Listening to Bernanke and Timothy Geithner on Capitol Hill yesterday, I was reminded of Skipper the Penguin from the movie Madagascar (2005)
Private the Penguin: Skipper. Shouldn't we tell them that the boat is out of gas?
Skipper the Penguin: Nah! Just smile and wave, boys. Smile and wave. [all four penguins waving]
While they promised to take any action to prevent systemic failure and talked of a ‘deep loss of faith’ in the financial system, they said that actions must be as large as the problems we face!!!
More promises of fixing, addressing, and facilitating….and so on.
A housing market strategy is also due in a few weeks.
Here are Breaking News Flashes from CNBC of the Q&A session on Capitol Hill with Ben Bernanke.
Fixing ‘too big too fail’ problem should be a top priority.
Should work hard to restore ‘fiscal balance’ as soon as possible.
Credit markets no longer frozen by subprime problems.
Current financial crisis worst since the 1930’s.
Need strong action to boost economy.
We can’t expect immediate results.
95% of Fed’s Balance Sheet in very safe assets.
Doesn’t expect Fed will lose money on AIG & Bear Loans.
Concedes ‘too big to fail’ is not fair to smaller banks.
We’re not trying to prop up the price of housing.
Fed is trying to get lending going again.
Bank of America’s failure would have had bad consequences.
Fed watching AIG to make sure its expenditures are proper.
Foreign demand for U.S. Treasuries remains strong.
Feels comfortable Fed not facing large losses.
Eventually economy will recover & Fed will raise interest rates.
Thinks Fed would have a role in more systemic oversight.
Federal Reserve already has ‘substantial’ systemic responsibilities.
Doesn’t think earlier monetary policy was main source of Credit Crisis.
Credit markets now frozen due to economic concerns.
We have no ‘nefarious’ scheme; just trying to help economy recover.
Opposed to releasing information on overnight loans to banks.
Federal discount window borrowing shouldn’t be stigmatized.
Important to also get credit flowing outside the banks.
There was‘confusion’ over how to spend first $ 350 Bn of TARP.
Credit markets no longer frozen by subprime problems.
Congress should consider liquidity facility for municipalities.
Actions we’ve taken have prevented a much worse situation.
Inflation becomes more of a problem as the economy recovers.
Main risk of ‘Stagflation’ is if banking system is not fixed.
TALF program will be up and running in a couple of weeks.
Fed’s Balance Sheet is ‘profit center’ not a ‘loss center’.
Fed makes money by loaning at higher interest rates than it borrows.
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