Bernanke Vote: Cloture Votes and Cheap Ploys
Joshua Rosner is Managing Director at independent research consultancy Graham Fisher & Co and advises regulators and institutional investors on housing and mortgage finance issues. Previously he was the Managing Director of financial services research for Medley Global Advisors. In early 2003 Mr. Rosner was among the first analysts to identify operational and accounting problems at the Government Sponsored Enterprises, in the third quarter of 2005 Mr. Rosner identified the peak in the housing market, In October of 2006 Mr. Rosner highlighted the likely contagion from structured securities and credit markets into the real economy.
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Sources have suggested that Senator Barbara Boxer (D-CA) intends to vote “yes” on Chairman Bernanke’s cloture vote and “no” on the floor. The cloture vote requires 60 “yes” votes to approve and really is THE vote to confirm. The floor vote only requires a simple majority to pass and therefore is a less important vote requiring fewer “yes” votes. The blogs and the press should warn those Senators, in advance, that they will out Senators and dog them to the mid-term elections if they try this cheap ploy to look like they are taking a stand. Vote “yes” or “no” – period.
Senators should be told: “If you think Chairman Bernanke has done a good job and fulfilled his mandate (price stability and full employment) then, by all means, vote yes. If you are so focused on your polls that you can’t vote your conscience – either way – you deserve to be sent packing”.
I would add one thing:
The most important story of the week is not being written. Why? A whistle blower suggested to Rep. Issa (R-CA) and, either the same or a different source suggested to Senator Bunning (R-KY), that Chairman Bernanke’s staff at the FRB recommended he allow AIG to file for bankruptcy and recommended AGAINST a bailout of AIG. It is claimed he overrode that recommendation and supposedly the staff recommendation was changed prior to being disclosed to the full Board of the FRB.
In today’s House Oversight Committee meeting both Secretary Geithner and Secretary Paulson repeatedly stated “we had to bail out AIG, we had no choice”. If, in fact, Federal Reserve Board Staff recommended against the bailout. Was it so clear they really “had to”?
Ranking Member Issa does not have subpoena power and has requested that Oversight Chairman Towns (D-NY) subpoena certain relevant documents (“sb-aig-01000092″, “sb-aig-01000125″, “Draft Memo on AIG”).
There has been no real pressure exerted by the press to get this information into the hands of Senators and the public BEFORE the cloture vote. Chairman Bernanke’s cloture VOTE SHOULD NOT BE HELD UNTIL our elected representatives have full information either exonerating Bernanke of these allegations or supporting the allegations. Moreover, we have a right to know “if we had to bail out AIG”
Anyone that want’s to try and suggest mine is a partisan position merely has to look at my willingness to, in the interest of functioning and transparent markets, take on Republicans and Democrats alike.
>
Joshua Rosner
Managing Director
Graham Fisher & Co., Inc.
O – (646) 652-6207
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January 27th, 2010 at 9:47 pm
President John F. Kennedy responds:
“The very word ‘secrecy’ is repugnant in a free and open society; and we are as a people inherently and historically opposed to secret societies, to secret oaths and to secret proceedings. We decided long ago that the dangers of excessive and unwarranted concealment of pertinent facts far outweighed the dangers which are cited to justify it — except, of course, for the secret dealings of Ben Bernanke, Tim Geithner, and Hank Paulson — and the Federal Reserve and any member bank…..and some insurance companies….let’s not forget them….and duh! how can I forget the giant squid?”
January 27th, 2010 at 9:57 pm
Does anybody seriously think we would have been better off allowing AIG to file for bankruptcy? Clearly the bailout was not done properly and there should have been haircuts but lets get real. How quick people are to forget just how close to the cliff we were.
January 27th, 2010 at 10:06 pm
Thanks for the effort on this, Josh.
It would be a shame to reappoint Bernanke and find out there is more coming out in the investigations as to what role he might have played along with Geithner.
I’ve alerted my Congresscritter.
January 27th, 2010 at 10:26 pm
Here’s Congressman Issa’s subpoena request letter, from Naked Capitalism:
http://www.nakedcapitalism.com/2010/01/breaking-darrel-issa-requests-subpoena-in-aigfed-bailout-cover-up.html
The argument appears to be that filibuster is “bad form” when it comes to nominations.
Unfortunately, the AIG morass is complex and is still being sorted out and there’s no smoking gun to produce at this time. It’s very discouraging. You need a special prosecutor appointed in a case like this.
January 27th, 2010 at 10:38 pm
Cannot believe you print this… stupid.
We should avoid confirming Bernanke… via filibuster? It makes way more sense to vote YES on cloture, and NO (if you so feel on the issue of “confirm”).
Despite the procedural rules… 41 votes, does not a “majority” make.
January 27th, 2010 at 10:53 pm
Flashback just seven years ago…
“Without that information … Miguel Estrada will never be a federal judge,” said Minority Whip Sen. Harry Reid, D-Nevada.
http://www.cnn.com/2003/ALLPOLITICS/02/13/senate.estrada/index.html
January 27th, 2010 at 11:04 pm
you go cognos-
way to be status quo-
makes sense because you suck as much as they do
January 27th, 2010 at 11:14 pm
I just wish they’d stop sending lightweights. It’s like having a foreclosed house on your street — drives down the property values.
January 27th, 2010 at 11:23 pm
“A whistle blower suggested” really? Is that what you got? I have a lot of things to suggest and I sure do hope that doesn’t stop the country from moving forward.
January 27th, 2010 at 11:27 pm
@BR: My, my, you’ve outdone yourself. Bravo. Yeah, I suppose if there was a chance of a contempt of Congress before, it’s pretty much guaranteed at this point. Do yourself a favor and stay out of DC and clear lines of sight. You are becoming a marked man. Which I have an enormous respect for. What can I do to help?
And who would choose to rush things, rather than wait for some more info.
This is not a partisan issue. This is a truth and transparency issue. Give us time to rationally, objectively and intellectually sort things out. Let the Reps push.
Isn’t that supposed to be BSO’s philosophy?
Ooops, desired public personae. Not the real truth and transparency BSO.
BSO is falling on his own sword, even as he speaks. Eloquent BS. Great speaker.
What are the old sayings? PT Barnum. We all know that one by heart.
Slick Willie Clinton: Tell them what they want to hear. Do what the elite want.
Never let your alligator mouth write a check your canary ass can’t cash.
Except he did not personally commit to a single thing. Guess that’s why he can say he’s lived up to his campaign promises. Oh, he did promise to meet with people. DUH. Oh and he did promise to filibuster the telecom immunity act. Ooops.
Above the fray and out of harm’s way. Until next time.
There are two kinds of leaders: those that are willing to take the bullets for their people, and those that expect their people to take the bullets. Let’s sit in the civil war tent and ponder strategy while thousands are lost. And which one exactly is BSO?
January 27th, 2010 at 11:28 pm
The last “whistleblower” (Bradley Birkenfeld of UBS) got his ass thrown in jail for ratting out billionaire tax evader criminals. And he’s the only one going to jail. None of the evaders are even having their names revealed. What does that tell you? All whistleblowers had better blow the whistle on people who don’t matter or else you’ll land in jail too or somewhere worse.
January 27th, 2010 at 11:28 pm
@Alfred: Not BR. Josh Rosner.
January 27th, 2010 at 11:41 pm
@Mannwich: Correct. If I ever learn to read. ……
January 28th, 2010 at 12:27 am
John Doe
What are you talking about? AIG could have gone down without harming the insurance units. Everyone who knows anything knows this. They go into statutory receivership at the state level. AIG the holding company gets left with the CDS at AIG FP. Hank and Tim either didn’t know this back then and are pretending not to know now, or they just panicked and screwed up, or they really knew what they were doing and for some reason really wanted the back-door bailout.
The whole idea of a systemic meltdown is a myth, a fantasy. Only people like Tim Geithner and “cognos” believe it. Paulson lied about industrial companies not being able to get financing. The CP market for financials was in trouble, but not industrials. Look at the Minn. Fed for the data.
Geithner is so wedded to his bad decisions that i think he honestly believes his own BS. What a sad, little creature.
Josh Rosner is exactly right on this. We cannot allow the secrecy to continue. We can make real change possible by stopping the Bernnake nomination. Have you all written your Senator yet? It only takes about 2 minutes. Go ahead, what will it hurt?
January 28th, 2010 at 12:42 am
On AIG – Dennis Kucinich seemed to suggest today that Goldman was hedged if AIG went bankrupt, but was not hedged if AIG was bailed out by Unca Sam but forced to take a haircut, hence the generous 100 cents on the dollar was “arranged” at the public’s expense.
Not sure what the fuss is about Bernanke. Shouldn’t everyone just be glad that an expert in the Great Depression was made head of the Fed in 2006 before the financial system implosion that no one could foresee (as they all said in 2008) even happened? Like, how much luckier can ya get?
January 28th, 2010 at 12:55 am
@clawback
I don’t know the full legal terms and limitations to what you have described but nevertheless if an uncontrolled bankruptcy were allowed at AIG FP and all of its counter parties were not to be paid there is no doubt we would have had a systemic meltdown. It wasn’t just Timmy Geithner and Hank Paulson saying this either. Our good friend Barry Ritholtz himself believed this. Let me quote him from his September 16 2008 post. “AN uncontrolled bankruptcy would have dramatically exacerbated the current recession — possibly turning it into a depression;” and he goes on to say “– if any firm was TBTF — too big to fail — it is AIG.”
You are delusional to think that a disorderly failure of AIG would not lead to a systemic meltdown. We can debate on the way it was bailed out and the terms it received but to say that it could have just been kicked to the side is ridiculous.
January 28th, 2010 at 2:16 am
Watching Geithner and Paulson today, I was struck by the common party line from both that AIG’s default represented “the end of the world” with “25% unemployment”. Maybe saying so makes it so, like we would all roll over and play dead.
January 28th, 2010 at 7:45 am
Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.
Where are you Andrew Jackson?
It was morally wrong for our children to pay off Goldman’s CDO wagers.
Even if the sky fell and rivers ran red for 1000 years, people with AIG exposure should have gone to court and gotten in line for their money, just like everyone else .
A taxpayer heist clean and simple. Fear-mongering. Oldest trick in the book.
January 28th, 2010 at 8:36 am
@ Alfred e
…”Slick Willie Clinton: Tell them what they want to hear. Do what the elite want.” You gotta be kidding me — “actually using the term “slick Willie”. Is that the best you got? Well, if no one else is going to call you out on it, I will. Funny, how you only mention Dems in your tirade skipping over 8 “W” years in the middle. Talk about losing some credibilty with partisan BS. As Barry says, it’s best to me non-partisan in all this. There is PLENTY of blame to go ’round, here.
January 28th, 2010 at 8:56 am
yon, Rosner is, truly, one the Good Ones..
We, whether we know it, or not, owe much to Individuals like him, Whalen, and Ritholtz..
w/out them, and a few others, the Tanks would have, in even more #’s, already, rolled..
~~
krice,
w/this: “There is PLENTY of blame to go ’round, here.”
(D) & (R) these ‘Representatives’ have been equal opportunity Opportunists/Traitors, purchased Wholesale.
January 28th, 2010 at 9:05 am
From my post today at ZH; a reply to some concerns about MBS purchases
—————————————————————————————————-
Assume the Fed is engaging in reciprocal MBS purchases such that the party who sells the MBS to the Fed must purchase UST debt. Thus, The Fed is monetizing the deficit. So far, this is nothing new. It has been commented on many times in the past.
Now, assume a banker’s viewpoint. If you print money to purchase MBS debt paying a higher rate than the UST debt being sold in reciprocity, a banker would think he is making money on the spread.Interest income from MBS revenue is likely higher than the cost of UST debt offsetting it. Profits are given to the UST to cover the underlying UST interest expense and pay for government operations.
The point being ignored is that UST debt is basically a perpetuity since it is constantly refinanced. The MBS debt will be paid off within a few years.
Therefore ,this scheme is just a cynical plan to force the next generation to pay interest and principal from today’s financial shenanigans. But wait, there’s more.
Thinking ahead, I suspect the Fed will see this operation as a money making plan to subsidize both housing and the deficit. Of course there will be a QE2 as it relates to subsidized MBS. Printed money will subsidize housing and the deficit as long as sovereign and other buyers capable of massive purchases of MBS debt purchases are available.
Potentially, this will be the Ponzi scheme of the 2010 decade. In order to make it work, housing must be revitalized such that a ready supply of MBS debt is available for Fed purchases using printed money. The UST will always have a mountain of debt for sale to those who sold the MBS to the Fed. The Fed will profit on the spread and return those profits to the UST for debt service costs plus profit. Long term rates will likely remain low as long as money flows through this system. Housing prices will revitalize. The cycle will repeat.
ZH, regarding your question of “Who is the secret bidder?” It might be the Fed, indirectly, using printed money and MBS purchases. The Chinese stated there is not enough money in the world to finance the US debt planned for the coming few years. I disagree. There is an unlimited amount of cash available providing that housing can be stimulated and normalized and the mortgages relating to this expansion are securitized and sold. The Fed and its printing press will be the backstop of eveything in that economy. MBS will be the laundering tool of choice for this printed cash.
If QE2 is announced and housing is again appropriately ‘stimulated’ by fiscal policy, I suspect this will be the start of the next bubble.
January 28th, 2010 at 9:30 am
[...] are financial neophytes (abridged). On the other hand (short): http://www.ritholtz.com/blog/2010/01/cloture-votes-and-cheap-ploys/ This article gets into the weeds on the argument around releasing data on [...]
January 28th, 2010 at 9:38 am
RE my post above,
Think of the Fed in this example as a Special Investment Vehicle and not a central bank. The revenue generation is the responsibility of the SIV and the cost is the responsibility of the parent. The SIV remits profits to the parent, which offset the expense. Profits stay with the parent.
January 28th, 2010 at 9:46 am
“…The Chinese stated there is not enough money in the world to finance the US debt planned for the coming few years…”
dh,
slow that down..and, esp., add-in the Deficits being run by the other ‘Western’ Economies…
the Chinese are correct, in a fashion, no one is Earning enough to Fund all of these Deficits..
that’s the primary, textbook, Reason for QE, to begin with..
this: “..MBS will be the laundering tool of choice for this printed cash…”, though, is a very good point, one that many miss..
January 28th, 2010 at 10:36 am
“You are delusional to think that a disorderly failure of AIG would not lead to a systemic meltdown. We can debate on the way it was bailed out and the terms it received but to say that it could have just been kicked to the side is ridiculous.”
There are three problems with this: one is, that no one ever explains what they mean by “systemic meltdown”. Try doing that and you can calmly consider the options that were available. Stories about ATM’s not working are just fear-mongering.
Second, it was never a choice between doing nothing and bailing out everyone and his brother. This is a false choice. The Fed could have done its actual job, which is to be a lender of last resort, without effecting bailouts.
Third, no one claims that AIG’s BK would be painless or without consequence. Moreover, we haven’t avoided a depression by saving their counterparties. Instead, we have spread the pain around in places we may not notice for years. The damage was done already, but instead of taking our lumps in terms of asset prices NOW, my children will pay the price in ways we can’t even be sure about. And for all that, we are still slogging our way through a long recession that is probably going to be longer than necessary because we have zombified much of our economy.
The bailout apologists are still unable to explain why the world would have ended (it wouldn’t) if they didn’t bail out everyone, his brother, and the bondholders. They just can’t do it.
Assuming that Paulson and Geithner are not truly evil masterminds (doubtful, LOL), the reality is that they panicked. Now they’ve convinced themselves that they had to do what they did. What’s the alternative? This isn’t ancient Rome. American elites don’t fall on the sword, they just try to convince the plebs that they’re heroes.
January 28th, 2010 at 11:08 am
as an aside, this Moron: cognos Says: January 27th, 2010 at 10:38 pm
Cannot believe you print this… stupid.
We should avoid confirming Bernanke… via filibuster? It makes way more sense to vote YES on cloture, and NO (if you so feel on the issue of “confirm”).
Despite the procedural rules… 41 votes, does not a “majority” make.
~~
should do the Marketplace a favor, step forward, and make himself known.
this, among his previous examples/’contributions’, should make People wonder how many “Rewards Points”, per post, he earns on his Shills R Us membership card..
January 28th, 2010 at 11:10 am
“Systemic meltdown” basically means no one can roll over debt. Total credit freeze. Money stops flowing. The effect is analogous to your engine seizing because there’s no oil. You’ll recall that in the run-up to the AIG gov’t takeover and bailout, news broke that AIG was about to default on some major obligations. It could no longer secure credit, either short-term or long-term, to keep functioning.
I do believe that AIG was a shit company, mismanaged and hopelessly corrupt. It is credible to me that a ponzi scheme company like that would get outed and unable to borrow.
Switching metaphors, I think AIG was like an inoperable tumor in the financial system. In that analogy, Goldman and SG are like major blood vessels flowing into it and feeding it that make it inoperable. But the metaphor breaks down because, in truth, GS and SG chose to feed the AIG tumor, knowing it was a shit company/ponzi scheme but secure in the knowledge that the government would step in to bail them out. The definition of moral hazard created by the Too Big to Fail.
@clawback: I totally understand why you’re distrustful of the doomsday rhetoric but I do believe that the FIRE sector became FUBAR. But the thing is the players didn’t have to worry about it because they had the security blanket, like spoiled trustfund kids, of knowing that mommy and daddy taxpayer would bail them out. The players are people who profoundly do not give a shit — to an extent that it’s very hard for the vast majority of people to even comprehend.
January 28th, 2010 at 11:13 am
@MEH at 11:08 am: :-)
January 28th, 2010 at 12:06 pm
Transor Z
You’re right about “systemic meltdown,” but we never had a systemic meltdown, not even in financials. Look at LIBOR – it was high relative to the recent past, but it wasn’t insanely high. Banks were still lending overnight. Still, even if the major I banks couldn’t get easy terms on their short-term debt, major industrial companies had no problems. The data at the Minn. Fed shows this. Prof. Larry White (NYU?) has pointed this out in a couple of places, as did others, both back in 2008 and more recently. It’s possible that Geithner and Paulson thought they were seeing the end of the world, but they were obviously wrong. Bank lending was actually UP during the height of the crisis — due to stresses in the shadow banking system, to be sure — but clearly people were lending. In October of 2008, some folks at the Minn. Fed actually put out a paper showing how fears of credit stresses spreading out into the real economy were overblown and incoherent. As far as I know, no one ever answered those questions. Instead, we got TARP and everything else.
January 28th, 2010 at 12:09 pm
” Anyone that want’s to try and suggest mine is a partisan position …”
It’s definitely partisan, even though there may be something to his assertions.
If not Bernanke (who is familiar with our current crisis) then whom should it be?
Pres.Obama could (heavens forbid) appoint Summers to be Fed Chairman.
Be careful what you wish for…
January 28th, 2010 at 7:20 pm
If you want to break free from the Private Banking Scam, just follow the lead from a candidate from Florida…the real solution, just apply to ech state and to the Federal Goverment. Time to break the shackles of the private banking system…
The era of the commercial banking system is over because of:
1. Their exploitive and speculative activities having reached intolerable limits.
2. The fact that they allowed the destruction of the peoples creditworthiness; consequently they can no longer create jobs or lend money under present circumstances.
3. The irresponsible behavior of the CEOs, such as paying themselves huge bonuses and their dubious business practices.
In contrast, the Khavari Economic Plan, proposes a state run bank that will:
1. Lack the shortcomings of the commercial banking system by employing transparent oversight by the public.
2. Become the engine to drive an economic miracle in the State of Florida, bringing general prosperity and economic security for all Floridians.
3. Create jobs in giant numbers that are simply impossible under the present commercial banking system.
4. Cut costs in half or more by providing low interest financing to Floridian homeowners and businesses.
5. Use profits to benefit students seeking higher educations.
6. Secure attractive salaries for teachers and educators.
7. Take care of veterans and elderly by making health care affordable.
8. Reduce property taxes, eventually eliminating them altogether.
We will put the power of modern banking to work for the people of Florida, not for Wall Street.
Over the years, interest has been the biggest cost most families have had. Interest paid to the bank means less money for your family. Reducing interest costs can save a family hundreds of thousands of dollars.
Scenario 1 Let’s take a $100,000 mortgage, for example. With a 30-year fixed rate 5.5% mortgage, your monthly payment is $567.79 and you will pay $104,404.40 in interest on that loan.
Scenario 2 With a 2% fixed rate 15-year mortgage, your payment would be $643.51, the total interest would be only $15,831.80 – and the mortgage would be paid 15 years sooner! You would save 88,572.60 in interest. After you’ve paid off your mortgage, if you continue to make monthly payments of $643.51 to a BSF savings account earning 5% interest, at the end of 15 years you will have more than $160,000 after taxes in your account—just by having your mortgage from the Bank of the State of Florida.
In scenario 1, after 30 years of payments, you would own your house. Given scenario 2, after 30 years of payments, you would not only own your house, but also have more than $160,000 in savings.
How could the BSF do this? It’s called “fractional reserve banking,” the same principle all banks use to operate. If you have $100 in reserves, you can loan out $900 or more. That means you collect interest on $900 but you pay interest on only $100 at most. If the bank pays you 2% for your CD and lends it at 5% on 9 times as much money, you can see this is a really good deal – for the bank.
Now our Bank of the State of Florida does not need to be greedy. It is not going to get involved in shenanigans like bundling and selling mortgages, taking out weird insurance policies and general practices that have caused the mess we are in today. When we make a mortgage, that asset remains right on our books and the paperwork is right there on file. We are going to pay good dividends and the highest rates in the market for long term deposits. We are going to loan out 9 times our reserves. And we are going to make billions of dollars for the State Treasury while we save Floridians a trillion dollars—and that trillion dollars becomes many trillions in Florida’s economy.
Let’s say we pay 5% for our $100 and loan out our $900 at 2%. We pay out $5 in interest, and we take in $18 in interest. Can we make money at that? You bet we can.
We could make the $3.6 billion we are short this year on just a couple of million 2% mortgages. We can do even better on 3 – 4% commercial financing and vehicle loans.
And all the money the bank earns goes directly into the State Treasury, to work for Floridians, not to Wall Street.
Where do we get the reserves? The State of Florida has billions invested with Wall Street. 5 or 6% guaranteed looks pretty good these days compared to a 50% decline in the stock market. Look at what long-term bonds are paying, look at CD’s—we will have no problem attracting all the long-term deposits we need to get started, simply by paying good rates.
Now look what happens. With a 2% fixed rate 15-year loan, the buyer has paid off over 11% of the principal within 2 years. That means we have more than enough reserves to make a new mortgage for someone else, without having to pay interest for the reserves! (In comparison, a 5.5% 30-year loan takes 7 years to pay 11% of the principal).
Now some people might think that low interest rates will just raise the price of homes. That would be true if the 2% loan was for 30 years. But the payment on the 2% loan for 15 years is a little bit higher than the payment for 5.5% 30 years, so this tends to hold prices down. It also tends to eliminate speculation that messes up the market every time. As long as prices are stable, we can offer mortgages with low down payments, so homeownership can be as easy as paying rent.
What the Bank of the State of Florida does is transfer hundreds of billions of dollars away from Wall Street directly into the pockets of Floridians by reducing interest costs… and it puts hundreds of billions into the State Treasury, too. We will have stable, fair prices for homes and take 15 years of slavery out of the process of owning a home.
Consumer financing is another area where Wall Street and the big banks are costing us way too much. Banks charge huge interest on credit cards, for example, where the cost of money to the bank is really zero. If a family has $10,000 in credit card debt at 25% interest, that’s over $200 per month in interest alone. At 6%, the monthly interest is only $50. This family could reduce monthly payments by $50 and pay off the debt years sooner. The State earns billions of dollars per year while saving Floridians billions and billions more.
The Bank of the State of Florida will earn billions of dollars per year for the taxpayers of Florida, not Wall Street fat cats. At the same time it will reduce interest costs and save Florida families hundreds of thousands of dollars per family. Who needs that money more? You or Citibank?
The Bank of the State of Florida can handle checking accounts and ATM’s too. The other banks will have to become competitive, and there is no reason why they cannot.
Couldn’t the federal government do the same thing? Actually, the federal government could do even better and they could do it immediately at huge benefit to the U.S. Treasury. Do you think we should wait around for them to do it? We can have this program in effect in Florida within a year, at no cost to the State