End Game (12 page)

Strickland paused, expecting at least a little laughter. There was silence.

‘Well, this is when the supervisory role of the Fed and the things I talked about earlier become paramount. And that goes as well for the other authorities that are responsible for regulating banks and financial institutions that don’t fall under the Fed’s jurisdiction. So naturally we’re looking at every institution to assess its compliance and its financial soundness and if there’s any doubt over any of them then we have mechanisms in place, as you know, to ensure compliance and to use our policy tools to relieve any pressures, if there are any, and even to take control of the deposit-taking banks through the Federal Deposit Insurance Corporation and protect depositors if that’s required. I think that’s what people are concerned to know, that no matter what the stock price happens to be on a given day our banks are sound and deposits are safe and there hasn’t been a return to the risky practices that led to 2008. When I say that we’ll take action if necessary, that’s preventive action. It’s not action that happens after there’s been a crisis, but action to prevent one, so we never get left in a situation again where we’re picking up the pieces. That’s the reassurance that I can categorically give today and which I think is the reassurance that people are looking for from the Federal Reserve. We have a good, solid, sound banking system that is in no way comparable to the corroded situation that existed in 2008. Ten years ago, our banking system and just about the entire international banking system was a disaster waiting to happen and had been for a couple of years. There is no disaster waiting to happen today. What we have is a system that is strong, solid and tightly overseen and regulated by ourselves and the other responsible bodies.’

Strickland paused again. The silence coming back at him felt stony. He didn’t feel he was getting through. Ron Strickland had no idea how wooden and predictable he sounded to those listening to him. As far as he was concerned, what he was saying was so self-evidently true that he wondered how anyone could fail to get it. For a split second he wondered whether he should go off the cuff, but decided to stick to the script. All he had left were his concluding remarks. A minute later he was done.

Clare Weissman asked if he would take questions.

‘Sure,’ he said. ‘I’ll take a couple.’

The hand of just about every financial journalist in the room went up. The lead business correspondent of the
Wall Street Journal
was first.

‘Mr Chairman, I’m very interested in your comments about the gorilla in the room, as you call it. I’m not quite clear what you’ve been saying to us. Are you saying the movements that we’ve seen in the stock prices in the banking sector over the past few days aren’t of any concern to you?’

‘No, I’m not saying they’re of no concern,’ said Strickland. ‘Clearly we watch this very carefully.’

‘Then of how much concern are they?’

‘They’re not of
concern
…’ Strickland stopped. ‘Let me rephrase that. The market makes its own assessment of the value of any given institution. I don’t need to tell you that it does that on the basis of a whole range of factors, the strength of the balance sheet, the growth prospects, the quality of the management team. A whole bunch of things. Those assessments change on a continuous basis. Our role is to make sure that the underlying institution, the thing the market is valuing, is sound, that it has the correct capital reserves, that it’s compliant in its practices, that it’s not getting up to the kind of mischief we saw in 2008, that depositors can be sure their money is being well managed, that shareholders and bondholders know they’re dealing with an honest institution. If we’re satisfied with that, then the market’s valuation is the market’s valuation, and that’s a matter for the market.’

‘So are there any banks where you’re not satisfied in those terms?’

‘As you know, we have a watch list and we always have some institutions that are under a higher degree of scrutiny. That’s absolutely normal. That’s part of our role, to make sure that if there’s any potential problems we know about them early and we can work with the bank in question – if that’s needed, and most often it isn’t – to help get them through.’

He took another question.

‘Mr Chairman, I’d like to pursue the first question. How many banks are you working with right now in the way you described?’

Strickland shook his head. He looked around the room. The journalists gazed back.

‘You know I can’t comment on that,’ he said.

‘Mr Chairman, this has implications. Some of these banks are not going to be able to raise funds if their stocks drop below a certain level. Other banks are not going to lend to them if they think that’s going to happen.’

‘Well, the Fed is there to relieve those pressures through its liquidity operations and other measures I described earlier.’

‘Was the Fed there in 2008?’

‘Yes. I would argue that it was. I would argue, and I don’t think any fair person would disagree, that without the Fed in 2008 and the release of liquidity and the other support it gave we probably would have seen the complete collapse of our banking system and potentially the international banking system. Now, what happened back then wasn’t pretty, but it wasn’t as bad as that.’

Strickland paused. He found himself getting a little angry. These journalists were experienced financial commentators. They understood this stuff as well as he did. He didn’t know why he was getting these questions.

He cleared his throat and pointed at another.

‘Mr Chairman, do you think it’s short sellers who are driving the market?’

‘I wouldn’t know,’ he replied curtly. ‘That’s a question for the folks at the Stock Exchange and the Securities and Exchange Commission.’

‘Would it worry you if they were?’

‘What would worry me is if people believed we had some kind of a problem when we don’t.’ He pointed at another journalist. ‘Yes?’

‘Mr Chairman, you referred to your report to Congress last week and I wonder whether you think in any way that your comments have actually helped to create uncertainty in the market.’

Strickland shook his head. ‘How would that have helped to create uncertainty?’

‘Well, you talked about certain asset classes that you felt were overvalued and more or less threatened to … clamp down in some way on activity around those. When you say you won’t tolerate irrational exuberance or anything approaching it people immediately think we’re looking at monetary tightening. I just wonder whether you think that kind of talk may actually have been counterproductive and whether you may regret having said that.’

Strickland felt his irritation rising again. ‘Look, first, when you talk about my remarks, let’s get them accurate. I did not say that any asset classes were overvalued. I said that price and volume data showed increasing activity in certain classes of equity derivatives and we were watching that and we would intervene as appropriate. That doesn’t mean we’re going to intervene. It just means we have the weapons.’

‘Mr Chairman, you’ve just said you had price data, surely that’s saying they’re overvalued.’

‘It’s not saying they’re overvalued. It’s not my role to say whether they’re overvalued. I’m simply saying that we look at the activity levels.’

He glanced at Weissman, who was standing a few yards to the side. But the president of the National Press Club had no intention of ending the questioning. The coverage of this, she knew, was going to be fantastic.

‘I’ll take one more,’ said Strickland. He pointed.

Bernard Tobin of the
Economic Review
took the microphone. ‘Mr Chairman, can you comment on Fidelian Bank?’

‘No, Bernard,’ he replied impatiently. ‘I can’t comment on Fidelian Bank. I can’t comment on any individual bank and I think you know that.’ Strickland hadn’t been pointing at Tobin, but at the woman behind him. Tobin had a huge bee under his bonnet about the banking failures in the last financial crisis, having lost a personal investment of some hundreds of thousands in Bear Stearns stock. Everyone knew he was always looking for an excuse to slam the Fed, which he held responsible. ‘Bernard, I was actually pointing at–’

‘Okay, so here’s my question. Let’s say I’ve got a thousand dollars to invest and I’m thinking maybe I should be putting it into Fidelian Bank. And let’s say with all the scrutiny you’ve been talking about you know that Fidelian Bank is
this f
ar away from being bankrupt. Don’t you think you ought to tell me before I put my thousand bucks in?’

‘Bernard, I said I was pointing at–’

‘Is that a question you don’t want to answer, Mr Chairman?’

‘Of course I’ll answer it,’ retorted Strickland angrily. ‘Let’s just get everything very clear. I’m not saying Fidelian Bank is near being bankrupt. In fact, although I don’t comment on individual banks, I can tell you that as far as I’m aware Fidelian Bank is nowhere near being bankrupt. And by the way, you couldn’t put a thousand dollars in there, because it’s not a deposit-taking bank. It’s an investment bank with investment bank activities.’

‘Then let’s say it was another bank.’

‘Well, if there was a bank like that – and I’m not saying there is – if I came out and said it was close to bankruptcy, effectively that would make it bankrupt, wouldn’t it? You know that perfectly well.’

‘And if I put my thousand bucks in, and it goes bankrupt tomorrow, I lose it.’

‘No, you don’t, because it’s FDIC protected.’

‘Say I put my thousand bucks into its stock.’

‘Well, all I can say is that’s your choice. In that case you choose to take a risk. If you don’t want to take a risk, deposit your money into a bank. It’s FDIC protected. It’s a hundred per cent safe.’

‘But what I’m saying is–’

‘Bernard, I think you’ve had more than a couple of questions.’

‘But I’m just saying–’

‘What? What are you saying?’

‘I’m just saying you have some knowledge that I don’t have, and which may make quite a big difference to a lot of people’s lives, taxpayers, and you’re a publicly paid figure, so don’t you think you should give that knowledge to the people who pay your salary? You know, you’ve mentioned 2008 quite a lot, and one of the things about 2008 is a lot of people lost a lot of money because no one was telling them until it was way too late what kind of institutions they were investing in. And I’m not talking about rich people here. I’m not talking about the guys who took the bonuses. I’m talking about retirement savings. I’m talking about people who are living in poverty today because of what Mr Greenspan and Mr Bernanke allowed to happen back then. So all I’m saying is, you’re standing here in front of the National Press Club. You’ve got a huge economy of scale here, like you said yourself. You must know there are certain banks in trouble, it’s clear the market thinks there are, but we don’t know who they are and that uncertainty is bringing the whole market down, the good with the bad. So here’s your chance to clear it up. Mr Chairman, tell us straight. Who’s in trouble?’

Ron Strickland stared at him. Bernard Tobin made him sick. Tobin wasn’t living in poverty and all that stuff about people who were was just so much showboating. The question put him in an impossible position and Tobin knew it. He couldn’t have given an answer even if he wanted to. The banks on his watch list were the same ones that had been there two, three months ago. He had no idea why the market had taken fright. For all he knew it might have been a bunch of short sellers placing bets, as the press themselves seemed to think. He still couldn’t believe that his report to Congress had anything to do with it. If anything, he thought, the situation would have been worse without it.

The room waited for his response.

Strickland shook his head. ‘I can’t make a comment on that.’

13

ED ABRAHAMS TOOK
the call. He was in the car with the president, who had just come out of a lunch for major Republican donors in Miami with Florida governor Rick Martinez. In forty-five minutes Knowles was due at a town hall meeting in Fort Lauderdale with Senator Jeff Logan, before going on to Gainesville to give a speech that evening at the University of Florida. Both Martinez and Logan were fighting tight midterm races against strong Democratic challengers.

It was Roberta Devlin on the phone. Abrahams listened to what she had to say as the president looked over the Q&As Josh Bentner had prepared for him for the town hall meeting. Then Abrahams put his phone down and logged onto the screen in the back of the limo. He got up the
Economic Review
website and clicked on a headline.

Fed chairman refuses to name failing banks

‘Tom, you’d better have a look at this,’ said Abrahams. Knowles looked up from his Q&As.

Federal Reserve Chairman Ronald J Strickland today refused to name failing banks within the American banking system.

In a speech at the National Press Club, Strickland confirmed that a number of banks were under close scrutiny by the Fed, and did not rule out the possibility that takeovers by the Federal Deposit Insurance Commission would be required. Drawing a number of direct parallels with 2008, Strickland remarked that similar action would be taken if required.

Referring to Fidelian Bank, which has recently seen sharp falls in its stock price, Strickland remarked that he was unaware of any immediate threat of bankruptcy. However, in response to a direct request to name the banks in question, Strickland refused, thereby adding to the uncertainty rocking the financial markets.

‘What’s this?’ murmured Knowles.

Abrahams was busy with his tablet getting the latest Dow Jones figures. The index was down two per cent.

Knowles glanced at him. ‘Did he really say that stuff?’

‘He must have said something.’ Abrahams gazed at the screen again. ‘I’ll get Dean on the line.’

A moment later the voice of Dean Moss, the White House press secretary, was on the speakerphone.