Should Bernanke Be Reappointed? 41 comments
-
Font Size:
-
Print
- TweetThis
Nouriel Roubini says:
Ben Bernanke ... deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.
Anna Schwartz has a different perspective:
As Federal Reserve chairman, Ben Bernanke has committed serious sins of commission and omission — and for those many sins, he does not deserve reappointment.
Here's how I see it. It's true that we failed to notice that the patient was getting sick. The signs of disease were there, but we either didn't see the signs or they were misdiagnosed. In fact, there's a case to be made that we saw some of the changes in the patient as signs of improving health. Had we made the correct diagnosis early enough, maybe we could have prevented the patient from getting sick (though it's not clear the patient would have taken our advice, so stronger measures than mere advice may have been required).
And once the patient showed up in the office and was clearly sick, we didn't get it right initially either. We thought the patient needed fluids - liquidity as they say - and the patient did need some of that, but we didn't immediately see that there were also some key nutrient deficiencies and chemical imbalances that were threatening to cause further problems.
Bu we kept at it with tests and other diagnostics, and eventually got a handle on the problem. Once we did, we began to administer the medicine the patient needed. The patient will get better, the deterioration was rapid and turning it around will be difficult - it won't happen fast enough to suit any of us - but what has been done prevented a complete collapse, and is helping to move the patient towards recovery.
So I'm with Nouriel, Bernanke should be reappointed. It's true that the progression of the underlying disease was largely missed, but that's pretty much true across the board, all the doctors missed it. It's also true that there was some dispute over how to interpret the initial symptoms and test results, and what to do to cure the patient. But again that was largely true across the board in the tumultuous period just after the patient began to exhibit clear and serious problems. It's not like everyone except the patient's doctors knew exactly what to do. The uncertainty in that initial period created fear, and the fear made the patient - who needed calm above all else - even worse off.
But as just noted, the doctors who were put in charge - Bernanke in particular - persevered and began to understand more precisely what was going wrong and what was needed, and that allowed them to save the patient from a much, much worse fate. They deserve credit for that. The patient will live, and that wasn't always so clear. In the initial confusion they did what you need to do - they administered wide spectrum drugs and other procedures that were known to abate the symptoms they were observing, and these did help, and that gave them time to find more targeted remedies. They used the time wisely to find and structure better remedies, and once those remedies were ready they used them to attack the various ways in which the disease was shutting down vital systems (not everything they tried worked, but the things that did work helped quite a bit).
There was one scary point, however, and that was when they thought the patient had become strong enough to go without the medicine, and they withdrew it too soon (the Lehman episode). The result was that they almost lost the patient completely, and only quick action saved the day. That's the one point where I think the doctors could have done better. I understand the concerns over the side effects of this medicine, but it was too soon and it created too much unnecessary uncertainty and fear.
But overall, they did the things that needed to be done to make sure the patient did not suffer an even worse, prolonged, debilitating collapse, and those efforts were successful. Failing to diagnose a disease is different from not knowing what to do once you figure it out. The disease was a difficult one to diagnose or it wouldn't have missed so widely, and it wasn't clear at first precisely what was wrong, but in every case, once they understood the problem, they took the proper course of action.
Here's the question I ask myself. If I were to suddenly come down with the same disease, would I want the current group with its current leadership in charge of bringing me back to health, or would I want a different group led by someone new who thinks they know what to do, but has never actually been through it? I'd want this group, the one with experience. They're likely to have learned enough to spot the disease the next time and head it off all together, one hopes. But if not and I get the disease, they are also likely to know just what to do - while avoiding the missteps they took the first time - to get me back on my feet as fast as possible (and please don't let politicians second guess them).
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 41 comments:
In the words of Tonto, "What you mean 'WE', white man?"
All SORTS of people were sounding alarms about the patient, from the halls of congress (Ron Paul), to halls of academia (the Austrian School), to perpetual gadfly market technicians like Robert Prechter - for YEARs!. Heck, *I* saw it coming, well enough to make a Fortune last year. And this (self-described) "scholar" is be excused?
ForBID it!
When Ben Bernanke first came in, I pitied him as a poor schlub who had no clue what was coming, what others had set in motion. That quickly changed: This man is exactly the sort of self-promoting idiot who finds inventive new ways to make really bad situations much, Much worse.
DUMP him Now. Saves an impeachment later.
With this logic, shouldn't we bring back all those CEOs of Countrywide, Bearsterns, Wamu, Merill, AIG, Citigroup, and Paulson (possibly Madoff too)? They have great experiences with current crisis. Why don't we give them a second chance to fix it??
Ron Paul as Fed Chairman. Let's try that.
No one wants to tell Bernake that it was probably only a severe case of Greenspan poisoning leading to derivatives gangrene which is still coursing through our system.
So would I ask the doctor to help me when I fall ill? Hell no! The free market is rotting and some of us are saying thank goodness we are not dead yet. I'd take a depression over the outright corrupt givaways and unregulated criminal behavior going on in the markets today. At least then I would know we have a way out of economic downturns. A free market always recovers (especially if we have money to stimulate once the economy hits a bottom). There is no guarantee a bankrupt socialist quagmire based on constant public handouts ever will.
Yeah, right. Not impressed.
I remember listening to many thrift managements taking their institutions public in the 1980s telling potential investors..."Give me tens of millions of dollars to run my thrift institution. Sure, I was the one that got it into the mess it is in, but I have learned from my experience!"
What did Barnum say?
Seriously. The only similar period of time is the depression and in 1939 the Treasury Secretary self-diagnosed that situation as a failure, and the only thing we did was create debt, unemployment, and new social programs. We will never know what would have been otherwise. It may have been a disaster for the big derivative using banks, but it would not have been a disaster for me. I would probably be running a big bank now as my capital was not leveraged based on some inane, risk ignoring risk insurance scheme that should have been called risk issuance.
I blame Bernanke for bailing out banks and issuing enormous and unnecessary debts upon me and my children. It would have been cheaper to simply send each household, regardless of mortgage, $150,000. The "real estate crisis" would be over. And though the banks would have failed, new banks could have easily risen, unencumbered with bad talent and bad ideas and practices.
Of course, I'm still betting that Larry Summers will be appointed as Fed Chairman. Summers is nothing if not a political animal. He will tolerate high inflation yet keep interest rates low if it will ensure Pres. Obama's re-election. If I'm Pres. Obama, I go with Summers.
Bernanke should see the process he created to the end. Let's hope his rhetoric to shrink the Fed's balance sheet holds its weight in structure and strategy. The bad debt has not gone away, but merely diluted under an institution truly "too big to fail".
> As was demonstrated during the Lehman incident, there is a lot of
> pressure for the Fed to do "something" because it at least looks
> like the problem is being addressed, a concept that politicans cannot
> shake off.
But the theory behind a central bank is that it's supposed to be independent and protected from the buffeting winds of politics. Indeed, "independence" is, according to Chmn. Bernanke, why he does not want the U.S. Congress to authorize an outside audit. In sum, the central bank cannot have it both ways: it cannot want to be seen as "doing something" just for the sake of appearances while at the same time clinging to its mantra of "independence."
Yes, there appears to be tentative signs the economy is strengthening, or at least not weakening at the same rate it was; however, as I have pointed out in my blog, this type of activity (intermittent strength leading to further weakness) during recessions (if one wants to classify our current economic weakness as such) is not atypical.
Who the hell are "we". This guy is a U of O professor. Unbelievable.
"Ben Bernanke ... deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0."
Who says this "Great Recession" is over and will not become the Great Depression 2.0.
The dominoes have just started to fall. Look at the rapidly increasing rate of bank failure. Households and Companies have cut back everything they could and used up what savings they had to cover loans. The savings are running out and unemployment is getting greater. The defaults are really going to start rolling in now. The majority of government and wall street gang are either idiots or huge liars. The wealthy talk about the bottom being in but they have no clue what the bottom even looks like because the majority of them have never felt suffering. I think this time everyone (even the rich) are going to get a taste of what the bottom is like. As for this Professor, he has no clue either. Who the hell are "WE".
> What's not being addressed is if not Bernanke, who? Odds on favorite
> has been Larry Summers from the beginning. Its not that he'd be better,
> on the contrary, a disaster in the making. I feel certain he has
> already been promised the Fed Chairman position. Bernanke has been
> far too independent. Obama wants to have a hand in Fed policy which
> is a huge mistake, both economically and politically. If Larry Summers
> heads up the Fed no one and I mean no one will see the Fed as an
> independent body. The Administration's finger prints will be all
> over the Fed. The likelihood of an even more credit friendly Fed
> is certain at a time when bond markets will want to see a change.
> Politically, this will be a disaster for Obama. As it stands now,
> Obama can always blame the Fed if inflation gets out of hand.
As a rational actor, Pres. Obama's goal is to get re-elected in 2012. There is no question that a Fed Chmn. Larry Summers would be friendly to Pres. Obama's hopes of re-election and, as a result, employ a loose-money policy. Given this fact, Pres. Obama has a HUGE incentive to appoint Larry Summers to the top Fed job.
As an aside, how do you believe that Chmn. Bernanke has been independent? He has gone along with multiple rescues and bailouts, has taken countless (undisclosed, BTW) assets onto the Fed balance sheet, and has cut rates to nearly zero. Indeed, he has cooperated to an unseemly degree with the U.S. Treasury. I cannot fathom how Chmn. Bernanke has exercised a degree of "independence."
"It is incredibly important that the Fed maintain its independence -- it is so critical to the stability of economy," Bernanke said. "I don't think people realize that Congress' bill would allow the Government Accountability Office to be able to audit Fed decisions. That's not congruent with independence."
"It is incredibly important that the Fed maintain its independence -- it is so critical to the stability of economy," Bernanke said. "I don't think people realize that Congress' bill would allow the Government Accountability Office to be able to audit Fed decisions. That's not congruent with independence."Ben Bernake - 'Please don't allow the US Gov to be able to audit the Federal and hold it to accountability'. "It is incredibly important that the Fed maintain its independence -- it is so critical to the stability of economy," Bernanke said. "I don't think people realize that Congress' bill would allow the Government Accountability Office to be able to audit Fed decisions. That's not congruent with independence."
"It is incredibly important that the Fed maintain its independence -- it is so critical to the stability of economy," Bernanke said. "I don't think people realize that Congress' bill would allow the Government Accountability Office to be able to audit Fed decisions. That's not congruent with independence."
It's easy to profit from this mess as a nimble trader who doesn't report to anyone, but it's difficult to fix it with a congress and senate full of idiots who usually only react well after the horse left the barn.
On Jul 26 04:44 AM Jasper M wrote:
> ". It's true that we failed to notice that the patient was getting
> sick. The signs of disease were there, but we . . . didn't see the
> signs . "
>
> In the words of Tonto, "What you mean 'WE', white man?"
>
> All SORTS of people were sounding alarms about the patient, from
> the halls of congress (Ron Paul), to halls of academia (the Austrian
> School), to perpetual gadfly market technicians like Robert Prechter
> - for YEARs!. Heck, *I* saw it coming, well enough to make a Fortune
> last year. And this (self-described) "scholar" is be excused?
>
> ForBID it!
> When Ben Bernanke first came in, I pitied him as a poor schlub who
> had no clue what was coming, what others had set in motion. That
> quickly changed: This man is exactly the sort of self-promoting idiot
> who finds inventive new ways to make really bad situations much,
> Much worse.
>
> DUMP him Now. Saves an impeachment later.
STOP with the Economists !!
>As a rational actor, Pres. Obama's goal is to get re-elected in
>2012. There is no question that a Fed Chmn. Larry Summers
>would be friendly to Pres. Obama's hopes of re-election and, as
>a result, employ a loose-money policy. Given this fact, Pres. >Obama has a HUGE incentive to appoint Larry Summers to the >top Fed job.
That's precisely the problem with Larry Summers. He would be too friendly with the administration. It makes him a partisan player which never works in an office that is supposed to be independent. If the Fed is viewed as partisan, his views carry no weight but with his own party. It will also make it difficult to put decisions for the sake of long term economics ahead of the President's own agenda. The bond market won't cooperate with such a choice and that's the whole ball game.
It is easy to be an armchair quarterback. It is much more difficult to be Ben Bernanke with your neck on the line. He is unquestionably a brilliant economist. He is from Stanford, not GS. His is a thankless job. Let him finish pulling us from the recession. There is more work to do. There is a lot of work to do afterwards. He will likely understand this better than anyone new.
> It's one thing to see potential problems on the horizon, it's another to be able to fix them before they get out of hand. What would you have done last March if you were Bernanke to fix this mess . . .
I am going to assume you mean March of '08.
The answer is that I would stop inflation of the credit supply, which is the one and Only root cause of ALL this mess.
Normalized credit means
1) less loans to ludicroiusly speculative endeavors, like naked Credit Defualt Swaps.
2) Less capital available to encourage speculation in commodities, reducing cost of living.
3) Ultimately more stable money supply.
4) Chinese less concerned about US creditworthiness
> . . . and to prevent the crash from occurring?
I WOULDN'T. The inflated prices of stocks, like everything else, was unsustainable. They were going to come down, as credit inflations are ALWAYS temporary. PERIOD.
They will go down further, with or without the Fed's approval. But my way would be do less damage to the creditworthiness of the US government, and be vastly cheaper to its people.
> . . . Also, realistically, would you have gotten it done in the political climate?
All of the above merely requires the Fed to use pre-existing powers. Or, more accurately, Not use them.
I am well aware that that would ensure I, in that situation, would not be reappointed. But at that point, the lack-of-damage would already be done, and the country's fortunes salvaged.
>It's easy to profit from this mess as a nimble trader who doesn't
> report to anyone, but it's difficult to fix it with a congress and
> senate full of idiots who usually only react well after the horse
> left the barn.
Ironically, the Fed's much vaunted "independence" would have provided Bernanke all the tools he needed to fix this, IF he had sufficient understanding of actual economics. He wouldn't have nneded congress for Spit.
"In the initial confusion they did what you need to do - they administered wide spectrum drugs and other procedures that were known to abate the symptoms they were observing, and these did help, and that gave them time to find more targeted remedies." What were those "drugs"? What were the "symptoms"? How did it help? What were the "targeted remedies"?
Why not appoint somebody who actually ran a commercial bank instead of some clown from academia who has no practical experience and whose entire knowledge set comes from reading other clowns' dissertations.
Because we need a new face. A new face to run a new kind of Fed. A break from the past. A new kind of Fed that's NOT owned by the major banks, totally independent but much more transparent and accountable. We also need a new mandate for the Fed. Yes to monetary policy, yes to economic forecast, yes to reserve and credit policy, yes to targeted inflation control, stability of currency. Yes to audit by Congress. But NO to regulator, NO to promote so-called economic growth through the interests of the banking system.
The existing Fed must be re-invented. Then install a new kind of chairman to run it.
Dr Bernanke has done a reasonable job under stress. Thanks but good bye. Give him a medal and let him write a book.
You were most probably causing the crisis, piling into real estate and margin lending into shares like sheeple.
If any of you people had a plan back in 2002 www.federalreserve.gov... published such as the one Bernanke had for this crisis, don't hesitate to send me the link!
I wont hold my breath waiting. You people (Americans) should count yourselves lucky you have Bernanke at all.
ROFL.
ROFL more!