Student of history that he is, Ben Bernanke had a pretty good idea this was coming. It was Bernanke's academic work in understanding the causes of the Great Depression"”how its trigger was a massive wave of bank failures"”that led him to take one of the most heroic stands in the history of world economic crises in 2008, saving firm after firm in revolutionary ways. The former Princeton professor had studied the politics as well as the economics of that earlier era. Bernanke knew that this time, as before, there would be a vicious political backlash, a surge of public outrage looking for a target. He also knew there was a fair chance he would end up being the handiest villain, that all the anger would come crashing at his door as he sat for confirmation on Capitol Hill.
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And so it has. After being approved 16-7 by the Senate Banking Committee, Bernanke now faces what is likely to be the largest "no" vote in the history of the Federal Reserve chairmanship when the Senate debates his second-term nomination in January. There's even an outside chance that Bernanke could go down. Such is the political mood that even many of his supporters, like Banking Committee chairman Chris Dodd"”who faces a tough re-election fight himself over suspicions of softness on Wall Street"”had to preface their endorsement of Bernanke with some sharp jabs. "The Fed failed in its oversight and consumer-protection responsibilities, allowing some of the largest holding companies to engage in very dangerous risk-taking and allowing much of the damage caused by those actions to fall on ordinary Americans, reflected obviously in lost jobs, lost homes, lost retirement, lost sense of hope," Dodd said. (That's an endorsement?) No doubt the Senate floor debate will follow the same pattern, leaving Bernanke badly battered even if he survives the vote.
The question is, does any of this reflect a fair assessment of the man and his tenure? The answer: not even close.
Yes, Bernanke made mistakes"”serious ones"”in the run-up to the financial crisis. He was an eager acolyte to Alan Greenspan, endorsing his predecessor's view that the Fed can't target bubbles with interest rates, among other things. He was embarrassingly short-sighted about the oncoming disaster. As late as March 2007, Bernanke was still insisting that the subprime issue was "likely to be contained." Giving congressional testimony in May, he said he saw only a "limited" impact of subprimes on "the broader housing market." The systemic collapse in the credit system began only three months later, in early August.
But by dwelling on where he fell short, critics miss the way that Bernanke has grown in the office"”and above all, how he ultimately performed in the face of the most terrifying financial collapse in 70 years. The indisputable fact is that when the world was teetering on the abyss of a broad-based collapse of the financial system and a global depression in those critical autumn months of 2008, Bernanke was the main one who pulled us back. His actions at the Fed, in fact, dwarfed anything that was done on the fiscal side by either the Bush or the Obama administrations. He more than doubled the Fed's balance sheet"”the amount it can spend"”to nearly $2 trillion, and flung open new lending windows to commercial businesses and governments across the Atlantic.
Largely because Congress is channeling national outrage over the sins of Wall Street and Washington and he's the handiest scapegoat, Bernanke now faces all manner of attacks from both left and right. Some of it is accurate, but much of it has little to do with what he did or said or with the Fed's actual authority. Bernanke "felt that the Fed should not concern itself with asset bubbles, or call the attention of financial markets or the public to these bubbles by using its regulatory power to rein in lending, or explicitly using interest rates to target a bubble," wrote Dean Baker in Prospect magazine. Actually that's not quite true; the paper with which Bernanke made his name in Washington, published in 1999 with his coauthor Mark Gertler, did argue against a strategy of using interest rates to deflate asset prices. But the paper defended the Fed's use of other tools like regulation, especially in markets in which there was high leverage (which was not a major problem during the tech bubble Bernanke and Gertler were addressing). And in July 2008"”though it was far too late to make a difference in the subprime scandal"”Bernanke announced a new "Regulation Z," which finally created some common-sense lending rules such as forbidding mortgages without sufficient documentation.
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