Did Bernarke have a significant role in the Lehman Bankruptcy?

[Aemilius Paulus]

Alright, I realise this is not precisely recent news , but I am nevertheless interested in hearing what the Backroomer's opinions are on this topic. You see, my macro-economics professor commented on one of my presentations that Bernake, the Chairman of the Fed, did not have any role in the Lehman Brothers Bankruptcy. Yet I defended my group, stating that while it is true that is was mostly Henry Paulson who is known for this blunder (especially in popular knowledge), Bernanke could not have simply been left out. Anyway, I decided not to push it, as I realise the best thing for my grades is to remain non-confrontational and friendly with the prof (as I am), but I could not help wanting to hear the opinion here.

In his view, it was solely the fault of Paulson, the former Secretary of the Treasury. Yet Bernake himself made speeches on why the Fed let Lehman fail, and various sources confirm that he had a role, staying up late at night racing through the options with Paulson. Such as the split of Lehman into two companies, the taxpayer-funded bailout, or the acquisition of Lehman by Barclays, its British counterpart.

Too bad my prof said I literally had to find a front-page article from one of the top US newspapers if he was to believe my point (kinda hard to do that, eh?). For instance, David Wessel, a WSJ editor and columnist, as well as Ethan Harris, the managing director and chief U.S. economist from (guess where?) Barclays, both in their respective books (which I both read) “In Fed We Trust: Ben Bernanke's War on the Great Panic” and “Ben Bernanke's Fed: The Federal Reserve After Greenspan” elaborate on Bernanke’s role in the Lehman debacle. Yet my professor claimed this was merely an opinion and that I had to have hard proof.


What do you think? He definitely knows this stuff better than me (why am I even saying this?), but I sometimes found his grip on current events rather rusty. Bernanke's role in the Great Panic of '07 is only recently becoming clear. Are his sources outdated, or did I read the wrong people?

[Centurion1]

I'm sorry but the man considers the books you read as opinions? (which they are) but not the newspaper article!

He probably only accepts the New York Times as an accurate news outlet.

Hey don't even bother arguing with this man he is obviously an intellectual.
(nothing wrong with that but sometimes it can be excessive)


Now my thoughts on Lehman bankruptcy. Blame can be placed on multiple parties. Paulson for his foolish approach to solving the situation, BERNARKE for his role in advising Paulson's foolish stratagem (I though it was common knowledge he was a main adviser of Paulson), the news media for throwing the entire financial world into crisis mode by their "objective" journalism, the BANKERS (gotta blame them somewhere ) and George W. Bush for endorsing the plan (Yep I blamed a republican president for something, go figure). Overall it was a poorly executed and poorly thought out plan that didn't need to be rushed.

And don't even get me started on either Bailout. both were terribly written, rushed, and had enough Pork to fill all the slaughterhouses in Chicago.

[Ice]

I'm fairly sure that Federal Reserve is authorized to provide emergency loans in extraordinary situations that threaten the entire banking sector. Thus, I would also blame this on the chair, Bernanke.

[Aemilius Paulus]

I'm sorry but the man considers the books you read as opinions? (which they are) but not the newspaper article!

Yeah, I see your point, it is just that reliable newspaper articles are hard to find (he would only accept frontapage articles - go figure). I simply find it odd that two different authors woudl lie about a fact. The news that Bernanke worked with Paulson is a fact. Hard to lie about this. The news that Bernanke was responsible, even partially, for the Lehman bankruptcy is an opinion. I did not say Bernanke caused the blunder - I merely said he was involved. Dunno. Do you think it is feasible a book will skew the truth like that? I do not know. That said, the books are new - both were published in August and both are at the forefront of the new books on economics. The professor did not read them yet.

He probably only accepts the New York Times as an accurate news outlet.

Yeah, that and WSJ. But Wessel is the editor and a columnist of WSJ economics section. I doubt he would lie about facts.

Hey don't even bother arguing with this man he is obviously an intellectual.
(nothing wrong with that but sometimes it can be excessive)

Meh, but like I said, I did not dare to argue - he said he will reconsider the grade if I can prove otherwise. I told him to read the two books, but he wanted articles. And only frontpage, because he said anything else "may be unrelaible". Obviously, only from the top sources.

And don't even get me started on either Bailout. both were terribly written, rushed, and had enough Pork to fill all the slaughterhouses in Chicago.

No, please do. US bailout already took up too much time - the nations who offered larger and swifter bailouts were the ones who did better. Yeah, the bailout had loads of flaws, but it had to be fast and big. And it largely succeeded in that. If they waited longer, a better written bailout would have been useless anyway. Add the highly partisan (as opposed to logical/merit-based) voting to the situation, and you have the reason for the inefficiencies.

So, I am still puzzled...

[Ice]

No, please do. US bailout already took up too much time - the nations who offered larger and swifter bailouts were the ones who did better. Yeah, the bailout had loads of flaws, but it had to be fast and big. And it largely succeeded in that. If they waited longer, a better written bailout would have been useless anyway. Add the highly partisan (as opposed to logical/merit-based) voting to the situation, and you have the reason for the inefficiencies.

.

Heh, AP, I argued the same thing last fall days after the **** really started hitting the fan.

[Aemilius Paulus]

I'm fairly sure that Federal Reserve is authorized to provide emergency loans in extraordinary situations that threaten the entire banking sector. Thus, I would also blame this on the chair, Bernanke.

Do you know this more specifically?

That is kinda the idea of the Chairman of the Fed, but my prof seemed to be very sure of himself for some reason . Also, oddly enough, it seemed to me as if my mention of Bernanke's involvement struck a raw nerve in him. Seriously, the other presentations had numerous factual errors, and he pointed those out, saying "it's okay because this is just an introductory econ course and I expect you to make such mistakes when confronted by various conflicting sources" but when he came to our presentation, he vehemently disagreed.

Later, in the comments section of our score, he commented "such presentations in the style of disk-jockeying are not welcomed" - supposedly referring to the view that my comments on Bernanke were an opinion - despite that everyone else had opinions. He gave us exactly a 90 though. Out of a hundred... I have no idea what he gave to the others... I worked my rear off reading the two lengthy books in less than a week, then writing pages of analysis. No one did nearly as much. But I swear, I touched on a sensitive spot there. But how and why?

Talk about being lost... And I have very good relations with him. I was always the most active and interested student in the class... Go figure...

EDIT:

Heh, AP, I argued the same thing last fall days after the **** really started hitting the fan.

Good to see some consensus

[Ice]

Do you know this more specifically?

That is kinda the idea of the Chairman of the Fed, but my prof seemed to be very sure of himself for some reason . Also, oddly enough, it seemed to me as if my mention of Bernanke's involvement struck a raw nerve in him. Seriously, the other presentations had numerous factual errors, and he pointed those out, saying "it's okay because this is just an introductory econ course and I expect you to make such mistakes when confronted by various conflicting sources" but when he came to our presentation, he vehemently disagreed.

Later, in the comments section of our score, he commented "such presentations in the style of disk-jockeying are not welcomed" - supposedly referring to the view that my comments on Bernanke were an opinion - despite that everyone else had opinions. He gave us exactly a 90 though. Out of a hundred... I have no idea what he gave to the others... I worked my rear off reading the two lengthy books in less than a week, then writing pages of analysis. No one did nearly as much. But I swear, I touched on a sensitive spot there. But how and why?

Talk about being lost... And I have very good relations with him. I was always the most active and interested student in the class... Go figure...

EDIT:
Good to see some consensus

Your prof sounds like a dick. I could casually have these conversations with my Money and Banking professor in his office hours and he'd be more than happy to hear what I had to say.

I'm not sure exactly what he's referring to. I've failed to find the language that allows them to give emergency loans, but I remember it something really vague like I wrote above and it was a depression era clause in some financial regulation act. Sorry I'm being vague here, but I honestly can't find it.

Bernanke was heavily involved in the initial fiasco by using his powers (feds actually) to prop up these institutions with "emergency loans". He played more of an advisory role in the coordinated bailout which was passed by Congress.

edit:
Here you go

Section (13) (3) of the federal reserve act:

3. Discounts for Individuals, Partnerships, and Corporations
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

http://www.federalreserve.gov/aboutthefed/section13.htm

Also

WASHINGTON, Dec 4 - The U.S. Federal Reserve is expected to send a letter to a key lawmaker on Friday explaining that it must obtain sufficient collateral under law to make any emergency loans, a source familiar with the letter said on Thursday.

The letter is a response to a request from Democrat Christopher Dodd, chairman of the Senate Banking Committee, who sought clarification of the Fed's powers under a clause of the Federal Reserve Act that the U.S. central bank has repeatedly invoked this year to provide emergency funding to a range of financial institutions buffeted by the financial crisis.

The possibility of Fed loans to U.S. carmakers arose during a committee hearing earlier on Thursday about Detroit's request for $34 billion in federal aid.

Lawmakers at the hearing asked why the Fed could not loan money to help General Motors and Chrysler , which have said they urgently need a cash infusion. Ford Motor is asking for a line of credit from the federal government.

The Fed has provided hundreds of billions of dollars to banks and other financial institutions against a wide range of collateral including U.S. Treasury securities and debt securities issued by mortgage finance enterprises.

Unlike those financial institutions, it appears unlikely that U.S. automakers would be able to post enough collateral.

http://news.alibaba.com/article/deta...oan-power.html

Hope this helps

[Aemilius Paulus]

Ahh, thank you so much, Ice, that was as good as I can possibly expect

Your prof sounds like a dick.

Hehe, a bit harsh, but you see, the problem is, he is not. Which is why I was upset by the comments, which came from a usually nice professor (although many students dislike him for picking randomly on people to answer his questions, which usually embarrasses the students because they do not know the answers - due to the fact he asks the questions about the chapters we have yet to study)

Like I said, I seemed to have stumbled onto something special - he was nice to all the other groups

Anyway, thanks again, Ice.

[Ice]

Ahh, thank you so much, Ice, that was as good as I can possibly expect :

My pleasure... Let me know if you need imput/articles/research on anything accounting/finance/economics related. I usually can help to limited extent.

Hehe, a bit harsh, but you see, the problem is, he is not. Which is why I was upset by the comments, which came from a usually nice professor [I](although many students dislike him for picking randomly on people to answer his questions, which usually embarrasses the students because they do not know the answers - due to the fact he asks the questions about the chapters we have yet to study)

The CPA I have for auditing does that a lot. Learning from failure helps a lot though.

[Lemur]

Hey don't even bother arguing with this man he is obviously an intellectual.

Yeah, and he might even be elite. Why oh why can't a professor of economics be stupid and average, like real Americans?

We wouldn't want to argue with people who read books and think about things, now would we?