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Lehman Oct 30
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Bernanke’s Biggest Blunder
Oct 29, 2015 | Slate
By Eric Posner
...This claim is a convenient excuse for the biggest mistake in the government’s response to the financial crisis. While the Lehman collapse did not cause the crisis, it significantly worsened it. Bernanke, along with Bush administration Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy ... -
Here Are The Facts Behind 3 GOP Debate Claims Involving John Kasich
Oct 29, 2015 | Cleveland.com
By Jeremy Pelzer
During Wednesday's Republican presidential debate, a number of claims were made by and about Ohio Gov. John Kasich. GOP rival Donald Trump chastised Kasich for his ties to Lehman Brothers, the now-defunct financial firm. Trump also dismissed the governor's boasts about Ohio's economic recovery, saying Kasich simply "got lucky"...
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Oct 29, 2015 | Slate
By Eric Posner
In his just-published memoir, Ben Bernanke repeats his claim that he failed to rescue the Lehman Brothers investment bank in September 2008, while he was chairman of the Federal Reserve, because he believed that he lacked the legal authority to do so. This claim is a convenient excuse for the biggest mistake in the government’s response to the financial crisis. While the Lehman collapse did not cause the crisis, it significantly worsened it. Bernanke, along with Bush administration Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy Geithner, is responsible for this blunder. He can’t blame the law.
The law in question is section 13(3) of the Federal Reserve Act, which authorizes a Federal Reserve Bank, with the board of governors’ approval, to make loans during a crisis to nonbanks like Lehman if the loan is “secured to the satisfaction of the Federal Reserve bank.” It is this vague bit of language that blocked a loan, according to Bernanke. Because, he says, Lehman was insolvent, the Fed couldn’t lend to it.
...The Fed pushed against the boundaries of the law in these instances because it believed that strict interpretations of the law would block actions that it needed to take in order to save the financial system. And the phrase, “secured to the satisfaction of the Federal Reserve bank,” invites the Fed to exercise discretion by relying on its own judgment when evaluating collateral or a borrower’s prospects for repayment. If the Fed was willing to push forward against the law in these other cases, then why not for Lehman?
Lehman’s major problem was illiquidity. It owned valuable assets but could not sell them off during a panic, except at fire-sale prices that would drive it into insolvency. Officials in the New York Fed believed that Lehman was “narrowly solvent,” according to the New York Times. Later, the Lehman bankruptcy examiner Anton Valukas would find that Lehman’s own valuation of its assets, on the basis of which it claimed to be solvent, was not unreasonable. This is hardly a ringing endorsement, but surely it was enough to allow a loan “secured to the satisfaction” of the Fed.
Bernanke’s claim that he believed that Lehman was insolvent is also hard to credit in light of his efforts to facilitate a sale of Lehman to Barclays Bank. The Fed was ready to provide a loan to make this happen. But if Lehman were insolvent, then Barclays—one of the largest banks in the world—would have choked on its carcass, possibly imploding itself, with consequences for the financial system even worse than the Lehman collapse. Bernanke would not have helped Barclays acquire Lehman if he had believed that Lehman was insolvent. In fact, Barclays’ willingness to buy Lehman was evidence that Lehman was not. Bernanke also has never explained why a “small” loan to facilitate Barclay’s acquisition of Lehman would have been lawful if a “large” loan to save Lehman itself was not.
There are other inconvenient facts. The Fed loaned significant sums—as much as $28 billion in one instance—to Lehman through its Primary Dealer Credit Facility in the months after Bear Stearns’ collapse. It must have believed then that Lehman could repay the loans. Even if Lehman were insolvent by September, the Fed could have saved it before its financial position deteriorated. The failure to act earlier was itself a choice, not compelled by the law.
Why, then, did Bernanke & co. fail to rescue Lehman? The answer that emerges from Bernanke’s memoir—largely consistent with the memoirs and testimony of Paulson and Geithner, and reporting by journalists—is that (1) anti-bailout sentiment was loud and intimidating; (2) Lehman’s counterparties had had months to prepare for its failure; (3) a Lehman rescue would encourage recklessness among creditors; and (4) Congress would get angry if the Fed lost money on its emergency loans. While many sophisticated investors and officials rejected these worries, they weren’t unreasonable. But, in the end, these worries were wrong...
For full story: http://www.slate.com/articles/news_and_politics/view_from_chicago/2015/10/bernanke_memoir_says_fed_couldn_t_help_lehman_brothers.html
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Here Are The Facts Behind 3 GOP Debate Claims Involving John Kasich
Oct 29, 2015 | Cleveland.com
By Jeremy Pelzer
During Wednesday's Republican presidential debate, a number of claims were made by and about Ohio Gov. John Kasich.
GOP rival Donald Trump chastised Kasich for his ties to Lehman Brothers, the now-defunct financial firm. Trump also dismissed the governor's boasts about Ohio's economic recovery, saying Kasich simply "got lucky" because of increased oil and gas drilling in the state.
Kasich, meanwhile, asserted that his administration has dramatically lowered the growth rate for Medicaid expenses "without taking one person off the rolls or cutting one single benefit."
Let's check to see how factual these claims are.
Mobile readers: We've divided this story into separate sections. You can hit "back" to return to this list. Claim #1: Lehman Brothers: What was John Kasich's role at the failed Wall Street firm?Claim #2: Ohio's fracked-up economy: Has Ohio's economic progress come because of increased oil and gas drilling?Medicaid expenses: Do Kasich's assertions about curbing Medicaid expenses add up?
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Claim #1: Lehman Brothers
The claim: Kasich "was the man that was a managing general partner at Lehman Brothers when it went down the tubes and almost took every one of us with it. ...And Lehman Brothers started it all. He was on the board. And he was a managing general partner." – Donald Trump
The facts: Trump's claims here about Kasich are incorrect. Kasich worked for Lehman Brothers between 2001 and 2008, when the firm collapsed, precipitating a national recession. But Kasich never served on the company's board and was not a managing general partner. Rather, he worked in a two-person office in Columbus as one of several hundred managing directors for the firm.
Kasich has offered conflicting descriptions about his role with Lehman Brothers. He's bragged about his involvement with the team that took Google's stock public -- a claim the Dayton Daily News suggested was overstated. On the other hand, when Ohio Democrats have tried to tie him to the bankrupt firm, Kasich has downplayed his influence.
"I wasn't involved in the inner workings of Lehman, I was a banker. I didn't go to board meetings or go and talk investment strategy with the top people. I was nowhere near that," Kasich said in 2010, according to the Daily News. "That's like, it's sort of like being a car dealer in Zanesville and being blamed for the collapse of GM."
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Claim #2: Ohio's fracked-up economy...
For full story: http://www.cleveland.com/open/index.ssf/2015/10/here_are_the_facts_behind_3_go.html
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