Is Bernanke Toast? If he is, Summers is a shoo-in
Here’s a conspiracy theory for you. As I am not much of a conspiracy theorist, I ill keep this one pretty simple. Here’s the chain of events.
Back in late September when the world was falling apart, Ben Bernanke, Tim Geithner and Hank Paulson were all desperate to keep things from unravelling. As a result, they were pleased that Ken Lewis and Bank of America were willing to pony up massive $44 billion to take over Merrill Lynch. They might even have encouraged the deal (i.e. we will smooth the way. There will be no FTC hurdles. We will soft peddle investigation into Countrywide mortgage fraud, etc)
The problem, of course, was that Merrill Lynch was a bottomless pit of asset writedowns. Lewis, the deal maven, must have been crestfallen when he learned how poorly things were shaping up in Q4 2008- sour enough to cancel the deal outright. Enter Bernanke and Paulson. Depending on who you believe, Lewis was going to cancel this deal, only to be coerced by Paulson and/or Bernanke into allowing it to proceed. Let’s forget that this suggests Lewis was not minding his fiduciary responsibility. If true, we should all be very troubled that government officials were abusing their power in order to manipulate actions in the private sector. By the way, Tim Geithner was already transitioning to his new role as Treasury Secretary, so he gets a bit of free pass on this one.
Now comes the allegation from a Republican congressman that Ben Bernanke, the soft spoken Southerner, was not only coercing, but he was covering it up too. This does not look so good. Of course, Gentle Ben acquitted himself of these charges today before Congress. But, with his term as Federal Reserve Chairman up in January, his re-appointment is increasingly being called into question. And Larry Summers is the front runner for his seat (see Mark Thoma’s article).
The Republicans smell blood. But — here’s where my conspiracy theory comes in – so does Larry Summers. Remember the White Paper that Obama just released? Doesn’t it give sweeping powers to the Federal Reserve? Didn’t Summers have a strong hand in crafting this white paper? And doesn’t Larry Summers know his name has been bandied about as a replacement for Bernanke? You see where this is going, right?
Update: Below is a video of Chairan Bernanke’s testimony. There are 3 full minutes of audio problems to begin his testimony – a sort of metaphor for how things are going for Bernanke of late.
Am I naive to think Summers would catch a lot of grief for his questionable judgement in the past? Things like derivatives, deregulation, etc.
Let us hope Congress prevents the Fed from getting any more power, and that if Summers gets the chairmanship, he is run out of DC on a rail the way he was from Harvard before not too long.
I wish the Fed were toast. It has caused two depressions in less than a hundred years.
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