Federal Reserve Board Chairman Ben Bernanke got grilled today at the House Financial Services Committee hearing on monetary policy. Bernanke continues his practice of style over substance, dismissing uncomfortable truths.
As the New York Times reported:
Representative Ron Paul, the Texas Republican and persistent libertarian critic of the Fed -- he favors something like a return to the gold standard -- said the Fed continued to create "moral hazard" by allowing companies to take risks because they believe they will be bailed out if they fail." 'Too big to fail' creates a tremendous moral hazard," he said, "but of course the real moral hazard over the many decades has been the deception put into the markets by the Federal Reserve."
After Mr. Paul suggested that money used in the 1972 Watergate break-in came from the Federal Reserve, and that the Fed had loaned $5.5 billion to the regime of Saddam Hussein of Iraq, Mr. Bernanke replied, "The specific allegations you have made are absolutely bizarre. I have no knowledge of anything remotely like what you've described."
And when Mr. Paul asked whether the Fed would bail out the Greek government, Mr. Bernanke replied, "We have no plans whatsoever to be involved in any foreign bailouts or anything of that sort."
While the reporting of the exchange does seem "bizarre," the Congress would have been better served if the Fed chairman had simply addressed the facts. Professor Bob Auerbach of the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin (and an economist at the House Financial Services Committee for eleven years assisting in oversight of the Federal Reserve) brought these issues to light in a book published by a university press:
In Deception and Abuse at the Fed, Robert Auerbach, a former banking committee investigator, recounts major instances of Fed mismanagement and abuse of power that were exposed by Rep. Gonzalez, including:
- Blocking Congress and the public from holding powerful Fed officials accountable by falsely declaring--for 17 years--it had no transcripts of its meetings;
- Manipulating the stock and bond markets in 1994 under cover of a preemptive strike against inflation;
- Allowing 5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank--the result of faulty bank examination practices by the Fed;
- Stonewalling Congressional investigations and misleading the Washington Post about the6,300 found on the Watergate burglars.
The Congressional exchange can be viewed here:
Bernanke, ostentatiously a student of the Fed before heading it, does the Congress and the public a disservice by disrespecting Congress with flippant, ignorant responses. Kudos to Chairman Frank for saying we need to followup on Dr. Paul's issues.
Last month I wrote on an under-reported reason why we need better audits and accountability of the Federal Reserve. Bernanke now helps that cause.
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"I asked Christopher Drogoul, the convicted official of the Banca Nazionale Del Lavoro agency branch in Atlanta, Georgia, how
the Federal Reserve Bank examiners could miss billions of dollars of illegal loans, most of which ended up in the hands of Hussein."
"Mr. Drogoul stated:
The task of the Fed [bank examiner] was simply to confirm that the State of Georgia audit revealed no major problems.
And thus, their audit of BNL - - - a review of the state of Georgia’s preliminary results, followed by a cup of espresso in the manager’s office.”
http://www.house.gov/apps/list/speech/tx14_paul/Auerbach.shtml
Bernanke was trying to be a smart-aleck to make such a flippant, dissmissive remark using language one may expect from a Rush or Hannity . . .
but NOT the Fed Chairman during a U.S. House Congressional panel.
Is Bernanke going to be apologizing next week - or fired ?
While Keynes and Hayek spent most of their careers in bitter disagreement, I think it's possible that the two theoretical frameworks can be reconciled by seeing the former as for efficacious employment in emergency situations, and the latter as our ultimate long-run approach; we must take more minimalist, cautious steps going forward. Moral hazard and malinvestments have contaminated the American economy, and while there's little we can do towards curbing malinvestments and moral hazard while things remain so fragile, the new Keynesian revival must be tempered with this realization.
http://www.theinductive.com/blog/2010/2/26/our-obese-economy.html
Sen Barrasso, John [WY]
Sen Bennett, Robert F. [UT]
Sen Boxer, Barbara [CA]
Sen Brownback, Sam [KS]
Sen Burr, Richard [NC]
Sen Cardin, Benjamin L. [MD]
Sen Chambliss, Saxby [GA]
Sen Coburn, Tom [OK]
Sen Cochran, Thad [MS]
Sen Cornyn, John [TX]
Sen Crapo, Mike [ID]
Sen DeMint, Jim [SC]
Sen Dorgan, Byron L. [ND]
Sen Feingold, Russell D. [WI]
Sen Graham, Lindsey [SC]
Sen Grassley, Chuck [IA]
Sen Harkin, Tom [IA]
Sen Hatch, Orrin G. [UT]
Sen Hutchison, Kay Bailey [TX]
Sen Inhofe, James M. [OK]
Sen Isakson, Johnny [GA]
Sen Landrieu, Mary L. [LA]
Sen Leahy, Patrick J. [VT]
Sen Lincoln, Blanche L. [AR]
Sen McCain, John [AZ]
Sen Murkowski, Lisa [AK]
Sen Risch, James E. [ID]
Sen Thune, John [SD]
Sen Vitter, David [LA]
Sen Webb, Jim [VA]
Sen Wicker, Roger F. [MS]
Sen Wyden, Ron [OR]
http://digg.com/world_news/Fed_s_363_Tons_of_Cash_Lost_in_Iraq
http://news.google.com/newspapers?nid=1368&dat=19820616&id=6dUVAAAAIBAJ&sjid=GxIEAAAAIBAJ&pg=6977,2777644
and this at the NY Times:
http://www.nytimes.com/2004/01/14/opinion/follow-the-money.html?pagewanted=1
http://books.google.com/books?id=x7nMs-JwAikC&pg=PA480&lpg=PA480&dq=watergate+federal+reserve&source=bl&ots=-ljJBc5V6D&sig=id-f9jwCnxuxnB0Sng4HE65QtaY&hl=en&ei=14CFS-j3CI3cNry_jTQ&sa=X&oi=book_result&ct=result&resnum=10&ved=0CB8Q6AEwCQ#v=onepage&q=watergate%20federal%20reserve&f=falsehttp://en.wikipedia.org/w/index.php?title=Watergate_scandal&oldid=345698141
http://articles.latimes.com/1992-02-25/news/mn-2628_1_foreign-policy
http://en.wikipedia.org/w/index.php?title=Watergate_scandal&oldid=345698141
They are NOT going to be hiding the money anymore !
And for all we know . . . you could be planning to bail out Greece ?
So, Bernacke has to check - turns around - hey staffers -
"Are we planning to bailout Greece - Gee I wouldn't know anything of that -
I'm only the Chairman."
Ron Paul is letting him know that the grilling IS JUST starting - no more clandestine planning for bailouts - 10 years should be long enough to let the people know -
Just show us the money - or where it went !
But maybe the questioning SHOULD be behind closed doors -
as Bernacke looks like he's about to soil himself.