Watch this video of Bernanke denying any knowledge or seemingly oversight on Lehman Brothers using 105 repos when questioned by Representative Spencer Bachus.
Now how can this possibly be? Bernanke claims "the Fed" had no knowledge of Lehman's 501 repo scheme and "couldn't" because they did not have "regulatory authority", all the while loaning them $$ and running 3 stress tests?
In a post by Yves Smith (Naked Capitalism), we have evidence Merrill Lynch warned the Fed on Lehman's 105 repos in March 2008:
The Valukas report shows both regulators were monitoring Lehman on a day-to-day basis shortly after Bear’s failure. They recognized that it has a massive hole in its balance sheet, yet took an inertial course of action. They pressured a clearly in denial Fuld to raise capital (and Andrew Ross Sorkin’s accounts of those efforts make it clear they were likely to fail) and did not take steps towards any other remedy until the firm was on the brink of collapse (the effort to force a private sector bailout as part of a good bank/bad bank resolution).
One of the possible excuses for the failure to do more was that the officialdom did not recognize how badly impaired Lehman was until too late in the game to do much more than flail about. But that argument is undercut by a story in tonight’s Financial Times.
Merrill warned both the SEC and the Fed in March 2008 that Lehman was engaging in balance sheet window dressing of a serious enough nature for it to put pressure on Merrill (as in it was making Merrill look worse relative to the obviously impaired Lehman).
When a company under stress makes fraudulent statements about its financial condition, it is a sign of desperation, and possibly imminent collapse. The fact that Merrill, with a little digging, could see that Lehman’s assertions about its financial health were bogus says other firms were likely to figure it out sooner rather than later. That in turn meant that the Lehman was extremely vulnerable to a run. Bear was brought down in a mere ten days. Having just been through the Bear implosion, the warning should have put the authorities in emergency preparedness overdrive. Instead, they went into “Mission Accomplished” mode.
This Financial Times story provides yet more confirmation that Geithner is not fit to serve as a regulator and should resign as Treasury Secretary. But it may take Congress forcing a release of the Lehman-related e-mails and other correspondence by the New York Fed to bring about that outcome.
So, how can Bernanke claim the Fed has no knowledge or responsibility on these 105 repos?
I saw this yesterday and said to myself, Good f*@king God, did Bernanke just perjure himself? As I get to writing up this testimony clip today, I find I am not alone in asking that question. Bernanke -
We did not have that information
Then, we get this:
An e-mail written in March 2008 by one Lehman executive to another said “Bernanke and Co. may have ‘saved the day’.” That month the Federal Reserve started a special lending program open to Wall Street banks that could not otherwise directly borrow money from it. Lehman’s used it to package billions of dollars of bad corporate loans that it then shifted back and forth between itself and the New York Fed, essentially exchanging illiquid investments for cash.