Bernanke Defends Lehman Actions to His ‘Deathbed’

Tuesday, 15 Feb 2011 02:59 PM

 

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Federal Reserve Chairman Ben S. Bernanke, in a confidential talk with the commission probing the causes of the financial crisis, said he would defend to his “deathbed” his actions prior to the bankruptcy of Lehman Brothers Holdings Inc.

“I will maintain to my deathbed, that we made every effort to save Lehman, but we were just unable to do so because of a lack of legal authority,” Bernanke said, referring to the 2008 failure that intensified a crisis that Bernanke said was the worst in history, according to an 89-page transcript of the interview by the Financial Crisis Inquiry Commission.

The record of the session, made public yesterday, shows Bernanke using less-guarded language than his speeches and testimony as he answers questions from panel members. In accounts that are similar in substance to his public statements, he says Germany’s labor system is “less efficient” than the U.S.’s, talks about the “blogosphere” and tosses out a reference to the 1968 disaster-novel “Airport.”

Bernanke, 57, defended the Fed’s supervision of individual banks while saying the central bank was “to some extent, culpable” for not regulating subprime mortgages.

“The Fed didn’t do a perfect job, but — and lots of things that we see now that can improve and are improving,” he said. “But I don’t think we were particularly culpable on the supervision part relative to the rest of the world.”

Panel Report

Parts of the interview were quoted in the panel’s final report, which cites the Nov. 17, 2009, “closed-door” session in 11 footnotes. The Fed chief discussed topics including the central bank’s failures and why the government rescued Bear Stearns Cos. while letting Lehman go bankrupt.

The FCIC’s meeting with Bernanke lasted 90 minutes and was held at the commission’s eighth-floor office near the White House, according to Bernanke’s daybook from the Fed. It begins with a monologue about his view on the crisis’s causes before he takes questions.

The FCIC initially said last week the Bernanke interview would be withheld and transferred to the National Archives, which would make it public in five years. The session was originally considered confidential, and the panel sought the Fed’s agreement to make it public, said Tucker Warren, a spokesman for the panel. The central bank agreed late Feb. 11 to its publication, Warren said.

‘Proprietary’ Information

In a Feb. 11 article, Bloomberg News quoted Warren as saying the FCIC was withholding records when there was “legal or proprietary information in those interviews that meant they could not be made public,” or no audio, transcript or summary exists. The FCIC on Feb. 10 released more than 300 witness interviews.

Michelle Smith, a spokeswoman for the Fed, declined to comment yesterday.

Bernanke said an overhaul of financial regulation being debated by Congress at the time “will be a failure if we could not contemplate the failure” of a firm such as Goldman Sachs Group Inc.

“That is, there needs to be a system by which Goldman Sachs will go bankrupt and Goldman Sachs’ creditors could lose money,” the Fed chief said, in a reference to the securities firm that was the most profitable in Wall Street history before it converted to a bank in 2008.

Bernanke blamed “poisonous” politics surrounding the $700 billion Troubled Asset Relief Program for the failure of the government’s capital injections into banks to spark lending. “The general response of bankers has been to give the money back as fast as they can; or if they have to keep it for some reason, not to base any lending on it,” Bernanke said.

Novel Example

The Fed chief brought up the technique of the author of “Airport,” Arthur Hailey, to show how the FCIC might explore how different businesses and issues evolved before the financial crisis.

“There’s this long discussion of Character A, and then completely separate, Character B, and then all of a sudden at the end there’s some kind of huge crisis and they’re all squished together,” Bernanke said.

© Copyright 2014 Bloomberg News. All rights reserved.

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