Posted by Joseph Y. Calhoun, III

Did Ben Bernanke and Tim Geithner lie about the quality of the assets they bought or guaranteed to get the Bear Stearns/JP Morgan deal done? Seems like it from this Bloomberg story:

Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.

The so-called assets included collateralized debt obligations and mortgage-backed bonds with names like HG-Coll Ltd. 2007-1A that were so distressed, more than $40 million already had been reduced to less than investment-grade by the time the central bankers testified. The government also became the owner of $16 billion of credit-default swaps, and taxpayers wound up guaranteeing high-yield, high-risk junk bonds.

Their only dodge is that the securities were investment grade when the deal was struck in March 2008 but were subsequently downgraded. On the other hand the securities had already been downgraded by the time they testified so this would appear to be a less than truthful statement:

“Senator, as was mentioned, it is all investment-grade or current performing assets,” Bernanke responded. “We do not know for sure what will transpire,” he said. “But we have engaged an independent investment-advisory firm who gives us reasonable comfort that if we can sell these assets over a period of time that we will recover principal and interest for the American taxpayer.”