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Taping a "Bernanke on the Record" special that will air on PBS this week, the top U.S. monetary policy-maker defended the aggressive, even unorthodox actions taken by the Fed during the long recession and deep financial crisis.
"I was not going to be the Federal Reserve Chairman who presided over the second Great Depression," Bernanke said.
"When you’re in a situation like this, a perfect storm, sometimes you have to do things that are a little unorthodox, out of the box,"
Bloomberg – Gold climbed in Asian trading as equity gains and an improving economic outlook boosted demand for the metal as a hedge against accelerating prices.
The MSCI Asia Pacific Index of equities gained for a sixth day after an index of leading economic indicators in the U.S. topped projections, indicating the country may be emerging from recession. Federal Reserve Chairman Ben S. Bernanke wrote in the Wall Street Journal that the central bank “will need to tighten monetary policy” to prevent inflation.
New York (HedgeCo.Net) – President Obama met with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner on Friday, after which he told reporters there are “glimmers of hope across the economy.”
The meeting, which was also attended by Sheila Bair from the Federal Deposit Insurance Corp. and Mary Schapiro, head of the Securities and Exchange Commission, focused on topics like home-owner refinancing, stabilizing the banks, increasing jobs, and the new “stress tests” being administered to companies by the government.
The test are being conducted on the 19 largest U.S. banks to see whether they would hold up or crumble amidst worsening economic conditions. The results are expected to be released the end of this month. Banks that do not fare so well may get additional taxpayer funded assistance.
“We have always been very cautious about prognosticating, and that’s not going to change,” the President told reporters after the meeting.
Obama pointed to several reasons why he felt the economy is showing signs of hope, mainly the nearly $800 billion stimulus package plus an increase in loans to small business owners and more options of homeowner refinancing. He added that the administration will be unveiling additional programs over the next several weeks, though he didn’t get into details.
“We’re starting to see progress, and if we stick with it, if we don’t flinch in the face of difficulties, then I feel absolutely convinced that we’re going to get this economy back on track.”
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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New York (HedgeCo.Net) - After handing AIG another $30 billion in taxpayer-funded, government bailout funds, U.S. Federal Reserve Chairman Ben Bernanke defended the decision, with the worn-out argument that the insurer’s failure may trigger an economic domino effect.
“We know that failure of major financial firms in a financial crisis can be disastrous for the economy,” Bernanke said in a testimony to the senate Budget Committee on Tuesday. “We really had no choice.”
So far, the government has come to AIG’s rescue four different times, pumping over $160 billion into the insurance giant. In an attempt to appease furious lawmakers who disagree with the latest handout, Bernanke said, "If there’s a single episode in this entire 18 months that has made me more angry, I can’t think of one (other than) AIG."
AIG reported an industry wide record $61.7 billion quarterly loss this week, attributing that to losses on their credit default swaps; worthless pieces of paper that “guarantee” mortgage-backed securities. AIG sold these credit default swaps, which supposedly insured about $440 billion in bonds. In reality, AIG did not have the funds to cover these investments. When the securities inevitably plummeted in value, AIG couldn’t cover what they promised. Unfortunately, credit default swaps, which were invented in the late 90’s by several employees at J.P. Morgan Chase as a means to make quick cash, are not regulated by the U.S. government.
Many feel AIG has acted irresponsible, and that no amount of government funds will turn the poorly run business around. AIG even “cleverly attached a hedge fund to their insurance company, taking advantage of a gap in federal and state oversight,” Bernanke added.
In exchange for the funds, the government will receive $26 billion in preferred stock in two AIG subsidiaries – American Life Insurance Co. and American International Assurance Co. AIG will not have to pay interest on the outstanding loan.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com
Bloomberg – Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the insurer made him “more angry” than any other episode during the financial crisis.
“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”
Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.
The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.
AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.
In another sign of tighter regulation to come, Bernanke said supervisors should have authority to bar new financial products that may be destabilizing to markets.
Bernanke made the AIG comments in response to a question from Senator Ron Wyden, an Oregon Democrat, at a Senate Budget Committee hearing today in Washington.
Paul Volcker, one of the men President-elect Barack Obama is counting on to save the U.S. economy, last night helped the Museum of American Finance raise about $470,000 at a gala dinner.
The former Federal Reserve chairman’s Rolodex and clout helped the museum come within $30,000 of the money raised at its inaugural gala before the crisis started last year.
Jeanne Driscoll, the museum’s development director, smiled as patrons arrived, including Merrill Lynch & Co. Vice Chairman William McDonough and Blackstone Group L.P. co-founder Pete Peterson. She said a Volcker-less affair and the absence of many of his rich and powerful friends would have raised much less in the current economy, which he is charged with fixing as head of Obama’s Economic Recovery Advisory Board.
Bloomberg- Assured Guaranty Ltd., which owns one of two bond insurers to have retained Aaa credit ratings, said its second-quarter profit would surge by more than 14 times because of gains in credit derivatives.
The company, whose second-biggest shareholder is billionaire investor Wilbur Ross, expects to post net income ranging from $515 million to $565 million, or $6.18 per share, for the quarter ended June 30, due to unrealized gains between $475 million and $525 million on credit derivatives, according to a statement today. Profit was $32.8 million, or 47 cents a share, in the same period of 2007.
NPR News- The people who run hedge funds can be famously secretive about their work. Not David Einhorn.
Einhorn founded Greenlight Capital, which manages about $6 billion in assets. He recently waged a very public battle against Lehman Brothers, claiming it was losing more money than it admitted. He turned out to be right.
Now he’s written a book, Fooling Some of the People All of the Time, about his six-year battle against another company, Allied Capital. Einhorn says the experience shows how the media and financial regulators can sometimes fail investors.
Each May, hundreds of Wall Streeters show up at the Ira Sohn Investment Research Conference in New York’s Lincoln Center. They pay up to $3,200 each for the chance to hear advice from big investors like Carl Icahn and Wilbur Ross.
