Edmund L. Andrews in the New York Times today depicts Federal Reserve chairman Ben Bernanke as badly treated by his critics. The article verges on hagiography:
As central bankers and economists from around the world gather on Thursday for the Fed’s annual retreat in Jackson Hole, Wyo., most are likely to welcome Mr. Bernanke as a conquering hero. In Washington and on Wall Street, it would be a surprise if President Obama did not nominate Mr. Bernanke for a second term, even though he is a Republican and was appointed by President George W. Bush….
He has been frustrated that many in Congress do not give the Fed what he believes is enough credit for what it has accomplished. Indeed, Mr. Bernanke has met privately with hundreds of lawmakers in recent months to explain the Fed’s strategy.
Fellow economists, however, are heaping praise on Mr. Bernanke for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1930s. Tossing out the Fed’s standard playbook, Mr. Bernanke orchestrated a long list of colossal rescue programs: Wall Street bailouts, shotgun weddings, emergency loan programs, vast amounts of newly printed money and the lowest interest rates in American history.
Even one of his harshest critics now praises him.
“He realized that the great recession could turn into the Great Depression 2.0, and he was very aggressive about taking the actions that needed to be taken,” said Nouriel Roubini, chairman of Roubini Global Economics, who had long criticized Fed officials for ignoring the dangers of the housing bubble.
All hail the conquering hero, expect those mean unappreciative Congressmen. Wall Street LOVES Ben! Obviously Wall Street is smarter than everyone else and vastly better qualified to evaluate Ben than mere mortals. And Ben has tried SOOO hard to make friends with those petty Congressmen. He’s actually gone to meet with them personally, and they are still giving him a hard time! How nasty of them!
By contrast, Congress is depicted as a bunch of whiners:
Democrats like Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, contend that the Fed was too cozy with banks and Wall Street firms as the mortgage crisis was building. House Republicans, and some Democrats, complain that the Fed already has too much power.
“Why does the Fed deserve more authority when institutionally it seemed to have failed to prevent the current crisis?” asked Senator Dodd last month.
The piece rather obtusely either underplays or completely misses the major complaints against the Fed:
We should not have gotten in this mess in the first place. This was a massive policy error. The Economist had a cover story on the housing bubble in June 2005. Der Spiegel reported that the BIS had been warning central bankers for years before that. But no, everyone drank the Kool-Aid that the Great Moderation was the crowning achievement of modern economics, and supposedly better central bank policies were part of that fantasy.
The Fed has gone way way beyond its role as monetary authority and is acting as a quasi fiscal agent of the Treasury. Congress has every reason to be irate over this. If Lyndon Banes Johnson were still Speaker of the House, we’d have had a Constitutional crisis long before it got that far.
There was NO preparation for the collapse of Lehman. Everyone knew as of early 2008 that it and Bear were most vulnerable. And Goldman PR to the contrary, the firms’ exposures were not all that different (industry experts have told me, for instance, that every bank was heavily exposed to various risky credits, and Goldman was not net short subprime). Pretending everything would work out was a massive error of judgement.
As a result of its self-assigned, expanded role, the public has every right to demand more accountability of and disclosure from the Fed, which it refuses to give.
Bernanke has also endorsed the new, no strings attached, “When in Doubt, Bail it Out” policy. He has demonstrated zero interest in banking industry reform (save making sure the Fed wins the turf war). And the ideas that have been presented, like building on the sham stress tests as a centerpiece of regulatory policy, is so awful that it ought to disqualify the Fed.
The Fed has also demonstrated no interest, zero, zip, nada, in understanding how got into this mess. I have seen, for instance, no effort to get to the bottom of practices in some markets, like CDIOs, that had a bigger role in the crisis than is commonly recognized.
The wisdom of the Bernanke massive liquidity injection and further leverage policy has not been tested, The proof lies in whether we can exit without precipitating another crisis.. If we wind up in the same boat as Japan, or set off a disorderly fall in the dollar, this high praise will look misguided.
Of COURSE Wall Street loves Ben. He’s written lots of blank checks to them, and demanded nothing in return. The fact that the New York Times isn’t willing to consider the obvious self-interest in their views, and further consider that what is best for Wall Street is not what is best for America shows a remarkable lack of perspective.