tv [untitled] CSPAN June 26, 2009 5:00am-5:30am EDT
of the corporation by the fed and the treasury commitment of e federal@@@@@@@ @ @ @ @ @ @ )@ @ what is the reference to and what is the nature of the commitment? >> the treasury and the fed informed the nation about the commitment to work with the bank of america for the stabilization of the company, and i can say that the other agencies were trying to stabilize the company, this was the transaction that was on the table. there was no shade or structure of the transaction. >> my time is about to be up.
when did you learn that mr. lewis threatened to back out of the merrill lynch deal merrill lynch deal and to what extent were you concerned and did you have conversations with secretary paulson that that would sort of unravel a lot of things therefore we had to accelerate the t.a.r.p. funding for b of a and did you take it or did secretary paulson take it as an implied threat if i don't get that line going to go public and let everybody know we are pulling out of the deal? >> when i first heard about it on december 17th i took that as a possibility i was concerned about but subsequently i thought as i said mr. lewis was genuinely uncertain how to proceed. >> mr. chairman, my time is up i want to say on the record while some one this narrative to be this poor ceo of a moderately sized bank with the boot of
government on his neck forcing him to do things he didn't want to do i believe the narrative lends itself to a corporation gaining the system because he could recognize an opportunity when he saw and it was 15 to 20 million-dollar opportunity. my time is up. i thank the chair. >> i now yield five minutes to the gentleman from tennessee, congressman duncan. >> thank you very much, mr. chairman. any articles have described the actions taken by the fed and regard to the bank of america and merrill lynch dealing and other dealings of that time as being falling too big to fail policies. would you describe your activities in that time period it that way and do you think their needs to be more control or clothes or oversight by the fed and other federal regulators of the biggest banks and
financial firms? >> yes i do to the last part. too big to fail isn't a policy, it is a major problem we were faced on numerous occasions in the last year with large firms whose failure like lehman brothers what significantly disrupt the financial system and world economy. we had no good options to deal with those companies. it's extraordinarily important as i said for some time as congress reforms the regulatory system that we develop a resolution regime for resolving failed in system ackley critical firms we increase oversight and take steps to make sure to big to fail will not be a problem in the future so i agree strongly with that. >> i've read many articles the last few months and let seen all different sorts of figures as to how much money in total the fed has loaned and pledged, paid and all the different bailouts. would you tell what you believe the total amount to be that the fed has committed over the last few months? >> inerms of bailout's the
amount of money we have involved an aig and bear stearns was about $100 billion. >> and in other actions that >> i've seen figures like to .2 trillion. >> the balance sheet is 2.2 trillion but more than half of that is u.s. government bonds and guaranteed mortgage-backed securities which have no risk and are supporting the mortgage markets of the united states. a good portion of the remainder is short-term collateralized loans to financial institutions which are safe and help provide liquidity to support the financial system. so none of that i would characterize as a bailout other than the money involved and aig and bear stearns situation which we got involved and with great regret and i hope the system will be changed so it will not be necessary in the future. >> the "congressdaily" says this morning that the fed officials purposely declined to consult
with other federal financial regulators and one email expressed concerned they know something is up, "the wall street journal" reported you and mr. paulson attended weekly meetings of the financial stability oversight board and refused or declined to disclose the seriousness of the problems being faced by bank of america and merrill lynch at the time. what would you say to the majority of this congress who has now co-sponsored, who have now co-sponsored the bill to require audits of the federal reserve? do you feel that the federal reserve has operated with too much secrecy and too much refusal to disclose information that you have to other federal banking regulators? >> the federal reserve has made enormous strides in the last year and under my chairmanship to expand the information we release monthly information on
all the various programs that we have. we've developed a website and monthly reports that involves all kind of information we think we are quite transparent. we are happy to work with congress if they have further concerns about any programs we are more than happy to work with you to make sure that you're comfortable and that they are well managed and serving the public purpose. >> do you think it would cause problems for the fed or the economy if that legislation was to pass? >> my concern about the legislation is if the gao is auditing not only the operational aspects of the programs and details of the programs but making judgments about policy decisions that would effectively be a takeover monetary policy by the congress a repudiation of the independence of the federal reserve which would be destructive to the stability of the financial system, the dollar and our national economic situation. >> thank you. thank the gentleman from
tennessee. i now yield five minutes to the woman from ohio, marsha kaptur. >> thank you mr. chairman very much. and chairman bernanke, welcome to this committee. i am very concerned about the laws that create money in our society and how we hold them accountable. for those who counterfeit if we can find them most often they go to jail for a long time. but to those who create money in sophisticated ways through the financial system and then do great damage sometimes they are more difficult to apprehend and prosecute. today i with like to explore the relationship between the bank of america, merrill lynch and a firm called black rock that went public in 1999 after its founding about a decade earlier. let me say i'm also concerned there may be clever fox's in the henhouse at the fed as the
nation precedes to dig out of this housing collapse which still continues in regions like my own and told those truly responsible, accountable. as i understand the bank of america acquired merrill lynch last september but at the time of that acquisition because of several relationships, bankamerica actually also bought black rock which now owns the majority share of bank of america. recently, that had to do with interrelationship between black rock and merrill lynch, as you know. recently the fed just hired black rock to execute at least four contracts, maybe five, to analyze and handle the troubled assets of at freddie mac and fannie mae, making black rock the dominant player in pricing these distressed assets. i am concerned that a black rock and its chief executive officer
may not be fair and impartial in conducting these responsibilities because they in fact had been heavily involved in and venting, creating and trafficking in those instruments for most of the last two decades. indeed during the risk analysis associated with them and selling billions of them to the government of the united states. so one of my questions, mr. bernanke, is do you know what your mr. fink sold his first tranche to, do you know what your that occurred? >> i do not. >> you think that's important for you to know? >> why don't because the arrangements we have with black rock and other asset management companies are carefully set up to prevent conflict of interest to setup fire walls between the portion of the company and the portion of the company engaging in other market activities. >> do you know what other
instruments black rock and its subsidiaries sold to a federal government over the last ten years? >> know why don't. >> i would say it's pretty important for you to know some of that because of the difficulties with the securities is you can't on wind them. you cut them off in pieces, sell them off and given what we know about these pools of toxic assets i have to say i ask whether the fed could actually be in collusion with mr. fink in covering up his own potential fraud by giving him the opportunity to shift the portfolios and have access to information no one on this committee has access to in a way as favorable to the clients he served and in ways favorable to the company today. how can we assure ourselves that isn't happening? >> we can provide you with contracts we have with black
rock and they involve very careful control to make sure there is a separation between the parts of the company working managing the assets according to our instructions and other parts of the company involved in a variety of asset management activities. >> you know mr. chairman when you appear before the budget committee i asked you for those contracts and i want to thank you because they were finally placed on the web site of the fed. however, the contracts that were placed there have multiple weeks of its missing for example the investment guidelines are absent except for one simple statement of policy objectives. the schedules and payments are omitted along with a designated representative of the federal reserve bank of new york as well as key personnel. given that you are using taxpayer dollars to pay these contracts, weigel met the schedule and payment procedures?
>> we have a committee that works through all these different types of information some of which is confidential or proprietary and releases all that it believes is appropriate but i will go back and talk to them and make sure they are looking at those issues. >> i tell you the housing crisis is the heart of this economic crisis, and if we are going to fix what has gone wrong in this society it seems to me those who hold extraordinary power to create money and certainly the new york federal reserve has more power than any regional reserve bank does or people who live on the street i live on where homes are being foreclosed as we sit here. something went seriously wrong, and i hear what you said this morning, but i am deeply concerned the fed itself is involved in the manipulation of the markets of the mortgage markets particularly the toxic
assets that the public of the united states now owns, and i am not convinced what you have said to me about the contracts the fed has signed with black rock will be properly administered in a way that would be fair and impartial to all holders, and i hope that you can provide information to the record to convince me that my suspicions are unwarranted. >> the gentleman's time is expired. congressman souder from indiana. >> thank you. i think that there was some prediction as you went into office it was we to be a relatively activist said, and i think -- i think that you've certainly been an activist. do you see in the descriptions as we look a peace e-mails, and i think cases can be made that there was a certain feeling of intimidation at the bank of america at the same time that a bank of america probably used
the situation to leverage their game. do you see how you got involved here as something extraordinary in the sense you felt the system is collapsing or will this be a repetitive pattern of the fed? obviously -- >> can the gentleman talk directly in the microphone, we are having trouble hearing. >> several other times whether the asian flu or various crisis that had given the fed chairman taken this aggressive role? >> the past two years have been the worst financial crisis since the 30's. it's threatened the stability of the global financial system and the global economy. extraordinary actions have been taken and we've learned a great deal and as i said in my testimony i hope the congress will take action to ensure the system will remain stable and no such actions are in the future. i very much regret being involved in them but i saw no alternative at the time. >> and how do you see yourself at this point given the fact that you have been fairly
politicalized, your treasury is strictly political, you have caused a political entities you e@/)@ @ @ @ @ @ @ @ @ @ @ @ @ @$ out the use separate yourself from this so you are not completely political? >> as the crisis is ending, we will withdraw our programs and we paid the money, and as we go forward, we can see a withdrawal of the programs and support, as this becomes more normal. >> part of the problem was they went to a banking sector with merrill lynch, and you know that this has been a recreational
vehicle, with the floor plans. most of that was a non banking sector. how do you deal with us in the future, knowing where you will be? >> well, there are a number of suggestions in the at ministration's reform plan and others for dealing with that. certainly the extraordinary steps we've taken for example to revitalize the acid acts eckert is market we are seeing a lot of progress by the way as that market revitalizes the financial system normalizes we will certainly withdraw and not be involved in that any further ..
we have worked closely with the treasury and other agencies, and we have maintained very strong independence on the monetary policy, as this is unfolding, and we expect to do -- to stand down on the financial related policies. >> they were in deep trouble last fall, part of your expertise is deflation. you have a tendency to anticipate and we have had deflationary, but you have projected that this will happen before and this did not. how can you say that we will
have this intervention, how did you determine that this was the greatest thing and the greatest crisis since the great depression when this was not there yet? yet? >> well, it was my judgment based on history, lots of research and reading and thinking and experience that the collapse of major financial firms can be very detrimental to the economy and if there was any doubt about that the failure of lehman brothers in the near failure of the ig should put that to rest. i think it is important as the go for that we find measures to avoid situations in the future and i would very much like again not to be involved in such activities. >> you about land a challenge because some feel that some failures what of cleanse the system. some believe it with a brought down the whole thing and in fact this debate has occurred probably it least five times in the last 15 years as to the press that the in the question
is it that is going to lead to this much intervention everytime there is extraordinary discretion of the key individuals to say-- and i'm not disagreeing on this one. wide coded diverse single time with great political dress for each of the financial interventions, but the process here concerns me and the more data we get the more concerns me. >> if we ever resolution regime that will be more appropriate for resolving these firms in a crisis, we can avoid this problem in the future. >> the gentleman's time has expired and i now yield five minutes to the gentlewoman from california, congressman watts. >> mr. chairman, thank you mr. bernanke for coming here. i am going to give you a series of the fence and i will give you some questions and you can answer them all of together. first, despite the fact that the plan for a merger was announced on september 15th of 2008, there
was no mention of the 20 billion-dollar capital injection from the government until january the 16th. utt what point during the negotiations between bank of america, merrill lynch in the federal government was it determined that this money would be necessary for the merger to be finalized and then, given that as of january 16, merrill lynch has projected losses for the fourth quarter were approximately $15.3 billion, how is this the of the $20 billion agreed upon and finally, in this set of questions, today, to this money has been drawn down and how has it been used? >> at the time that merrill lynch and bank of america initially announced their merger agreement in the middle of september this was before the congress had passed the t.a.r.p. law and so they had been no
capital injection and no expectation of capital injection. both merrill lynch and bank of america received capital in the middle of october during the intense phase of the banking crisis. and an additional $20 billion was injected as you say on january 16th. that was based on a review of what the supervisors and the other experts at the federal reserve believed would be sufficient to reassure the market that bank of america would be stable going forward. they have used the capital to support their activities including lending and they have course are reaping the government dividends. they hope to repay these part of the t.a.r.p. in the future. >> i am sure this might be the experience in other members' offices. i represent a district in los angeles, and we get calls every day, up to ten to 30 calls a people who have gone to the bank
and they are not having their bones restructured. and, i am very curious about where that money went when it went into the system. it is like trying to unscramble eggs, but i know the consumers and the owners of property are not being assisted with refinancing their loans. let me go on. in testimony before the committee on june 11th bank of america fawzi eo ken lewis claimed that the razzle-- revolution of a 12 million-dollar loss at merrill lynch on december 14th of 2008 caused him to consider invoking the material adverse effect clause referred to as mac to back out of the dealed nine days after shareholders had voted to approve the acquisition. however in an e-mail on december 19th, that bank supervision office of the new york fed, tim clark, stated that
lewis's claim that they were surprised by the rapid growth of the losses seem somewhat suspect. chairman bernanke, given that shortly after the deal was announced in september, bank of america has installed 200 people at merrill lynch to thoroughly review their books and you believe mr. lewis was honestly surprised by the acceleration of losses? >> i have no way of knowing. we did have concerns about the quality of due diligence but i have no direct evidence that he was in fact informed about the losses. >> well, 200 people were installed at merrill lynch so that seems like they were going to take very deeply. somewhere the due diligence kind of fizzled out. and i just think that bank of america's due diligence was not as thorough as it should be. do you believe that there were
insights into merrill lynch's books that the government had that bank of america did not? >> i can't answer that with certainty. we would have had some information about merrill lynch because we were working with the sec to supervise it after we began lending to investment banks. but, i don't think that we had knowledge of the size of the losses either. i'm quite sure we did not. >> mr. chairman i am going to try to make another statement and if the time runs out, i would ask mr. bernanke to give me his answers in writing. in an e-mail on december the 20th, the president of the federal reserve bank of richmond, jeffrey clacker, described a telephone conversation with you, where you expressed the belief that the mac fret is irrelevant because it is not credible and that you
plan to make even more clear that if they played that card, and then they need assistance, management is gone. so, do you remember the phonecall with mr. lacker, that the e-mail was referring to and you believe that mr. lewis's claim that he would invoke the mac end backup the deal were credible, and had the bank of america decided not to complete the merger, which the fed had pursued the removal of their management and board and had the fed ever taken action to remove the management of a private entity before? do your best. >> i was concerned initially about whether this was a serious proposal to invoke the mac because i did believe it would be detrimental to the bank of america as well as the international system. i never made any threats to mr. lewis regarding removing forward in the management.
one example of where the federal reserve removed management was in the case of asg where there was an agreement that the ceo would be replaced upon the acquisition come upon the consummation of the loan we made to stabilize the company. >> the gentlewoman's time has expired. >> thank you mr. chairman. >> congressman mchenry from north carolina. >> chairman bernanke, thank you for your testimony. i know this is certainly not easy to recall what happened in this very busy days in the fall, and you've certainly had a very challenging ten year with the federal reserve. it did not come in at easy the thank you for your service to your country. and, during your testimony in front of financial services, which i am on, in your numerous comments, he worked very closely in the fall with the former secretary of the treasury, mr. paulson.
is that correct? >> that is correct. >> some testimony, some comments it is almost daily or hour by hour conversations throughout the fall with your counterparts there. >> daily, certainly. >> and, with the then new york fed head, tim geithner, you also had significant involvement with him on a very regular basis. it is that true? >> that is correct. >> so, the combination of the two in context of this event, this controversy that we are analyzing today, did you have conversations with those two about bank of america? >> i had conversations with secretary paulson who of course with the treasury secretary at that time and we talked about for example plans for how we might structure a package to
help bank of america of voight being destabilized. at that point, at that time president geithner had already been designated as the treasury secretary nominee and therefore he recused himself from details, intervention or involvement in such transactions. we did give him basic information so he would be informed but he was not involved in the details of the package that was put together for bank of america. >> so, he was not directly involved and recused himself because of confirmation hearings and the potential of going from the fed to the treasury and the complex that would pose. you know, did you have conversations with mr. geithner, to keep him informed of what was going on? >> i did. >> okay. there was an e-mail from tim
geithner on december 20 at at 8:02 in the morning. are you all over the of a/mo and are you getting what you need from the troops? this was to kevin. this e-mail sort of raises to me that, while mr. geithner was concerned and we have another jane here that says that he has basically what is hands in concern for a potentially tough confirmation year makes sense. but it seems to me that he was all over this. is that your impression? >> no, my impression was that he was informed about the general situation. i would assume that he was referring to the step of the new york fed for he was still the president but i should say to the best of my knowledge he was not involved in the detailed negotiations that developed