Page 2 of 2 Bernanke keeps his enemies close
By Julian Delasantellis
Not that many other financial institutions were doing all that well last autumn
and by winter, but it was soon seen what a problematical purchase Merrill was.
The brokerage's books were marbled through and through with risky, illiquid
subprime mortgage and mortgage derivative securities; Bank of America's stock
would fall 92% from the Merrill purchase to early March. In the "credit
writedowns" blog, it was observed that:
Ken Lewis [Bank of America's
chief executive officer] rushed into a terrible deal for Merrill Lynch at a
grossly inflated price because he desperately wanted Bank of America to be a
top-notch franchise across the full spectrum of products. Merrill has a very
good franchise and had a good brand until recently.
Lewis has
faced other criticism over the purchase of Merrill, most
notably in the Financial Times, as commentators claimed that his appetite and
hubristic desire to run the world's largest and most powerful financial
institution so clouded his judgment as to lead his bank into a truly historic
fire-hosing of its stockholders. Lewis didn't have to buy Merrill, he only did
so to billow his vanity and to get the government off his back with Lehman, so
the argument goes.
But this generally accepted truth runs straight into the jaws of what The
Economist magazine last week called "[Troubled Asset Relief Program] TARP
revisionism", the growing campaign by conservatives to advance into the public
debate their view that the TARP, along with all of the many government
interventions to save the economy, indeed, all government actions in the
economy of whatever nature, are ineffective, useless and ultimately
counter-productive, as they do nothing but get caught up in the feet of Adam
Smith's glorious free markets already hard at work healing themselves.
Taking up the cudgels in this battle of the Bank of America/Merrill affair is
conservative Republican California Congressman Darrell Issa. Like a child
coming back from the playground crying and with a black eye, Issa claims that
all the other kids were just plain mean to Bank of America - particularly the
lead bully, Bernanke. in a statement released on Tuesday, Issa contended that
The
Fed sought to hide its extensive involvement and concerns about Bank of
America's acquisition of Merrill Lynch amid the latter's worsening financial
condition. The committee has already learned that Ben Bernanke and the Federal
Reserve made inappropriate threats to fire Bank of America's management unless
they went ahead with the "shotgun wedding" that was the Merrill Lynch
acquisition, The Federal Reserve also engaged in a coverup and deliberately hid
concerns and pertinent details regarding the merger from other federal
regulatory agencies. The committee has obtained a number of e-mails and
documents from the US central bank about [the Fed's] behind-the-scenes role in
the merger, according to sources familiar with [the] documents.
When pressed on normally sympathetic CNBC to name the names of the big-fisted
bullies who were trolling the oak-paneled conference rooms of the New York
Federal Reserve that weekend, Issa demurred; he's either saving that for the
klieg lights of the upcoming hearings, or, at that moment, just could not pull
names out of his hindquarters without concern for the libel laws.
No matter. The Issa feint illuminates the political strategy the Republican
right has finally settled on to battle Obama.
In February, the Republicans lost significant polling support when, after being
unified in opposition to the Obama fiscal stimulus plan, the Democrats turned
around and charged that their mindless, reflexive negativity was their
opponent's only real policy alternative.
Now they've got one. They're going Back to the Future, specifically, to
the early days of former president Ronald Reagan's first term in 1981 and 1982,
back to the heroic lie that all that was needed to fix the bad economy back
then was Reagan's capital friendly tax cuts, and "why don't we try that now?"
Of course, big tax cuts now on top of a $1.8 trillion existing deficit would
make today's budget shortfalls look like well-stuffed piggybanks, and besides,
anybody who knows more about economic history than your average coffee pot
knows that the early 1980s were not so cut and dry, so black and white. Still,
in America it has become political suicide to question much of what happened
during Reagan's terms in office - as Iran's supreme leader rules in life,
America's own rules in death.
The mere existence of this strategy has already acted to take off the table the
possibility of another government fiscal stimulus, and it is already becoming
part of the debate on issues such as health care and cap-and-trade emissions
control. The Republicans hope to be able to block any more government policy
initiatives until at least the 2010 mid-term election, then, if they gain seats
there, by showing Obama's Democrats as ineffectual, they put themselves in the
driver's seat for their return to the White House in 2012.
So, all you folks, you Bank of America stockholders, who got clobbered after
the buyout. It's not our, the private sector's fault - it's big bad Bernanke's.
Already, the new conservative strategy is showing some success, with slight
drops in Obama's popularity and job approval poll ratings, as more and more
Americans shift some of the blame for the economic calamity from former
president George W Bush to Obama. As for Bernanke, if all the fearsome
firepower of the entire right-wing spin machine is soon to be pointed in his
direction, well, there's said to be no atheists in foxholes, and no believers
in the central bank's independence from the government in front of a firing
squad.
"Nope - not too much monetary stimulus out here now." Bernanke in effect said
on Wednesday. "Is there, Barack?"
So, will Republicans fear and respect Bernanke at the next Congressional
hearing? Not too likely, unless the Fed chairman replaces his crew of pasty
faced economics Phds with Don Corleone's favorite muscle, the adipose Luca
Brasi. After all, what better way to come to a bipartisan agreement on the
issues of the day than to have someone on the negotiating team who makes offers
you can't refuse?
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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