In testimony before the Financial Services Inquiry Commission, Federal Reserve Chairman Ben Bernanke stated that he regrets not having been straightforward about the reasons the Fed did not save Lehman Brothers. He said in today’s hearing that he made it appear in testimony to Congress in 2008 that the Fed could have saved Lehman and chose not to, when the truth is the Fed could not have saved Lehman.
Utter horseshit. The Federal Reserve or Federal government could not have saved Lehman, yet it managed somehow to save AIG and all its counterparties and Bear Stearns and GMAC and GMC and Chrysler and Fannie Mae and Freddie Mac? The Fed Res/gov could have damn well saved anyone it wished to save and did. It chose, for reasons that aren’t at all clear, to let Lehman fail. The real reasons behind its choosing Lehman as a sacrificial investment bank lamb would make a good read, if there were anyone capable of penetrating the fog of lies to get at the truth. But don’t get me wrong. I think letting Lehman fail was the best act of omission the Fed ever committed. It’s the rescue of all the others that were a mistake.
Bernanke said the Fed lacked authority and couldn’t save them because Lehman was insolvent, and it had no collateral to give. I’m sure the Fed got good collateral from Bear Stearns (so good in fact, they had to make up a fairy-tale name for the LLC it’s held in, Maiden Lane) and AIG and Fannie Mae/Freddie Mac, etc. Bernanke said Lehman was unsalvageable, but that he didn’t want to say so at the time because it might exacerbate the ensuing panic. Bernanke likes to boast that he owns a technology known as “the printing press”. If he wanted to salvage Lehman, all he had to do was flip the switch. His testimony is an insult to the intelligence.
What to learn from this? The Fed Chairman, is at the least, a liar. It’s just a matter of knowing when. Bernanke claims he was lying in 2008, but my guess is he’s lying now. Reminds me of that old riddle about which of the following sentences is true: Everything I say is a lie. The preceding sentence is true.
Second, if the financial system blows up again, invert all utterances by official government financial and economic leaders. If a government official says he expects troubles in the markets to be mild and transitory, stock up on guns, gold and butter. If instead they say things are remarkably severe, and apt to stay that way for a while, look around behind you. You’re apt to find his hand in your pocket.