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Investors discount Bernanke testimony |
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Monday, 28 December 2009 |
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By
Ronald Fink
You’ve
got to read all the way to the bottom of this
to get to the point.
But
it is indeed the bottom line on a key part of Bernanke’s testimony during his
confirmation hearings.
As
we reported
the other day, Bernanke told Congress that new regulatory authority for the Fed
would short-circuit the so-called “doom loop,” in which ever bigger banks
require ever bigger bailouts as those bailouts encourage ever riskier behavior.
But
the credit markets don’t believe that authority will be exercised, as Simon
Johnson points out. His evidence: Prices of derivatives that pay off on Bank of
America’s default are little different from those of credit swaps against the
Treasury.
The
Senate certainly should ask Bernanke to explain the discrepancy between his
testimony and investors’ perceptions of it before agreeing to give him a second
term.
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