Monday, September 21, 2009

"Brookings Ben" -admits OTC derivatives "liquid" pre-Lehman; "Emergency, Extraordinary" Bailouts = unexpected; ergo Regulators' excuses do not add up

Referring to off balance sheet trades; really, Ben?

See video here

I'm exceedingly curious - SHOW ME how and what data you reviewed to make that statement. "That prior to Bear Stearns or certainly the Lehman-induced financial market crisis last September YOU KNEW that these OTC derivatives markets were liquid."

1) If you "knew" said markets were "liquid" that means you were aware and watching and exercising some level of prudent safety and soundness supervision correct?
2) At what point did you first become aware or had concerns; especially in light of your 2006 public comments detailed below?
3) Given what you profess to know NOW - what was THEN known, knowable, unknown or unknowable?
4) Last, since you knew said markets - Why did you need to propose emergency, extraordinary measures to send US Taxpayer cash to certain (certainly not all) financial institutions? Any reasonable conclusion would seem to be that YOU indeed did not know even the basics.

Based upon whose collateral (underlying real estate) valuations? Recall that the SEC allowed brokers to use their own valuation models back in 2004?
Based upon or more accurately in contrast to your, yes YOUR speeches related to the housing and related markets in 2006. The WSJ headline peeped on October 5, 2006 (not a typo) "Bernanke suggests sinking housing market could dampen growth" Uh, you do read the venerable journal and have penned an Op-Ed or two - but silly me I didn't happen to catch any correction or retraction.

OTC Derivatives market Liquid? Based upon what data?
The US taxpayers would like to know EXACTLY that markets' so called "liquidity" stats?
Trade volume, dollar volume, and types of securities traded in 2008 compared to any previous period - lets say any year after 2003 ok? Let's not forget to take a look at the related Repo, CP and ABCP (Asset backed commercial paper) issuance from certain parties. The NY Fed specifically carved out a new data category for ABCP when and why? In 2006, see any connections here?

Liquidity for Ben, came from where?
Look no further than the above mentioned PROPRIETARY valuation models AND the massive credit induced leverage often in financial institutions' controlled proprietary off balance sheet vehicles financed by what - also as above, look at the mammoth increase in the short term paper markets (Repo's, CP and ABCP). Leverage reported as much as 20 or 30 to 1 (Mr Buffett is quoted on Bloomberg a few months ago ..."Right and intraquarter it was a little more than that"; when underlying collateral valuations were not rising, rather declining. (Read your own speeches and media quotes). What game were you watching? Several credit ratings agencies issued reports such as 2005 (not a typo) by S&P titled "Who will be left holding the bag?"
See link here - S&P removed that one but you can email for the pdf document.

It's not a question of intellectual capacity ok?
Intellectual capacity you have more than most (recall the awe inspiring Smartest guys in the room at Enron and the Nobel Prize winners and one former Fed Governer who drove Long Term Capital into the ground), however awake, alert, both eyes open, both hands on the wheel at all times especially while the car reaches hyper NASCAR speeds with no brakes and watch out for that curve and the WALL - !!!

BB was asked how will the Fed develop tools, if any, to determine where a or the line may be drawn for two different but related measures of a financial institution (broadly defined); illiquidity and insolvency.

The height of a principal agent problem at the head literally and figuratively of the Federal Reserve, US Central Bank - another fact and no wonder Ron Paul has come out with "The End of the Fed"

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