Edmund L. Andrews in the New York Times today depicts Federal Reserve chairman Ben Bernanke as badly treated by his critics. The article verges on hagiography:
As central bankers and economists from around the world gather on Thursday for the Fed’s annual retreat in Jackson Hole, Wyo., most are likely to welcome Mr. Bernanke as a conquering hero. In Washington and on Wall Street, it would be a surprise if President Obama did not nominate Mr. Bernanke for a second term, even though he is a Republican and was appointed by President George W. Bush….
He has been frustrated that many in Congress do not give the Fed what he believes is enough credit for what it has accomplished. Indeed, Mr. Bernanke has met privately with hundreds of lawmakers in recent months to explain the Fed’s strategy.
Fellow economists, however, are heaping praise on Mr. Bernanke for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1930s. Tossing out the Fed’s standard playbook, Mr. Bernanke orchestrated a long list of colossal rescue programs: Wall Street bailouts, shotgun weddings, emergency loan programs, vast amounts of newly printed money and the lowest interest rates in American history.
Even one of his harshest critics now praises him.
“He realized that the great recession could turn into the Great Depression 2.0, and he was very aggressive about taking the actions that needed to be taken,” said Nouriel Roubini, chairman of Roubini Global Economics, who had long criticized Fed officials for ignoring the dangers of the housing bubble.
All hail the conquering hero, expect those mean unappreciative Congressmen. Wall Street LOVES Ben! Obviously Wall Street is smarter than everyone else and vastly better qualified to evaluate Ben than mere mortals. And Ben has tried SOOO hard to make friends with those petty Congressmen. He’s actually gone to meet with them personally, and they are still giving him a hard time! How nasty of them!
By contrast, Congress is depicted as a bunch of whiners:
Democrats like Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, contend that the Fed was too cozy with banks and Wall Street firms as the mortgage crisis was building. House Republicans, and some Democrats, complain that the Fed already has too much power.
“Why does the Fed deserve more authority when institutionally it seemed to have failed to prevent the current crisis?” asked Senator Dodd last month.
The piece rather obtusely either underplays or completely misses the major complaints against the Fed:
We should not have gotten in this mess in the first place. This was a massive policy error. The Economist had a cover story on the housing bubble in June 2005. Der Spiegel reported that the BIS had been warning central bankers for years before that. But no, everyone drank the Kool-Aid that the Great Moderation was the crowning achievement of modern economics, and supposedly better central bank policies were part of that fantasy.
The Fed has gone way way beyond its role as monetary authority and is acting as a quasi fiscal agent of the Treasury. Congress has every reason to be irate over this. If Lyndon Banes Johnson were still Speaker of the House, we’d have had a Constitutional crisis long before it got that far.
There was NO preparation for the collapse of Lehman. Everyone knew as of early 2008 that it and Bear were most vulnerable. And Goldman PR to the contrary, the firms’ exposures were not all that different (industry experts have told me, for instance, that every bank was heavily exposed to various risky credits, and Goldman was not net short subprime). Pretending everything would work out was a massive error of judgement.
As a result of its self-assigned, expanded role, the public has every right to demand more accountability of and disclosure from the Fed, which it refuses to give.
Bernanke has also endorsed the new, no strings attached, “When in Doubt, Bail it Out” policy. He has demonstrated zero interest in banking industry reform (save making sure the Fed wins the turf war). And the ideas that have been presented, like building on the sham stress tests as a centerpiece of regulatory policy, is so awful that it ought to disqualify the Fed.
The Fed has also demonstrated no interest, zero, zip, nada, in understanding how got into this mess. I have seen, for instance, no effort to get to the bottom of practices in some markets, like CDIOs, that had a bigger role in the crisis than is commonly recognized.
The wisdom of the Bernanke massive liquidity injection and further leverage policy has not been tested, The proof lies in whether we can exit without precipitating another crisis.. If we wind up in the same boat as Japan, or set off a disorderly fall in the dollar, this high praise will look misguided.
Of COURSE Wall Street loves Ben. He’s written lots of blank checks to them, and demanded nothing in return. The fact that the New York Times isn’t willing to consider the obvious self-interest in their views, and further consider that what is best for Wall Street is not what is best for America shows a remarkable lack of perspective.
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I see where interest rates on credit cards have gone up again. Now, I don't actually believe in paying interest on credit cards – but at some point, the paradoxes in the Fed's theory become…astounding.
If I understand Fed theory:
1. Let banks have free money
2. They will lend.
Reality:
Banks get free money, jack up interest rates.
Now, banks have to rebuild balance sheets. But there are plenty of banks not nearly in the bad shape of BoA, citi, et al. Why exactly do the most stupid and most venal bankers get bailed out?
Mr. Bernanke appears to believe that ANY constraint upon a bank (like failing after losing billions upon billions of dollars) will cause a great financial upheaval. Ben, we're in one, and it was caused by the banks.
Edmund Andrews = No credibility…Remember his story on how he was subprime victim?
I prefer either Volcker or Yellen.
But Ben has performed marvelously for the bankers. It is the people that we need to worry about.
I don't know about anyone else, but to me Bernanke deserves at least as much blame for causing the problem as he does credit with stopping us just short of the abyss.
Today's phenomena of Bernanke-praise misses completely the severe problem of the coming monetary system conflagration.
Which he caused in the first place.
Today's primary challenge at the Fed is the eventual correction that everyone says is necessary with our unofficial 'quantitative easing' policy with the money supply.
In essence, the FED(not the government) has created $USD Trillions in their new lending "facilities" at zero percent interest.
This WAS necessary to make up for the shortfall in consumer and business "borrowing". This is totally essential with the DEBT-money system of fractional-reserve banking.
Unfortunately for the average American, all QE does is create huge amounts of new DEBTS, requiring massive amounts of increased "$USD debt-service payments" in the future.
So, today we've got $USD Trillions holding the economy from falling off the cliff, and we have no employment, falling wages, increasing foreclosures, etc. etc.. Some people call that a rebound. Thanks, Ben.
Bernanke says he has an "exit strategy" from the QE policy(?) that consists of raising interest rates. Yeah, that'll work.
Here's a clue, Bennie Shalom.
The CAUSE of all this problem is the pro-cyclical, unscientific and failed design DEBT-money system of the Federal Reserve.
The solution is a new, equity-based money system.
The Money System Common.
Because of the extravagant lengths to which the commitment to nontruthfulness in politics went on at the highest level of government, and because of the concomitant extent to which lying was permitted to proliferate throughout the ranks of all government services, military and civilian–the phony body counts of the "search-and-destroy" missions, the doctored after-damage reports of the air force, the "progress" reports in Washington from the field written by subordinates who knew that their performance would be evaluated by their own reports–one is easily tempted to forget the background of past history, itself not exactly a story of immaculate virtue, against which this newest episode must be seen and judged.
Secrecy–what diplomatically is called "discretion," as well as the arcana imperii, the mysteries of government–and deception, the deliberate falsehood and the outright lie used as legitimate means to achieve political ends, have been with us since the beginning of recorded history…
Lies are often much more plausible, more appealing to reason, than reality, since the liar has the great advantage of knowing beforehand what the audience wishes or expects to hear. He has prepared his story for public consumption with a careful eye to making it credible, whereas reality has the disconerting habit of confronting us with the unexpected, for which we were not prepared.
Under normal circumstances the liar is defeated by reality, for which there is no substitute; no matter how large the tissue of falsehood that an experienced liar has to offer, it will never be large enough, even if he enlists the help of computers, to cover the immensity of facutality. The liar, who may get away with any number single falsehoods, will find it impossible to get away with lying on principle. This is one of the lessons that could be learned from the totalitarian experiments and the totalitarian rulers' frightening confidence in the power of lying–in their ability, for instance, to rewrite history again and again to adapt the past to the "political line" of the present moment or to eliminate data that did not fit their ideology. Thus, in a socialist economy, they would deny that unemployment existed, the unemployed person simply becoming a non-person.
The results of such experiments when undertaken by those in possession of the means of violence are terrible enough, but lasting deception is not among them. There always comes the point beyond which lying becomes counterproductive. This point is reached when the audience to which the lies are addressed is forced to disregard altogether the distinguishing line between truth and falsehood in order to be able to survive.
–Hannah Arendt, Crises of the Republic
Yves, you (uncharacteristically) missed the humor in the piece!
An article on Bernanke's critics, and who does the journalist choose to quote? Chris Dodd. And the quote is that Bernanke was too cozy with Wall Street.
You see, the journalist is satirizing the mainstrem media coverage of the Fed! Come on — isn't it obvious?
I just visited CNNMoney.com and three headlines struck me as being emblematic of the Alice-in-Wonderland atmosphere that we currently live in:
♦"BREAKING NEWS: More than 9% of mortgage holders are behind on their home loans, nearly one-third more than a year ago, says bank group.
♦"Jobless claims in surprise rise"
♦"Stocks push higher"
Benancke is the banker's banker and he's left no stone unturned to preserve their wealth and privilege. Of course they love him.
Me not so much.
Don't know who would be better, but someone who is not so blinded by the U Chicago EMH mid-set that they are incapable of spotting the largest and best documented financial bubble in the history of mankind would be a start.
Michael Hudson spotted the bubble long before it burst and he'd scare the living daylights out of the bankers. That would have some value in and of itself. How about him?
After all, it's the NEW YORK Times.
Wall Street is their home team as much as the Mets and Yankees, and pays a lot more of their bills.
In the real world away from NYC, not many people care what the NYT thinks.
You mean people still read the New York Times?
That's the problem!
Why is Ed Andrews still on the economics beat for the New York Times? If they insist upon paying him $130,000 a year, isn't there a human interest story somewhere he can cover?
I don't even use the NYT for my cockatoo's cage anymore.
WaPo is much better for that…
I can't believe analysts keep trotting out the phrase "tossing out the Fed's standard playbook." Are we seriously heaping praise on the man because he didn't use techniques designed for other types of problems? Wow, he didn't use a screwdriver to secure a nail into wood! He's a genius.
In another way, this is like saying, 'because he wasn't stubborn and stupid and he didn't actually do the worst possible thing, we should keep him.' Great depth and insight in that analysis.
Yes, he initiated some pro-active measures. Only time will tell whether they actually helped or just made the problem much worse.
It will be Bernacke's show trial that will offer the most pedagogically. In possession of his proffered confession, his prosecutors will serve him up as the quintessential reactionary, the principal inside man and tool of the interests. Bernacke, himself, might plead for a severe justice. So much for years of his "reflection" and "thoughtfullness", eh?
The plutocracy and their academic economist stooges circle their wagons around their benefactor, Ben Bernanke, the man who believes that every taxpayer dollar rightfully belongs to the lying, crooked bankers on Wall Street. The world’s economy burns while the bankers play with their million dollar bonuses, what could be fairer from the standpoint of the Federal Reserve.
This is the same group of Wall Streeters and economists who thought for years that Greenspan was God. So their current adulation of Bernanke is understandable.
What is so frustrating is the support Bernanke gets from so-called liberal economists like Krugman and Roubini. I have already written on Krugman's personal ties to Bernanke that effectively preclude any criticism of Bernanke by him. Roubini's endorsement of Bernanke (in the Times a few weeks ago) was more surprising. If he was going to support anybody, you might expect him to back Summers for whom he worked when he was at Treasury (if memory serves).
But whether we are talking Krugman, Roubini, the Financial Times, or the NYT, none of these have any answer to the question raised by Dean Baker: How can you support anyone who did not see an $8 trillion real estate bubble? And I would add or have a clue about the paper economy and the dangers it posed? Or never see the crony casino capitalism that had come to dominate markets? Or never ask himself what the consequences might be for a highly leveraged system in a general downturn?
Maybe all this support for Bernanke is just a pre-emptive move to keep Summers who would be an even bigger disaster out of the job, but I can't help thinking it shows how bankrupt our financial and economics community is that they would support a man whose main qualification is that he did not quite manage to sink the entire world financial system, well at least not yet.
Hugh-
While I agree that Bernanke's blindness to the housing calamity is one of the most stunning failures in regulatory history, housing is not the problem we will be dealing with in the near future.
On that basis, the new spectre we have to fight, a depression, Bernanke is uniquely suited to be Fed chair.
I have been very critical of Bernanke in the past, but our past problems and future ones are not one and the same. He will likely cause more problems than he will solve, but given the no-win situation he is in, that's the best I can ask for.
God help us all if Summers gets the job.
f Lyndon Banes Johnson were still Speaker of the House, we'd have had a Constitutional crisis long before it got that far.
Lyndon Johnson was Senate Majority Leader. While he served in the House, he was never Speaker of the House. (The House Speaker during Johnson's years in Congress was Sam Rayburn.)
Hugh, what are Krugman's ties to Bernanke? It seems to me more like Krugman is acknowledging that Bernanke was able to pull us back from the abyss. And personally I'd rather have Bernanke than Summers.
Eric L. Prentice & Hugh,
Fear not, the time when bacteria like Krugman and Roubini, who so obviously thrive on the attentions of the media, will be required to explain their adulation of a rodent like Bernacke to the peoples' interrogators. One can almost visualize the usually adroit Krugman on the verge of incontinence trying to explain away these enthusiasms. Trust me, someone else made him do it.
jest, I think the Great Depression was about a lot more than the failures of monetary policy. And even then, it is critical where the money goes not just how much is available. We have seen this in our own time in the bank bailouts but it was true then as well. So Bernanke's views on the Great Depression give me no comfort. Nor can I get past Bernanke's missing the biggest financial event of our times and not seeing it until it blew up. And then his slow reaction to it all and then his participation in the Lehman fiasco and then his opaque management style in dishing out trillions to a corrupt cronyist financial system, money which US taxpayers were going to be ultimately responsible for. When Krugman and Roubini can blow by that, it just leaves me with no belief in their credibility.
argel, Krugman in a book salon last December at firedoglake said:
"And as I guess everyone knows, Bernanke actually hired me at Princeton, so that may cloud my judgment."
http://firedoglake.com/2008/12/03/fdl-book-salon-welcomes-nobel-prize-winning-economist-paul-krugman/#comment-1746856
(comment 80)
As far as I can remember I have never seen Krugman criticize Bernanke by name in any column that he has written. Given Bernanke's high profile in recent economic events and his extremely dubious role in many of them, I doubt that this is coincidence.
If anybody deserves to be sacked it is Ben.
A guy who cannot foresee events cannot be expected to have the sense to set the right policies.
What has he done that he deserves credit for:
This guy has done the following
1. Did not see the crisis coming
2. Felt the crisis is of the magnitude of few 100 million dollars .. only he would have got one letter wrong by the time this runs its course!
3. Enabled Goldman to recoup its losses by funnelling money through AIG
4. Siphoned money from tax-payers to give to AIG so that AIG's new CEO, Robert Benmosch can talk like this and stick it up the tax-payers!
Benmosche told employees that he “had the luxury to say to the government, I’m not going to rush to do this. I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out. If they want out in a hurry, they shouldn’t have come in in the first place.”
5. Ensured that BIG Finnacial institutions can go on as business as usual, pay big bonuses from profits yet to be earned ..as BIG BEN is there with siphoned off TAX-payers money to bail them out
6. Ensured good healthy, well run small banks went down under ..
7. Ensured small businesses get hung out to dry
DO YOU REALLY THINK HE DESERVES A SECOND TERM.
MAY GOD HELP AMERICA!!
You forgot to mention that Ben has lost control of QE to the
extent that the banksters now feel
free to ramp the stock market in
the knowledge that they are
backstopped with billions in excess reserves they are unwilling to loan to the real economy.
What a sham and a shame.