Tag Archives: Bernanke

Still No To Bernanke

We first expressed our opposition to the reconfirmation of Ben Bernanke as chairman of the Fed on December 24th and again here on Sunday.  Since then a wide range of smart economists have argued – at the American Economic Association meetings in Atlanta – that Bernanke should be allowed to stay on.

I’ve heard at least six distinct points.  None of them are convincing.

  1. Bernanke is a great academic.  True, but not relevant to the question at hand.
  2. Bernanke ran an inspired rescue operation for the US financial system from September 2008.  Also true, but this is not now the issue we face.  We’re looking for someone who can clean up and reform the system – not someone to bail it out further. Continue reading

Bernanke’s Reply: On The Doom Loop

Senator David Vitter submitted one of my questions to Federal Reserve Chairman Ben Bernanke, as part of his reconfirmation hearings, and received the following reply in writing (as already published in the WSJ on-line).

Q. Simon Johnson, Massachusetts Institute of Technology and blogger: Andrew Haldane, head of financial stability at the Bank of England, argues that the relationship between the banking system and the government (in the U.K. and the U.S.) creates a “doom loop” in which there are repeated boom-bust-bailout cycles that tend to get cost the taxpayer more and pose greater threat to the macro economy over time. What can be done to break this loop?

A. The “doom loop” that Andrew Haldane describes is a consequence of the problem of moral hazard in which the existence of explicit government backstops (such as deposit insurance or liquidity facilities) or of presumed government support leads firms to take on more risk or rely on less robust funding than they would otherwise. A new regulatory structure should address this problem. Continue reading

Firefighter Arson And Our Macroeconomic Policymakers

Firefighter arson is a serious problem.  The U.S. Fire Administration, part of Homeland Security, concluded in 2003, “A very small percentage of otherwise trustworthy firefighters cause the very flames they are dispatched to put out” (p.1). Illustrative and shocking anecdotes are on pp. 9-15 of that report, as well as here and here.

Macroeconomic policy making now has a similar issue to confront. Continue reading

Chat Today About Bernanke Nomination For Reappointment (1pm Eastern)

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.

Which Bernanke? Whose Bubble?

Ben Bernanke will be nominated for a second term as chairman of the Federal Reserve.  But which Bernanke are we getting?  There are at least three.

  1. The Bernanke who led the charge to rescue the US (and world’s) financial system after the Lehman-AIG collapse.  If you accept that the choice from late September was “Collapse or Rescue,” this Bernanke did a great job.
  2. The Bernanke who argued for keeping interest rates low as the housing bubble developed.  This Bernanke was part of the Greenspan Illusion – the Fed should ignore bubbles and “just clean up afterwards.”  Is that still Bernanke’s view?  Surely, he has learned from that experience.
  3. Then there is Bernanke-the-reformer.  Given #1 and #2 above, shouldn’t he be pushing hard for tough re-regulation of the financial system – particularly those dodgy parts where markets meet banking?  But is there any sign of such an agenda, even with regard to recently trampled consumers – let alone “too big to fail” financial institutions?

Most likely, we’re in for another bubble. Continue reading

Waiting For The Federal Reserve’s Next Apology

In November 2002, Ben Bernanke apologized – for the Fed’s role in causing the Great Depression of the 1930s.  “I would like to say to Milton [Friedman] and Anna [Schwartz]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again” (conclusion of this speech).

Bernanke’s point, of course, is that the Fed tightened monetary policy inappropriately – and allowed banks to fail – in 1929-33.  And much has been made of his strong focus, over the past year, on avoiding a repeat of those or closely related mistakes (including here).

But today we need a different kind of apology, or at least a statement of responsibility, from Ben Bernanke and the Fed. Continue reading

Bernanke And The Lobbies: Confidence Illusion

Ben Bernanke is opposed to the creation of a new Consumer Financial Protection Agency.  Disregarding his organization’s disappointing track record in this regard, he claims that the Fed can handle this issue perfectly well going forward.

He thus adds his voice to the cacophony of financial sector lobbyists favoring the status quo.

At the same time, Bernanke and the lobbyists talk about the importance of consumer confidence for the recovery.  But how can you expect anyone to have confidence enough to spend and borrow when so many people have been so badly treated by the financial sector in recent years? Continue reading