Bernanke lunched with Wall Street before Bear rescue

Bernanke Lunched With MorganChase CEO and Rubin Before Bear Rescue

By Scott Lanman
Bloomberg News Service
Tuesday, May 12, 2008

http://www.bloomberg.com/apps/news?pid=20601109&sid=a_OXZPHcMwlA&refer=home

WASHINGTON -- Federal Reserve Chairman Ben S. Bernanke lunched on March 11 with a Who's Who of Wall Street leaders, including JPMorgan Chase & Co.'s Jamie Dimon, three days before the central bank rescued Bear Stearns Cos. from bankruptcy.

Other guests included Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein, Lehman Brothers Holdings Inc. CEO Richard Fuld, Morgan Stanley President James Gorman, Citigroup Inc.'s Robert Rubin, Blackstone Group CEO Stephen Schwarzman, and Merrill Lynch & Co. CEO John Thain. Alan Schwartz, the CEO of Bear Stearns, was not listed among the attendees.

The luncheon at the New York Fed gave Bernanke a chance to hear from chiefs of some of the biggest U.S. financial companies and hedge funds in the middle of his most tumultuous month as central bank chief. The meeting came hours after he announced plans to lend $200 billion of Treasuries in exchange for debt including mortgage-backed securities.

The collapse of the subprime-mortgage market has led to $323 billion in asset writedowns and credit losses at financial institutions since the start of 2007. The situation calls for the Fed chairman to cultivate "increased contacts and understanding with Wall Street," said Kenneth Thomas, a lecturer in finance at the Wharton School of the University of Pennsylvania who has researched Bernanke's schedule.

Bernanke also briefed Republican presidential candidate John McCain on the Bear Stearns episode over the phone, according to Bernanke's schedule for March and Douglas Holtz-Eakin, McCain's economic adviser. Bloomberg News obtained the schedule in response to a request under the Freedom of Information Act.

... Emergency Loan

Bernanke and New York Fed President Timothy Geithner, seeking to avoid a financial-market meltdown, orchestrated a $13 billion emergency loan to Bear Stearns on March 14. Two days later, they eased the company's sale to JPMorgan after the Fed agreed to take on $30 billion of mortgage-backed securities and other assets from Bear Stearns.

The chairman's March 11 lunch with financial-industry executives was held at the New York Fed, with Geithner also attending. Bernanke and Geithner told Congress last month that they were informed of Bear Stearns's troubles on March 13.

Dimon, Fuld, and a third guest, Stone Point Capital LLC Chairman Stephen Friedman, are on the New York Fed's board of directors.

Other people at the gathering were Citadel Investment Group LLC CEO Kenneth Griffin, American Express Co. CEO Kenneth Chenault, Duquesne Capital Management LLC CEO Stanley Druckenmiller, and Caxton Associates LLC Chairman Bruce Kovner.

... Open Market

Two executive vice presidents at the New York Fed also attended: William Dudley, head of open market operations, and Terrence Checki, who oversees emerging markets and international affairs.

The daybook, as released and redacted by the Fed, otherwise contains few new details about the events surrounding deliberations to rescue Bear Stearns and create two emergency-lending programs for Wall Street bond dealers.

Bernanke traveled to New York on March 7 for three meetings, including one over lunch. The Fed blacked out the identities of attendees at all three sessions.

Some information was withheld because it "includes commercial or financial information obtained from a person and privileged or confidential," according to a letter to Bloomberg News from the Fed's associate secretary, Margaret McCloskey Shanks.

... Call From McCain

McCain, an Arizona senator, called Bernanke on March 24 for a briefing on Bear Stearns, Holtz-Eakin said in an interview. They spoke at noon for about 15 minutes, according to the daybook. Bernanke, who was appointed by Republican President George W. Bush in 2006, called Holtz-Eakin the next day to find out if McCain got what he wanted, Holtz-Eakin said.

The daybook doesn't list any contacts with Sen. Hillary Clinton or Sen. Barack Obama, who are fighting for the Democratic presidential nomination.

"That's pretty telling that McCain was savvy enough to make a formal inquiry and talk about this," Thomas said. "It's good that he was aware of it."

Other meetings with chief executives included a March 12 session in Washington with Tony Hayward, CEO of BP Plc, Europe's No. 2 oil company; the Semiconductor Industry Association's board of directors on March 13; Fannie Mae CEO Daniel Mudd on March 17; and Freddie Mac CEO Richard Syron on March 28.

On March 28, Bernanke also met with Takatoshi Ito, who was blocked by Japanese lawmakers for deputy governor of that country's central bank, and lunched with former Treasury Secretary Lawrence Summers before traveling a few blocks to see visiting Australian Prime Minister Kevin Rudd at Blair House, across from the White House.

* * *

GATA is grateful for financial contributions, which
are federally tax-deductible in the United States.