9:29: Federal Reserve Chairman Ben Bernanke begins two days of testimony before the House Committee on Financial Services. We only get two of these a year and this time around Bernanke decided to make us pay attention by not to telling Maria Bartiromo what he was going to say in advance of the hearing. We're set up with coffee, prescription-only anti-attention deficit disorder pills that we bought from a high school girl, a laptap and two packs of Marlboro Reds. We're ready for you now Mr. Bernanke. Bring it.
9:35: Oh. Check back in this space for updates as the testimony progress. We're fixing our liveblogging to this spot at 10:00 AM on the page but will update as the story continues.
9:41: This is shaping up to be the best Fed Chair testimony ever. When he was speaking in front of his former academic colleagues at some pow-wow near Boston a couple of weeks ago, Bernanke taught us words like "unanchored"—launching about a billion sailing and piracy puns for inflation and the economy. But the real gin in the juice he served up had to do with the Phillips Curve, that little graph that supposed told us there was a trade-off between inflation and employment. Bernanke basically told us to stop drawing those curves because they are not only nonsense, they are nonsense on stilts and harmful to the economy. The practical meaning of this is that Bernanke believes the Fed can fight inflation without risking unemployment. Expect more hot Phillips Curve action today.
9:48: You know who is not going to like getting rid of the Phillips Curve? Congressman Barney Frank, that's who. You know why that matters? Because he's the chairman of the Financial Services Committtee. He wants Congress to have more of a say—or, at least, he plans to say more—on monetary policy. And he's expected to see tossing out the Phillips Curve as an excuse for screwing the working class. He'll grill Bernanke like Murdoch grilling Bancrofts shrimp on the Barbie about the danger of being too hawkish on inflation. It probably won't be a "Cross of Gold" speech but Frank knows this is his big moment in the public eye and he'll make the most of it.
9:55: One last chance before this gets going. We should expect lots of talk about housing, and recent credit market turmoil. Subprime will definitely get mentioned. Open questions: Will the words "Bear Stearns hedge fund" come in? What was up with that whacky PPI report yesterday? Which way is consumer spending going? Will the currency situation get mentioned? Are we anchored, unanchored or sailing away to blackout island? Is it raining as hard in DC as it is here in New York?
10:00:Okay. It's on. Bernanke in the hot seat. Text of his opening statement hitting the wires now. Everyone in the world will spend the next couple of minutes reading this instead of listening to what Barney Frank says in his own opening statements. Score one for Bernanke.
[Our coverage of the hearing continues after the jump.]
10:04: Does Barney Frank know that no-one outside of the hearing room knows what he is saying right now? We're all reading Bernanke's comments. CNBC isn't even showing Frank's comments. Mark Haynes calls it bloviating. Actually, that's not quite right. They are showing the Frank in a little window with no sound. In other words, they are watching the hearing the way many people watch CNBC—with the sound off until something good happens.
10:05: My watch says 10:05. But I just jumped twenty minutes into the future and grabbed a Wall Street Journal report time stamped 10:25 that tells us what Bernanke said this morning even though his testimony hasn't yet begun. Time travel rules. If I can figure out how to travel back in time I might even be able to convince Last Night's Carney not to have those last three glasses of whiskey. This liveblogging would be a lot easier without the hangover.
10:09: So what is Frank saying? He started by talking about the plight of the working class. For the first few minutes it felt like we were watching the British parliament, circa 1979. Labor going nuts about Tory monetarism. "The resentment generated by [wage deterioration] is a significant problem in America today," he said. Also: the failure of the immigration amnesty bill is Bernanke's fault. You probably thought it was because Americans were worried about an unprecedented wave of immigration and opposed to granting illegal aliens amnesty. Wrong! Frank's here to tell us that Americans were blaming the wrong folks. They should have been deporting the masters of our money.
10:10: But now he's back with us in the twenty-first century and he's tearing into Bernanke and the Fed's use of secret code language. "Near trend means below trend," Frank says. "You expect inflation to moderate but in an odd phrase, frankly, you say the real danger is that inflation will fail to moderate as you expect it to. So your lack of confidence in your expectation says that the likeliest thing you want to do is raise interest rates." Accusing Bernanke of lacking confidence in his own expectations. We'll score a point for Barney Frank even though we suspect we're the only ones watching this right now. Everyone else is reading Bernanke's opening statement.
10:11: Just checked back at CNBC. Talking heads, uhm, bloviating about the hearing but still not showing us the hearing. Back to Bloomberg.
10:12: Bloomberg just cut away too. That poor ranking Republican member apparently—whoever he is—doesn't even rank airing on Bloomberg. (And we're just kidding. We know the ranking member is Spencer Bachus from Alabama. Because it makes so much sense to have a Congressman from Alabama as the top Republican on the Financial Services Committee.)
10:15 Sorry Max. Even I'm turning you out. I'm going to go read Bernanke's opening statement.
10:20 Ron Paul comes on. He's talking about M3. Ah, M3! How we miss you! Why did the government take you away from us? Why won't they give us the total aggregate money supply anymore? Maybe it has something to do with what Paul is saying now. Paul says the government is pursuing two conflicting policies: trying to encourage exports with a weak dollar while maintaining price stability at home. Can't be done, Paul says. We almost think he's going to start talking about gold but at the last moment he yields the floor. He comes off as the smartest guy who has spoken so far. This guy should totally run for President or something.
10:25: Is Barney Frank reading DealBreaker during the testimony? He's just started speaking again and he's denying everything! He says he doesn't believe in the Philips Curve either. Peace has broken out! But this still might not get boring because Frank is saying the real problem is income inequality. That's what killed fast-track trade authority and immigration amnesty, according to Frank.
10:26: It's not just M3 that went away. It's the "wage index." Barney Frank wants to know why they dropped the wage index and if anything can be done about income inequality.
10:27: A moment of levity. Barney Frank just realized he is already questioning Bernanke before allowing him to read his opening statement. He apologizes. He's not sure why he skipped ahead of the opening statement. He says maybe he was just too eager. "If this was my first hearing, that might explain it. I can't think of any explanation," Frank says. Cue laugh track from the audience.
10:28:But we know why he skipped Bernanke's opening statement. It was a subliminal revenge urge to get back at Bernanke for releasing his own opening statement at the moment Frank was talking. No-one listened to Frank so now Frank wants to skip over Bernanke's opener.
10:29 Representative Whats-His-Name from Alabama says maybe the issue of income inequality is addressed in Bernanke's statement. "Oh I know it isn't because I already read it," Frank admits. Poor Alabama Congressman! Even Frank wasn't listening to your opening statement. He was reading Bernanke's while you were talking. And now he's made you look slow by revealing that you haven't read it while the rest of the world has.
10:35: Bernanke begins but we're starting to wonder whether we couldn't have just skipped this part. Everyone already knows what Bernanke is going to say. The wires are already reporting it in the past tense. He was cautious. He warned that underlying inflation still poses a danger. He said we'd have job growth but less than in recent years. Housing will continue to drag.
10:39: Even Adderall can't keep us watching Bernanke read a statement we've already read. We keeping thinking about how cute the Wall Street Journal's Kate Kelly looked on Squawk Box. She was playing the Becky Quick role this morning while Becks is on that Boone Pickens Boonedoggle in China. Does CNBC's agreement with the Wall Street Journal require the Journal to hire reporters who are easy on the eyes. What happens now that Rupe is getting his hands on the Journal? Will CNBC still get the hotties or will Rupe claim them all for Wall Street Journal Fox Business Television?
10:45: Old Ben is still talking. Now on possibilities of inflation, resource utilization and predominant policy concerns. Meanwhile, the world is going crazy about those Bear Stearns funds. As everyone revalues their portfolios based on the recent turmoil, we're already starting to here about other hedge funds getting the blues, including some associated with a major investment bank. Bess Levin is going to check this out. The rest of us are stuck pretending to watch Ben Bernanke.
10:48 Bernanke is done. Questions begin. The Democrats are focused on income inequality. Welcome to the 2008 election cycle. Bernanke says the answer is training and education. In response to Texas Congressman Al Green's question, Bernanke explains that his wife is a high school teacher and that many of her students are minorities. It's awkward. We start to worry he's going to say "some of my best friends are black." Green saves him from this humiliating moment. "Congressman, I'd love to meet your wife. I'm sure she's a nice lady. But that won't help me get to where I'm trying to go."
11:30: It rolls on. What happened to the fireworks? Democrats have lost their focus. It's deteriorating into a standard hearing on Capital Hill. Everyone has their owned concerned. Texas congressmen want to know about support for infrastructure along the Mexican border to cope with increased traffic from growing trade. So we're down to the level of traffic and potholes.
11:35: Even the members of the audience sitting behind Bernanke look bored now. The guy over his right shoulder is yawning and rubbing his eyes. The guy over his left looks like he had an even later night than DealBreaker. He's got dark circles under his eyes and right at this moment he is sticking his hand under his shirt collar to scratch his own back.
11:38: Now we're sorry we gave Bloomberg and CNBC such a hard time for cutting away from the hearing. This is too much for us to take. When a Republican finally asks some economic questions, we're too far gone to pay attention.
11:45: We've got lunch at Balthazar at noon. We were going to skip it but now we're thinking that this whole live blogging has been a terrible, terrible mistake. We're in a deep funk. A personal version of Jimmy Carter's national malaise. Oh for the days of Paul Volker! Can't somebody bring Ron Paul back on?
11:46: That's it. We're done. Sorry. We had plans to stick through the whole thing. But we lack the moral discipline. Plus it's on CNBC right now. You don't need us anymore. And we feel like we're missing out on this Bear Stearns stuff. If you're still watching, please takeover in comments below. Or email us with your take. We'll use the best report on the hearing as a post on DealBreaker and send you a copy of Dana Vachon's Mergers & Acquisitions.
11:47:DealBeaker out. It's been, well, emotional. Hold everything! Ron Paul is back. He's talking about "creating credit out thin air." Bernanke says that our current account deficit is not "long term sustainable."
11:59: Our lunch plans are officially blown now. Now we're talking about credit cards. The guy on DealBreaker's commodities desk IMs me to sum up this line of questioning, "What's the economic impact if we all skip a payment this Christmas?" She's also talking about data theft and identity theft. Even worse, Bernanke seems to care about the issues.
12:02 We're starting to miss the early focus on income inequality. The questions are all over the place now. Bring back inequality! Some of you brought it up in comments so we'll address it head on: we don't think this is a completely trivial issue. It gets trivialized all the time by people who ask why a chief executive gets paid so much more than a janitor. But on a broader and more serious level, income inequality can be a problem if it is arising from structural problems in the economy that make it difficult for all but the wealthiest to improve their status. And it can be a problem if it is giving rise to a politics of envy.
12:18 California Congressman Ed Royce says, in effect, that Barney Frank got things exactly backward: mass immigration drives down wages, which results in increasing inequality. Encouraging monetary inflation as a way to drive up wages to make up for the effects of mass immigration is the wrong solution, he says. Royce moves on from there to ask about the risks of over regulation and the class-action litigation explosion.
12:21 Bernanke's answer to Royce gets interesting. He draws the connection between "subprime lending" and minority homeownership. Too much regulation in the mortgage lending industry might make it impossible for many to own their homes, and may effectively bring about the same situation we had when banks were allegedly "red lining" or racially profiling minority neighborhoods.
12:25: Who is this guy asking about health care spending? One of the girls watching the hearings with us just described him as "yummy." He certainly seems to be the preppiest of the House panel. We ask one of our trader friends over IM about him. "You know how I know he's gay? Because he parts his hair like Chris Cox," comes back as the reply. That's just wrong. Oh, wait. They just flashed his name up on the screen, Christopher Murphy, Representing Danbury, Connecticut. That resolves the debate "gay or preppy" decidedly in favor of preppy.
12:42: Bernanke is giving out advice on how borrowers should deal with their lenders. Step One: Open the mail. Return their phone calls. These guys don't want you to default anymore than you want to default. They'll likely work with you. Step Two: You got to pay something. Don't just think you can stop paying. Step Three: Profits!
12:43: Gregory Meeks, Democrat from New York, mentions the the L-Word—Long-Term Capital Management. "Do you feel that currently we have regulatory safeguards in place to make certain that, say, for example, the collapse of a few major hedge funds won't create a systematic risk for all of the banking industry?" Bernanke says, "Well, you can never be too cautious." Hmmm. No? Really? Of course that's ridiculous. You can be too cautious, if the cost of your caution outweighs the gains. But a moment later he's back on message, talking about using regulation of counter-parties—read: banks—to control hedge fund risk.
12:45: Barney Frank brings up a democratic talking point. "Are all the counter-parties regulated?" Of course they aren't. Private individual counter-parties are not regulated. The Democratic caucus has made a fuss about this before, worried always that someone, somewhere might be escaping the regulatory tentacles of the federal guvmint. But Bernanke points out that this a phony problem. The point of counter-party regulation is not to avoid hedge fund failure. It's to monitor risk that the major financial institutions are taking on. Banks need to understand the risk of their clients because they need to understand their overall risk. Frank looks defeated after Bernanke finishes explaining this.
12:50 A Democratic Congresswoman—sorry, didn't catch her name—starts talking about the way we're being impoverished by the army of occupying robotstechnology. KO, in our comment section, has already misheard her in a very funny way. "Did a congresswoman just claim that people "need a tailor" and that because of income inequality it is impossible? Life is too good, and people are too jaded when needing a tailor is our biggest concern..." Ko asks. It did sound like she complained about the difficulties of life without a tailor. But we're pretty sure she was talking about ATM fees, which you can get saddled with if you don't use a teller. So her complaint was about the cost of not using a "teller" not the hardship of living without a "tailor." Bernanke seems as confused by KO because he just completely ignores this point.
1:00: And we're done. Thanks for ruining our lunch plans, Barney. As we said and retracted earlier, it has been emotional people. Stay golden.