Ben Bernanke: His Tragedy is that Not Everyone Sees His Greatness

Brian Doherty | August 20, 2009

The New York Times on how everyone who matters knows Ben Bernanke is the champ, and yet various doofuses still worry that even his genius won't be enough. Some excerpts with interpolated crumbled cup tosses from the gallery:

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....

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.

It's not that it hasn't occurred to many thoughtful people that the moral hazard of knowing the government indulged in bailouts and previous low interest rates were primary causes of the problem we're in right now, but hey, at least he's taken advantage of the fact that such policies can put a little bounce in an economy before it comes crashing down again.

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.

And how is it that we got a dangerous housing bubble, Mr. Roubini? Did the Fed's low interest rate policies of the first few years of the century have anything to do with it?

....Mr. Bernanke faces two major challenges. On the economic front, the Fed has to decide when and how it will reverse all its emergency measures and raise interest rates back to normal without either stalling the economy or igniting inflation.

That's quite a challenge, and really the nub of the matter. It is way too early to credit him with any genius, other than the political one of frantically kicking the crisis down the road a smidgen, until we see how he manages that. 

Mr. Bernanke and other Fed officials now concede they failed to anticipate the full danger posed by the explosion of subprime mortgage lending. As recently as the spring of 2007, Mr. Bernanke still contended that the problems of the housing market were largely “contained” to subprime mortgages.....

Yes, the Fed wizard had a hard time seeing the fingerprints of his own agency and its loose credit policies on the crisis. And that bodes ill for the future. See via Wilson Burman in the American Conservative these examples of Bernanke's perspicacity:

A Fed chairman’s job has two broad parts: performance and predictive ability. The former depends in large measure on the latter. The existence of “green shoots” is still open to debate. Bernanke’s prescience is not. Consider his track record:

March 28, 2007: “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

Feb. 28, 2008, on the potential for bank failures: “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”

June 9, 2008: “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

July 16, 2008: Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.

But back to the paper that really matters, the New York Times:

As the credit crisis deepened, Mr. Bernanke urged Fed officials to devise proposals that had never been tried before. They responded with a kaleidoscope of emergency loan programs to a wide array of industries.

“He has had tremendous courage throughout this episode,” said Frederic S. Mishkin, a professor at Columbia University’s business school and a former Fed governor

It does not actually take a great deal of courage for a government official to flail about with huge power grabs and giveaways to try to save his institutional ass.

But economists say Mr. Bernanke’s most important accomplishment was to create staggering amounts of money out of thin air.

All told, the Federal Reserve has expanded its balance sheet to $1.9 trillion today, from about $900 billion a year ago. Analysts now caution that Mr. Bernanke’s job is only half complete. He will eventually have to reel all that money back. He has already laid out elements of the Fed’s “exit strategy,” but Fed officials have been careful to say it is still too early to pull back any time soon.

I imagine it will keep seeming too early to these jokers until it's too late, because reining in inflation means imposing a little short term economic pain, usually, and that's one thing Bernanke seems to see as his Prime Directive: don't let that happen on his watch or that of the president who has to re-appoint him.

I wrote on Bernanke's frantic re-election campaign for Reason Online last month.

Comments

hmm|8.20.09 @ 11:49PM|#

He's a GD scholar. How in the fuck did he not see a bubble? Better yet his being a GD scholar as soon as things got bad or interesting what did he see? GD 2.0, instead of seeing a business cycle exacerbated by the bubble.

It will be interesting to watch the fed as its balance sheet now looks like a hooker that came back $100 short for the night.

Ben Kenobi|8.20.09 @ 11:50PM|#

Lets get that Audit the Fed bill passed already.

|8.20.09 @ 11:53PM|#

But economists say Mr. Bernanke's most important accomplishment was to create staggering amounts of money out of thin air.

Seriously, it's lines like this that make me think the NYT is responding to the decline of the newspaper industry by trying to move in on The Onion's market share. WTF?

hmm|8.20.09 @ 11:58PM|#

Lets get that Audit the Fed bill passed already.

Might as well. The Fed is to the point of being a political tool that there is no going back, even a little.

|8.21.09 @ 12:15AM|#

Best to include Dr. Greenspan in this discussion...Bernanke took over in early 2006, I believe. It was indeed Greenspan that suggested 'Americans could find it advantageous in the increased use of adjustable-rate mortgages'...nothing harmful there.

AS mentioned though...the greater tricks lie ahead and not behind..

|8.21.09 @ 12:23AM|#

Just who the hell is supposed to audit the FED, by the way? Barney Frank, he of the "give this little old Mass. thrift a few million in capital" although they should not qualify ?

Sen. Chris Dodd, he of the 'I don't know nothing about no special mortgage deal from my buddy Angelo...' Come on...they all drunk freely out of the same spit-bucket. Maybe not all...but key people

Hugh Akston|8.21.09 @ 12:24AM|#

Tossing out the Fed's standard playbook

Would that be the playbook that delineates what the Federal Reserve is not authorized to do?

hmm|8.21.09 @ 12:25AM|#

Ben came in removed from the situation and should have seen the real estate bubble. The nominal housing price hit its high in 06 and he did nothing to stop it or even acknowledge it. He was going to play ball with congress and the special interests just like Greenspan was. Until it all fell apart.

hmm|8.21.09 @ 12:37AM|#

Maybe the testing for chairman of the Fed is the same as it is for cops. Whiskey Tango Foxtrot? Ananova version of WTF

Proof positive. Cops are fucking retarded, or damn near retarded.

|8.21.09 @ 12:41AM|#

I think the general assumptive feature on residential real estate was that raising the base FED rate up to 5.25% would help to 'kinda' prick that real estate bubble. In practice, that should work.

In reality, there was far too much lending that occurred via the lightly regulated lenders, not affiliated to any bank, who took the opportunity to loosen lending standards even more. Outfits like Ameriquest, New Century...pushing the envelope quite a bit further out on affordability products.

Correct that the regulators should have stifled this much more. And yet regulators can't fix stupid...to borrow a phrase of a famous 'blue collar' comedian.

|8.21.09 @ 12:54AM|#

Vermont (I think) is one state that managed to side-step alot of the crazy, actually. It might've been in Monday or Tuesday's section A of the WSJ, but the column implies that state regulations were / remain highly restrictive, and (gasp) require the mortgage broker to hack up a lung or equivalency should the residential loan that is brokered become ill.

A system of checks/balances to keep the least credit-worthy from taking upon too much debt in the form of a home mortgage. What was they thinking...

|8.21.09 @ 1:07AM|#

Ben can't outslime the politicians. They will push him to keep interest rates low and monetize the debt through high inflation. If he agrees, they'll throw him under the train for the pain inflation causes. If he doesn't, they'll say he's killing investment with high interest rates. And he will have deserved his fate.

Hawk30|8.21.09 @ 1:19AM|#

I don't understand how Mishkin gets quoted so often - he must be difficult to understand with Bernanake's dick in his mouth.

|8.21.09 @ 1:37AM|#

hmm | August 21, 2009, 12:25am | #

Ben came in removed from the situation and should have seen the real estate bubble.


agreed. i saw the housing bubble and i'm a bleedin' idiot! of course i predicted the wrong end to it. but i saw it!!!

|8.21.09 @ 1:49AM|#

He's a GD scholar.

No, he's not. He's a federal reserve apologist. The entire body of his alleged depression scholarship is to invent asinine rationalizations for power-grabbing and counterfeiting.

Murray Rothbard was a scholar. Ludwig Von Mises was a scholar. Bernanke is an apparatchik with an overinflated ego.

-jcr

|8.21.09 @ 1:51AM|#

Just who the hell is supposed to audit the FED, by the way?

The GAO. An organization which consists of accountants, not economists, FWIW.

-jcr

|8.21.09 @ 3:46AM|#

"Vermont (I think) is one state that managed to side-step alot of the crazy, actually. It might've been in Monday or Tuesday's section A of the WSJ, but the column implies that state regulations were / remain highly restrictive, and (gasp) require the mortgage broker to hack up a lung or equivalency should the residential loan that is brokered become ill."

Griff - not so at all. As a long-time subprime mortgage banker - doing FHA now - I can say that Vermont's restrictions are less then found in CA, NV and AZ. The fact is that a combination of Vermont not being an ideal place for real estate investors and the local populace being more economically literate that spared Vermont from what the Sun and Sand states are currently experiencing.

|8.21.09 @ 3:52AM|#

I imagine it will keep seeming too early to these jokers until it's too late, because reining in inflation means imposing a little short term economic pain, usually, and that's one thing Bernanke seems to see as his Prime Directive: don't let that happen on his watch or that of the president who has to re-appoint him.

Yeah, the Clinton and the Bush administrations didn't want it to happen on their watches either - that's alot of the reason the economy is in such a mess.

roy|8.21.09 @ 3:58AM|#

He's a federal reserve apologist.

spot on.

Pay me later|8.21.09 @ 4:53AM|#

Bernanke would've done great in the age of burying barrels of toxic waste--"Hey, dose barrels, fahgedaboutit! I took care of dem. You don't have to worry about dem no more."

Congress complains about short-term thinking on Wall Street--perhaps the mirror is too disturbing an image.

Bill R|8.21.09 @ 7:07AM|#

Ben Bernanke and his "Greatness":
http://www.youtube.com/watch?v=HQ79Pt2GNJo

Tricky Prickears|8.21.09 @ 7:17AM|#

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

Mr. Bernanke deserves nothing but total contempt. Granted, he wasn't in charge while the Fed was pumping all of that cheap money into the economy for all of those years, but he didn't do anything to stop it when he did take charge, and still hasn't done anything about it.

Here's a simplistic analogy. Let's say you are working on something on the outside of your house, and you're whacking and whacking with a large hammer. All of a sudden that hammer flies out of your hand and through the neighbor's window. You are not a "conquering hero" if you take some duct tape and plastic sheeting and cover the broken window. And besides the broken window, the hammer, after it went through the window, flew across the room and stuck in the wall. So, before you cover the broken window, you start taking other hammers and other various large tools, out of your toolbox and start throwing them at the one stuck in the wall, in an attempt to knock it down.

Or

Let's say you're a plumber an attempt to fix a leaky pipe in a bathroom by adding new pipe to run the water out the window and get stuck in a cage... "I gotta get this water out!"

Tricky Prickears|8.21.09 @ 7:22AM|#

The GAO. An organization which consists of accountants, not economists, FWIW.

Is that the same GAO as this?

|8.21.09 @ 8:01AM|#

Did you ever get the feeling that the NYT is just coasting on inertia at this point?

Its audience is FDR-worshipping elderly who have subsscribed for 50 years and see no reason to change this late in the game and know-nothing NYC hipster doofuses.

You can't say that they aren't playing to their strengths.

|8.21.09 @ 8:38AM|#

"He will eventually have to reel all that money back."

The Fed is to entangled with Treasury, both policy-wise and political-wise, that there is no freekin' way that this will happen. Heeeellllooo hyperinflation!

Xeones|8.21.09 @ 9:03AM|#

Shut the fuck up, Ben Bernanke.

Shut the fuck up, New York Times.

|8.21.09 @ 9:11AM|#

Since this recession was marketed as likely to result in us all becoming zombies and eating each other if the government didn't do something, Bernanke should be lionized.

That's about as accurate an assessment as he's made.

|8.21.09 @ 9:24AM|#

Vermont's restrictions are less then found in CA, NV and AZ. The fact is that a combination of Vermont not being an ideal place for real estate investors and the local populace being more economically literate that spared Vermont from what the Sun and Sand states are currently experiencing.

Wait, you don't mean to tell me that More Freedom and Common Sense worked together and everything turned out fine, do you?

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.

Oh, so, we're out of trouble now? I missed that memo.

hmm|8.21.09 @ 9:51AM|#

In reality, there was far too much lending that occurred via the lightly regulated lenders, not affiliated to any bank, who took the opportunity to loosen lending standards even more. Outfits like Ameriquest, New Century...pushing the envelope quite a bit further out on affordability products.

Every loan made by a broker conformed to Fannie and Freddie standards or the banks would not have bought them or accepted them. The brokers have their role, but the back stop of government and government policy played the largest role.

No, he's not. He's a federal reserve apologist. The entire body of his alleged depression scholarship is to invent asinine rationalizations for power-grabbing and counterfeiting.

I never said he was a good GD scholar. But he is considered one, which I think heavily influenced his panic and bailout mentality.

The GAO. An organization which consists of accountants, not economists, FWIW.

This is just as scary to me. It's like allowing your accounting department to make all your business decisions. I guess it has upsides to Congress doing an audit. Fuckin' A, what can you say, you have a shit sandwich in the Fed, and you are looking for someone to tell you if the shit is corn ridden or peanut ridden. It's still a shit sandwich.

|8.21.09 @ 10:00AM|#

No they did not...there is the conforming balance limit and then anything in $$ amount above that is a jumbo loan. And there is subprime and Alt-A and negative amortzation...specialties of exactly the non-bank finance corporations, like those previously mentioned.

The Wall Street finance mechanism basically supplanted FNM & FRE for the later bubbly boom years. That's another thread for another day...

"Every loan made by a broker conformed to Fannie and Freddie standards or the banks would not have bought them or accepted them. The brokers have their role, but the back stop of government and government policy played the largest role."

Anyone care to insert Bob Rubin into this discussion ? You know, he approved the Glass-Steagal being repealed & he also (now famously) refused the proposed regulation for the very young CDS market. Brooksley Born...regulator or foreseeing the future ?

|8.21.09 @ 10:07AM|#

But economists say Mr. Bernanke's most important accomplishment was to create staggering amounts of money out of thin air.

Which is to say, releverage an already bankrupt system out over the abyss and kick that can back down the street. Bastards.

This is why we distrust government: They can reach into our lives and ruin us. They just did.

While there's renewed interest in how modern money works, the biggest fraud on the people in American (and world) history, both sides of the political divide have and continue to give the fiat money / fractional reserve problem too little criticism.

We're playing with FIRE and we're going to be burned. Bad pun intended...

|8.21.09 @ 10:09AM|#

That is interesting to know about Vermont.

"As a long-time subprime mortgage banker - doing FHA now - I can say that Vermont's restrictions are less then found in CA, NV and AZ."

I don't know if it's still the case, but North Carolina had passed some pretty stringent laws against predatory lending. The work of Self-Help CU and Center for Responsible Lending deserve credit for it...

|8.21.09 @ 10:11AM|#

We will eventually have to reel all that money back

That's impossible and that's the guaranteed risk: We cannot pay the interest on the debt. We cannot pay it because we'd have to print that dollar too. Money is debt.

The entire system was in default the moment pen touched paper creating the Fed and modern banking. We're the stooges paying the bill on billions made years and decades ago. Out of thin air.

The debt cannot be paid. Nice job, Washington.

|8.21.09 @ 10:13AM|#

On the economic front, the Fed has to decide when and how it will reverse all its emergency measures and raise interest rates back to normal without either stalling the economy or igniting inflation.

I just don't think its possible. My amateur understanding is that the only way to get that money out of circulation is to raise interest rates, which will have two effects:

(1) It will kill any recovery we might be seeing.

(2) It will force up the interest rate the federal government has to pay on its debt, cratering the federal budget.

We need domo to explain this to us.

hmm|8.21.09 @ 10:17AM|#

Conforming limits for a jumbo are per state are they not? The base of every broker made loan still conformed to FNM and FRE. My point, not well made, was that there was a sense that each loan made had the implicit backing of the government since it could be pawned off. Weren't Alt-A still implicitly supported since the risk was assumed to be covered by the higher rates, which pushed many into negative amortization. Who in their right mind takes out a negative amortization loan. God people are stupid.

|8.21.09 @ 10:57AM|#

I forget which agency sets that, but the conforming limit used to be a national base case. Perhaps it used to OFHEO, don't recall. With one of the 'rescue housing' bills passed last year it was adjusted to account for higher cost regions.

Coastal states that experienced the extremes of bust / boom were primed for this non-agency lending, which was not conforming to purchase standards for the GSE. Yes, the GSE's did have loan standards for which they make purchase decisions. The biggest factor was typically the UPB (loan principal balance), ie, the conforming loan limit referenced above.

Instead the non-agency loans were packed / sold to AAA and credit investors across the spectrum, both US and foreign. And that is precisely where the devil grew exponentially. Throw in the CDO machinations, and it becomes a little more convoluted, and frankly I am presenting my MBS geek certification as a financial analyst.

The wonderful NRSRO (Moody's, S&P) humbly plied their trade to stamp a AAA, etc on anything that moved...again, it is not GSE activity. Moody's, S&P, and Fitch made an absolute killing rating these non-agency loans packed into investment security form.

By either late 2004 or mid-2005, both FNM and FRE ceased dominating the lending tables. Loans that should be underwritten to FHA/VA standards were underwritten by the Countrywides, Ameriquest and New Century.

Tim Cavanaugh|8.21.09 @ 12:08PM|#

the great recession could turn into the Great Depression 2.0

Translation: The great recession was the perfect storm of economic meltdowns that could have turned into the Crack Cocaine of Great Depressions 2.0 on steroids.

hmm|8.21.09 @ 1:14PM|#

Thanks Griff. I was close. I still think the implicit backing caused some problem. The "if it's good enough for the government it's good enough for us" sort of risk factoring.

|8.21.09 @ 6:21PM|#

It does not actually take a great deal of courage for a government official to flail about with huge power grabs and giveaways to try to save his institutional ass.

Comedy gold. I'm stealing it.

JAMES Raider|8.21.09 @ 6:58PM|#

America needs to clean house before a serious recovery can begin, and confidence reinstated. Clean up WALL STREET.

Bernanke had the gall to threaten Congress and the American people with economic destruction. Get this arrogance out of the Fed, … just for a start.

The Kings of Wall Street have long coveted the absolute supremacy they now enjoy over the largest economy in the world. The debt is a problem, but vast change is necessary throughout the banking system. A radical change is needed on Wall Street.

It starts with the taxpayer's attitude adjustment.

http://pacificgatepost.com/2009/08/america-end-your-fear-of-wall-street.html

- - - Quit fearing Wall Street.

Michael Ashton|8.30.09 @ 6:46PM|#

Fantastic post. Spot on - although often we can tell the real bozos in real-time, and to me Bernanke only looks acceptable because he was better than the prior bozo. I think you might like the following book, about the prior bozo:

http://www.amazon.com/exec/obidos/ASIN/0979354277/reasonmagazineA/