Bernanke, Manager

There’s a platitude repeated by most CEOs that their main job is not anything so mundane as making decisions, but “mentoring and supporting people” or something like that. Most of the CEOs who repeat this are mediocre at best at mentoring or supporting people, since the key people for any CEO are not the people who work for him or her, but the members of the board of directors. But the truism that is still true is that when you are head of a large organization, you can’t do everything yourself, and your real impact is made through the people you hire, promote, and don’t fire.

In October, Ben Bernanke named Patrick Parkinson director of the Division of Bank Supervision and Regulation. Who is Patrick Parkinson?

EB at Zero Hedge has the history in ten years of extended quotations. Here’s one example from 2005:

“[Transactions between institutions and other eligible counterparties in over-the-counter financial derivatives and foreign currency] are not readily susceptible to manipulation and eligible counterparties can and should be expected to protect themselves against fraud and counterparty credit losses.”

Here’s another from July:

“One of the main reasons the credit derivatives market and other OTC markets have grown so rapidly is that market participants have seen substantial benefit to customizing contract terms to meet their individual risk-management needs.  They must continue to be allowed to bilaterally negotiate customized contracts where they see benefits to doing so.”

Now, it’s plausible that the benefits to parties of certain types of transactions may outweigh the costs of those transactions to society at large. But to say that parties must be allowed to negotiate customized contrasts simply because they want to is frivolous. (Insert analogy to illegal drug sales here.)

So Parkinson was another mini-Greenspan–what’s wrong with that? Nothing, really–except that Bernanke promoted him, now when we need someone new to take bank supervision seriously.

Where’s the change?

By James Kwak

12 responses to “Bernanke, Manager

  1. Here’s more from Bill Black:

    http://neweconomicperspectives.blogspot.com/2010/01/anti-regulators-federal-reserves-war.html

    It seems that the level of brazenness can be explained only by recourse to psychological diagnosis. Bennie really is a psychopath.

    It’s not just him, of course. The rot is fundamental to the whole sector and its governmental handmaiden. Such congenital vice can never be reformed, but only cleansed completely.

    For some of them it’s so bad that they can’t restrain themselves even in the unusual case where they’re actually in some political difficulty, as Bennie currently is.

    Was it really impossible for him to find a less incendiary appointee? Someone who subscribes to the same ideology (as does everyone at the Fed, I’m sure) but hasn’t such a long and obnoxious public record?

    The urge to double down on the bet, to be as brazen and offensive about the crime as possible, must be overwhelming to this psychology.

    Bennie sure loves his Katrina. His vision, not of levees breaking everywhere, but of tsunamis of taxpayer dollars surging out of every home, every street, every city, through the slots in the levees of the bank vaults and bonus ratholes, which slots then seal up forever in the faces of the impoverished and enslaved people, must be something he cherishes every minute.

  2. Looking at the leadership in the Federal Reserve and in the Obama Administration, it is like the world’s most embarrassing family reunion.

  3. Yet another clarion call:

    To Mssrs. Johnson, Kwak et al.

    Congress is returning soon and the Senate will consider the jobs bill that the House passed before the Christmas recess. This bill must pass!

    I urge you(beg you, to be truthful) to NOT provide any political cover whatsoever for the deficit hawks in Congress who will argue against the extension of the Federal UI programs as well as another stimulus package that will prevent the unjust and savage budget cuts being prepared by state governments all over the country.
    As has been pointed out many times, the US had debt, I believe, that was 250% of GDP at the end of WWII, and the world did not come to an end. This should provide at least one argument against the deficit hawks(who, in addition, didn’t object to Bush’s deficits as I’m sure you know).
    Also, it is not necessary to choose between infrastructure projects and the extension of Federal UI and the rescuing of state budgets.
    The writers on this blog are very influential, and I ask you to play a strong role in making sure that millions, perhaps even tens of millions of men, women and children are not thrown into poverty through no fault of their own. Further, as good neo-Keynesians, I know you’re aware that unless aggregate demand is maintained, this immiseration if it’s allowed to occur, will most assuredly up the odds to near-certainty of the second Great Depression we’ve so far managed to avoid.

  4. “One of the main reasons the credit derivatives market and other OTC markets have grown so rapidly is that market participants have seen substantial benefit to customizing contract terms to meet their individual risk-management needs. They must continue to be allowed to bilaterally negotiate customized contracts where they see benefits to doing so.”

    Do a 2004 search and replace:

    “One of the main reasons the mortgage market has grown so rapidly is that market participants have seen substantial benefit to customizing contract terms to meet their individual risk-management needs. They must continue to be allowed to bilaterally negotiate customized contracts where they see benefits to doing so.”

  5. You finally convinced me. FIRE BERNANKE. The sooner the better. OUT WITH THE TRASH, AND DON’T BE GENTLE. DROP THE BASTURD HEAD FIRST.

  6. Not that I know anything about Parkinson, but it’s possible that he, like, say, Greenspan, may have done some re-thinking in the last two years?

  7. AJ,
    One of the Parkinson quotes was from July.

    Anyone even halfway “in the know” would have known credit derivatives were a HUGE part of the problem. Most people should have gotten the hint with Enron’s trading desk and Enron playing lights on lights off with their power plants in California like a 4 year old who just discovered what a light switch does.

    Parkinson has NO CLUE, and he needs to go out with Bernanke. Let them hold hands as they get shoved from the plank.

  8. Nothing Bernanke has done suggests he is deeply committed to fixing the banking system. This promotion is just symptomatic of his broad disconnection from actual day to day bank regulation. He’s an academic and should return to being one.

  9. London Banker

    Pat Parkinson was also the Fed’s point man in the President’s Working Group on Financial Markets (the Plunge Protection Team) for the past 22 years.

    He has tirelessly worked for the interests of FINRA and ISDA, but it’s not so clear he understands the nature of regulation in serving the public interest. His promotion at this critical time does not bode well for reform as he will be too busy helping bury the evidence of past bad judgements.

  10. Prof. Taylor, of the Taylor interest rate rule, rips apart the recent speech by Bernanke.

    1) Bubblenanke used the WRONG rate of inflation in Taylor’s formua
    2) Bubblenanke does NOT acknowledge all the research showing clear relationship between too low FED rates for too long, and the bubbles
    3) Bubblenanke refers to economists claiming no relationship; however those economists have published research showing clear relationship
    4) The failure to recognize errors and the refusal of mea culpa set us up for the next bubble.

    The man is intellectually not up to the task. No wonder the bonus banksters love it that No-change Obama has rewarded the FED chairman for his failure with another more-of-the-same term.

    Taylor’s response:
    http://online.wsj.com/article/SB10001424052748703481004574646100272016422.html

  11. July 2008. Also, if you clicked through to the zero hedge article you would see that the most recent of the comments cited shows progress – advocating centralized clearing of CDSs.

    Moreoever, that the guy stated the position of the agency (which for most of these was also the consensus position), without more, seems like a strange reason to critize him.

    You can talk about who was “in the know” based on whatever you want to look at in hindsight, but that doesn’t change the fact that you are redefining the “knowing” group in 1999 or Sept. 2005 to be exceedingly small.

  12. Aaron Goldzimer

    Why is this buried in a post as a possible reflection on Bernanke’s managerial responsibilities? Why is this not a huge post/headline/OpEd in itself?