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Ben Bernanke is now positioned to outshine his long-serving predecessor among those making the greatest impact as leaders of the U.S. Federal Reserve.
It’s not just that the 18-year reign of Alan Greenspan–the once universally admired Maestro–is now perceived as severely tarnished from the vantage point of our post-2008 woes.
Greenspan, who once could do no wrong with the denizens of Capitol Hill and the inhabitants of bank trading rooms, now stands accused of being so allergic to economic downturns as to prime the system for asset price bubbles.
His utter faith in the self-correcting mechanisms of the market also proved misplaced.
But back to Bernanke. He’s had to steer Fed policy through a thornier economic patch than Greenspan, despite the latter’s long service and good work during the 1987 stock market crash, the Russian debt default and other significant episodes of financial turmoil.
Indeed, Bernanke’s ominous remit perhaps outranks Paul Volcker’s cracking of significant stagflation in the early 1980s.
Not only did Bernanke get the collapse of the financial titans and the ensuing credit crisis (albeit partly due to Fed and other regulatory lapses), but also the worst recession since the 1930s.
Here we are in the middle of 2010, with the major Fed and fiscal ammunition spent, and we still have U.S. economic growth that makes the characterization “anemic” seem too generous. We also are still talking about the real possibility of deflation.
So, Bernanke’s not even done with job one.
Add to that, the major regulatory powers just handed the Fed by Congress via the Dodd-Frank bill usher the central bank into unchartered territory. Yes, there will be a new vice chairman for regulatory matters, but the buck for making this enhanced regulatory gig work still stops with Bernanke.
You don’t have to be a bank anymore to come under the Fed’s regulatory watch. You have to be financial, big, complicated and with some systemic importance. The Fed is supposed to be proactive, with new powers and a level of subjective prodding to avert disasters that will require keen judgments.
Bernanke, with the key help of his colleagues, will have to prove himself equal to this task.
But let’s credit the central banker with one clear victory already, even if the economy’s still a mess and regulatory success is an open question.
Bernanke was certainly influential in beating back the biggest threat to Fed monetary policy independence in recent memory.
Remember, it was just December of last year when the full U.S. House of Representatives passed a version of the financial regulatory reform bill that included giving powers to the Government Accountability Office to “audit” monetary policy decisions. In other words, congressional watchdogs would expose the inner workings of necessarily independent interest-rate policy for second and third guessing by politicians.
Also, early regulatory reform proposals in the Senate removed, rather than enhanced, the Fed’s bank regulatory powers. And yet, the Fed wound up with more regulatory power.
Maybe there’s a new maestro in town.
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Batshwing: Dr Bernanke saved GoldmanSachs and JPMorgan. They elected him, and he served them well. GoldmanSachs is having a party with the highest bonus ever,while ‘Dr’ Bernanke bailed them out with our tax money. But Dr Bernanke does not represent us. We did not elect or select him. Wall Street elected him.
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