Tell Your Senator No On Bernanke

Ben Bernanke’s confirmation hearing before the Senate Banking Committee for his reappointment as Fed chairman is scheduled for this Thursday.

When CEOs preside over disasters, they are fired. Captains go down with their ships.

And Bernanke needs to be replaced.

He was a major architect of the policies that created the crisis.

He ignored signs of the severity of the developing crisis and failed to prepare for obvious dangers, like the collapse of an investment bank.

He has turned the Fed into an off-balance sheet funding vehicle of the Treasury to circumvent constitutionally-mandated budgetary procedures.

He has fought all efforts to examine the central bank’s conduct in the rescue operation.

Before, during, and after the crisis, he has put the interests of banks ahead of those of ordinary citizens.

He needs to go. Tell your Senator that this vote matters to you and he needs to vote no on Bernanke. Enlist the support of like-minded colleagues and friends to deliver the same message. Keep it simple and to the point. Bernanke has failed at his job. The US public deserves and needs better.

Please sign

Be certain to concentrate your calls and e-mail messages on the members of the Senate Banking Committee, who are:

Christopher J. Dodd Chairman (D-CT)

Tim Johnson (D-SD)

Jack Reed (D-RI)

Charles E. Schumer (D-NY)

Evan Bayh (D-IN)

Robert Menendez (D-NJ)

Daniel K. Akaka (D-HI)

Sherrod Brown (D-OH)

Jon Tester (D-MT)

Herb Kohl (D-WI)

Mark Warner (D-VA)

Jeff Merkley (D-OR)

Michael Bennet (D-CO)

Richard C. Shelby Ranking Member (R-AL)

Robert F. Bennett (R-UT)

Jim Bunning (R-KY)

Mike Crapo (R-ID)

Bob Corker (R-TN)

Jim DeMint (R-SC)

David Vitter (R-LA)

Mike Johanns (R-NE)

Kay Bailey Hutchison (R-TX)

Judd Gregg (R-NH)

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  1. mark hessel

    II like this idea.

    Shouldn’t we include Timothy Geithner and Larry Summers
    while we are at it.

    With all the problems this country has, I think we, as
    a grass roots force, should get rid of these bums and
    start agitating to get responsible people in these
    positions – not wall street monkeys.

  2. sasher

    Just sent this email to my senator Mr. Menendez of NJ:

    Dear Senator Menendez:
    I am a resident of NJ and a voter. I am writing to express my absolute disgust with the renomination of Chairman Ben Bernanke for a second term on the Federal Reserve. We, the middle class and your voters, are not going to stand for another 4 year term for a failed Chairman. Though you may get pressured by lobbyists and Wall St about how great a job Bailout Ben has been doing last year, it is the previous 3 years that I am concerned about when Bailout Ben looked the other way when a historic housing bubble developed and was pumped by his misguided “low for long” interest rate policy. Chairman Bernanke was primarily the Bush Enforcer of his President’s failed economic policies and for which we, the American Middle Class, have paid a very heavy price. He has bailed out bond holders and credit derivative traders of failed financial institutions while he has given short shrift to the Middle Class. Please don’t be a “loyal” foot soldier and vote for Ben but instead be a strong enforcer with your “No” vote against Mr. Ben Bernanke’s second term. That is the right thing to do and the least amount of honesty and integrity that I expect of you. If you fail to do so, I will not vote for you again, ever.

    Thanks for your consideration of my views,

    1. dlr

      Ah, I went much more “populist”. Here is what I sent Bob Corker (my Senator from Tennessee)…


      Bernanke HAS TO GO!!! He is nothing but a tool of the big Wall Street Bankers, those crooks. Everything is does is
      to benefit THEM, not the American people. If we let him go on the way he has he will destroy our currency. And worse yet, he is destroying any concept of accountability for wrongdoing. Is he extending loans the small main street bankers and credit unions who actually DESERVE his help? NO. He is focusing all his efforts on bailing out HIS CRONIES. And they are all planning on leaving US TO PAY THE BILLS. Get him out of there!! He is as guilty for the financial crisis as anyone in the entire world. He is the LAST PERSON we should have clean up the mess.

  3. marc fleury


    very disappointing. BB has been doing a careful job. It was on the spot, last minute, under the gun. You or any of your contributors wouldn’t have done any better, for any of the intellectual grandstanding.

    The only conspiracy theory I would really entertain is why was BB appointed to the job when all was rosy, did some people knew what was coming down? Did they appoint the one expert on the topic of monetary deflations as a root cause of economic depressions? The man has SINGLEHANDEDLY avoided that outcome (for now) and you want his head? Get real!!!

    We don’t know much about monetary policy, there isn’t much theory of money to go by. The arrogance displayed in this blog, the “armchair/blog quaterbacking” is getting to my nerves.

    Have some respect for the people in the front lines.


    1. Yves Smith Post author


      I suggest you examine the record on the following:

      1. Bernanke’s utter disinterest in bank oversight, particularly of subprime lending. Even the bank-friendly Office of the Comptroller of the Currency did a vastly better job

      2. The Fed (and Treasury’s) utter failure to do any meaningful planning post the collapse of Bear. Everyone knew Lehman and Merrill were next. There was no examination of their financial condition

      3. The completely unjustified secrecy, combined with the failure to do any post mortems. Frankly, I have stuff coming out in my book which is heinous, in terms of the failure of the authorities to do even basic investigation. I as a mere blogger should not be able to outdo people with supervisory powers.

      4. As I pointed out in another post, Anna Schwartz, THE expert on the Depression, has attacked Bernanke’s handling of the crisis, and in particular, disputes the wisdom of his using remedies that might have worked in the Great Depression (which was operating under the confines of a gold standard) with the system we have now. Even she has said this was a solvency crisis, not a liquidity crisis, and thus required different remedies.

      Moreover, the PR on Bernanke’s academic writings exceeds the reality. Frankly, his work on the Depression is not that highly regarded, but the media plays it up nevertheless.

      There is a good reason CEOs who have presided over disasters are outed. They are typically unable to see or admit to their mistakes (Bernanke fits this pattern) and even when they are, they are too identified with the failed course of action to be credible.

    2. spectator

      Have some respect for the conspiracy theorists, specially after a disaster unforeseen by people in the front lines.

      Some of us had a framework for understanding the crisis, long before it happened. And we knew Helicopter Ben was cheer-leading us to a crisis.

      And what makes you think a great depression is the worst possible outcome? Bernanke’s latest solutions risk Weimar/Hitler category of outcomes in the future.

    3. Jason Rines

      No arrogance from me. I’ll tell you what. I’ll tow the line when the CB model has representation. Until thenwe throughout the West are powerless until the model changes.

      I am forgiving, but I am not so sure the people will be able to differentiate the good nobles from bad when the time comes. Using the same playbook as the 1920’s till now wont work anymore. The Russians do not intend to share this time Marc. But you probably have no idea of what I am speaking of, do you?

    4. flipspiceland

      A bloody corpse could do better than what that Puppet of Wall Street has done.

      Worship him if you must but don’t try and convince anyone here that he has been anything but a whore to Lord Blankfein, and the rest of the primary dealers.

      I’d take more band width to demonstrate where and how badly he has failed, AND CONTINUES to do so, but I get the impression I’ve already wasted too much on you.

  4. PonyGirl

    Asia: A Perspective on the Subprime Crisis IMF, June 2008, Khor Hoe Ee and Kee Rui Xiong

    “The catchphrases may be different, but there are many similarities between the 1997 Asian financial crisis and today’s

    Crisis anniversaries are usually occasions to draw lessons from the past—and the 10th anniversary of the Asian financial crisis last year was no different. Numerous conferences analyzed events of a decade earlier and studied ways to prevent a similar crisis.

    But the conferences had barely ended when a new crisis erupted. The epicenter of the crisis had changed—from Asia to the United States and Europe. And the buzzwords had, too. Securitization, subprime mortgages, and collateralized debt obligations (CDOs) seem radically different from the currency pegs, excessive corporate borrowing, and foreign debt that dominated the Asian financial crisis. But the underlying causes of both episodes are similar. Each was triggered by investor panic in the face of uncertainty over the security and valuation of assets, and each featured a liquidity run and rising insolvency in the banking system.
    How can policymakers better identify precrisis warning signals? And how can they pinpoint the recurring problems that, if tackled during tranquil times, could mitigate the risk and cushion the impact of future crises? This article explores the subprime and Asian crises to see what lessons can be learned and discusses the factors behind Asia’s resilience, thus far, to the current crisis.

    Early warning signals
    A common backdrop to both crises was abundant liquidity and excessive, imprudent credit expansion. Prior to the Asian crisis, capital flows into the region surged (see Chart 1), leading to a sharp rise in bank lending and corporate borrowings. Foreign investors bought high-yielding Asian securities or U.S. dollar–denominated debt instruments assuming that Asian economies would continue to grow rapidly and currency pegs would hold indefinitely. Similarly, the current crisis was preceded by massive flows of capital into the United States to finance its current account deficits. That abundant liquidity was intermediated by financial institutions into consumer credit and mortgages, which were converted into mortgage-backed securities (MBSs) and CDOs. The search for yield fueled demand for these structured products by investors, many of whom based their decisions solely on the strength of the AAA ratings afforded by credit rating agencies….”

    Please see the IMF site for the complete paper.

  5. MoveableBeast

    It’s easy to make arguments both for and against Bernanke, Geithner, Summers and company. The real question is whom you would appoint in their place. It’s not obvious to me we can find folks who are both “untainted” by Wall Street/lobbyists and capable of handling the enormous challenges we face. It would be very easy to make things even worse than they are now with well-intentioned but badly designed or executed policies. I think there is an argument here to go with the devil you know but simply use the political process to put them under greater scrutiny and control (e.g., much more transparency, more external input and challenge to policy design, etc.). Unless I am missing something, do any obvious candidates spring to mind to replace Bernanke? If Volcker were 20 years younger, maybe, but anyone else?

    1. Yves Smith Post author

      I agree the conventionally acceptable choices are few, but Yellen was comparatively early to admit error on the housing bubble, and Hoeing has also been an independent voice.

      But more important, recall Clemenceau: “The graveyards are full of indispensable men.”

      1. Yves Smith Post author

        How embarrassing, I am typo prone to begin with, but I do my biggest klunkers on names. I can completely mis-type proper names and just read past it.

    1. Yves Smith Post author


      Bernanke chose to operate fist in glove with the Treasury, thus further compromising the Fed’s independence (which started under Greenspan, see

      The explicit policy of the Fed was that it was not able to intervene in bubbles (this is nonsense, there are more surgical ways to choke off credit than raising interest rates. One can target problematic markets surgically, for instance, with taxes or transaction charges, or requiring regulated institutions to hold more equity against particular types of loans. The idea of higher capital charges against risky lending is well established; a bubbly market is often riskier than one that has not shown dramatic price increases) but to “mop up” afterwards. They failed to recognize that over a two decade period, the frequency and severity of financial crises was increasing. The Greenspan and Bernanke Fed also failed to do adequate disaster planning given their “mop up” game plan. Lack of adequate planning was unacceptable for FEMA; why are we treating the Fed differently? Just because its top ranks has better educational credentials and have published academic papers? The standards for measuring the quality of leadership don’t get ratcheted down based on the incumbent’s resume.

      You cannot disapprove of Geithner and then endorse Bernanke. It is not a logically consistent position. They are operating from the same playbook. The big difference is Geithner performs much less well under the spotlight.

      1. Jesse

        “You cannot disapprove of Geithner and then endorse Bernanke. It is not a logically consistent position. They are operating from the same playbook. The big difference is Geithner performs much less well under the spotlight.”

        Well said.

  6. Peter T

    marc fleury to Yves:
    > You or any of your contributors wouldn’t have done any better, for any of the intellectual grandstanding.

    Bernanke has been with the Fed since 2002 (with a short interruption on Bush’s Council of Economic Advisers). What he did then was supporting Greenspan’s failed policies that have brought us this mess. And while the mess wasn’t obvious, Bernanke claimed it existed. Either he lied, or he is a BAD economist. For that alone, he deserves to be rejected.

    > The man has SINGLEHANDEDLY avoided that outcome (for now) and you want his head? Get real!!!

    Bernnake has kicked the can down the road: the debt load is still too big, even if some private debt has been recycled into government debt, also without congress appropriation (non-recourse loans on dubious collateral are a hidden hand-out, to which the Fed has no authorization). You wrote correctly that we haven’t seen the worst FOR NOW. Do you need to see the worst PLUS giant govenment debt to be convinced that Bernanke was the wrong man?

  7. psychohistorian

    I have contacted Jeff Merkley of Oregon via email and shared my concerns. Merkley is new into the Senate and I can only hope that he rises to this occasion. We need someone to threaten to fillibuster the appointment if we have any chance of forcing another candidate.

    We need to continue to try to force change.

  8. ab initio

    All the architects of the financial debacle need to be fired. That includes Bernanke, Geithner and Summers and all the second rung tools at the Fed, SEC, OCC, OTS, FDIC.

    Then we should fire Barney Frank, Chris Dodd and all the enablers of financial armageddon in Congress in 2010.

  9. Cynthia

    My Senator, Richard Shelby, is one of those Christian Right types who honestly believes that the more money you have, the closer you are to God, and thus the more blessed you are with God-given rights. So it’ll be a cold day in hell before Sen. Shelby sends Bailout Ben to the unemployment line.

    1. Yves Smith Post author

      I’m not sure I agree with you on Shelby. He’s been far more pro-regulation than Team Obama, and is very skeptical of the free pass given to “financial innovation.” He was also opposed to the TARP. And some VERY well respected right wing free markets types, in particular Richard Posner, have come out guns-a-blazing at Bernanke.

    1. Matt Franko

      Fed balance sheet is mostly Agency MBS and Treasuries.

      I would not, nor have I read Yves here ever, consider GSE MBS “junk” they are in effect guaranteed by the US Treasury now, effectively Govt securites. Total interest guaranty on $1T at 4.5% is $45B/year this is a small amount for Treasury to guaranty these days as defaults will be a small fraction of this.

      In fact the Fed also has $800B of Treasuries now, if they yield just 2% average, the Fed is earning $16B per year right there. So if the Treasury “needs” the funds to make the Fed whole on a MBS they can just use the Fed profits here that the Fed must remit back to the Treasury at year end anyway, take this $16B in excess Treasury interest from the Fed, then Treasury can give it to Fannie/Freddie who can then give it back to the Fed and then the Fed is made whole. No advanced economics degrees required here, just accounting 101/102.

      1. Karen

        The way I understand it, the Fed has traditionally had only Treasuries on its balance sheet, but as part of rescuing the insolvent banks and heading off total paralysis, Bernanke traded the Fed’s Treasuries for all sorts of toxic assets (MBS and other stuff) that the banks needed to unload. Then he re-stocked his Treasury larder, buying them using newly-created money. Now the Fed balance sheet has BOTH the usual Treasuries AND a lot of other stuff that nobody else would touch, back during the worst of the crisis, anyway.

        To get things back to normal, he will have to unload all the toxic assets – AND reclaim all the money he created to buy the Treasuries. If he fails to achieve the second goal, then everyone who owns dollar-denominated assets will suffer a permanent loss (the Fed will have stolen from dollar-asset owners to give to the banks). Hence, in my opinion, the frenzy to buy commodities in general and gold in particular.

        What I don’t understand is how lending these unusual Fed assets to primary brokers, with a promise to buy them back later, does ANYTHING to achieve either of the above two goals. Unless, that is, the secret plan is to renege on the promise to buy the stuff back!

        1. Matt Franko

          Again, How are Agency MBS “toxic” if they are backed by the US Treasury? The Fed is taking virtually no risk with any of the assets they have bought as they are guaranteed by Treasury.

          As far as the balance sheet, the amount of assets doesnt matter, see this link for a more detailed explanation.

          1. Karen

            Is the Treasury guaranteeing all the nontraditional assets the Fed has bought? If so, then why hasn’t the Fed started selling them off yet? Or has it?

            And why does the Fed feel the need to resort to weird steps like using reverse repurchase agreements with prime brokers? What is that meant to accomplish, that simply selling the guaranteed MBS wouldn’t?


  10. S.R.Barbour

    Overall, I agree, I’d quite like to see Bernanke gone.

    Unfortunately, he wouldn’t actually be gone his governorship lasts 14 years (his position as chairman is merely in question).

    In any case, I’d rather like to see his replacement as chairman before supporting any change. Frankly, I prefer Ben over Larry and Timmy who I’m coming to regard as outright crooks. Likely, I might even find Bernanke favorable over his fellow governors as well. Several have been crazy hawkish over inflation. (Unwinding today would be like a perfect echo of the Great Depression… *shudder*)

    To put it another way, I’m not so naive as thinking ‘removing someone’ won’t just result in an even worse replacement.

    In answer to your critiques:

    He was a major architect of the policies that created the crisis.

    Is there any truth in this statement at all?

    Ben Bernanke did serve as on the board of governors since 2002, but I have difficulty considering such a short term in governance as being a ‘major architect’ in policies extending three decades (degregulation), nor an architect in the over use of low rates (extending all of Greenspans career).

    His time as a chairman makes this accusation even more shaky. He obtained that position in 2006, well after the damage had been done.

    I’d love to see more information on Bernanke pre-2006, but, alas, I cannot seem to find Bernanke’s Fed voting record. I don’t even know if such matters are public. (I did find a republican compliant in 2006 decrying the fact that Bernanke voted too often with Greenspan to raise rates though…)

    My impression that tying Bernanke specifically to this crisis is founded more on anger and ignorance than fact.

    He ignored signs of the severity of the developing crisis and failed to prepare for obvious dangers, like the collapse of an investment bank.

    There are two parts to this, and the first is flat out false.

    The Fed kept rates very low throughout all of 2008, it provided various liquidity vehicles all throughout 2007-2008 all the while Europe and several of his own fellows on the FOMC where rattling the sabers over the inflation demon.

    Accusing Bernanke of ‘sitting at the sidelines’ is rewriting history.

    However, the second accusation has merit.

    It didn’t/doesn’t seem like Bernanke fully prepared for the failure of more major banks post Bear Sterns. Though, I can’t say we can fairly accuse him on ‘not preparing for AIG’ since, AIG being an insurer, isn’t/wasn’t even supposed to be within the FEDs realm of power.

    He has turned the Fed into an off-balance sheet funding vehicle of the Treasury to circumvent Constitutionally-mandated budgetary procedures.

    Over the years I’ve come to the opinion that questions of constitutionality are best left to lawyers. Further, the Fed is no more or less an off-balance sheet funding vehicle for the Treasury than it has ever been.

    He has fought all efforts to examine the central bank’s conduct in the rescue operation.

    A valid and, in my opinion, damning critique.

    Republics and Democracies can only thrive where there is transparency. The Fed’s independence is a valid thing, but just because they are independent doesn’t mean they shouldn’t also be transparent.

    Those terms are not contradictory.

    Before, during, and after the crisis, he has put the interests of banks ahead of those of ordinary citizens.

    That’s pretty much the Fed’s job description.

    1. Conducting the nation’s monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
    2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system, and protect the credit rights of consumers
    3. Maintaining stability of the financial system and containing systemic risk that may arise in financial markets
    4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

    The FED is quite clearly designed to support the US financial system as an aggregate structure. Not just by mandate, but by STRUCUTURE. This is why it is so very important that a separate government entity dedicated to protecting consumers is created.

    Anyone that thinks the FED will/should ever be a supporter of consumer rights over banker rights is, frankly, delusional.

    A valid critique would be to say that he has put the interests of individual banks before the overall financial interests of the country. Though, that’d be a harder argument to win.

    1. Yves Smith Post author

      Let me respond point by point:

      1. Major architect of the policies that caused the crisis.

      Bernanke was in charge and as Fed chair, could have modified or reversed what Greenspan did. Instead, it was full steam ahead into the iceberg.

      He ignored the warnings of the severity of the housing bubble, which had been offered by William White of the BIS repeatedly, with considerable data, prior to 2003 (he went as far as to go on the record at Jackson Hole in 2003). The governor of the Reserve Bank of Australia, Ian MacFarlane, did intervene in the closing days of his tenure, by repeatedly talking to the media as to how the housing market was overvalued, by jawboning the banks, and by putting through some judicious rate increases to show he was serious. Even though his successor was not as toughminded, MacFarlane’s actions (as of 2004) are credited with alleviating the severity of the housing bubble in Australia, and as proof that is it possible to intervene in bubbles.

      His inaction makes him culpable. He was an independent agent once Greenspan retired. But he endorsed and continued the Greenspan policy of “markets always know best, we can’t see a bubble in the making, we’ll just let them pop and clean up afterwards.” This was his policy, witness his famous Helicopter Ben speech, of 2002, on how authorities can prevent deflation (which is what you get when debt fueled bubbles pop). Indeed, when he was appointed Fed chair, market participants looked to that speech as confirmation that the Bernanke put would succeed the Greenspan put.

      According to the father of mortgage backed securities, Lew Ranieri, and this has been confirmed by other real estate experts, the toxic phase of subprime lending started in the 3rd quarter of 2005 and lasted through mid-2007. There was already a housing bubble underway. Had Bernanke had the guts to reverse some of Greenspan’s policies, he could have reduced the damage of the most destructive phase of the housing mania.

      Similarly, Bernanke, as Fed chair, repeatedly defended burgeoning consumer debt levels, arguing that consumer balance sheets had positive net worth. That argument was bunk. Rising debt levels have to be serviced by rising income or asset sales. Bernanke could not even recognize that he was arguing for the continued equity extraction of increasingly bubbly real estate as a way to service debt. By contrast, Minsky called that sort of borrower a “Ponzi unit.”

      Bernanke also failed to be duly alarmed when the Fed’s interest rate increases failed to slow down lending. That should have told him that something fundamental had changed in credit intermediation. Did he investigate, or even show interest? By contrast, a mere journalist, Gillian Tett of the Financial Times, was all over this question.

      2. He ignored signs of the severity of the developing crisis and failed to prepare for obvious dangers, like the collapse of an investment bank.

      You are 100% wrong on this one. The housing bubble was being talked about as of 2003, per William White, and the global housing bubble was the subject of a major article in the Economist in June 2005.

      Bernanke refused to take the subprime crisis seriously. He not only repeatedly declared it to be contained, but as of March 2007, estimated the losses to be only $50 to $100 billion. I gasped when I read the report of him saying that. At that point, the lowest reputable private sector estimates were $150 billion. He was either wildly out of touch or engaging in bald-faced lies. Either should disqualify him.

      In addition, there were large scale trading strategies that greatly amplified subprime exposure beyond its apparent level. The fact that no bank regulator, including the Fed, was on top of this is scandalous.

      3. He has turned the Fed into an off-balance sheet funding vehicle of the Treasury to circumvent Constitutionally-mandated budgetary procedures.

      You are dead wrong on this one. The Fed has never worked fist in glove with the Administration as it has under Bernanke. Volcker, Burns, Martin, all would never have engaged in the off balance sheet ruses that the Bernanke Fed has resorted to. Your statement here is simply counterfactual.

      4. Before, during, and after the crisis, he has put the interests of banks ahead of those of ordinary citizens.

      The Fed’s job description, its own self-aggrandizement to the contrary, is mandated by Congress. Its FORMAL duties are to preserve the soundness of the banking system (note banking, not financial), price stability, and full employment. The full employment mandate gives it far broader duties than merely watching out for the banksters. Congress has NEVER given the Fed the responsibility for financial stability. The Fed has added that to its mission statement on its own, without any official authorization.

      Now one can argue that these mandates are in conflict, but to say that the Fed’s only duty is to banks is willfully false.

      1. S.R.Barbour

        Thank you for the reply, Yves. Though I argue back, I appreciate the effort.


        You argue here that Bernanke continued full speed ahead.

        However, I must contend that continuing full speed ahead is not the same as being an architect. Establishing Ben was an architect of this disaster requires showing he actually proposed and pushed several of the major Fed policies that were instrumental in producing such disastrous results.

        There are architects of this crisis, Bernanke does not appear to be one of them.

        I’d say the argument that you proposed is that Ben Bernanke is not only insufficiently competent to be a Fed Governor, much less a Fed Chairman, but is definitely to some degree culpable for the economic crash. That is: He could have known better, he should have known better, and he may well have known better.

        On that argument, I don’t disagree.


        Yes, you can argue that he ignored/was ignorant of signs of the collapse in 2007. However, that changes little that he definitely wasn’t ignoring the signs of collapse in 2008.

        So I stand by my statement that saying Ben did nothing is rewriting history. Its very clear he started making moves approximately a year before this crisis really got going. It was way too late of course, but frankly, it was already too late in 2006.

        (As an aside: I’ll agree, if he’d moved in 2006 to try to take control of the beast like he should have and could have, we’d probably be a good bit better off. So yes, Ben still failed.)


        In the last 70 years, there wasn’t a depression level financial collapse now was there?

        Again, the Fed didn’t change. It has always had the ability to ‘buy’ large amounts of assets on the open market. What changed was the circumstances. This is probably the only time in the last 70 years where the Fed could have tripled the size of its balance sheet without causing serious inflation.

        To say it another way:

        If the Fed were to be recapitalized, AND the Fed made purchases with the tacit agreement from Treasury that it would be recapitalized, with say *cough* left over TARP, then, yes, the Fed really would be acting as a: “off-balance sheet funding vehicle of the Treasury to circumvent Constitutionally-mandated budgetary procedures.”.

        But, that isn’t where we stand today.


        The Federal regional banks have a majority set of governors selected by the private banking industry.

        Simply, Fed never was, and never will be anything but a supporter of our private banking system. That’s simply what it was built for ground up. No amount of hand waving can change that.

        The failure of the Fed here isn’t one of supporting banks over consumers. It was one of the Fed supporting short term bank profits over the banking system and the financial well being of the nation.

        The failure to support the consumers falls upon the legislature who moronically decided the Fed ever had any business as a consumer protector. It falls on the states that didn’t step into gapping holes in the consumer protections. It falls on the laws that stripped consumers of what rights the did have — 2005 bankruptcy law. It falls on many, many heads.

        But, being angry at the Fed for being bank friendly is kind of like being angry with a carnivore for liking meat. Its pointless.

        Being angry at the legislatures that betrayed their voters, now that has merit.

        1. Yves Smith Post author


          On point 1:

          We read the significance of Bernanke’s 2002 speech very differently. My view is that this alone makes him an architect of the crisis (

          Greenspan was not an academically respectable economist; indeed, he didn’t even get a PhD (he never completed his dissertation; his only PhD is an honorary one). The Fed had embarked on a radical policy of super low rates, far lower than called for by the Taylor Rule, the Fed’s usual method for interest rate policy. John Taylor himself has written a book, Getting Off Track, which constructs the counterfactual of what would have occurred had Greenspan not pushed rates so low (into negative real interest rate territory) and kept them there so long. Taylor argues that had the Fed stuck with his approach, the housing bubble would not have occurred.

          So what is the significance of the Bernanke speech? Recall Bernanke himself stresses his status as an expert on the Depression. The Fed’s posture was that the super low rates were warranted because the risk of a severe downturn in the dot com bust was real. In actuality, that was way oversold; the unwinding of a bubble not stoked by debt is far less catastrophic than one reliant on credit. Yes, we might have had a normal recession, but a severe one? Doubtful.

          So what does this speech do? It provides Greenspan with cover that will pass muster among respectable economists for his radical rate policy. It makes Bernanke a clear co-venturer in this undertaking. It says in effect that deflation is a clear and present danger, and the Fed will use even more extreme methods if needed. This was also a clear message to the banking industry that in a low interest rate environment, the Fed would do whatever it took to protect them. The Bernanke put was even more audacious than the Greenspan put.

          On point 2:

          I never said Bernanke did nothing. What I said was “He ignored signs of the severity of the developing crisis and failed to prepare for obvious dangers, like the collapse of an investment bank.” I don’t think you have refuted that point, you are now resorting to straw men.

          On point 3:

          Willem Buiter, who has been a central banker and has advised central banks, disagrees with you here. He has argued that when the Fed takes losses on the dreck it has on its balance sheet, it will need to be recapitalized. While in theory, the Fed can merely “print”, in fact, doing that will conflict with its anti-inflation mandate.

          As to whether it will need to print, I submit that the reason that Bernanke is fighting tooth and nail for continued secrecy is that the exposure of what the Fed holds will show that it has taken considerable losses. Just look at Maiden Lane I. Jamie Dimon dumped the worse Bear dreck onto the Fed. I guarantee that a fair bit, if not the vast majority) of what went into Maiden Lane is so-called ABS (asset backed securities) CDOs. They were in turn had BBB subprime RMBS (either bonds or synthetics) as their main constituent element. The AAA tranches of so-called high-grade ABS CDOs are worth 20 cents on the dollar at best; AAA mezz CDO tranches are zeros.

          This from Buiter in a post titled “More on robbing the US tax payer and debauching the FDIC and the Fed: (

          The US authorities are reduced to begging, stealing and borrowing the rest of the funds they believe they will need. The two main proximate sources of funds are the FDIC and the Fed. The ultimate sources of funds will be (1) the US tax payer and the beneficiaries of future US spending programs that will have to be cut, (2) the holders of nominally denominated liabilities of the US state, including the monetary liabilities of the Fed and US Treasury bills and bonds…

          I believe that the raids by the US Treasury on the FDIC and on the Fed are illegitimate and, in the case of the FDIC, quite possibly illegal….

          I have written at length before about the ever-expanding quasi-fiscal role of the Fed. This began as soon as the Fed began to take private credit risk (default risk) onto its balance sheet by accepting private securities as collateral in repos, at the discount window and at one of the myriad facilities it has created since August 2008. It is possible – I would say likely – that the terms on which the Fed accepted this often illiquid collateral implied even an ex-ante subsidy to the borrower…

          The financial shenanigans used by the Fed (in cahoots with the US Treasury) to limit accountability for these capital losses are quite unacceptable in a democratic society. Clearly, the US authorities are using the financial engineering tricks and legal constructions whose abuse by the private financial sector led to our current predicament, to engage in Congressional- and tax payer accountability avoidance/evasion. To watch the regulators engage in regulatory arbitrage is astonishing…

          I don’t envy Ben Bernanke the extremely uncomfortable position he finds himself in. He can insists on minimizing the quasi-fiscal role of the Fed by insisting on a 100% US Treasury guarantee for any credit risk, other than the credit risk of the US sovereign, that the Fed assumes…Or he can compromise the independence of the Fed and let the central bank be used as an off-balance sheet and off-budget special purpose vehicle of the US Treasury, reducing transparency and undermining democratic accountability. Talk about a rock and a hard place.

          Even faced with this kind of dilemma, however, certain practices are clearly improper and unacceptable. The (ab)use of the Maiden Lane SPVs to hide some of the losses made by the Fed and the US Treasury and to channel money non-transparently to AIG counterparties (in the case of Maiden Lane II and III is just plain wrong. So is the refusal to make public the information required to judge the appropriateness of the terms and conditions attached by the Fed to the use of its facilities.

          On 4., the Fed’s powers and duties are set by Congress. Member banks cannot vote their shares, nor do they vote on board members, nor can they fire the Chairman or any Fed governors. Thus their influence from a formal standpoint is less than your description suggests. The Fed acknowledges that it has both a public and private role, per Wikipedia:

          Federal Reserve System is subject to the Administrative Procedure Act. It is not “owned” by anyone and is “not a private, profit-making institution”. It describes itself as “an independent entity within the government, having both public purposes and private aspects”.[7] In particular, neither the Federal Reserve System nor its component banks are owned by the US Federal Government.

          1. But What do I Know?

            Yves, this is great stuff. I for one appreciate your fighting the good fight against those who would excuse Bernancke. Just because he was handed a bomb by Greenspan doesn’t mean that we should excuse him for not recognizing it was a bomb and taking steps to defuse it. Those who would claim that he did a “great job” of mitigating the crisis ignore that it is relatively easy to turn on the monetary spigots. To reappoint him is to subject ourselves to more bureaucratic ass-covering and cries of “Who could have known?” and continued destruction of the value of our currency.

            We need an honest banker (surely there are some)–not a toadying academic.

    2. attempter

      He has turned the Fed into an off-balance sheet funding vehicle of the Treasury to circumvent Constitutionally-mandated budgetary procedures.

      Over the years I’ve come to the opinion that questions of constitutionality are best left to lawyers.

      Ah yes, the stupid peasants should just STFU and leave questions on real issues to their political betters.

      That’s certainly worked out well with economics, hasn’t it?

      And it’s certainly no different with Constitutional law, where the fact that among even the most august legal philosophers there’s constant disagreement, and that on the SCOTUS itself there’s constant disagreement, often ferocious, proves that even the alleged “best and brightest” are often wrong.

      (That is assuming they even recognize a “right” answer to constitutional questions as opposed to considering it all a scam to help maximize the power and wealth of the rich. Their actions tend to support this latter theory.)

      I’d say that, given the record, we the people should be about as reverent and deferential toward constitutional lawyers as we should be toward professional economists. That is, zero.

      And your broader premise, expressing such contempt for the very concept of constitutionality, which by definition is the concern of the people and not some medieval cabal like “the lawyers”, belongs in a corporate dictatorship, not a democracy.

      Of course, Bernanke and his supporters and apologists want to establish exactly such a dictatorship here. That’s why they make arguments like, “Hands off, peasants! Leave the constitution to the lawyers.”

  11. a student

    I disagree.
    There are a number of things I disagreed with in your post about Bernanke’s article. You claim Bernanke was an architect of the crisis, but you also said this crisis was decades in the making. Those statement, I think, are contradictory.

    Also, above you have said “everyone” knew Lehman was next. Then who were the fools buying Lehman’s stock for a positive, albeit low, amount? Given your contention, it should have been a penny stock.

    1. Yves Smith Post author

      I suggest you learn to read more carefully.

      I said “an architect.” I did not say “the architect.” See my longer reply to SS above.

      The Federal Reserve chariman is widely seen as the second most powerful person in the US. Bernanke was under no obligation to continue Greenspan’s policies when he took the reins. As I point out, he was warned of the housing bubble and deteriorating consumer balance sheets and refused to do anything. The Fed has a powerful bully pulpit. Merely talking up the issue and jawboning the banks (and threatening to raise capital charges against certain types of consumer loans) would have made a huge difference.

      As to Lehman, I suggest you read the news coverage as of March 2008. Saying “Lehman was next” does not mean “Lehman was dead as of March 2008”. That is your misreading of my statement. “Lehman was next” means “Lehman was highly vulnerable.” As of March 2008, sovereign wealth funds were no longer interested in putting money into banks. Raising stock in the public markets was very problematic because it would be very dilutive (even assuming you could get the shares sold). WaMu was proving to be a disaster for TPG, so private equity was out. So if the markets deteriorated, Lehman was a goner. Give the difficulty of dealing with the Bear problem, and in particularly, that the Fed had had to backstop the deal due to the inability to value Bear (in particular, its CDS exposures), the Fed would seem to have a very large incentive not to be in the position of having to scramble to try to put together a weekend rescue again. But it did nothing. It took the self congratulatory view that the crisis was resolved instead of taking reasonable precautions.

  12. Hugh

    I fully endorse any call for blocking the reconfirmation of Bernanke. People like Bernanke, Greenspan, and Geithner had front row seats to the biggest bubble in history and they didn’t see it. It is almost impossible to guage the level of incompetence this entails. But then in the year from when the housing bubble burst in August 2007 to the meltdown in September 2008, Bernanke did nothing to assess the potential fallout. Even as one shoe after another fell, he held to the belief that the problem was containable and that the markets would self-correct with only mild monetary policies and the occasional more robust intervention. In other words, he blew the aftermath just like he blew the run up and wasted a lot of valuable time forestalling larger shocks. But then why should he because he didn’t believe they would happen.

    After the meltdown, yes, he finally did respond by essentially writing a blank check with no strings attached to the very screwups and fraudsters responsible for both the bubble and the meltdown. He has saddled taxpayers with who knows how much debt from the crap repos he put on the Fed’s balance sheet. The same calamitous bank system is still in place, unreformed, acting in the same ways that produced the current crisis, pumping up bubbles in stocks and commodities, engaged in the same wealth destroying behaviors, and now even more dangerous with even larger TBTF.

    Bernanke has been consistently, stupendously, mindbendingly, catastrophically wrong about every major aspect of what has happened. He doesn’t belong at the Fed. He belongs in prison. He is a villain. He has done more damage to the country than Osama bin Laden could ever have dreamed of in his most megalomanic moments. I know it is not considered kosher to make such comparisons but if we look simply at the harm to the country that has been done by Bernanke and the banksters they are the great financial terrorists of our times. Thousands will die, millions of families will face foreclosure, we currently have 15.7 million unemployed and 27 million un- and under- employed, almost everyone has lost significant wealth in terms of their homes, their 401ks, pensions are at risk, and in the face of all of this Bernanke dishes out platitudes and pats himself on the back for saving the world. This is how we got to where we are now. It is not the way we are going to get out of this. When you have idiots making the decisions, you are going to get idiot decisions.

    1. attempter

      Exactly right. And don’t worry about it not being “kosher” to point out the fact that these financial terrorists are the most destructive terrorists; these extortionists by far the worst gangsters in the nation’s history.

      We need to make it kosher, and the conventioanl wisdom among the people, though that means we’ll have to overcome the wall of corporate sound blasting from the MSM (another traitor institution).

      Regarding criminality, I don’t think Yves mentioned it above, but we can add to the indictment that Bernanke collaborated in the Big Lie that the bailout was supposed to “get the banks lending again”.

      But as was highlighted here at Naked Cap last week, and in many other places, the Fed and the government now admit that not only were they never trying to get lending going again, but they’ll consider that an inflationary danger signal if and when it ever does happen again. That’s the real way they look at the subject of their 2008 propaganda campaign.

    1. Yves Smith Post author

      As you know, formal firings are rare, but some on this list are, others are resignations under duress, which are face-saving variants. Michael Armstrong of AT&T (technically he resigned, but he was pushed pretty hard). Hank Greenberg (although amazingly he is coming back, having designed AIG to be unmanageable without him). Martin Sullivan. Ken Lewis (well he did resign, but I think he expected to be forced if he kept on his current course of action, which was putting him at loggerheads with the government). Stan O’Neal. Charles Prince. Richard Scrushy of HealthSouth. Peter Dolan of Bristol Myers. Marcel Ospel of UBS.

      That’s just off the top of my head.

      The Japanese have the good taste to resign voluntarily.

      1. Skippy

        Unfortunately like Generals, the the battlefield is strew with body’s before change of command is an issue.

  13. Sean

    Yves, thank you.

    Truth seekers such as yourself hold a very special place in a world that has been hijacked by oligarchs, puppets and their accomplices.

    I enjoyed reading your reply to “SS”, yes, you have that exactly correct.

    The “awakening” might just possibly be … help is on the way.

  14. Siggy


    You have it right. Benanke has saved us from a depression and given us a Great Recession that will be a very long time in going away. We might have been better served by a depression. That event might have brought reality to the table. What we have committed to is a program that will attempt to borrow our way to prosperity. This program is nothing more than pap, palaver and platitudes for the public. As this and other blogs demonstrate, the public is not entirely stupid. We entitled to far more conceptual ability and integrity than we are receiving. This isn’t personal, it’s business. If you not up to the task, leave and make way for someone who can handle it.

    There are other parties and factors that need attention; yet, one must begin as close to the nexus of the problem as possible. The Fed’s Balance Sheet is now larded with worthless paper, were it not, the issue of disclosure would not be before us and the desire to obfuscate the nature of the holdings so very dear to Mr. Bernanke.

    The solutions applied in this crisis have been founded in the concept of this being an interim liquidity problem. Hardly the fact, our problem is based on the fact that a substantial number of large deposit taking institutions are insolvent. The Fed enforced artificial yield curve is the intended instrument by which the insolvent institutions are to ‘earn’ their way to solvency.

    Instead of supporting insolvent banks, the Fed should be embracing the requisite deleveraging that would extinguish that debt which is unserviceable. That effort would lead to the liquidation of a fair number of ‘primary dealer’ banks. Even without additional legislation we have available bankruptcy courts. Would that course of action mess things up internationally? Probably so, but then it might also be the only way to sever obligations that are neither sustainable nor desirable.

    Instead of campaigning for the ratification of his failed policies, Mr. Bernanke should be campaigning for revision to the Federal Reserve Act and its related legislation to reduce the Fed’s mandate to the tasks of maintaining the purchasing power of the currency and the solvency of the banking system.

    Finally, Mr. Bernanke needs to step down in that he has presided over the most eggregious abrogation of regulatory responsibility since the Great Depression.

    It is my hope that the coming mid-term elections will mark the beginning of a process of ‘throwing the bums out’.

  15. eric

    Bernanke: There’s No Housing Bubble to Go Bust
    Fed Nominee Has Said ‘Cooling’ Won’t Hurt

    Ben S. Bernanke testified on Capitol Hill just before being nominated to succeed Fed Chairman Alan Greenspan. (By Ron Edmonds — Associated Press)

    By Nell Henderson
    Washington Post Staff Writer
    Thursday, October 27, 2005

    Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

    U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.

  16. Francois T

    About a possible Bernanke’s replacement: Why should it be someone who’s already a Fed insider?

    Can’t the President appoint an outsider with credentials? Someone who possess a naturally grown spine and the set to match? A person (man or woman, I don’t care) who could shake up things a little bit, who just can’t help ask pointed questions?

  17. andrew

    I called every Senator on the Banking Commmittee yesterday. The only staffers who seemed knowedgable were those of Bunning and Judd (by knowledgable, I mean they knew who Bernake was and where the Senator stood). Every other staff member had no idea about where their Senator stood, and indicated that they had not gotten much correspondence on this issue. I sent the producer of Glenn Beck’s show an email, hoping he would encourage his listeners to contact their Senators (I am not a regular viewer, but I know he has been critical). In any event, I was shocked at the lack of correspondce these staffers had received. Yves, I really appreciate the hard work you and a few other bloggers are doing, but unless you can get the interest of someone like Beck, Palin or Oprah involved, I fear it has been for naught.

  18. Justicia

    Yves, You Rock!!

    Here’s what I e-mailed my NY senators:

    Dear Senator,

    As a taxpaying New Yorker I urge you to vote AGAINST confirmation of Ben Bernanke for a second term as head of the Federal Reserve Bank.

    Bernanke — along with Geithner, Summers and Rubin — was an architect of the financial disaster that has squandered trillions of our tax dollars and left millions of Americans unemployed and 25% of our children dependent on food stamps.

    He failed to reign in the banksters, he failed to see the crash coming and he has failed to clean up the mess that de-regulation brought us.

    To support his reappointment would be to reward failure. It is time to clean house at the Fed, starting with a new Chairman and a full audit.

  19. Marianne Callahan

    I love you yves, and i know i often fail to edit my own work because i’m rushing and the conttent is my main objective, but when you mention to contact your elected official, especially if he’s on the banking committee, remember we DO have at least one woman on the committee.
    still love you.

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