Thursday, July 23, 2009

Dear God, Alan Grayson is a Tool

I just saw this video, which shows Rep. Alan Grayson questioning Ben Bernanke during his Humphrey-Hawkins testimony, and was being promoted by Zero Hedge and others a couple days ago. It's embarrassing....for Grayson.

He asks Bernanke about the currency swap lines that the Fed established with other central banks during the financial crisis, which he clearly doesn't understand (although he obviously thinks he does). He harps on the fact that Bernanke doesn't know which foreign financial institutions "got the money." Of course Bernanke doesn't know that. The Fed entered into currency swaps with foreign central banks, like the ECB and the BoE. Who those central banks then lent the dollars to is irrelevant—the Fed doesn't bear the credit risk of loans made by other central banks. The Fed only bears the credit risk of the central banks it established swap lines with, which, obviously, is vanishingly small. Grayson then focuses on the Fed's swap line with New Zealand's central bank, which is where the wheels really come off the wagon. He apparently thinks a swap is the same thing as a loan, and that the Fed extended $9bn of credit to New Zealanders, which he considers an outrage (the Fed is lending to "foreigners" instead of Americans!). Of course, he doesn't even get his facts right (which is what happens when you hire people with no experience on Capitol Hill as Senior Policy Advisors). The Fed's swap facility with New Zealand central bank is $15bn, not $9bn, and more importantly, NZ's central bank never even drew on its swap line, which has $0 outstanding (pdf):
Grayson arrogantly laughs when Bernanke denies that the expansion of the swap lines on September 18th caused the dollar to rise 20%, which is amusing because the swap lines relieved the extraordinarily high demand for dollars from foreign financial institutions. The best part of the video is when Barney Frank (easily my favorite Congressman) cuts Grayson off, which draws another of his arrogant laughs. Maybe Grayson should go back to losing millions in Ponzi schemes.


Anonymous said...

It's funny, I first saw this video on youtube and you can easily see how savvy in economics the viewers were by their comments. It's refreshing to read this blog since it's done by an individual with a good deal of knowledge on the US financial system vs the morons on youtube who's knowledge doesn't go beyond page 100 of their principles of macroeconomics book.

Anonymous said...

Why isn't there more information provided by the media to help explain the concepts that Grayson was attacking Bernanke about? Do you think that Grayson took this line of questioning purposely for the media response, rather than asking relevant questions?

Anonymous said...

Thanks for the doc link that you posted. I browsed through it a bit, and found something that indicates to me that Bernanke is lying about not knowing where the money went. According to the document, all of the swaps are administerted by the Federal Reserve Bank of New York. When the "foreign central bank" wants to lend to a bank under its jurisdiction, the money is transferred from the FCB's account at the FRBNY, to the account of the borrowing institution. So the Fed Reserve Bank of New York knows exactly where the money is lent.

This is all described on page 5 of the document.

Or am I misinterpreting what I'm reading?

me said...

To July 25 Anonymous:
I see that the reference is that the transfer is made to the dollar CLEARING bank of the borrower. Would this transfer be made to the credit of the FCB or the final institution?

Shalom P. Hamou said...

The article: Ben "Systemic Risk" Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem as he knew it would cause of the "Depression".

It shows that he probably engineered it on purpose!

If you want to sleep tonight, Don't Read It!

"In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that "the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces" (Friedman and Schwartz, 1963, p. 300).

The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October.

In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.

Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930."

Governor Ben S. Bernanke
Money, Gold, and the Great Depression.
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
Lexington, Virginia.
March 2nd, 2004

You can read also: Preparing for the Crash, The Age of Turbulence Update: 27/07/09., which tries to accomplish Greenspan Mission Impossible:

"That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer.

Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.

Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.


The clear evidence of underpricing of risk did not prod private sector risk management to tighten the reins.

In retrospect, it appears that the most market-savvy managers, although conscious that they were taking extraordinary risks, succumbed to the concern that unless they continued to "get up and dance", as ex-Citigroup CEO Chuck Prince memorably put it, they would irretrievably lose market share.

Instead, they gambled that they could keep adding to their risky positions and still sell them out before the deluge. Most were wrong."

Alan Greenspan
The Age of Turbulence: Adventures in a New World [Economic Order?].

The Age of Turbulence: Plea for a New World Economic Order. explains the nature and causes of economic depressions and proposes a plausible alternative solut

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