later this year.

With an economic recovery possibly gathering steam in the fall or next year, energy prices are sure to be on the rise (if the events of spring have taught us anything it is that commodity prices will be bid up in advance of any recovery, real or imagined) and, during the run-up to important mid-term elections, it will be Bernanke's job to do what his predecessor did not do about six years ago - raise interest rates more than a few basis points.

That could turn out to be some test.

Over at the Deal Journal blog they live-blogged the entire hearing, apparently hanging around for the entire three hours. This part looked kind of interesting...

11:45: The questions return to the “threat/no threat” debate. Bernanke say if the Fed wants to remove a CEO, it will do so. Just look at AIG, where the Fed fired the CEO as a condition of the insurance giant’s bail out. But I didn’t threaten to fire Lewis.

11:52: Rep. Cummings: Did you think that Ken Lewis was competent (at time of the Merrill deal)?

Bernanke: That’s not a yes or no answer. (Ben just won’t bite)

High noon: Rep. Clay.: Shouldn’t you have disclosed what you knew about the mounting losses at Merrill to the shareholders and to the broader public.

Bernanke: Again, he punts. “It was up to Bofa to disclose those losses.” Our job was to make sure the system was stabilized.

That preserving "system stability" or "preventing a systemic collapse" argument seems to be a reliable ace-in-the-hole for the Fed Chairman, a virtual "Get Out of Jail Free" card it seems, even though they failed to prevent a collapse last fall.

Aside from committing a crime (and maybe not even in that case), is there anything that this "Get Out of Jail Free" card would not be effective on?

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