Federal
Reserve Chairman Ben S. Bernanke and then-New York Fed President
Timothy Geithner told senators
on April 3, 2008,
that
the tens of billions of dollars in "assets" the government
agreed to purchase in the rescue of Bear Stearns Cos. were "investment-grade." They
didn't share everything the Fed knew about the money.
By using its balance sheet to protect an investment bank against
failure, the Fed took on the most credit risk in its 96- year
history and increased the chance that Americans would be on the
hook for billions of dollars as the central bank began insuring
Wall Street firms against collapse. The Fed's secrecy spurred
legislation that will require government audits of the Fed bailouts
and force the central bank to reveal recipients of emergency
credit.
Congress's proposed financial reform bill would not have prevented
the last disaster, fails to address current problems, and will
not prevent the next disaster (more on this in a future post).
Among other things, lawmakers are leaning to a provision to
allow an audit of the Federal Reserve Bank, but this should
be a thorough fraud audit, and there should be ongoing audits.
As for malfeasance at investment banks sheltered by the Federal
Reserve Bank's secrecy, in honor of Canada Day here's my video
interview from Canada CTV's Lang and O'Leary Report (April 29,
2010) explaining there should be felony indictments for accounting
fraud and securities fraud:
Janet
Tavakoli is the president of Tavakoli
Structured Finance, a Chicago-based firm
that provides consulting to financial institutions
and institutional investors. Ms. Tavakoli
has more than 20 years
of experience in senior investment banking
positions, trading, structuring and marketing
structured financial products. She
is a former adjunct professor of derivatives
at the University of Chicago's Graduate
School of Business. She is the author of: Credit
Derivatives & Synthetic
Structures (John
Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized
Debt Obligations (John
Wiley & Sons,
2008).
Janet
Tavakoli's book on the global financial meltdown is Dear
Mr. Buffett: What An Investor
Learns 1,269 Miles From
Wall Street (Wiley 2009) Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis. TSF
makes some information available to the general public.Please
click here for other articles.
