FWIW: we say no to a second term.
This weekend there are many reports and commentaries regarding the U.S. Senate vote to confirm Ben Bernanke to a second term as the Chairman of the Federal Reserve. For example, see the article Backers Rally to Bernanke in The Wall Street Journal.
Mr. Bernanke neither deserves a second term nor can we, as a nation and economy, afford it.
Don’t Blame Him for any Bubbles
Many commentators, analysts, and economists blame Mr. Bernanke’s (and his predecessor, Alan Greenspan’s) easy money policies for creating a sequence of bubbles.
We don’t. As far as we can tell, prior to 2008, Mr. Bernanke did not force a single person or firm to borrow an additional dollar or invest in assets and securities that they did not understand. See our post The Low Interest Rates Made Us Do It: Oh, How Lame! from August, 2008. Note that Community Reinvestment Account (CRA) policies were not his diktat. In fact, their initial implementation in 1977 far precede his involvement at the Fed.
His Flawed Policies Aren’t Disqualifying
In addition, as much as we dislike his statist policy prescriptions to end the liquidity crisis that began in the Fall of 2008, we don’t think that alone is reason to deny his confirmation.
However, every TARP-addled, self-congratulatory politician, bureaucrat, and regulator wishing to take credit for staving off a new depression, should note that during the “The Great Depression,” the Dow Jones Industrial Average gained 63.74% in 1932. HOWEVER, it took an additional 20 years–that’s 20 years–for the Dow to reach its pre-crash highs of 1929.
Thus, if you, dear reader, confidently “know” or strongly believe that because the Dow has rallied since last March, that necessarily means that the crisis has ended with little or no chance of returning, then you are, indeed, a short-sighted fool (with little awareness of history).
So, if (1) we don’t blame him for the consumer and investor behavior that led to the mortgage debacle that led to the liquidity crisis and (2) we don’t think that his policy response to the crisis, in and of itself, is disqualifying, then what is it?
His Panic & Terror Were Unconscionable
It was his panicked response to the mortgage debacle that helped turn it into a liquidity crisis and severe recession. It wasn’t his policy prescriptions, it was the way he tried to sell them. He wasn’t alone. Former President Bush, Congressional leaders, and ex-Treasury Secretary Hank Paulson also deserve much of the blame, and we gave it to them, but he should have known better. (See, for example, Well, This Is a Fine Mess You’ve Gotten Us into.… or just about anything else that we wrote from September – December, 2008.)
During the spring and summer of 2008, we asked on several occasions: why are the losses so concentrated this time? See, for example, this search or this tag or this one. (There’s some overlap.)
The rather concentrated mortgage debacle informed investors and creditors that bank managers were far less capable than had been believed. As confidence in the banks shrank, our public servants panicked and eeked and squeaked like little girls.
Their collective panic and terror destroyed public confidence–not just in the banks–that was justifiable–but in the economy as a whole. Their threats and overstatements became self-fulfilling, and permitted cynical managements at non-financial corporations to lay-off employees. Those actions immediately deepened the downturn and destroyed consumer and investor confidence. It still has not recovered. (By the way, by non-financial, we don’t mean that hopeless and hapless auto manufacturers. Given their precarious states, they were doomed to fail whenever a recession occurred.)
Perhaps by 2008, he had spent too much time in Washington and had forgotten that words and statements have real implications. There are sound reasons why it is illegal to shouts “Fire!” in a crowded theater (and risk a public catastrophe). In our mind, that’s what Mr. Bernanke and his cronies did. Words are not merely “throw-away” rhetoric used to attempt to influence undecided senators and representatives to support a hastily-composed bill, especially when done publicly.
Clearly, we don’t believe that “if you don’t have anything nice to say you shouldn’t say anything at all.” If we did, we would have published a total of about fifteen posts since we started writing on April 1, 2008.
We do, however, think that if one have a position of responsibility, then one should act and speak responsibly, and Mr. Bernanke did not do so when it mattered the most. We can forgive such behavior, but we can’t forget it, so we don’t trust him. So, for what it’s worth, we recommend that Mr. Bernanke not be reconfirmed.
