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Bernanke Claims Fed Not to Control AIG, Justifies Morgan and Goldman Exclusion of Public, CRA

Byline: Matthew Russell Lee of Inner City Press in DC: News Analysis

WASHINGTON DC, September 22 -- "We don't own AIG or have authority over its subsidiaries," Federal Reserve chairman Ben Bernanke said Monday at the Fed's Washington headquarters. Inner City Press asked him if it is correct that any other entity which wanted warrants for 79% of the stock of AIG would have to apply for approval, with a public comment period subject to the Community Reinvestment Act.

   Bernanke shrugged and said that CRA should be consider all the time, not necessarily on mergers and acquisitions. But that's when the CRA statute says it must be considered, Inner City Press pointed out, as CRA's only enforcement mechanism.  "I don't think that rule makes a lot of sense," Bernanke said. But it's not a rule, but the law, as formally interpreted in 1994 by then U.S. Solicitor General Walter Dellinger. Click here for the government memo.

   To the Federal Reserve at present, it appears, the law is just a hindrance and "not very effective," as Bernanke put it on Monday. Inner City Press asked under what authority the Fed had made Goldman Sachs and Morgan Stanley into bank holding companies on Sunday night, without any public notice or comment, including under CRA. We have emergency powers, Bernanke replied, though none were cited in the Fed's Sunday night press release.

   It was later pointed out to Inner City Press that the Fed's legal staff finished a formal approval order at 2 a.m. on Monday, and put it online later in the morning. The order relies on, for example, Goldman Sachs' industrial loan company's "satisfactory" CRA rating, a grade attained by 98% of institutions, and which did not consider Goldman's and Morgan Stanley's engagements including as securitizers and orginators in questionable subprime lending.

    It was also explained to Inner City Press by Fed legal staff that even the five day waiting period mentioned in Sunday's press release was dispensed with. As to the Fed controlling AIG, the advice was that Fair Finance Watch should raise it to the Office of Thrift Supervision. We will.

  Bernanke spoke of growing up in South Carolina, working as a waiter and in construction, and that his wife is a school teacher. They are not divorced from the concerns of everyday Americans. I don't know people on Wall Street, Bernanke said. Perhaps seven words are worth more than one thousand pictures.

Bernanke's Fed: a building, five governors, public notice and comment not shown

  Governor Kroszner, also there, spoke of visiting such cities as Las Vegas and Cincinnati, to see the impacts of the foreclosure crisis.  Elizabeth Duke, the newest Governor, has been put in charge of homeowners' issues. Vice Chairman Kohn was present but stayed silent. Governor Mishkin, absent in March when Bear Stearns got an emergency bailout, has since left the the Board (he resigned on August 31). Governor Walsh did not appear to be present.

   Bernanke said he will testify Tuesday on Capitol Hill at the hearings on the proposed $700 billion bailout bill, about how Balkanized bank regulation has been to date. You'll see a different landscape in a year, he said. Since public notice and comment is being dispensed with, and Bernanke thinks that the CRA law requiring consideration of performance in low and moderate income neighborhoods in connection with mergers is "ineffective," the request seems to be just to trust him. Many communities do not. But what recourse do they have?

Watch this site, and this Sept. 18 (UN) debate.

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These reports are usually also available through Google News and on Lexis-Nexis.

Click here for a Reuters AlertNet piece by this correspondent about Uganda's Lord's Resistance Army. Click here for an earlier Reuters AlertNet piece about the Somali National Reconciliation Congress, and the UN's $200,000 contribution from an undefined trust fund.  Video Analysis here

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