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.
  3. Bernanke was not really responsible for the failures of the Fed under Alan Greenspan.  This is a stretch, as he was at the Fed 2002-05, then chair of the Council of Economic Advisers, June 2005-January 2006.  Bernanke took over as Fed chair in February 2006, when tightening (or even enforcing) regulation could still have made a difference.  He had plenty of time to leave a mark and, in a very real sense, he did.
  4. Bernanke understands the folly of the Fed’s old bubble-building ways and is determined to reform them.  This is wishful thinking.  There was nothing in his remarks this weekend (or at any time recently) to support such an assessment.
  5. Bernanke will be tough on banks when needed.  Again, there is not a shred of evidence that would support such a view – the markets like him because they see him as a soft touch and that’s great, except that it encourages further reckless risktaking by banks considered Too Big To Fail and leads to another financial meltdown.
  6. Dropping Bernanke would disrupt the process of economic recovery.  This is perhaps the strangest assertion – we’re in a global rebound phase, fueled by near zero US short-term interest rates.  Official forecasts will soon go through a set of upward revisions and calls for further worldwide stimulus will start to sound distinctly odd.  Now is the perfect time to change the chair of the Fed.

By Simon Johnson

36 thoughts on “Still No To Bernanke

  1. I think you forgot to mention:

    7. Bernanke has an awesome beard.

    8. Rap songs mentioning “the Benjamins” would lose their double entendré

    9. “Helicopter Larry” just does not have the same ring to it.

  2. Again, no issue with what you’ve said. I do have an issue with what you haven’t said. Who gets appointed instead? I’m not even saying Bernanke is the best choice, I just want to know who your choice is.

    BTW, if it matters, Simon is a legitimate answer. I don’t want you thinking you have to go all humble on us. :)

  3. “The cemeteries of the world are full of indispensable men.”

    –Charles de Gaulle

    Well, that pokes some holes in points 1, 2, 3, 4, & 6.

    The notion that a nation of 300 million can only be ruled by those connected to the Ivy League is an insult to the other 299.85 million of us. The notion that only Bernanke can run the Fed because he’s just so brilliant compared to other Ivy Leaguers is just laughable.

    Wouldn’t we better off with a can-do sonofabitch who isn’t part of the same elite he needs to regulate? Someone who thinks Wall Street is dead wrong and wants to roll up his sleeves to put them in their place?

    Here’s where you won’t find him: The Establishment. Yes, that rules out multi-generational mandarins (Geithner), Nobel laureate-sprinkled families (Summers), and Ivy Leaguers (just about everybody else responsible for this debacle).

  4. The (Person of the Year) Times article on Mr. Bernanke reads like a shameful plug for his 2nd term, (although I believe, I could have negotiated a better ARM to FIX on his home in Washington and I’m not even in sales, thankgoodness! ;-)

    The banks just love the zero interest over-night borrowing: or click for your consumer rates.

    Mr. Bernanke has yet to address the TBTF conundrum. He wants to see an orderly unwinding of failing banks going forward, but doesn’t seem to provide much more than that. He probably doesn’t see it in his role nor as appropriate for him to be making “political” decisions – something, I believe, he views is the purview of Washington, not the Fed. The Federal Reserve is a conservative (with a small “c”) institution so any chairperson replacement would more than likely reflect the Reserve’s own sense of self-preservation—-kind of like a corporation, although by definition, “it is an independent entity within the government, having both public purposes and private aspects.”

    The Nightly Business Report (and that was ‘Darren Gersh’, not ‘Dan Gersh’— whatever, I say) did a follow-up segment on the derivatives market earlier this evening. Current readings have noted that some of these instruments are still unregulated, and to the contrary, becoming even more profitable. The’ lesson learned’ is what has been pointed out in your earlier article (The Quit Coup): “….he had hoped the book might provoke outrage at Wall Street’s hubris and excess. Instead, he found himself “knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. …They’d read my book as a how-to manual.”

  5. Just a comment on the politics of this. It might be helpful if there were some alternative names out there. I think there is a lot of apathy on this amongst liberals. They just assume that any Fed Chairman will favor the interests of bankers and Wall Street and will view full employment as a secondary priority so they don’t really care if it’s Bernanke or somebody else. And since Bernanke is Obama’s pick, they are not inclined to embarass their President in what they regard as a gesture with no political effect.

    If there were some names thrown out there as credible alternatives, it might help energize opposition to Bernanke.

  6. Before removing Mr. Bernanke, perhaps one could suggest who could replace him? With all of Bernanke’s flaws, there are others whom I fear even more.

  7. Far-fetched there is a Silver Lining That Greed never adds up… On the other hand, maybe it does…

    This theme holds the lion’s share of why Bernanke should look at the abyss theme again and review what is no longer hidden for all to bring a higher level of scrutiny.

    An article written by Chuck Jaffe at clearly opens the door to challenge why the market is set for real meaningful corrections. You can read it in the Wall Street Journal under FUND TRACK | January 7, 2010 “2010 Outlook: Prep for a Glum New Year… Closures, Whiffs and Hurt, Oh My” (WSJ)!

    “Money funds close. If interest rates don’t go up soon, a flood of fund firms will shut down money-market-fund businesses because there is no profit in it. Charles Schwab, for example, acknowledges that fee waivers, necessary to keep its money funds delivering any return at all, cost the company more than $100 million in revenue each quarter. The vast majority of money funds have fee waivers in place; corporate boards aren’t willing to sacrifice revenue forever” (Jaffe).

    The simple running theme, “you cannot have your cake and eat it too” is the best way to look at this mounting dilemma. For a clearer understanding:

    The global infusion to the world by all the Central Banks has taken its toll. Safe money bets mostly on the intrinsic spreads. This bet was laid down by the choices of The Federal Reserve and the United States Treasury including the World Banks including the China YUAN affect pushing all investors to seek the higher risk returns.

    This Yin-Yang process comes at a price. The price of pushing the limits on the safe harbor of steady balance of return and growth from bonds and worthy dividends from (A) rated corporations now have left the deeper crisis of drying up liquidity and the fragile balance of global recoveries in the balance.

    The Bull and the Bear will always fight for their cause and try to reap their profits. In the end, the S-Thorium rears it diadem heads. The seven-headed dragon of the diadem beast or the barbarians only knows how to devour and never rests while on the prowl. The prowl of this dragon though will never understand the inverse affect of what the Good that will prevail from what appears to be the spoils of Greed and ruins the dragon seeks.

    The spirit of the soul only comes closer during these uncertain times to the sustaining source of what it seeks through the dragon’s mistaken empty victories.

    The winner in all this Yin-Yang comes out to be Peace and harmony with one another and the true source of all supply for eternity from the one factual foundation.

    The truth to owe no debt to any man holds ever true today. To live within ones means also holds great virtue. Consider them the better part of this short stab to bring light into what would be dismal otherwise in what are hidden agendas of what lurks to crash the next bubbles of excess.

    Far-fetched–Not anymore–Financials and many other portions of the markets throughout this global recovery are still on critical care…

    Until we get the banks split from the investment firms, we all are still looking at more hidden cliffs that bring us to the abyss that we read and hear about so often out of Washington and around the world.

    Take time to learn why you need to keep sending the messages for real reforms to who needs to hear and act upon this call for the New Deal.

    James Gornick continued theme for true reforms through Far-fetched articles and posts…

  8. I keep forgetting, if all these guys are so smart, why are we in this mess? If million dollar bonuses are going out in a recession does that indicate intention?

  9. I’ve said about a million times on this site that Alan Blinder is the man for the job. He’s a strong proponent of Fed transparency. Of course those who can’t look any deeper than the shine from the formica counter will attack that choice because “he’s an academic” and whatever. Blinder is the guy for the job. Unfortunately, I have the deep impression the man finds politics to be as fragrant as Tiger Woods’ love seat.

  10. An actual reason. To remove Bernanke would require the votes of people like Senator Bunning. To describe his ideas as ‘midieval’ is kind. Given his druthers, he’d produce a Mellon-style deflation ASAP. To choose a more rational choice than Bernanke would require a rational Senate. Anyone who sees a rational Senate, please hack the site, get my contact info, and visit me with the info any time, please!

  11. Agreed. The crisis has subsided (for now). Let’s clean house and take out the trash.

    I’m sick to death of hearing how Bernake is such a great student of the Depression. If he’s such a great student of the Depression, why didn’t he recognize the same exact signs that caused it? Even worse, why did he encourage and/or support the same deregulatory policies that contributed to it?

    Yeah, he studied the Depression…how to cause one.

    And while we’re at it, can’t we remove that massive arrogant jackass Larry Summers from the White House. And little Timmy Geithner is no bargain either. In fact, let’s just get rid of the entire faction with ties to Robert Rubin, Citibank and Goldman Sachs. Their actions and policies unquestionably screwed up the economy and they ren’t even man enough to own up to it.

    C’mon Obama, get a clue and get your house in order.


  12. Not to be disrespectful, this is your blog after all, but I would be a little more receptive to your arguments if you weren’t an employee of Pete Peterson.

    There’s something about Uncle Ben that is non-Shock Doctriney and I appreciate that as a middle class American. I would prefer to see him stay. But what do I know – I am not much of an elite person so perhaps unqualified to have an opinion.

  13. The most important –

    Bernanke would NEVER raise rates.
    aka ZERO rates for 12 more years !!! Strap it on (risk) and get ready for a wild ride. THIS IS THE AMERICAN WAY.

  14. Good points, I think I will definitely subscribe! I’ll go and read some more! What do you see the future of this being?

  15. Simon, amen!! Ben did (in some ways) use the unlimited (unfortunately) financial power of the FED to get us where we are. Back to a major semblence of the old status quo (isn’t that what cause the problem). Neither he, nor anyone else has cured the toxic asset problem, which actually may be deteriorating as I speak. He just has this amazingly elaborate set of levers in place to keep up appearances without any actual change. He’s actually too timid to disassemble the problem institutions, although I feel that he, even without further legislation, could do so.

    So, yes, it’s NO to BB!!! Who should replace him? At least on an interim basis, Volcker, but perhaps the long term solution is not to have a chairman at all, but rather a board and advisory committee, with decisions being made by concensus. Maybe not. Just not BB. Tom Hoenig would certainly be a good choice. He’s down to earth, and he obviously is not captured by the money (or financial romance) of Wall Street.

  16. The more important appointment is at Treasury. Having a Wall Street stooge at the Fed is almost to be expected, but the long-term economic dangers to the country go way beyond Wall Street, and the Treasury secretary needs to be someone with a much wider horizon than Geithner.

  17. I loved noting that tonight’s BCS championship was “sponsored” by Citi.

    That’s OUR money, damn it. Should be called the “Screwed Taxpayers BCS Bowl.”

  18. The thing I would love to hear BB (which by the way used to be an acronym reserved for Brigitte Bardot) is to tell us what he feel is the real purpose of the banks, because if he starts describing it exclusively in terms of stability, banks not defaulting and a mattress capable of returning the deposits; without a reference to how banks should assist the generation of sustainable jobs and not just the purchase of houses or the financing for consumption just because that is “safer”…well THEN I would know he is absolutely NOT the right man.

  19. Joe Gagnon. David Card. (Alan Kreuger is already in the Administration.) Nouriel Roubini. (Okay, maybe not that last.)

    Bernanke does know the Great Depression inside out: that’s the solution he’s been presenting. Unfortunately, we’re already off the Gold Standard and–unlike the previous Economic Upheaval–the world’s benchmark currency isn’t being replaced this decade. (It also doesn’t help that he tried to solve 1873 with 1931 ideas, but I implied that in the first sentence of this paragraph.)

    Bernanke should be removed if only to put him out of his misery–watching your country impair its human capital and already having more than 1/3 of the voting members of your Board talking about how evil Inflation will be is cruel to him.

    Give him a Get Out of Jail Free card, and rest assured that Summers isn’t confirmable and knows it.

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  21. I agree with all the statements noted above, but I’m looking forward to the real question:

    Who do you get in return for Bernanke?

    Don’t let it be Summers nor Geithner…

  22. reconfirmation? he should be in jail along with paulson and geithner for securities fraud and unconstitutional abuse of the public funds

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