They did everything in there power to stop the financial sector from collapsing. They stopped Bear from failing, they prevented the bankruptcy of Merril and did not let AIG go under, these and several other moves is why we still have an economy.

“Krugman says that Bernanke is the right guy for the job because of his resume… because he devoted so might energy to studying the GD and Japanese stagnation. If resumes were the key, GHW Bush would have been a great President.”

Ben Bernanke used some lessons from the great depression to avert GDII. For example, the fed was not active in preventing a depression after the crash of ’29 but bernanke was not going to be the guy who stood back and watched it happen, he was going to do whatever it took to save the system even if it meant forcing JP Morgan to buy Bear or going to beg congress for TARP.
Another example of how studying the depression helped Bernanke avert another GD can be found in his thesis as a Ph.D student where he studied the impact of deflation in on the depression. This helped shape up his decision to risk future inflation by injecting liquidity into the system, so as to stave of deflation.
In ’37 the fed decided to tighten monetary supply which ended up being one of the worst economic decisions ever made, Bernanke has obviously learnt from this by not being froward and overly optimistic yet and jumping on the bandwagon that the economy is on a rebound, he is still more cautious than ever.

Let’s not forget that some of the best ideas during the crisis came from Bernanke who was able to use some of his knowledge to make good decisions, even if they were swimming in uncharted waters.

“This may not be a corollary… but do you feel that Bernanke sees Fed as an independent entity or a pawn to serve Obama/Geithner?”

Bernanke has always stated that the fed should always remain as an independent entity and should only be involved in monetary policy and not fiscal policy, infact, he said this on the day of his confirmation and he still holds on to it. He has objected to this treasury’s massive spending because he is trying to prevent inflation.

Having said that, the appointment of Paulson was probably the best appointment that Bush ever made. Even though the guy made a huge blunder in letting Lehman fail, he tried his best to save the system. One can only shudder to think of what might have happened if outsiders like Paul O’ Neill or the incredibly ineffectual John Snow had been in charge during the crisis we probably would have ended up a banana republic by now.

While appreciating the apologists (above) that have helpfully put the original 2003 quote into a proper context, it naturally appears to the common man that the same folks running the machine when it broke are now the experts bravely accepting the call to save us.

To your point #3, the key issue is rather the criticism is fair. Simon Johnson has grossly misrepresent the context by cherry picking the data.

Obviously our goal is to prevent a repeat of this crisis. However, Simon’s disingenuousness will not lead to better decision making next time around. Those that simplistically accepts Simon’s disingenousness on face value will only add to the disinformation.

By theway, to your point #2, I predict our top experts will completely miss all future crisis until it is too later.

thank you –
the binds, the Catch 22s, the quirks of human nature’s limited choice of actions still need a lot of telling (and analyzing?)

was it Churchill who is quoted with

I never believe in a statistic I haven’t fiddled with myself

(if it wasn’t him it would be befitting for a guy who asked to guess on how history would regard him with “I intend to write it”)

would it be good or bad if we’d get another adventurer AND gentleman in high office insted of all those super-virtuousness proclaiming saints?

on film powdered wigs next to artistically designed rags add just the right kind of flavour – there you can squeal with asthetic delight while shivers of horror run down your spine at the same time

that’s because of them having to do all that trickling down

All the monetary component of policy can do is keep steady-state inflation and/or nominal GDP growth. Since we did not experience massive inflation (or even long term inflationary expectations) through the 2005 bubble, it’s arguable this wasn’t a _monetary_ problem. But rather a structural problem, and the failure of the Fed wasn’t its monetary policy, but it’s refusal to regulate banks (and strong opposition before Congress of bank regulation).

Raising interest rates (which suppresses investment across the entire economy) is a phenomenally bad way to target a bubble in a single sector (especially when that bubble is directly caused by bad regulation).

On the monetary side, the Fed’s failure was actually an excessively TIGHT monetary policy for most of the last year, leading to actual price deflation, and long term projections of sub-optimal inflation. And, quite possibly, triggering the financial panic.

Perhaps the best reason to separate bank-regulation and monetary policy is so that ideological Fed-Haters are forced to be more disciplined in their arguments.

I very much wish that all of those people who argue for the “bitter brew” of mass financial armageddon could experience it, without dragging the rest of us down into their self-imposed h3ll.