Elizabeth Warren is on fire, make no mistake about it. It is only two weeks since she took the heads of various financial regulatory bodies to the woodshed in a Valentine Day’s massacre – Elizabeth Warren Gets to Work. Yesterday, it was Chairman of the Fed, Ben Bernanke’s turn.
Bernanke appeared for his latest semiannual appearance before the Senate Banking Committee to discuss the economy and monetary policy and Warren at times caused him to Dodd-er (sorry, bad pun) in his responses.
Again, I recommend that you view the full 5 ½ minutes of the video embedded below. The video covers the segment of Bernanke’s testimony on the To Big To Fail concept and the $83 billion annual subsidies to the largest banks uncovered last week by Bloomberg:
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Bernanke was clearly uncomfortable by Warren’s questioning about the subsidies and the advantages given to the largest financial institutions over the smaller banks. At times he stutters and then serves up this wopper (my transcript):
“I would make another prediction, and prediction is always dangerous, that the benefits of being large are going to be small…are going to decline over time, which means that some banks are going to voluntarily begin to reduce their size because they are not getting the benefit they used to get…”
That is a rather bizarre prediction given that JP Chase’s Jamie Dimon and other large bank executives…
make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance.
[Bloomberg link above]
“We’ve now understood this problem for nearly five years,” she said. “So when are we gonna get rid of ‘too big to fail?'”
[…]
Though Bernanke questioned the accuracy of the $83 billion figure, he admitted that big banks get some subsidy. But he said the market was wrong to give banks any subsidy at all (in the form of lower borrowing costs), insisting that the government will in fact let banks fail. The 2010 Dodd-Frank financial reform law has given policymakers the tools to safely shut down big, failing banks, he claimed.But when repeatedly pressed by Warren, Bernanke’s confidence seemed to waver.
“The subsidy is coming because of market expectations that the government would bail out these firms if they failed,” Bernanke said. “Those expectations are incorrect. We have an orderly liquidation authority. Even in the crisis, we — uh, uh — in the cases of AIG, for example, we wiped out the shareholders…”
Sen. Warren continues to strike fear among the biggest of the oligarchs – enjoy watching!