CNBC uses "Good Riddance" for Ben Bernanke piece

People are asking if I’m going to comment on Bernanke’s “new book” and his statements that “someone should have gone to jail.” No, really Ben? He, of course, tries to excuse himself (and the rest of the Fed) by noting that The Fed is not a law-enforcement agency.

That may be true but that doesn’t prevent The Fed from criminally referring things to actual law enforcement agencies, does it? After all you’re not a law enforcement agency either but if someone robs your house you certainly can pick up the phone and call one of those agencies, and if they refuse to act you can raise hell in public.

Bernanke, of course, did none of the above.

But that’s not the real problem. No, if you read closely you’ll find it here, in the last paragraph of the NY Times article written on his tome by Andrew Ross Sorkin:

He writes that it was simply impossible to save Lehman, pointing to the nearly $200 billion of losses that Lehman’s creditors have since suffered. No one has come forward on the record, nor has any contemporaneous document been produced in the past seven years that said the government had found a way to save the company and specifically chose not to do so for political reasons, a point Mr. Bernanke alludes to in his book. “I do not want the notion that Lehman’s failure could have been avoided, and that its failure was consequently a policy choice, to become the received wisdom, for the simple reason that it is not true,” he writes. “We did everything we could think of to avoid it.”

Aha.

Now there is an admission.

See, if Lehman’s creditors took $200 billion in losses, then Lehman had $200 billion of negative equity. And here’s the rub — Lehman allegedly had $600 billion in assets when it filed for bankruptcy.

So if the creditors took $200 billion in losses exactly how did that happen? Well, it happened because the firm had $800 billion in liabilities against that $600 billion in assets.

And that’s a problem because under the law The Fed is charged with regulating these firms as is the SEC and other agencies in the government and banks are not supposed to be able to remain open in a negative equity position. This position did not develop overnight; it took months or years to develop, just as was the case with Colonial (Another instance in which “nobody went to jail” for their supervisory failure, incidentally.)

Lehman, like most large firms, had a number of a divisions and regulatory responsibility for them was spread out but that does not excuse The Fed from its oversight and regulatory responsibility of the whole.

Irrespective of the bad decisions made by Lehman management these agencies, including The Fed, had an affirmative responsibility to police the equity position of the firm and act prior to insolvency. The Fed, along with the rest of these regulatory agencies, failed to do so through malfeasance, misfeasance or both.

So yes, I argue as does Bernanke that people should have gone to jail.

I just happen to believe that the first person to do so should have been him, closely followed by many others.

Hmm this is strange because A LOT of people used this as their graduation song...

yeh he has the goods on all of them.

and they are scared to death