On Tuesday, March 11, Federal Reserve Chairman Ben S. Bernanke lunched with what Bloomberg is describing as a “Who's Who of Wall Street leaders.” Attendees JPMorgan Chase 's Jamie Dimon, Goldman Sachs’s top dog Lloyd Blankfein, Lehman Brothers boss Richard Fuld, Morgan Stanley President James Gorman, Citigroup’s consigliore Robert Rubin, Blackstone Group’s little big man Stephen Schwarzman and Merrill Lynch’s John Thain.
Guess who wasn’t at the lunch? If you answered “anyone from Bear Stearns” you’d be absolutely right. Now some are speculating that Bear Stearns may have been purposefully excluded because its fate was one of the topics of discussion.
“It doesn't seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn't about Bear Stearns, who had rumors swirling about them since Monday,” Eric Salzman at the Monkey Business blog says.
What was discussed at the luncheon has not been revealed. Bloomberg News obtained Bernanke’s schedule and the list of attendees in response to a request under the Freedom of Information Act. But the timing seems is jarring. Rumors of liquidity troubles at Bear had prompted the bank to issue a denial the day before for the lunch. On the preceding Friday, one bank (which has not been identified) refused to make a short term loan of $2 billion to Bear. The meeting came hours after Bernanke announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities. Hours after the meeting every bank on Wall Street reportedly began refusing to issue credit protection on the debt of Bear. Two days later Bear Stearns chief executive Alan Schwarz would be forced to call Dimon to seek $30 billion in emergency funding.
Update: Was Bear left out because its top two men were out of town? If we recall correctly, Schwarz was down at the Bear Stearns Media Conference in Palm Beach around this time, and chairman Jimmy Cayne was flying out for a bridge tournament in the midwest.
We’ve finally gotten around to reading the words that the Bearded One spoke at Columbia Business School on Monday night. Stitching together his various proposals, it’s clear that Ben Bernanke has become a partisan of big government. The way we read it, he pretty much calls for the federal government to bailout lenders who have provided mortgages for homes that have suffered major declines in value.
At one point in the speech, Bernanke called on Congress to expand the Federal Housing Administration, both in terms of its role in issuing mortgages and determining underwriting strategies in order to help “troubled borrowers.” How does he expect the expanded FHA to help? By bailing out lenders with mortgages where the principal is now worth more than the value of the home.
“In some cases, when the source of the problem is a decline of the value of the home well below the mortgage's principal balance, the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender,” Bernanke said.
In other words, the Federal government should step in to refinance loans in danger of defaulting due to the decline in housing prices.
Though conventional wisdom states that nothing or no one will ever be able to whip the diversified whorehouse that is Citi into something resembling a profitable company, at least one person willing to go on record believes Vikram Pandit “has the smarts” to do just that. We’re speaking, of course, Pandit’s finance professor from grad school, who took a cue from Bernanke’s thesis advisor yesterday and went to bat for the old boy in an interview with Portfolio. According to Rajnish Mehra, who served on the CEO’s dissertation committee at Columbia, Citi “is in safe hands” with Vik because his thesis “tackled the [now relevant] question of asset pricing with heterogeneous agents.” So don't worry, shareholders, about that prediction that C is headed to $10-- Mehra says he even went back over Pandit’s work just to make certain he was remembering the right kid from over twenty years ago and, sure enough, he was (like anyone could forget that smile).
Not only did the Beard of Understanding land some prime modeling gigs on the success of his Times spread, but he's reached the penultimate step toward being named Most Popular girl in school (all that's left to do is blow the editor-in-chief of the year book, who tallies up senior superlative ballots). A new CNBC survey of "Wall Street professionals" shows a waning faith in the economy at large but a waxing faith in he who would sooner say the 'r' word than engage in that or any other hair removal process. Thirty-nine "money managers, investment strategists, and professional economists" gave Ben a "B" for his work this month, up from January's "B-." It would've been an "A-" but Charlie Gasparino's mechanic said he was "less than impressed" with the Chairman's work, and failed his Harvard ass.
Who remembers that Craiglist ad from the 28 year old Goldman banker looking for someone to lavish with his (pretax) $722k bonus? I'm going to go with all of you because, frankly, it/he was unforgettable. The Viking stove, the custom-made oak dresser, the amazing dinners, the shopping, the great wine, the getting each other off fabulously and, of course, the baby's arm aren't things one lets recede from his/her consciousness so easily. Sure, the whole thing turned out to be fake and from the mind of someone named the Cajun Boy who does not really work at Goldman Sachs or at any other financial institution, including Bear Stearns, for that matter, but did anyone give a shit? No, us included. In fact, we were so taken by the imposter-- "real" name: Thad-- that we asked him if we could reprint parts of his journal on DealBreaker so that you all could live vicariously through his fabulous life. He said yes, if it would help him "score ass." So if you enjoy the following installment, show your gratitude.
On my seemingly never-ending checklist of things to do in 2008 has been to hire a personal assistant, preferably someone young, hot, eager and equipped with a vagina. Since my busy work and social schedule has made the completion of such a task exceedingly difficult, I recently decided that my buddy Gabe, heretofore jobless, thus he spends his days on splayed out on my sofa watching porn when he's not lunching with headhunters, would be the perfect candidate for the job, at least on an interim basis. So to Gabe I've outsourced such peasant tasks like making restaurant and car service reservations, arranging for my laundry to be dropped off and picked up, interviewing candidates vying to be my personal chef, etc. But seeing that I hate to see Gabe so overextended, not to mention that the stress of the job really has affected his attitude and his resulting sourness has cast a pall over our friendship, I decided recently that it would be in our best interest for me to also get Gabe a personal assistant. Besides, having only one personal assistant is so 2006. Not coincidentally, I've also long yearned to have a monkey, ever since I saw Clint Eastwood kicking it with Clyde in Every Which Way But Loose to be precise, so I killed two birds with one stone and acquired a chimpanzee to be Gabe's personal assistant.
Given that economic cycles are largely driven by monetary policy, it's always a bit sick-making to hear a chairman of the Federal Reserve calling for a fiscal solution to avoid a recession. Federal Reserve Chairman Ben Bernanke just endorsed a fiscal stimulus package, just as long as it would be implemented "quickly." He said a stimulus package would give the Fed more tools as it works to avoid an economic downturn. At certain times he seemed to be talking from another planet, noting that it was important that a stimulus package not lead to a loss of "fiscal discipline." Has he even listened to the spending plans of our leading presidential candidates? Fiscal discipline is long gone, baby, and it's not likely to make a comeback any time soon.
It's hard not to look at this as Bernanke trying a little CYA in advance. Later, when the stimulus package becomes a spending boondoggle, he can say: "Look, I warned you people. This isn't what I called for. So this isn't my fault at all." He's clearly been reading Alan Greenspan's memoirs.
Morgan Stanley is now saying that there will definitely be a recession and there's nothing you can do to stop it so you might as well just give up. We're all going to die eventually, it's just a matter of when. Related/unrelated? At MS's IED party last night, "There was a slideshow on a large screen that contained awkward photos of associates and analysts (most people were not smiling)...a lot of Sean Paul...a MD walking around with a blinged out Santa hat giving his business card to anyone that would compliment his style...and one very sad analyst talking to the bartender about how even the low hanging fruit he hoping to score with wouldn't give him the time of day."
Hi, it's Bess, Carney and I are tag teaming this post. Anyway, here's my comment: HAHAHA OMG OMG OMG OMG isn't the internet hilarious?!?!?! You are totally justified in clogging up your friends/colleagues/Dealbreaker's inboxes with this shit and the message "Scroll down, TOO FUNNY!!!" LOLZ LOLZ LOLZ.
Ben Bernanke has a special Thanksgiving message for DealBreaker and Ron Paul. It sounds like he's not happy about that video we posted yesterday.
"It’s clear from this video that Ron Paul does not understand all the advancements of economic science over the past few decades. If one of Dr. Paul’s patients was sick, would he ignore modern medicine and prescribe leeches? So why does he doubt my ability to prescribe the right interest rate medicine for the economy and favor returning to the gold standard?" Bernanke writes on Ben Bernanke's Blog.
But it's not all about leeches. There's also a suspicious Frenchness about Ron Paul's enthusiasm for laissez faire economics.
"Watch the video closely. I tell him that lowering interest rates (which has nothing to do with inflation, necessarily) won’t effect Americans’ ability to buy turkey or any other domestic products this Thanksgiving. In fact, it reinforces our culture. Ron Paul would have Americans running around with strong dollars (or worse, gold), buying up French fries, spaghetti and other fancy imports," Bernanke argues.
That’s really it. Bernankes and the Federal Reserve want to say no to an interest-rate cut this week but are apparently too scared of what a bunch of (what sound like really intimidating) traders (if you’re a puss) will do if they don’t. But they’ve got a plan! In order to make it look like the Fed’s in control, Ben will, yes, give in to a cut, but will, in addition, not promise any future ones. It’s almost as though those guys wrote the book on how not to be made someone else’s bitch, isn’t it? Also, even though no one was asking for the overshare, Bernanke went there twice in the last week, noting how “challenging” it is to make policy, and saying that he’s “doing the best [he] can*.” Not as good a job as Greenspan would do, according to Greenspan, but definitely his personal best.
"An important part of retaining credibility is to say what you are going to do, and then do it, unless you have very good explanations about why you are going to depart from what you said you were going to do," he said.
"The problem is, it takes new money to bail out bad collateral. That means a lot of new money unless banks start lending to high-risk markets. But our new, improved regulatory policies have clamped down on this.
This means the end of my program to reduce the rate of inflation in the country. I have talked of little else from the day I took over in February 1, 2006. So did my predecessor. So did his predecessor, and so on, all the way back to 1938.
So, basically, I have given up. We can bail out the mortgage market or we can pursue monetary stability. We cannot do both at the same time."
Some punk analyst (No really, some Punk Ziegel & Co. analyst) is accusing the Fed of forcing the major banks to borrow from the discount window. Market analyst Richard Bove thinks Bernanke sweetly serenaded JPMorgan, Bank of America, Wachovia and Citi to a tune of "Come to my window / Borrow cash, even though you don't need to / Come to my window / I'll cut rates soon." From MSN:
The discount rate, though lower than it was last week, is still higher than the 5.25 percent federal funds rate, which is what banks pay to borrow from one another. Plus, because of the $38 billion in cash the Fed has pumped into the system, banks are charging only 4.9 percent for overnight loans, Bove said. A statement from three of the banks that borrowed from the discount window said they wanted to "demonstrate the potential value of the Fed's credit facility and encourage other banks to use it."
The whole thing was a "P.R. gig," like getting knocked up by David Crosby. The banks took the dough to remove the stigma on borrowing money from the Fed as a credit line of last resort (and of getting inseminated by a drugged out musician), and to encourage smaller banks to do the same.
-The Bear guys should shut their dirty, whorish mouths
-Bernanke should get on a Bear Stearns call and stop being an “academic”
-But, Bernanke has “NO IDEA!”
-People talk to Jim Cramer, especially in the last 72 hours
-It’s bad out there, contrary to the Jim Cramer of 3 weeks ago, who was saying CDO holders would be made whole and calling for buys in the financial sector
-The Fed is asleep!
-Jim Cramer worked in fixed income at Goldman Sachs, which is like having a pair of scissors made out of paper-covered rocks and trumps any other form of argument or rational thought
-Jim Cramer knows too many people and is too darn old
-So old, that he knows of a President named Hoover
Most of the news coverage of Federal Reserve chairman Ben Bernanke’s comments on hedge funds yesterday seemed to have underplayed what struck us as the most important aspect of Bernanke’s speech—his insight that the way to control the potential for “systemic risk” posed by hedge fund failures is through hedge fund counterparties, the investment banks providing margin leverage for hedge fund investment.
Those who seeks tighter regulation over hedge funds have marshaled a number of rationales. Mutual fund and pension fund investment in hedge funds raises the risk that ordinary investors—rather than wealthy, accredited investors permitted to invest directly in hedge funds—might lose their retirement savings, some say. Inflation creep combined with a run-up in housing prices has permitted some of the not-so-very rich to meet the minimum asset tests to qualify as accredited investors, others fear. But by far the most persuasive case for hedge fund regulation has probably been the argument that hedge funds pose a “system risk”—that the risks taken by hedge funds could spread to the broader financial system in the case of a collapse where a hedge fund could not meet its margin calls and found itself unable to repaid money borrowed from banks.
In the course of a speech as NYU Bernanke praised the role hedge funds play in the economy by creating liquidity, taking on risk and engaging in financial innovation. But more importantly he noted that the best way to control systemic risk is by placing the responsibility squarely on the shoulders of hedge fund counterparties. The banks providing credit and trading platforms for hedge funds are not only in the best position to evaluate hedge fund risk, they are also some of the primary beneficiaries of the risk, collecting vast sums in fees and interest from their hedge fund clients.
Of course, many banks would like to pass along the cost of hedge fund regulation to the broader public. They argue that it is unfair that they should have to become regulators of their clients, and even that this might not be possible since it requires them to perform a regulatory role that conflicts with their responsibility to serve their clients. But this a deft verbal jujitsu—more bold than it is true. Banks are not being required to keep watch over their hedge fund clients—because they are not required to have hedge fund clients. The only requirement is that if they are going to collect the coin, then they have to play the tune, to reverse a popular saying.
If any of you out there coping with major losses as a result of that thing that happened yesterday were looking for a shoulder to cry on in the form of our Chairman of the Federal Reserve, keep looking. The Beard of Reasoning told Congress this morning that the U.S. financial markets are functioning normally and, also, that they seem to be “working well.” He also noted that the 416 point slump did not alter his view on U.S. economic growth and that “there is really no material change in our expectations for the U.S. economy since I last reported to Congress couple weeks ago.” After that rather blasé assessment, he proceeded to “give the crowd its money’s worth” with some material from his usual set, and harshly warned that a failure to do something regarding the upcoming retirement of the Baby Boomers “could lead to serious economic harm” and that “a vicious cycle may develop in which large [budget] deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits." That's right-- vicious!
[Ed.'s note: We tried really hard to find a picture of BB that said "meh," but apparently there are none. Who knew.]
Fed Chief Ben Bernanke told the Senate Budget Committee today, "'If early and meaningful action is not taken, the U.S. economy could be seriously weakened," in what was regarded as his "most forceful warning to date." When asked about the urgency of the situation, Bernanke offered, "The longer we wait, the more severe the more draconian, the more difficult the objectives are going to be. I think the right time to start was about ten years ago." Apparently, "I think we should all just shoot ourselves now" struck Bernanke as "a bit dour, even for this crowd."
Ben Bernanke's speech to the Washington Economic Club put through the Gizoogle treatment.
In com'n decades, many forces will shape our economy n our society, but in all likelihood no single factor will have as pervasive an effect as tha aging of our populizzles In 2008, as tha first poser of tha baby-boom generizzles reach tha minimum age fo` receiv'n Social Security benefits, there wizzle be `bout five work'n-age thugz (between tha ages of twenty n sixty-four) in tha United States fo` each person aged sixty-five n drug deala n those sixty-five n cracka wizzle makes up `bout 12 percent of tha U.S. populizzles Those statistics is set ta change rapidly, at least relative ta tha speed wit which one thinks of demogrizzles changes as usually weed-smokin' place.
For example, perpetratin' ta tha intermediate projections of tha Social Security Trustees, by 2030--by W-H-to-tha-izzich time most of tha baby playa will have retired--the ratio of those of work'n age ta those sixty-five n cracka wiznill hizzy fallen fizzle fizzle ta `bout three. By that time, olda Americans wizzy constitute `bout 19 percent of tha U.S. populizzles a greata share thiznan of tha populizzle of Florida today motha fucka.
This bustin' demogrizzles transition is tha result both of tha reduction in fertility tizzle followed tha post-World War II baby bizzy n of mobbin' increazes in life expectancy.
Although crazy ass nigga expect U.S. fertility rates ta remain close ta current levels fo` tha foreseeable future, life expectancy is projected ta continue ris'n. As a conseqizzles tha anticipated increaze in tha share of tha populizzle aged sixty-five or olda is not simply tha result of tha retirizzles of tha baby gangsta tha "pig in a python" image often used ta describe tha effects of thiznat generizzles on U.S. demogrizzles is straight trippin' Instead, over tha N-to-tha-izzext few decades tha U.S. populizzles is expected ta become progressively killa n remain so, even as tha baby-boom generizzles passes frizzom tha scene.
As you may know, populizzles aging is also cruisin' in mizzle otha countries. Indeed, many of these countries is brotha along than tha United States in this process n have already begun ta experience mizzle F-U-Double-Lizzy some of its social n economic implications.
Even a brotha of tha dismal science like me would find it difficult ta describe increas'n life expectancy as bad news with the S-N-double-O-P. Longa, pimp lives wizzle provide many benefits fo` individuals, families, n society as a whole. Playa an aging populizzles also creates some important economic challenges. For example, many observa have noted tha difficult choices that aging will create fo` fiscal policy killa in tha years ta come, n I will briefly note some of those budgetary issues today. But tha implications of demogrizzles change can also be viewed fizzle a pusha economic perspectizzle As I wizzill discuss, tha broada perspective shows clearly thiznat adequate preparizzles fo` tha blunt-rollin' demogrizzle transition may wizzell involve signifizzle adjustments in our patterns of consumption, wizzork effort, n mobbin' Ultimatizzles tha extent of these adjustments depends on how we drug deala explicitly or implicitly--to distribute tha economic burdens of tha aging of our populizzles across generizzles Inherent in tizzy choice is questions of intergenerizzles equity n economic efficiency, questions that is difficult ta answa definitively but is neverthizzles among tha mizzy critical that we face as a nation.
Ben Bernanke has a special Thanksgiving message for DealBreaker and Ron Paul. It sounds like he's not happy about t
Some punk analyst (No really, some Punk Ziegel & Co. analyst) is accusing the Fed of forcing the major banks to borrow from the discount window. Market analyst Richard Bove thinks Bernanke sweetly serenaded JPMorgan, Bank of America, Wachovia and Citi to a tune of "Come to my window / Borrow cash, even though you don't need to / Come to my window / I'll cut rates soon." From MSN:
Most of the news coverage of Federal Reserve chairman Ben Bernanke’s comments on hedge funds yesterday seemed to have underplayed what struck us as the most important aspect of Bernanke’s speech—his insight that the way to control the potential for “systemic risk” posed by hedge fund failures is through hedge fund counterparties, the investment banks providing margin leverage for hedge fund investment.
If any of you out there coping with major losses as a result of that thing that happened yesterday were looking for a shoulder to cry on in the form of our Chairman of the Federal Reserve, keep looking. The Beard of Reasoning told Congress this morning that the U.S. financial markets are functioning normally and, also, that they seem to be “working well.” He also noted that the 416 point slump did not alter his view on U.S. economic growth and that “there is really no material change in our expectations for the U.S. economy since I last reported to Congress couple weeks ago.” After that rather blasé assessment, he proceeded to “give the crowd its money’s worth” with some material from his usual set, and harshly warned that a failure to do something regarding the upcoming retirement of the Baby Boomers “could lead to serious economic harm” and that “a vicious cycle may develop in which large [budget] deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits." That's right-- vicious!
Fed Chief Ben Bernanke told the Senate Budget Committee today, "'If early and meaningful action is not taken, the U.S. economy could be seriously weakened," in what was regarded as his "most forceful warning to date." When asked about the urgency of the situation, Bernanke offered, "The longer we wait, the more severe the more draconian, the more difficult the objectives are going to be. I think the right time to start was about ten years ago." Apparently, "I think we should all just shoot ourselves now" struck Bernanke as "a bit dour, even for this crowd." 
Ben Bernanke's speech to the Washington Economic Club put through the 