The Washington Post is hosting an on-line chat about Ben Bernanke and his likely reappointment as chairman of the Federal Reserve Board of Governors (today, 1pm eastern: use this link to chat). News story on President Obama’s announcement of Bernanke’s renomination this morning, with video of press conference, is here.
You can submit questions in advance or live during the chat, which will probably run until about 2pm.
By Simon Johnson
Update: here’s the transcript of the chat; a lot of very good questions.
The Baseline Scenario 
1) Chairman Bernanke has stated that the Fed did not have the ability to intervene to prevent the Lehman bankruptcy. Yet, two days (?) later in intervened to prevent the collapse of AIG, set off by the Lehman bankruptcy. It seems a little more due diligence and the Fed could have prevented the Lehman bankruptcy and the catastrophe that ensued.
2) What was the rationale for paying off five large banks who were counterparties to the AIG CDS at par? Why not settle at market value?
Good Move Obama!!
Question: Why is the Fed resisting a Congressional Audit?
Get Ready For The Final Revision of The Causes of The Current Financial Crisis:
Many would have us believe that the current financial crisis was not caused by problems that could and should have been prevented by the Fed and or regulatory agencies, but rather the excesses that developed are inherently a part of an innovative capitalist system, like ours.
The real cause of the severity of the crisis was the fact that the Fed did not have the blanket authority to bailout enough financial institutions, including
Bear Stearns. If only Bear Stearns had been bailed out, the impact would have been minimal.
So what if lots of taxpayer money was given to financial institutions? – get over it.
The bailouts were good for financial institutions; they were good for the reputation of the Fed, who is being heralded as the “savior” of the nation; and as my broker used to say – two out of three ain’t bad.
So what if lots of taxpayer money was given to financial institutions? – get over it.
Dude, I am over it; spent all of it already. By the way, can I have some more. And, would you be so kind as to mortgage your grandchildren to give it to me?
http://www.mwilliams.info/archive/2006/08/intergenerational-mortgage.php
Change Bear Stearns to Lehman- http://www.ft.com/cms/s/0/c2d523c0-8c21-11de-b14f-00144feabdc0,dwp_uuid=81377dd2-0733-11de-9294-000077b07658.html?nclick_check=1
Now, why would you think, Wayne? Could it be that when Bernacke was a little boy he told someone he trusted about either some secret behavior or niggling wrongdoing and the trusted party blurted out the details to everyone within earshot, and now Bernacke finds himself constitutionally constrained to hide everything he does? I mean, really, guy.
What a strong showing of readers in Virginia and the DC area.
**********
“yes, the Teddy Roosevelt principle applies here – big banks have too much political power (and this was Roosevelt’s problem with railroads-banks, etc, 100+ years ago). Making the banks smaller is not necessarily a panacea, but it would help.”
Or just make the power less visible. In campaign finance, for example, you need to find the bundlers to see what’s really going on. The simple fact of diffusing the contributors just made life a little more annoying for them.
For what it’s worth, the questions and answers felt a little “theatrical.”
Is it possible that Bernanke knew full well about the housing bubble but would not speak of it directly so that his own words would not be the trigger for a meltdown? Is it possible that he took discrete actions behind the scenes in an attempt to steer the bubble to a soft landing? As in, did he take less publicized actions that failed to prevent the collapse (or succeeded in delaying its onset), rather than taking no action at all?
It’s hard for me to believe that Bernanke (or Geithner or Summers) did not know about the bubble because even I knew about the bubble just from reading econ blogs.
Intelligent and informative chat Simon. You are one of the most soundest voices of reason this country has. Granted, that’s not saying much but thanks anyway.
It is interesting that President Obama praised Mr. Bernanke for his “creativity” and for willingness to ‘step outside the box’. Were the financial bailouts truly an act of creativity? As is well-known the bailouts were the result of rather desperate action-taking based on ‘back room deal making’ (SJ) purportedly intended to save the world financial system (and the place of the US therein). Maybe a disinterested approach to defining ‘creativity’ could be useful in moving towards more reasonable solution for the disjunction between the financial and ‘real’ economies. To continue to be desperately “creative” with financial policies as in past years will only serve to put more nails in the coffin for democracy.
Alan Blinder would have been the best choice, but President Obama forgot to consult me again. My name got misplaced on the rolodex.
I do not know much about finance. And by what I have read Bernanke gave nearly blank cheque to top banks. And second thing he does is, reduce interest rate. To execute such obvious tasks, do we need such a high-profile position? Is there any instance that showcases his expertise?
Is there a precise way to measure his performance? I wonder it must have been difficult to account, without having rights to audit his organization, but we have politicians to take on such challenging tasks :-)
Looks like, president had to go on a vacation to forget his ‘change’.
Professor Johnson:
You hope that Bernanke will take the lead in the ‘more fundamental rethinking’ of economics that is called for.
But it is difficult to see how someone who dismissed the arguments of that very fine economic historian Charles P. Kindleberger so cavalierly is likely to do so. To dismiss arguments about the ‘inherent instability of the financial system’ on the grounds that they are premised on the assumption that economic behaviour is not invariably rational hardly seems a very sensible thing to do.
As Kindleberger himself observed: ‘Dismissing financial crisis on the grounds that bubbles and busts cannot take place because that would imply irrationality is to ignore a condition for the sake of a theory.’ Why on earth, for God’s sake, did Bernanke feel entitled to assume that ‘ ‘the best research strategy is to push the rationality postulate as far as it will go’ — rather than conduct empirical research into why people behaved as they do?
This disdain for empiricism is particularly unfortunate, given that the past decade has been one in which herd behaviour in financial markets has been very strongly evident. But, as the British economist Andrew Oswald has stressed, contemporary economics lacks serious theorising about herd behaviour.
As Oswald has noted, herd behaviour in financial markets is actually a complicated product of ‘rational’ and ‘non-rational’ factors. This comes as no surprise to anyone familiar with analyses of other forms of mania — such as the Jacobin or Stalinist terrors — but the notion of other forms of ‘rational’ activity than that of ‘economic man’ seems hopelessly underdeveloped in economics.
(See http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/oswald/.)
It is perhaps inevitable, in the current situation, that Bernanke should be unleashing torrents of liquidity, which are sending the financial markets frenetically blowing up one bubble after another. But it would at least help if was not locked into assumptions which make it difficult for him to understand the implications of his actions.
Go back and read some of Bernake’s speeches. Like the famous one in 2002.
I’ll paraphrase: “Yes, we couldn’t have a bubble here *wink* *wink*, I don’t think there’s a bubble *wink* *wink*, but if there was a bubble, I would just print money…and if things got really bad, I’d fly over the University of Chicago in my helicopter and drop money on Milton Friedman’s grave.”