Yet again, the long-suffering public is subjected to what passes for a leader during the crisis engaging in image-burnishing, in this case, Bernanke via an interview with the Financial Times: Ben Bernanke attacks Congress for failing to foster US rebound.
The former Fed chairman is getting a round of media
hype attention due to the publication of his memoirs. It may seem like a myth from ancient times, but it really was not all that long ago that “public service” really did mean putting the needs of the citizenry as a whole first. And that included having enough of a sense of respect for one’s former office so that one didn’t go ringing the cash register and engaging in personal brand enhancement, or at least not visibly and not all that close to one’s departure.
And if Bernanke really is incapable of resisting the lure of a big payday, can’t he just take his filthy lucre from hedge fund Citadel and keep the rest of us out of it?
The idea that Bernanke did a praiseworthy job has been widely debunked. Bernanke continued the “Greenspan put” that stoked speculation all across the credit markets, to the point that anyone who was paying attention had heard of the “wall of liquidity” and massively compressed credit spreads by mid 2006. The Fed did even less to enforce the Home Ownership and Equity Protection Act meant to curb subprime lending than the bank-cronyistic OCC did.
As the crisis unfolded, the Fed failed to take the risk posed by the credit default swaps market seriously, even though CDS contagion risk was the most important reason for bailing out Bear Stearns, otherwise too small to be deemed worthy of a rescue. Instead, the Fed went into “mission accomplished” mode after Bear’s bailout.
Worse, after the crisis, the Fed consistently pursued policies to save banks, in particular the bank executive incumbents, and let the cost of the crisis fall on Main Street, particularly workers and homeowners in the bottom 90%. Did Bernanke say a peep when the big financial firms that had just been saved from certain death went to pay their executives and staffs record bonuses in 2009 and 2010 rather than rebuild their equity bases? The Fed was so deeply complicit that it didn’t even attempt a private scolding.
And the central bank was fully on board with the Treasury’s treatment of the mortgage-backed securities market as too big to fail, which amounted to a second, stealth bailout. The refusal to pressure banks to do principal modifications resulted in unnecessary foreclosures, and a massive loss of wealth, not just to homeowners but also to investors in mortgage backed securities. The Fed joined the Treasury and OCC in all of the various bank “get out of liability for almost free” mortgage and servicer settlements. It was thus a full, albeit quiet, partner with the Geithner “foam the runway” program of wrecking borrowers’ lives for the dubious purpose of preserving bank profits.
Bernanke apparently feels compelled to up his game in self-hagiography a bit, since at least some of the public recognizes that he’s an arsonist trying to take credit for putting out a fire, except the fire-fighting wasn’t all that well done, since the rubble is still smoldering years later. As the Financial Times tells us:
Mr Bernanke levels frequent criticism at Congress in the book, calling for less confrontation and implicitly contrasting the bitter partisanship on Capitol Hill with a collegiate, consensus-building approach within the Fed.
First, Obama had a majority in the House and Senate when he came into office. The failure to do enough in the way of fiscal stimulus lies with the Administration’s failure to push for it, particularly since Christine Romer estimated $1.2 trillion of spending was called for, and Larry Summers rejected it for political rather than economic reasons. The Fed, contrary to its pretenses, is not independent; Greenspan compromised it long ago when he pushed for Social Security reform and told consumers to go buy homes with adjustable rate mortgages. Bernanke continued with the Fed faux-independence by calling for debt reduction in 2011. The Fed could easily have supported an Obama push for aggressive fiscal policy, particularly in light of the fact that it was stepping well outside its traditional role on other fronts in response to the crisis. But no, the lousy state of the economy is all Congress’ fault.
Second, the Fed had it well within its powers to do far more vis-a-vis the banks, via supervision as well as jawboning. That’s been proven years later through the not-well-publicized efforts of Fed governor Danny Tarullo, who according to independent sources, had finally gotten the banks to understand that the Fed is deadly serious about increasing capital levels and reducing risk taking. Having the full weight of the Fed behind that agenda in 2009 would have made an enormous difference.
And we get an addition to a tired excuse:
He argues in the book, however, that invoking worries about moral hazard in the midst of a major crisis would have been “misguided and dangerous”. While admitting that he winced when he saw bumper stickers saying “where’s my bailout?”, Mr Bernanke defends the Fed’s financial interventions, as well as its monetary policy rescue, which involved cutting rates to near-zero and a vast bonds purchase programme.
Bernanke conveniently conflates bailing out institutions (which was necessary) with the issue of responsibility, as in holding individuals accountable. The refusal to replace boards and top executives, particularly at institutions with obviously weak leadership (Citigroup and Bank of America were top of the list) was indefensible. Even if there was not enough readily locatable recently retired bank executives to fill the ranks of all the wobbly banks, forcing changes upon Citi and Bank of America would have sent a very powerful message to the rest. And we’ve argued at length, for years, that there was no dearth of legal theories that were simply not even attempted as far as prosecuting bank executives was concerned, starting with the one designed for the task, Sarbanes Oxley.
But what pathetic new line do we get from Bernanke? His feelers were hurt when he read a bumper sticker? People lost their businesses, their jobs, their homes as a result of the crisis, and we are supposed to feel sorry for his wounded feelings when he is called out in the tamest terms possible?
This illustrates how insulated and preening our ruling classes have become, that they are unable even to take mild criticism, let alone a remotely accurate assessment of the job they’ve done. By contrast, as Jim Collins found in his book on true top performers, Good to Great, the heads of those companies did the opposite of the diseased norms exhibited by Bernanke: they gave credit for success to their teams, and took full blame for failure.
The time is past to deal with these intellignce-insulting efforts at revisionist history. When I read a new, improved set of excuses from people like Bernanke, I feel like I’ve walked into my kitchen and turned on the lights after the exterminator paid a visit, only to find cockroaches scuttling all over my counter yet again.
Every time you read self-serving justifications from the perps of the crisis, visualize cockroaches on a counter. Only when the officialdom realizes you’ve programmed your own Pavlovian defenses against their Big Lies might you be able to stop them.