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Tuesday marks the fifth anniversary of Ben Bernanke's taking the reins at the Federal Reserve, not that anyone's counting.
It has been an eventful few years, to say the least. After a mostly placid 2006, the tide turned against Bernanke in 2007, as the housing market collapsed and the U.S. economy followed. A massive financial crisis ensued in 2008. Only now, more than two years later, is the recovery starting to pick up, and even then it will be years before joblessness falls to an acceptable level, as Bernanke well knows.
That's 35 in dog years
Those would make challenging conditions for anyone. But throughout his tenure Bernanke has shown an unfortunate tendency to soft-pedal the enormous problems facing the country. If anything this habit increases the impact when the bad news hits -- which makes it easy for critics to depict Bernanke as out of his depth and the Fed as the gang that couldn't shoot straight.
In truth, making monetary policy work was next to impossible by the time Bernanke took over. The global economy was utterly screwed up, thanks in no small part to policies Bernanke advocated while at predecessor Alan Greenspan's side. Complacent U.S. political leadership, if that's the word for it, certainly hasn't made things any easier.
Even so, Bernanke could have made his hapless half-decade a little easier if only he had kept a stronger grip on reality and eased off on the free markets Kool-aid. Bernanke has spoken at length about the need for central bank independence, but a lack of independent-mindedness has been his greatest weakness at the Fed – a fact not lost on Bernanke's countless critics.
Here are Bernanke's biggest blunders:
March 2007: Saying subprime was contained. Bernanke will never live down his remark to Congress that "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." The damage to Bernanke's reputation, by contrast, has turned out to be almost unlimited.
July 2008: Claiming Fannie and Freddie were fine. This comment is largely forgotten because Bernanke made it the same week Hank Paulson blurted out that what he really needed to solve the Fannie-Freddie problem was, um, a bazooka. Bernanke was never quite that much of a bozo, but his remark does portray him in his natural habitat, denial. "The GSEs are adequately capitalized," Bernanke told the House Financial Services Committee. "They are in no danger of failing." Actually they were, as taxpayers have learned the hard way to the tune of $163 billion.
Five more years! Five more years!
September 2008: Changing his story on Lehman. Many commentators say letting Lehman Brothers fail was a catastrophic error. But that wasn't actually the biggest misstep here. Something was going to crack at some point in the crisis, no matter how many firms the Fed rescued. "Whether Lehman itself got saved or not . . . the crisis would have unfolded along a different path, but it probably would have unfolded," JPMorgan Chase (JPM) chief Jamie Dimon told the Financial Crisis Inquiry Commission (see page 370).
So letting Lehman fail is a defensible position. But Bernanke didn't defend it -- not consistently, at least. He could have hammered at the huge hole on Lehman's balance sheet and the Fed's desire to lend only prudently. Instead, he claimed inexplicably that the market had had time to prepare for a Lehman filing, which only confused the issue and made it sound like he was making excuses. Which, come to think of it, he was.
March 2009: Dodging and weaving on AIG. Bernanke didn't do himself any favors by pledging to run a more transparent central bank, then backpedaling on cries for exposure of the parties that got taxpayer funds when the Fed rescued AIG (AIG). Bernanke's lieutenant Don Kohn even told the Senate that showing where the money went could "undermine confidence" in the financial system. That argument suddenly went out the window about a week later, which didn't exactly add to anyone's confidence in the Fed.
Could the hangover from that episode explain why Bernanke lobbied the Senate Banking Committee so hard ahead of his renomination at the end of 2009? He met with 18 of 23 committee members between August and November 2009, a level of outreach that banking consultant Kenneth Thomas of Miami calls unheard of.
"My analyses of Fed chairmen's calendars since 1996 had never turned up such unprecedented political contact in so short a time," he wrote last month in a piece in the American Banker. "This was inconsistent with Bernanke's vow before his first Senate confirmation, on Nov. 15, 2005, that he would 'be strictly independent of all political influences.'"
March 2010: Swerving for the exit. Ever since Bernanke flooded the banking system with new money to offset the collapse of the shadow banking system, he has been getting beaten up by the inflation hawks, who argue his policies will lead to runaway U.S. prices. There is little evidence that's happening, but Bernanke has been so eager to placate the hawks that he spent the early part of 2010 waxing on at great length about the Fed's exit strategy – how it would unwind its massive support for the financial markets without setting off inflation.
The commodity stocks like Ben, anyway
It wasn't time well spent. Within months of Bernanke sketching out his daring exit, a short-lived U.S. jobs recovery collapsed, sending bond yields back within reach of their 2008 crisis levels. With that Bernanke did a U-turn and laid the groundwork for this past November's launch of QE2, the $600 billion program in which the Fed buys Treasury bonds to prop up demand for goods and services.
He was promptly savaged round the world for supposedly starting various wars and, lately, for stealing from the mouths of the poor -- not that the fearless leaders in other countries would ever use Bernanke as a scapegoat for their own craven policies, no sirree.
That aside, could Bernanke have avoided the ugliness of QE2 had he kept his eye on the ball at the end of QE1, the $1.75 trillion purchase of mortgage and Treasury bonds that wound down in March 2010? Thomas thinks so.
"Had QE1 been continued in this amount for the remainder of 2010, he would have helped the economy more when it needed it and avoided the QE2 criticism," he writes.
Of course, being Bernanke, he would then have gotten criticized for something else. For what, sad to say, we may never know.
No other Fed Chief in our recent history has had to make these most critical decisions and recommendations going back about 75 years. Our information changes daily, just like the information surrounding the decision with WMD's. No one mortal knows it all; we are only human and make decisions based on the information we gather or are given. To that end, history has a way of repeating itself so look for another issue to surface in about 50-75 more years. I can safely say that individual will be criticized for the unpopular decisions they make.
Colin Barr is like the pothead calling the kettlehead black. Fortune magazine itself has made a career out of poo-poo-ing problems caused by Republican deregulation -- in most cases making Bernanke sound like a Cassandra by contrast. The Reagan Revolution more or less remade the American economy in the image of 1980's Japan. How's that workin for ya, Tokyo?
The road sweeper can do a better job than the FOOL Bernanke. You can see he is a fool by the looks of his face. GOD help this world.
Bernanke diluted dollar. Which makes it harder for the US to Bribe anti-democratic pro-Israeli dictators. Which is why they are all falling down. Which hurts the Jews the most! Of course, Bernanke was trying to keep the banks profitable, after US Citizens didn't elect him and can't kick him out. But GoldmanSachs can. But the plan seems to have backfired.
Poet justice
Fred in Epping NH: Great video. Bernanke is a fool who has been consistently wrong. The consequences of his present actions will not be felt for several more years.
I'm an engineer, and in 2004 a few friends and I were talking about housing prices being unsustainable and dangerous as we all knew some people that were taking on massive debts. How could a few lowly engineers figured this out while a man whose job function it is to know this could not? Because we didn't formulate our world view based upon some biased mathematical model - we just simply looked around. Debt is money borrowed from the future. When absorbing debt, you better make sure it's actually an investment.
Stick to the first principles.
Excuse me, Kyle. Not to split hairs, but how about reading that single run-on sentence of yours out loud. Perhaps you may want to take another swing at it...
Add to the list: The FED proposed rule on limiting loan officer compensation. Nowhere in their mandate or with congressional approval do they have the right or power to dictate a persons wage. When challenged to submit to the Small business impact study they side stepped. Be careful your job/industry can be next. Doctors, lawyers, Real Estate Agents?
The Fed's big "mistake" was allowing (ie promoting) economic bubbles. They created bubbles by design. No economic downturn, no economic fallout could be allowed as long as another bubble could be created to prevent the consequences of the bursting of the prior bubble. I hear a lot of analysis of how the Fed saved the economy from the Greater Depression when in reality they created the circumstances which led to the financial crisis. And they are continuing to do that as they have laid the groundwork for the next major financial crisis: sovereign debt largely increased from bailouts and stimulus programs. But there is no bubble large enough to replace sovereign debt and I expect that bubble to burst by the end of 2012. The Fed is THE problem, not the solution.
Hindsight commentary always goes well with arm-chair quarterbacking & back-seat driving.
Unfortunately both Bernanke and Geithner sold out the American people. Obama is adding more corp robber barons to his staff.
To this government people dont exist, the only people that do are corporations who have the right to steal, pass money to sanctioned governments, etc. Anyone accountable no how do you put a ghost in jail?
The Fed as an independent body owned as a front for hedge fund managers and international banks in their manipulation of the currency causing excess liquidity leading to the wholesale pilfering of the wealthiest nation on earth is no blunder, its absurd to characterize this as a mistake any more than he regrets being what he is.
Have to agree w Rich/Chicago. Bernanke is the worst. Please please please get rid of this guy!!!!
Another educated fool who has NEVER "met a payroll" in his life...
The sooner Congress repeals the Federal Reserve Act, the better!
"Liberalism is just Communism sold by the drink." P.J.O'Rourke
QE2 is currently causing a stock market rally, as banks are taking the excess cash being produced, leveraging it out by a factor of 10 (as they are allowed to do), and then bidding up stocks and commodities. The situation is eerily similar to the spring of 2008. Will we have $140 oil by mid-summer, at which time QE2 is over and the market will go into another crash because the high commodity prices will cut into corporate profits? You heard here!
Ben Bernanke says he is 100% certain that the Fed can contain inflation. So now he can predict the future, too. Has he gone food shopping lately. Bernanke under Bush AND Obama has shown that neither president was or is in control.
if the only banks and government can make money US collapse is imminent. why work hard if your money will be stolen in bank or taken away as tax?
Bernanke has done one thing and one thing only. My printing money without a commensurate increase in production of any kind, he has devalued the savings of Americans in order to bail out the speculators (borrowers). He has transferred money from the middle class who have worked their how lives, to save the wealthy who wildly speculated on bonds, stocks, and housing.
Now, we have a situation where we have 11% of our homes vacant and no one to live in them. Who is going to pay for these trillions of dollars in lost assets. It is wrung out of the middle class and the poor by paying them zero interest on their savings and devaluing their savings. Meanwhile, those who are benefiting from his largess are taking the free money that is being given to them and sending it overseas to build plants, operation centers, and invest in higher interest bonds, leaving this country caught in a downward spiral of jobs and home prices.
Bernanke is just a Wrong Way Corrigan who is more concerned with proving some thesis of his than looking was is obviously happening all around him.
this is the kind of waste on public officials
Bernanke: Why are we still listening to this guy? His incompetence has been astounding. Nothing says it like video - compilation of The Bernanke's blunders.
http://www.youtube.com/watch?v=NZHGtbGJ16c
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