Roger Lowenstein’s Disgraceful Propagandizing via “Bernanke as Hero” Piece

As Winston Churchill pointed out, history is written by the victors. The big end of finance, having won decisively in the global financial crisis, is in the process of rewriting history to suit its liking. The cover story in the current Atlantic by Roger Lowenstein on Ben Bernanke, titled simply, “The Hero,” is a classic example of this type of revisionist history.

I don’t know what has happened to Lowenstein. His book on the collapse of hedge fund Long Term Capital Management, When Genius Failed, is a terrific piece of reporting. People I know who were on the inside of the LTCM rescue negotiations give his account high marks. But he has increasingly fallen into the role of scrivener for powerful interests, when his previous standards of writing and his knowledge of the finance beat says he must, on some level, know what he is doing.

The Fed couldn’t have gotten better PR if it had paid for it. Lowenstein’s account has just enough muted criticism of Bernanke (he was slow to see the severity of the crisis, his critics on the left may have a point in saying he hasn’t been aggressive enough in trying to reflate the economy) to mask its hagiography.

And this sort of spin-meistering is effective. Not only did people at the Atlantic economy conference, which coincided with the release of the piece, take up the “Bernanke did a great job in the crisis” mantra (they seemed to appreciate a piece that reinforced inside-the-Beltway conventional wisdom) but the cover, with a beatific picture of Bernanke and “THE HERO” blazed across his chest, will be seen by lots of people walking by newsstands and have an impact well beyond those who read the piece. As further proof of its faux-objectivity, the title inside the magazine is “The Villain,” to highlight the way (as Lowenstein positions the piece) Bernanke is being unfairly pilloried.

I’ll turn to the major arguments shortly, but one of the things that was particularly annoying was the way it repeatedly gilded a rotting cabbage. These are devices that most readers would miss, by virtue of not reading carefully enough to recognize their construction, or not knowing the terrain well enough to discern how Lowenstein skews his account. Here are a few of numerous examples:

Lowenstein offers a key parenthetical, in discussing quantitative easing:

…we have no way of knowing whether the economy’s improvement would have been less robust, and how much so, without Bernanke’s efforts

This is a twofer: it paints a tepid, technical recovery as “robust” and gives Bernanke meaningful credit for it.

Lowenstein mentions the nervous collapse of Montagu Norman, the governor of the Bank of England during the Great Depression, as proof of how tough it is to be a central banker during a crisis. Um, Montagu had a long history of mental instability and had had a breakdown in 1912. His psychological fragility is described at length in Liaquat Ahamed’s book Lords of Finance.

Lowenstein depicts Bernanke as an apt student of economic history, when his account shows the Fed chair is either intellectually dishonest or has issues with reading comprehension:

As we began to discuss his policies, the Fed chief urged me to pick up a copy of Lombard Street, a seminal book on central banking written by Walter Bagehot, the 19th-century British essayist. “It’s beautiful,” Bernanke said of the book—obviously appreciating that Bagehot had urged central bankers to take vigorous action to forestall panics.

Huh? Most people who know anything of Bagehot can recite his famous Bagehot rule: Lend freely, against good collateral, at penalty rates. You can cherry pick Bagehot to emphasize the “lend freely” bit, and one can argue that a central bank has the power to make any collateral into “good seeming” collateral by dint of throwing enough money at it. But the message of this paragraph is that Bernanke is a faithful student of well-established principles of central banking. In fact, Bernanke has thrown central ingredients of the formula out the window: the rescue is to be only of solvent but illiquid institutions, and then it has to be sufficiently painful as to deter them from coming back any time soon.

Lowenstein takes dictation in reporting one vignette from Bloomberg’s long-running fight over Fed transparency. Keep in mind that the piece depicts Bernanke as engaged in a sincere effort to make the Fed more open, when the Fed has fought Bloomberg’s FOIAs tooth and nail and even when compelled to cooperate by court rulings, has often engaged in redactions that appear unjustifiable. This is only footprint of this long-running row in the article:

Soon after my visit, he [Bernanke] released a letter he had written to Senate leaders refuting, point by point, a spate of articles that had characterized a Fed lending program as “secret” (the names of the borrowers were secret, but not the existence of the program or its size), and that had reported the total of Fed loans and bailouts as $7.7 trillion, a wild exaggeration.

Whoa! This is what actually went down, as we reported at the time:

It’s telling that the Fed was dumb enough to try upping the ante in its ongoing fight with Bloomberg News over the central bank’s refusal to disclose many critical details about its emergency lending programs during the crisis. Any poker player will tell you you don’t raise with a weak hand when the other side is pretty certain to call your bluff…

Bernanke sent a letter that is pissy by the standards of Fed discourse…

First, it tries the sneaky device of complaining about all the bad press it is getting, and alludes in passing to the latest Bloomberg report (“one last week”). So are we dealing with the general or the specific? The attachment to the letter, which makes a series of specific claims of where the coverage allegedly was off beam, was rebutted with great speed and vigor by Bloomberg. So trying to have it both ways (attacking Bloomberg but trying to depict it as part of general critic wrongheadedness) backfired.

But what is even more striking is the tone and substance of the letter: overreaching words like “egregious,” the patently false claims that there is nothing new in the latest (and by implication, earlier) Bloomberg stories, that the disclosure issues are settled. If there was no new information given to Bloomberg, then why did the Fed fight so hard to prevent the release of information? The Fed has never been cooperative. Even with the Congressional Oversight Panel, the so called Sanders report coming out of Audit the Fed (and remember, the Fed succeeded in lobbying to narrow the scope of Audit the Fed), a new GAO report, the latest Bloomberg FOIA still pried loose more information. The Fed is clearly not interested in transparency, but keeps trying to claims that everything that anyone would want to know is public, and there really is nothing here to discuss any more.

There’s a lot more here on how misleading the Fed letter was; we suggest you read the post in full.

Right on the heels of this no-name swipe at Bloomberg, Lowenstein starts the next paragraph with: “Bernanke is bothered by attacks that seem to be little more than smears…” which in context, suggests that a pitched battle with a preeminent financial media organization about transparency and accountability is a smear. Nicely played.

Ironically, the Fed chief appears to have revealed what his true aims were in increasing Fed disclosure (which despite his claims otherwise, came in response to demands from Congress, the media, and critics):

According to Greg Mankiw, formerly President George W. Bush’s top economist and now an adviser to Mitt Romney, Bernanke earnestly believes in the democratic process; he thinks disclosure will lead to a more responsible electorate.

“A more responsible electorate”? “Responsible” in the sense of accepting the need for austerity? (The Fed has come out firmly in favor of budget cuts, in particular of social programs). “Responsible” in the sense of accepting the central bank’s propaganda recognizing the wisdom of the Fed’s policy choices?

The use of “responsible” telegraphs that Bernanke sees the electorate as irresponsible, which puts lie to his pretenses of being responsive to democratically determined outcomes. Bernanke is interested in listening to voters only after they have been re-educated by the Fed.

Now let’s get to the thrust of the argument, that Bernanke did a great job in the crisis and its aftermath, and that critics, save maybe Paul Krugman, are ignorant populists (Krugman is presumably an educated populist). This thesis conveniently sidesteps the fact that Bernanke is at best a doctor who unnecessarily amputated both legs of the economy and is now being applauded for attaching badly fitting prosthetics to the stumps. And there are numerous experts who have criticized the Bernanke Fed, ranging from Steven Roach, Chris Whalen, former central banker Willem Buiter, as well as former Fed staffers and financial markets professionals of the non-goldbug variety.

Another central banker, Andrew Haldane of the Bank of England, has done some rough estimates of the cost of the crisis to the global economy, and the low end of his range is one times global GDP. That is such a large number that if you were to try to make the biggest banks to pay for it over 20 years, the first year charge would exceed their market value. Haldane has pointed out in other articles that big bank shareholders and executives who have equity linked pay are in the position of option-holders: they have capped downside (the authorities will ride in to the rescue) and unlimited upside. And the more volatile the performance of the underlying instrument (bank stocks) the more an option is worth. Bankers not only have powerful incentives to take risks, even worse, they are in a position to generate systemic risk, and that’s the best course of action for them. Yet last week, after another round of stress test theater, the Fed gave all but a few banks permission to pay out dividends and buy back stock rather than bolster their equity bases, even as the mortgage settlement is based on the premise that the banks are still too fragile to pay for the damage they’ve done.

Lowenstein argues, in keeping with other Bernanke defenders, that the crisis was Greenspan’s doing rather than Bernanke’s. It isn’t that cut and dried. Bernanke, as a notable monetary scholar, gave intellectual legitimacy to Greenspan’s unprecedentedly long period of low interest rates in the dot-bomb era that many argue stoked the credit bubble. Bernanke’s famous 2002 speech on deflation, which Lowenstein refers to, was a defense of Greenspan’s overreaction to the stock market bust. The unwinding of that bubble, unlike our current one, did not represent a threat to the financial system, since the speculation was not fueled by borrowing.

Bernanke was vocal proponent of the “no bubble to see here” view when he took the helm of the Fed, and argued the runup in household debt was benign, since consumer balance sheets were in good shape. But that of course was based on unsustainable home prices.

There is much that Lowenstein ignores in his piece, and that’s because it is necessary to paint such a flattering picture of Bernanke. First is the Fed’s record during the crisis. Lowenstein depicts it as a success, when you can conclude that only by dint of applying a very liberal grade scale. The only missteps he mentions are the “75 is the new 25,” the central bank’s panicked rate cuts when it realized the crisis was more severe than it thought, and the AIG bailout.

But that only scratches the surface. I’m not certain that Bear Stearns should have died. The Fed was originally going to give it a 28 day loan which some believed would allow Bear to find more capital or persuade the markets it was being unfairly stigmatized. And the Fed also created an unprecedented facility to lend to primary dealers. Had Bear gotten the loan it was originally promised, it would also have gotten access to the new program, which might have enabled it to survive. No explanation has ever been given of why the Fed changed its mind and reneged on its a 28 day loan promise, extending instead an overnight loan to carry it through to a weekend subsidized sale to JP Morgan.

But if you assume the Fed was right, Lehman was simply a bigger version of Bear, and Merrill and UBS were also known to be at risk. And most observers assumed the reason Bear was bailed out what its credit default swaps exposures, which had the potential to turn a Bear failure into a bigger mess. Yet, as we recounted at some length at time, Bernanke, Paulson and Geithner went into Mission Accomplished mode after the Bear rescue. Instead of seeing the Bear implosion as a wake up call, and mounting a full bore effort to diagnose the health of the major players, or get a grip on CDS exposures, the Fed and SEC notched up supervision only a smidge. The Fed sent a grand total of two people to Lehman, for instance. By contrast, the FDIC had to send 160 bank examiners to get a handle on a single (admittedly large) loan portfolio when Citi was on the ropes in the early 1990s.

And Lehman was a self-inflicted wound. Bernanke, Paulson, and Geithner had only one plan, and that was a private sector rescue. They didn’t even look at what the alternative might entail; they hadn’t even talked to Harvey Miller, the dean of the bankruptcy bar who had been retained by Lehman. They were utterly flat footed when the negotiations failed. Miller has stressed that the lack of any prep (including the use of a thin form bankruptcy filing) made outcomes much worse than they needed to be.

In an interview, Bernanke cut short Lowenstein on AIG, and there’s good reason why. Its original bailout was the only one I approved of; it did adhere to the Bagehot rule by applying a high rate of interest and securing the loan with all of AIG’s assets. But one also has to note that the very fact that the Fed figured out a way to make massive emergency loans to AIG undermines its “we had no legal authority” defense of the Lehman debacle. (The other excuse has been that Lehman didn’t have enough good collateral, but time has proven that to be true with AIG, plus Bloomberg-forced disclosures revealed that some of the other emergence lending, such as that to Morgan Stanley, also had dubious backing).

But the authorities not only lent AIG more money, they kept improving the terms, and allowed its intransigent new CEO Robert Benmosche to defy the original plan, which was to dismember AIG, which would have been a very effective way pour discourager les autres. That in turn resulted from the Fed’s failure to require the board to resign as one of the conditions of the rescue.

And this is all before we get to the Fed’s two-facedness about contracts. It insists contracts have to be observed strictly when they favor bankers, such as the credit default swaps contracts AIG had written, or pay agreements with bank executives and major producers that would have been worthless ex taxpayer support and Fed intervention. But it has no problem with banks running roughshod over agreements with homeowners and investors. As recounted here and elsewhere, the mortgage settlement incorporates, among other things, that wrongful foreclosures at a rate of up to 1% (which equates to 33,000 homes since 2008) is acceptable servicing and the Fed and other regulators will give it a free pass. Similarly, the Fed has joined in a effort to reverse the long-established creditor hierarchy, allowing banks to modify first liens owned by investors (and count this use of other peoples’ money towards the settlement of their own misdeeds) without wiping out second mortgages they own, as would be required contractually.

The second major theme of the piece is that Bernanke is a fine economist and ideally suited to steer the central bank now. To the extent that Bernanke is held in high regard, it says more about the state of orthodox economics than it does about his expertise. Anna Schwartz, who with Milton Friedman authored the influential Monetary History of the United States, upbraided Bernanke for his handling of the crisis, stressing that he failed to recognize that it was a solvency crisis, not a liquidity crisis (needless to say, that issue is absent in Lowenstein’s account).

Bernanke is also a firm believer in the discredited “loanable funds” view, that if you make put money on sale by making interest rates low and credit readily available, businesses will take advantage of it and borrow and invest. But that’s just silly. The cost of money is a secondary consideration in investing. The primary one is: will there be enough buyers for your output and will they pay what you need to charge to make the project work? And we can see that in the result of the Fed’s operations. As Richard Koo points out in his latest research report, the Fed has increased bank reserves by over 320% since Lehman, yet the money supply has increased only 25%.

The worst is that the Lowenstein article is long enough and consistently wrong-headed enough that there is much more I could add to this shredding, but in the interest of not taxing reader patience, I’ll stop here. I’m afraid we are due for a steady diet of this sort of thing. And even though we can’t stop it, we can let the people putting out this sort of disinformation and our colleagues know that we aren’t fooled.

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  1. kris

    “The Fed couldn’t have gotten better PR if it had paid for it. ”
    How do you know the they have not…..paid for it?
    I think that there is a 100% chance they have paid for it.

    1. kris

      I’m trying to find on the internet but I can’t find it.
      There was this guy giving an interview to Steve Forbes saying that the Fed has the right to make first use of the interest money they make before transferring the money to the treasury dept. And he said that the Fed uses that money to promote the Fed via funding to universities and academic research.
      If this is considered academic research, I have no doubt the Fed has funded this research. Nothing explains the change of mind by the author.

  2. Richard


    Excellent post.

    It is not at all surprising to see that Mr. Bernanke read Mr. Bagehot’s work and has chosen not to be guided by it. You see, Mr. Bagehot does not have a PhD. While Mr. Bernanke has one.

    What could anybody not formally trained as an economist have to say that would be worth listening to?

    Of course, there was one more piece of advice from Mr. Bagehot that Mr. Bernanke did not follow: never lower interest rates for savers below 2%. I guess that negative GNP growth in Japan from 1995 to 2010 when zero interest rates were on offer was not enough empirical evidence to support Mr. Bagehot’s observation.

        1. Gary

          Not quite sure what your meaning is with this statement.

          Considering that Paul Volcker, Randall Krozner, Richard Fisher all quote from Walter Bagehot and endorse his acumen as it relates to financial crises (and this crisis in particular), it would seem reasonable to conclude that the man who wrote Lombard Street still carries weight with central bankers. And as Roger Farmer of UCLA stated in 2010, Bagehot also has his place with economists.

  3. Conscience of a Conservative

    The problems with this are socialogical.
    1) We’re tauth in school how the Fed is a-political
    2) As a society bold actions are considered positive.
    2a) Staying within one’s mandate-perhaps not so much
    3) The Fed’s influence is pervasive and able to wield propanda, arguably more effectively than the executive, legistlative or legislative branche of gov’t

    To come to a conclusion that the Fed has over-reached or worse, requires more than just a casual awareness of how our economy and banking system works.

    And the kicker is that back in 2008, what Bernanke and the Fed did initially via QE1 and the lowering of rates had effect. It’s a great narattive, even if not totally correct and worse distortive when you see what’s been done since, the subsidies to the banks, the tax on savers, and the lack of checks and balances and accountablility. But who is going to speak up, not the banks, not the administration and not retirees and savers who have no lobby.

  4. pangloss

    The telling indication is that the cheering story is published in The Atlantic. The magazine unfortunately is now just a propaganda venue for trumpeting Americanization elitism. You would have thought that the likes of James Fellows would have gaged on the magazines output by now if not from his questionable colleagues.

    1. Dikaios Logos

      So true about The Atlantic. Much like The New Yorker and much of the NYT, their reporting on economics, business, and finance has an unmistakable pro-rentier bent.

      I say it is time to start admitting that as much as Fox and Murdoch use cultural issues to manipulate rural and small town voters, The Atlantic, The New Yorker, and NYT often use their cultural cachet with costal metropolitans to pass propaganda about serious issues of power and money.

      1. Sufferin' Succotash

        I don’t think the aim is passing propaganda so much as just keeping the waters sufficiently muddied to confuse those coastal metropolitans who were humanities majors. Otherwise there’s no telling what they might do. Occupy something maybe?

      2. Bc

        True that. Geographically targeted propaganda is under appreciated as our new normal. A major impediment to consciousness raising. Thanks for pointing this out.

      3. jake chase

        Wtf do you expect from a glossy magazine that lives on advertising? truth in economics? Still waiting to hear about insights from the Atlantic Economy Summit? How was the food? The Wine? Make any good connections?

    2. CaitlinO

      McMegan’s odd perspectives seem to be overly influential. Maybe it’s not just her, though.

  5. Glen

    Nice job, Yves.

    One wonders at the end game Ben is aiming for here. Obviously they intend to deflate the dollar and grow out of this mess. One wonders if they realize that the US is in fundamentally worse shape then Japan was twenty years ago when Japan tried the exact same tactic:

    US is huge importer rather than exporter.
    US is also exporting jobs, and really not just manufacturing jobs, it is exporting ALL jobs which can be exported.
    US doesn’t have a nation of savers to draw upon.
    US infrastructure necessary for growth is collaspsing (or being sold).
    Only growth industry seem to be war, war industrial complex, privatization of government (public) assets, prisons, and health care (although health care industry seems set to implode.

    Obviously, it didn’t work for Japan, how in the world do they think it works in the US? This is what makes the lack of any real reform or a winding down of the banks which caused this crisis so startling. The only sensible explanation I can propose is that our country is moving beyond plutocracy and into proto-fascism.

    Maybe somebody else has a more reasonable explanation, I would love to hear one.

    1. Ms G

      “The only sensible explanation I can propose is that our country is moving beyond plutocracy and into proto-fascism.”

      Yes, and proto-fascism is a synonym for Thug-ogracy . . .

      I had such respect for Lowenstein after reading his books on LTCM and the Internet Bubble that I pre-ordered his book on the crash . . . 20 pages into it I sensed something was amiss . . . bland throwaways about the blamelessness of individuals who were just “in thrall” to the momentum of “the markets” . . . I threw the book out without reading further.

      Sad thing. Lowenstein has (had) the gift of not just lucid and specific, but elegant, writing on finance.

    2. Anon

      The US is an empire, Japan was an “client state” of that empire. Japan could not afford to occupy the Middle East or credibly threaten to do so. Look at the price of oil, and who “earns” the money you pay. But then Japan didn’t have the social problems of an declining empire. Compare US to Japan is difficult.

      1. Glen

        Agree that the comparison is difficult, but occupying the Middle East is not a way to create economic expansion in the US, nor does high gas prices (money moving the the Middle East) create economic expansion in the US (unless it triggers a suspension of government support of the oil/caol industry and leads to development of other sources of energy). The question remains, how does Ben expect to grow the economy?

        Unless he expects to use the FIRE sector although numerous studies have shown that the FIRE sector is a drag on the real economy.

        1. MattC

          Easy. Economics doesnt work in a vacum. Ben is probably aware that when all else fails go to plan B – War.

    3. Enraged

      “US doesn’t have a nation of savers to draw upon”

      I don’t agree. In the absence of a decent retirement policy worthy of that name and under the contant threats of the disappearance of social security pretty much since its implementation, people saved by way of 401K, Keough, 403 and Iras… to see their money vanish when banks misused it for their own profit in the S%L scandal and now in this houing manmade crisis. Those were savings and they’re gone.

      People also tried to save through homeownership. And we know what banks did with it, with Bernanke’s blessing. In fact, the Feds has been actively endeavoring to take away every bit of savings people ever tried to accumulate while impliciely condoning investments into foreign banks to escape paying taxes here.

      The last straw was to represent debt as a “must”. I never had a credit card for 25 years. i would use my bank card: either i had the money on my account and I made a purchase or I didn’t have it and I waited to make it… until it became painfully obvious that without a FICO score (I didn’t need and didn’t have for want of running debt, since FICO is based on people’s contracting debt and paying it slowly and on time), my ability to find a job or obtain a credit for a large purchase such as a house or a car was severely impaired.

      Had FICO been based on people’s savings rather than debt, the incentive to save would have been much stronger. Our system rewards debt and penalizes saving.

      1. Fiver

        Agree that it might just as well be a deliberate effort to destroy saving altogether, the polar opposite of what the Fed ought to do, which is aim for a far more stable (pre-80’s) ratio of savings to debt. Superior in ways other than strictly financial as well. But that means real incomes for real jobs, which in the end means taking on and reversing a purely corporate globalization designed for the benefit of financial and other mega-corporations and their owners, not people, anywhere.

  6. Mark S.

    The cover story in the current Atlantic by Roger Lowenstein on Ben Bernanke, titled simply, “The Hero,” is a classic example of this type of revisionist history.

    Actually the article is titled, “The Villain,” not “The Hero.”

    1. Mark S.

      Oh wait, now I see that the cover of The Atlantic says “The Hero.” I take it back.

      (Weird that they would put “The Hero” on the cover and then title the article “The Villain”!)

      1. ambrit

        When I got my copy of The Atlantic out of the mailbox last week, I almost fell down laughing. Everything the good people here have educated me to appreciate went fully against this magazine cover image. That’s when I also realized that the masthead pages ‘motto,’ “of no party or clique,” was misdirection too. One only trumpets ones’ ‘virtues’ when unsure of them.
        That cover though, a smiling visaged Helicopter Ben with the large caption, The Hero, outlined in Money Green! Like Superman! But wait, isn’t the green glow the comicbook equivalent of, gasp, Kryptonite!? That isn’t Superman! It’s Lex Luthor! Who else could survive grinning that close to the only substance here on earth able to immobilize our superhero? Notice also how the green surrounds our Financial Saviour like a halo.
        Now, take a look at the two story blurbs that form a diagonal line through the magazines cover, upper left to lower right. (These placements are also subconscious cues. Emanuel as Lefty, and Gambler as Righty.) From bottom to top we have: “The Gambler Who Broke Atlantic City,” “The Hero,” a picture of Smilin Ben, and “Rahm Emanuel Takes Chicago.” A Trifecta of Propaganda. Since, as any artist will tell you, better yet, let them show you, the eye travels in a circular motion when viewing any surface. The arraingements of forms on the surface to influence that viewing pattern is the composition of the art work. Make no mistake about it, this magazine cover is a real ‘piece of work!’ When your eye has finished its’ planar perambulation, it will settle down on the central image, Smilin Ben, for a moment, and then naturally drift upward. Right above Bens’ visage are the first words of the topmost blurb, “The Greatest…” When, after a while, that top unsecured corner begins to curl up somewhat, the last two words of the top blurb, “Living Novelist,” will begin to be obscured, leaving only, “The Greatest.”
        Mz Smiths’ allusion to Hagiography is too true. This magazine cover is worthy of a Byzantine Icon Master Designer.

  7. Maximilien

    Greenspan was called The Maestro.
    Now Bernanke is called The Hero.
    The next Chairman of the Fed will probably be dubbed God.

    And then we’ll truly be able to say, “God is doing Goldman Sachs’ work.”

    1. Tony

      When Greenspan was dubbed “the Maestro” it was representative of conventional wisdom. Whereas when Bernanke is dubbed “the Hero” it is in defiance of all public opinion.

      Yves- the ‘solvency crisis’ versus ‘liquidity crisis’ meme was not originated by Anna Schwartz (how unnecessarily obscurantist can you get?– not so much bringing up the famous Anna Schwartz, but the fact that she spoke to this), pretty much everyone and their mother critical of the Fed has been harping on this. But the article actually does touch on it — Lowenstein points out that sometimes the difference between solvency and insolvency depends on whether or not the central bank intervenes to begin with. So it’s a chicken or the egg question. ‘Solvency’ is not some physical trait; it’s a constantly moving goalpost. A bank that is solvent one day is insolvent the next and so on, depending on ever-changing conditions.

      1. JTFaraday

        “When Greenspan was dubbed “the Maestro” it was representative of conventional wisdom. Whereas when Bernanke is dubbed “the Hero” it is in defiance of all public opinion.”

        Well, I don’t know. It seems to me that contemporary conventional wisdom says that Bernanke had to bail out the banks lest the world blow up, and that Bernanke indeed successfully bailed out the banks.

        Down the road, here and now, with the world blowing up anyway, conventional wisdom variously blames the poor, the unemployed, the retired, the sick, Congress, Obama, the Republicans, the Democrats, academic economists, the libertarians, the Tea nutters, and in Europe, “the Germans.”

        Anyone, in fact, except the global banking establishment of which Bernanke is arguably the current titular head– and which did, in fact, blow up the world after seeking refuge in a government-issued bunker.

        That may be contrary to *your* conventional wisdom today, but you’re in the minority.

        1. Fiver

          Greenspan was a half-witted Stooge who thought he’d weasled his way to the top, but was in fact pure putty. Bernanke I believe was brought in with the full knowledge that a major crisis was likely and that the worlds’ greatest “expert” on the Big D would do ANYTHING to keep the Boys in the game – he did not disappoint.

      2. Yves Smith Post author

        I didn’t say she originated it, particularly since plenty of people in the blogosphere, including yours truly, had said the same thing earlier.

        The significance of Schwartz lecturing Bernanke is that as co -author of the book that helped cement Friedman’s reputation, she is one of the top luminaries of monetarism. And she said Bernanke got it all wrong. This is a far more devastating criticism than one from, say, Krugman, who relies on different frameworks. It’s like being given a failing grade by one of your teachers.

  8. K Ackermann

    This is not sour grapes or an axe to grind… this is a great critical review of Lowenstein’s piece. I hope it is read far and wide.

    1. CaitlinO

      I’d appreciate a response by Lowenstein or one of the Atlantic editors.

      As an aside, my mother bought me my first subscription to the Atlantic when I was 10 years old and stuck at home bored out of my gourd with an extended illness. For 47 years I kept the subscription up and read every issue cover to cover when it arrived. I just let the thing expire last October after realizing that I hadn’t read a full issue in more than two years.

  9. Hugh

    If you look at this from the kleptocratic perspective, as I do, it was completely unsurprising that Lowenstein would shill for Bernanke, or that Bernanke would make unlimited, no strings attached, funds available to the banksters to hide but not resolve their frauds, or that Obama would nominate Bernanke to a second term.

    I expect the various components of our elites to facilitate each other and to propagandize for the rich and corporate looters that own them.

    With regard to Bernanke, I would agree that his failure to see the meltdown as a solvency crisis not a liquidity crisis was major.

    But I would also add the following:

    1) His failure to see the housing bubble coming although it could be seen, and was, years in advance.
    2) His belief, which Greenspan shared, that markets would self-adjust and punish bad actors so regulation was unnecessary.
    3) That based on 2, he did not use the time between the housing bubble burst in August 2007 and the meltdown in September 2008 to get out ahead of the looming crisis, instead treating precursor events like Bear as one offs needing only limited interventions specific to them.
    4) His decision to let Lehman explode.
    5) As I said above, when the meltdown hit, his massive, no strings assistance to banks, basically underwriting their frauds. Also as I have often pointed out, and though it is not hard, I still seem to be one of the few who has done this, if you go to the indices in the GAO report:

    total Fed activity in its special programs after the meltdown was $28.1882 trillion. We still don’t know what the activity was in its regular programs.

    It is unimportant whether Bernanke believed, or simply acted as if he believed he was doing the right thing, just as it is unimportant whether Lowenstein believes, or simply acts as if he believes Bernanke is a hero. Both are acting in bad faith with regard to us. Both are in positions of authority and responsibility. Both have access to evidence and resources that most of us can only dream about. Neither has any excuse for not knowing about any of this, either then or now. Really bad faith is the only explanation for their actions. It is how our elites can rob us at every turn, yet tell themselves they are acting for our good, and even expect us to thank them for their efforts.

    1. Doug Terpstra

      Well put as always, Hugh. “Both [Bernanke and Lowenstein]
      have access to evidence and resources that most of us can only dream about. Neither has any excuse for not knowing about any of this, either then or now. Really bad faith is the only explanation for their actions.”

      Here is are some of Benjamin Shalom Bernanke’s spectacular failures on the housing bubble

      “We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” (7/1/2005)

      This is inexcusable on two levels for a supposed scholar of the Great Depression. Housing deflation the GD is well known even by us commoners. It appears less than honest.

      “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” (2/15/2006)

      In what universe does a man who gets it so wrong on these and so many other crucial scores get promoted to run the Criminal Reserve Conterfeiting Syndicate? I suppose the answer is self-evident.

      Yves’ vivid metaphor is perfect: “…Bernanke is at best a doctor who unnecessarily amputated both legs of the economy and is now being applauded for attaching badly fitting prosthetics to the stumps.”

      1. Glen

        I think that’s a very correct observation, and also shows that the public mood was for far more real reform to banks and to Wall St that Obama has made – which is why the level of disappointment was so palpable.

      2. pdx

        Yeah, me neither. And in what universe do nutcakes like The Newt and His Frothiness continue to get millions to publicly humiliate themselves to the obvious benefit of a politician as widely loathed as Obama?

    2. Glen

      I always have to laugh when these guys (Greenspan, Bernenke, etc) talk about how the market “self regulates” and then hand out TRILLIONS of taxpayer money.

      Assuming you even buy in to the ridiculous proposition of “self regulation” (and no regulations in a market is even a concept that Adam Smith would think ridiculous), how can it “self correct” if you keep bailing out the crooks?

      1. fresno dan

        I agree 100%.
        Even if one were to accept that these banks had to be saved (there are thousands that did not get themselves into this mess), why did the people running them have to keep their jobs? They should all be prosecuted, but at the least the bailouts should have been contigent upon the CEO, CFO, and the boards being fired (and sued civilly for malfeasence). Oh yeah, the people who constructed these frauds (or non-economic fianicial transactions) were the only ones who knew how to resove them?!?!? Its beyond parody…
        Its funny how the AIG private bonuses are inviolate contracts that the government must honor, but IMF customers losses due to the failure of the government to monitor, investigate, and enforce the law is just an unfortunate matter of mistakes were made (and as usual, without consequence).

  10. dSquib

    I gather Moe Tkacik has a piece in the new Baffler wondering whether the Atlantic is a C.I.A. front or if it just looks like one, so degraded that it now is.


    1. Lambert Strether

      An interview with Baffler editor John Summers:

      Why revive The Baffler now?

      Why not? Leadership-class thought and opinion has flatlined. One detects the faintest blips of awareness among insiders that a systematic business fraud has been perpetrated on the country, and that the punishments have been at once exceedingly light and all-too-few. It’s a target-rich environment. Then, too, the breakdown of the machinery has left a great many persons socially and ideologically superfluous, without connection to the institutions that normally manage their discontent. Those persons are our readers.

      What kind of web presence will The Baffler have? Will you be doing any web-only content?

      The Baffler will be available on the Kindle, Nook, and other e-readers, and will have a new look, soon. When we will publish web-only content depends on how soon we overcome certain constraints, not the least of which is money. It’s important to me that our writers are paid, and, for the time being, our contributors’ budget is dedicated to producing carefully edited, long essays and surrounding them with graphic art. Several examples from each issue will be available at the web site. The quality of response they receive will help us decide the next step.

  11. Javagold

    he can write whatever PR piece he wants, but to put HERO with Bernanke on the cover , is a total disgrace and they are laughing in our faces by doing so

  12. Moe

    check out the ultra contemptuous treatment Brooksley Born gets in her 1 mention in WGF and you will feel far less charitably about its account. If only he’d bothered calling her up, he might have had a decent book on his hands. It’s a useful book though, that said. Bill McDonough certainly comes off better than Geithner ever did, despite the unbelievable fellatiothon that has characterized so much of his media coverage

  13. Lloyd C. Bankster

    As his reward for writing “Wall Street: Not Guilty”, Roger Lowenstein was asked to take the following syllogism and develop it into a very long piece for The Atlantic:

    All bankers are heros.
    Ben Bernanke is a banker
    Therefore, Ben Bernanke is a hero.

  14. Ed

    This is a great criticism of Bernake’s record, and it doesn’t even mention ZIRP!

    I’ll admit that Lowenstein’s article is exactly what I would have expected on the subject from the Atlantic. But I hope that someone will publish as serious article comparing Bernake to this guy:

  15. bulfinch

    If there’s one good thing to come out of Lowenstein’s valentine to Bernanke, it’s having provided you the occasion for breaking out the really fine cutlery.

    If it says anything, I kept glancing over at the scroll bar, hoping it wasn’t too close to the bottom of the page yet.


  16. psychohistorian

    Nationalize the Fed!

    I am not sure it would make an honest man out of Ben but at least he would be working for the right people.

  17. Mark P.

    ‘The magazine (THE ATLANTIC) unfortunately is now just a propaganda venue for trumpeting Americanization elitism.’

    True that, alas.

    It was a great magazine once. THE ATLANTIC’s previous owner was Mort Zuckerman — no fount of progressivism, but in possession of a conscious mind — who passed the mag off in 1999 to David Bradley, owner of the Beltway-focused National Journal Group. Bradley, a self-described “neocon guy” who later publicly regretted supporting the Iraq invasion, hired as editor James Bennet, former NYT Jerusalem bureau chief.

    THE ATLANTIC has been losing money, cutting costs and going downhill since, as far as I know: idiots like Megan McArdle and a former hedgie named Daniel Inviglio have been writing happy horseshit for the business blogs, while in the magazine proper there’ve been titillating/censorious articles about anal sex and worshipful main features about what Kissinger associate David Rothkopf would call “the Superclass” (though worshipful features lacking Rohkopf’s modicum of intelligent analysis).

    If that’s elitism, it’s the sort — worshipful of financialized capitalism — that gives real elites a bad name. Perhaps I’m misguided, but I’ve become nostalgic for conservatives like William F. Buckley, who would have been appalled by our 21st century American kleptocracy.

    Before you get on your high horses, Buckley was a lifelong friend of former American Communist Party member, the late great Murray Kempton, who himself was on first name terms with Malcolm X and Tupac Shakur’s mother.

  18. YLSP

    I’ll post my response first to Bernanke, and then I’ll quote the part of the article that tipped me off (although Yves did a good job in reciting the reasons why).

    Do you want to know why you, Geithner, Bernanke and Paulson get so panned by the “unwashed masses”? Its because no one else is getting a bailout. Its because politicians say “everyone needs to take care of themselves”; but when any little bank gets in trouble, bailout, bailout, bailout! Its because they intentionally used AIG to “backdoor bailout” the collateral AIG wrote to the large US banks (yes, this was you Geithner). One would have to believe that (a) the banks totally hosed Geithner (as NY Fed Pres, and Bernanke, right since the Fed was the bagholder) or (b) Geithner and Bernanke intentionally gave them 100% for the AIG paper (ding, ding, ding, ding!) No one can be so stupid.

    It’s because Bernanke and Paulson threatened to fire Ken Lewis via some type of “over-arching regulator” when Bank of America scoffed at taking more bailout (sure, they really needed it). Actually they didn’t really scoff at firing Ken Lewis they basically said “we have your firm by the balls, we’re not saying we won’t bail you out… just it might be… troublesome… if you ask us for money.”

    It’s because Paulson and Bernanke went hand in hand to Congress and said, “we need to buy these toxic… errr… illiquid… err… troubled assets”; got the authority to purchase troubled assets and gave large capital injections with very little conditions (since TARP wasn’t written with capital injections as its purpose).

    It’s because they bailed out the auto-industry under financial regulation, w-t-f.

    Yes, all these things “saved” the “economy”. Because our “economy” is nothing more than “BS stacked up upon itself”. However, we cannot do anything to advance the real economy if banks are so crippled by their risk-taking on un-economical BS that its coming to the detriment of actual providing some economical value.

    But at least the auto companies were put through bankruptcy right…?

    One soundbite I can’t get out of my head is Bernanke talking about how the terms to AIG on the original bailout were punitive, and something like a horrible interest rate, and how this will protect taxpayers. And then no more than 1 year later (hell, it was two months later) those terms got re-negotiated… since those TARP “loans” were so damned non-punitive AIG threw a fit.

    I forgot about buying up Fannie and Freddie paper as well… yeah I’m pretty sure that wouldn’t stand in court, but no one has stones in this country to challenge anything the masters of the universe do (and I’m pretty sure Congress would manuever to moot any challenge either; Congress just likes to huff and puff, but get down to brass and they would completely protect the PGB).

    “Bernanke is bothered by attacks that seem to be little more than smears; conversely, he is buoyed when strangers stop him in airports to offer an encouraging word. Rising to his own defense, he told me, “I would argue that everything we have done has been in the interest of the American public and, broadly, of the global economy. A lot of people get that.” (Privately, Bernanke and Timothy Geithner, the treasury secretary, have shared mutual wonder that the financial rescue, which they consider a success, has been so widely panned. Geithner told me that recently, when he informed Bernanke that yet another officeholder had asked for each of their resignations, Bernanke wryly quipped, “Well, that’s a step up from being accused of treason.”) “

  19. YLSP

    I forgot to mention that this article is BS when it says Bernanke is hated by the left and right. So hated that in January 2010, President Obama nominated Bernanke, and then that nomination breezed through committee and the Senate 70-30 (no doubt I bet if they really needed to it would’ve been 80-20… just a few Senators would rather be able to say ‘We’re on your side folks, yeah that Fed sucks so much!’.

    They have my sympathy for being in the unenviable position of having to negotiate unpopular bailouts in a democracy; the problem is, the people don’t sense that there’s been equal standing between those being asked to bail out risk-taking-people-screwing-greedy-banks at the table. I’d like to see the banking regulators just take down one “too-big-to-fail” bank just to put the fear of Bernanke/Geithner or whoever is the new Sheila Bair in the rest of them… pre-emptive striking is pretty effective militarily… just saying…

  20. Hubert

    I read all Lowenstein books. Buffett and LTCM are both very good – but then, it is downhill from there.
    3 possibilities:
    1) He had BIG HELP at least with the LTCM book
    2) He lost his senses since 1999
    3) He really IS PAYED FOR or BLACKMAILED
    He joined JP Dimons circle. Apply Occams Razor.

    1. DP

      I agree. Lowenstein’s Buffett bio and When Genius Failed were great books. Origins of the Crash was so mediocre I couldn’t believe it was written by the same person and his articles I’ve seen in recent years have been lousy. Lowenstein has been on the board of the Sequioa Fund, a value oriented mutual fund that was originally created as a vehicle for Buffett’s investors after he shut down his hedge fund around 1970, for several years. Sequioa has always had a big stake in Berkshire Hathaway, Buffett is a big apologist for Bernanke, Geithner, Paulson, etc. and an Obama administration cheerleader. I suspect Lowenstein has gone from someone who writes about the financial services industry to somebody who sees himself as part of it. It would be hard to write about what a rigged economy and stock market we have while sitting on the board of a mutual fund company that generally stays pretty fully invested and is soliciting new investors.

      As Buffett used to say when speaking of others in the financial services industry, “whose bread I eat his song I’ll sing.”

  21. René

    Federal Reserve (it ain’t federal)

    “You have 1 dollar and I have none. I then print 1 dollar. You now in reality have 50 cents, and I have 50 cents. Occasionally I come across someone who can understand that. Rarely do I come across someone who understands that I just stole 50 cents from you. Almost never do I come across someone who seems to care much about this.”

  22. fresno dan

    To say Bernanke saved us is like saying superman saved Tokyo from Godzilla, after superman digs Godzilla out, carries Godzilla to Tokyo, and lets Godzilla stomp the city for 20 years…

  23. hello

    “I don’t know what has happened to Lowenstein.”

    perhaps has 2.2 kids approaching college age or was staring at an inadequate set of 401k statements. if so, understandable.

    Pretty easy to get $1,000/hour honoraria from giving speeches at banking conferences if you have the right body of work.

  24. Jonathan Bernstein

    To answer your question, Yves, “What happened to Roger Lowenstein?”

    The answer is actually quite simple. When Lowenstein wrote his Buffett biography, “American Capitalist,” he became a Buffeteer. After writing the book Lowenstein bought Berkshire shares, and has disclosed this. And of course Buffett and Munger, who were seemingly among TARP’s midwives, have been outspoken defenders of the bank bailouts. These days Lowenstein is a Buffett pr tool like Carol Loomis. What would you like to bet that if something happened to Loomis, Lowenstein would take over her job as co writer of the Berkshire shareholder letters?

    1. DP

      As I posted earlier, Lowenstein has also been a director of the Sequioa Fund for several years. It is the fund Buffett steered his investors to when he shut down his hedge fund around 1970, and it has always had a very significant portion of its assets invested in Berkshire Hathaway stock.

  25. kaj

    The Fed has the authority to change/modify margin rates which currently stand around 10 per cent for most commodities, though the CBT/CME fiddle with it occasionally; for the banks it is about 3%.

    Now if Bernanke & Co. were to raise margin-requirements for all the commodity futures, (perhaps excluding the T-Bond market, perhaps not– I am not sure on theoretical gounds), but definitely including all the currencies and energy markets to 20% next week with sufficient warning of say 1 week and then threaten to raise them gradually to 40% over a month’s time, I think that shit will hit the fan and the price of gasoline will drop to around $1.35 a gallon and the price of oil to around $45-50/barrel– we don’t need Newt Gingrich to lower the price of a gallon to $2.50/gallon. The banks will be hit very hard and they will be fuming, especially, JPMorgan-Chase, Goldman, Morgan-Stanley and Citi. Some might even be bankrupted because I believe they are not hedged, knowing what they know about the FED and the O’Bummer as protectors in chief. I am not sure that Krugman will like this idea either!

    Our stupido chief-excutive most likely does not even know that this regulatory power is in the Fed’s arsenal. If the above policies were to be followed, all this speculation- fanned inflation will subside, and poorer among us will feel that their “gobernment” is capable of restoring some order and decency to life. And the “skinny” doormat will be re-elected, of course, to do more harm in his second term. The Sunday, March 18, 2012 Washington Post has a good article by Lori Montgomery (mostly an ignoramus) on the damage this idiot-destructioist wanted to visit on the commonweal. Read it for his immense betrayal. Also, the same issue read Dana Milbank for what Repubs want to do to Medicare.

    By: Not a hack for Wapo, infact a huge critic

  26. steelhead23

    Now that you have clearly demonstrated that the Atlantic article is pure puffery, can you discern why this is so? Here’s my take. The Democratic Party believes that the economy is likely to be an important campaign issue. Obama re-upped Bernanke. This piece is the consummation of that marriage. Obama did a good job on the economy because Bernanke did a good job. Ignore the fact that the Fed is setting national economic policy (who needs democracy?), that its policies are so fraught with moral hazard that it isn’t funny, that its policies are undermining bucky, harming the entire fixed-income infrastructure, creating a stock market bubble……. Yeah, I believe that this puff piece is intended to quell any defectors among the ranks. I’d like to know what Stoller thinks.

  27. Eric L. Prentis

    Walter Bagehot, who wrote the book on how to resolve credit crises, says that Bernanke is doing it completely wrong. The role of the lender-of-last-resort Central Bank is to lend only to solvent institutions (not insolvent banks), accepting only the highest quality collateral (not worthless toxic real estate mortgage backed securities) and at very high interest rates (not at zero interest rates because it kills savers, capital formation and consumer demand in the overall economy).

    Walter Bagehot says credit represents a confidence and trust in the financial system. Trust and credit are one in the same. Knowing that the bankers, who designed, implemented and fraudulently operated the financial system, which brought the world economy down, are still in control makes recovery impossible. The same banker fraudsters will strike again.

    Bernanke flunks Credit Crisis 101. Lousy economy for four years and ticking, how long are we going to keep these incompetent fools around. The only way to restore the financial system is to bring the approximately 10,000 banking criminals to justice and send them to prison. Thereby allowing financial reform, restoring trust and reviving the credit markets.

    1. Woodrow Wilson

      “The only way to restore the financial system is to bring the approximately 10,000 banking criminals to justice” –

      The only way that possibly happens is if The People do it themselves, and forget jail, rope & lampposts for all and for those that enabled them.

      It’s clearly obvious neither political Party is going to do anything, as they are part of the problem.

  28. craazyman

    Patience is a tax I’m willing to pay here.

    It’s a mystery to me why those with the most money often have the least patience. It approaches zero when money approaches infinity, like a hyperbola.

    The Big B seems like a blockhead. But I bet he’s not a bad dude to pound beers with at some Tiki Bar after a long day on the beach. That’s probably what happened to Mr. Lowenstein, he got dazzled by the sun. And you can’t flame your drinking buddies unless you’re really churlish.

    I doubt the B, even today, understands the toxic machinery of contemporary finance as well as I do, just from sitting around reading the internet with curiosity and patience. And that’s really really depressing. I’d rather be in a Tiki Bar, even with the B himself, where we’d both be doing something more productive. haha hah ahahahah.

  29. killben

    Dr. Joseph Goebbels would have been proud of this!

    This is what happens when government, regulators make propaganda their tool. This will change only when people wake up. Basically it works till it does not.

    I cannot wait for the day when people really understand the real purpose of all Bernanke has done and is doing, all in the guise of helping the economy. All he has doen and is doing is to transfer wealth to banks. I hope it does not work and then all will recognise the wolf covered in sheep’s clothing..

  30. Ryan Austin Clarke

    QE is unconstitional. In the Fall of 2010 the US Federal Reserve chief printed $600 billion of NEW MONEY and gave this to the banks in exchange for US Tbills on their balance sheets.

    That’s against the Constitution … in particular … Article 1 Section 7 Clause 1 of the document says, “All bills for raising revenue must originate in the lower house.” When a business takes in money, from where it does not matter, that business is ‘raising revenue.’

    The US Gov’t is no different. Ben Bernanke didn’t have $600 billion in his Federal Reserve bank, and so CONGRESS SHOULD HAVE PASSED A SPECIFIC SPENDING BILL AUTHORIZING THE USE OF $600 BILLION IN NEW MONEY TO BE GIVEN TO THE BANKS.

    I can’t find such a spending bill in the 2010 or 2011 Federal budget … and nowhere in the Federal Reserve Act(s) passed by previous congresses … IS THE FED ALLOWED TO CREATE MONEY.

    That’s the job of Congress as Congress … and only Congress … has the power of the purse. NOT THE FED!

  31. Westie

    I like to think that the Federal Reserve is the modern replacement for the early Catholic Chuech with the Bersnake as Pope and all the Government trained Economist as Bishops.
    I’m looking forward to the day that the Bersnake’s head is on the spike!

  32. Fiver

    Really good piece, Yves, but I just can’t buy that for Ben et al it’s simple, serial “stupidity”, or supreme hubris, or mere bias in his outlook (in which cases, in any real system of justice, I’d charge all responsible with criminal negligence causing death, in light of their responsibilities and the gravity of the domestic and GLOBAL consequences) as opposed to any of racketeering, fraud, obstruction of justice, breach of trust, lying under oath, conspiracy and collusion piled eye-high – on TOP of what really is treasonous, as no smallish group – the senior players within the Bush/Obama Admins/Fed/Banks – has ever so thoroughly trashed the public interest, the national interest and the geostrategic interests (even as purely destructive power continues to grow) of an important nation and NOT have it called a Coup or Revolution – from stolen election through Executive Orders paving the way for unlimited Executive authority to put the US on major war footing for any reason deemed an “emergency” – like any succeeding effort to regain control of the entire gamut of instruments of Government policy, for instance, and most especially the secret ones.

    On the brighter side, though, I have for years had this odd sense (quite distinct from “hope” or punitive “malice”) that Geithner and Bernanke particularly are going to go down hard before this is over – at minimum have their reputations irrevocably fouled. Still feel that way. Go figure.

    1. Fiver

      Yes indeed. Everyone must hold their noses while Central Bankers’ entirely benign efforts ensure by design that the wealthy become more so, banks get not only their fees, but via intermediation, set-up lucrative speculative deals in commodities and other speculative markets, and government owes less in debt in (inflated) currency. The small saver slowly bleeds to death, while anyone waiting for the trickle-down to take effect, perhaps creating a McJob or 2, will likely just keep eating others’ bad decisions.

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