Did Federal Reserve Remove Some Embarrassing Bernanke Testimony?

Readers, I will confess I am only a user of garden variety search tools, with no special training, merely years of trial and error. I am having to do a quite a bit of rooting around these days to track down support for various arguments I am putting together for the book.

I decided to locate a little example of Fed mis-prognostication, a declaration by Bernanke as two Bear Stearns hedge funds were imploding in July 2007, done in by an overdose of subprime and leverage. He had said around then that subprime losses were expected to be $50 to $100 billion. I recall gasping out loud when I read that, because no one in the private sector had had loss estimates like that for a while. The lowest estimates I was seeing around then was $150 billion.

So a quick Google search unearthed a MarketWatch story, reporting on Senate testimony by Bernanke. It sounded like quite the relic. Not only did it have the estimate I so fondly recalled, but it had doozies like this:

Federal Reserve Chairman Ben Bernanke said Thursday that there will be “significant losses” associated with subprime mortgages but that these losses should be regarded as “bumps” along the road of market innovation….

Bernanke said these were “market innovations” and “sometimes there are bumps” in the new-product road…

In addition, Bernanke told members of the Senate Banking Committee that the pain and suffering felt from foreclosures and delinquencies will “likely get worse before they get better.”

Yves here. Well, he was sure right about the last bit. Back to the story:

Sen. Richard Shelby, R-Ala., said he was worried that the subprime market’s weakness may have broader systemic consequences.

“We have been told the problem is largely isolated and contained, but I am concerned that it may not be,” Shelby said….

Bernanke said there were going to be “significant losses” in subprime-mortgage paper, citing estimates ranging from $50 billion to $100 billion.

This was July 19, 2007, less than a month before the first acute phase of the credit crisis.

The MarketWatch story provided a link to the prepared testimony, which was identical to his formal statement to a House panel earlier in the week.

The link now takes you to a “Page Not Found” page at the Federal Reserve Board of Governors website.

I have found links in articles that are still valid for speeches before that date, so it is hard to attribute this change to routine website housekeeping, but I do like to give people the benefit of the doubt. So I went and did a couple of searches on the Board of Governors website, one on a phrase in the article “sometimes there are bumps” and then just on the words bump AND innovation AND subprime. I realize “bump” may not have been his testimony, but in response to questions, so I also tried just “subprime” AND “innovation”. I got 59 items, not a single one from July 2007.

Now I may have failed to happen across the right search string and readers are welcome to prove me wrong. However, it does look like this bit of history got expunged.

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  1. Yves Smith


    Thank you for locating it, However, it does not appear you looked at my search process. I looked up two words that MarketWatch indicated were in the testimony, namely "subprime" and "innovation". 59 times came up, NONE of them in July 2007. None in July is none in July.

    The issue appears to be that MarketWatch gave an incorrect impression, that the word "innovation" appeared in Bernanke's formal testimony, which it did not. I had considered that possibility, which is why I asked rather than making an assertion.

    However, the flip side is the link in the article was to the original House testimony, and that link is no longer working. I never assumed there was a Senate copy.

  2. jbmoore

    To Yves and Anon,

    The FRB website has the testimony, but it appears rather succinct. The URL for the report that is quoted in MarketWatch is missing: http:/www.federalreserve.gov/boarddocs/hh/2007/july/fullreport.htm. The wayback URL is: http://web.archive.org/web/20070820092632/www.federalreserve.gov/boarddocs/hh/2007/july/fullreport.htm

    The webmaster is not doing his or her duty to let links go stale.

    You can also inquire via this info:

    Article provided by Board of Governors of the Federal Reserve System (U.S.) in its journal Speech.

    Volume (Year): (2007)
    Issue (Month): Jul ()
    Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote), ReDIF
    Handle: RePEc:fip:fedgsq:y:2007:i:jul

    Contact details of provider:
    Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
    Web page: http://www.federalreserve.gov/
    More information through EDIRC

    Order Information:
    Email: publications-bog@frb.gov

    For technical questions regarding this item, or to correct its listing, contact: Diane.Rosenberger@sf.frb.org (Diane Rosenberger).

  3. Anonymous

    I don't get it…. there is prepared text to submit before hearings and then there is testimony, like in answers to questions.

    You are looking for what?….prepared text that included the low ball figures or recorded testimony with the low ball figures? And which one do you think has gone missing?

  4. Anonymous

    Don't worry Winston Smith is at the process of correcting it. When it reappear it will be a much better prediction

  5. OSR

    Although I believe that the internet will prove to be to historical revisionists what fire is to pyromaniacs, I don't think anything sinister is going on here. It's standard practice by the House/Senate to only provide a pdf of the opening statement and not the subsequent Q&A session. As noted previously, the FRB simply combined the the Senate and House opening statements into a single entry: http://www.federalreserve.gov/newsevents/testimony/bernanke20070718a.htm.

    Your query terms likely occurred in the Q&A portion of Bernanke's testimony, so there was no match. C-Span archives might give a transcript of the entire hearing, but it isn't searchable unless you buy the video.

    However, if an opening statement is revised, C-Span will "play ball" and edit the tape accordingly. For example, Harry Markopolos made a glaring mistake, in both his oral and written testimony, that suggested that he was not a derivative expert. A day later, the pdf was revised and C-Span simply cut that portion of the tape out. See for yourself:
    Version 1 (pg 6)
    Version 2 (pg 6)

  6. Anonymous

    Amazing! If this doesn't prove my point that you can't trust the government and that truly believe they are NOT accountable to anyone I don't know what does.

  7. Anon1

    I am sick and tired of the use of the words, "innovation" and "product" when referencing mere paper shuffling ripoffs on Wall Street.

    Wall Street produces NO products, innovative or otherwise. They produce stocks and other forms of shady "investment" but "products" are nowhere to be seen. FACTORIES make products. Skilled labor makes products. An "innovation" is a new tech manufactured item like a new form of battery or a new arrangement of older tech into a better, more efficient object.

    Ultimately, innovative products improve society, produce real items, and creates job opportunities. Nothing of the sort comes from Wall Street.

    Can we please quit referring to anything that Wall Street criminals do as "innovation" or "products"? THEY SHUFFLE PAPER and that is all they do. They produce NOTHING.

  8. John Doe

    Articles disappearing on the Internet are starting to be a common occurrence. I first noticed it in the early Bush years where news articles suddenly could not be found. I was shocked, shocked because they were only the articles critical of the President. (You thought I was talking about gambling in Casablanca didn’t you?)

    Now this ‘phenomenon’ is starting to happen with financial articles. I have taken to the practice of keeping a copy of any articles I feel is critical when it first appears because you never know how long it will exist in this world. The disk drive manufacturers are happy once more.

  9. micro

    Hi Yves,
    if you look at the congessional record on committee hearings its in the second FED report to congress testimony– that has the Q&A parts as well as the prepared testimony

    Chairman Bernanke. Senator, let me address the financial
    side. We have talked about this effect on homeowners. On the
    financial side, I am not sure there is anything essentially
    wrong with structured credit products, per se. But what we have
    learned since early this year is that a lot of the subprime
    mortgage paper is not as good as was thought originally. And
    there clearly are going to be significant financial losses
    associated with defaults and delinquencies on these mortgages.
    As a result, the credit quality of many of the structured
    projects that include in them substantial amounts of subprime
    mortgage paper is being downgraded. The one issue is that the
    structured credit products are quite complex. They include many
    different kinds of assets. Then the risks are divided up in
    different so-called “tranches.'' So it takes quite a complex
    model or analysis to determine what the real value of these
    things is.
    Senator Shelby. But the value seems to be going down
    instead of up.
    Chairman Bernanke. Well, it is going down because the
    credit losses associated with subprime have come to light and
    they are fairly significant. Some estimates are on the order of
    between $50 billion and $100 billion of losses associated with
    subprime credit products.

    look in
    at the line

    also int the Q&A is the bump line:

    … Senator Reed. Should someone have the broader authority to
    do that? I mean if we assume, as I think you perhaps might,
    that the market will not evaluate these assets accurately
    because they are so thinly traded, difficult to understand, it
    falls upon a rating agency. And if the rating agency, if there
    is no supervision, is there a gap?
    Chairman Bernanke. No, I think the market will find
    solutions. They already are finding some. For example, even if
    the individual instruments are not particularly liquid, there
    are indices that are based on the payments from CDOs or CLOs
    which are traded and therefore give some sense of the market
    valuation of these underlying assets.
    So this is a market innovation. Sometimes there are bumps
    associated with a market innovation. I think we just have to
    sit and see how it works out. There are very strong incentives
    in the market to change the structure of these instruments as
    needed to make them attractive to investors.

  10. Anonymous

    the fed is not alone in removing items from its website. the fdic has done the same thing with its state profiles publications as older issues in 2004/2005 that pointed to the risks from real estate lending have been removed from their website. guess it could prove embarassing to the fdic — why did senior fdic executives not take these warnings seriously. as taleb says it is amzaing these regulators are still in place despite wrecking the bus.

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