Bernanke Bashing

The Bernanke renomination has been widely approved — a WSJ survey showed 74% in favor, and amongst Economists, its even higher.

But a backlash against the Fed chief is underway, with some stinging criticisms coming from very sharp observers.

Ambrose Pierce notes in the Telegraph that BB may have saved the world, but he helped cause the crisis in the first place”

“Ben Bernanke has proved himself a heroic fire-fighter, saving world from a calamitous spiral into debt deflation by showering markets with liquidity.
A good thing too. He helped cause the raging fire of 2007-2009 in the first place. As a Princeton professor and then a junior Federal Reserve governor, Mr Bernanke was the intellectual architect of his predecessor Alan Greenspan’s policies that so distorted global finance and pushed debt to historic extremes.”

While there is a lot of truth to that statement, we cannot call Bernanke “the intellectual architect of Greenspan’s policies.” They were decades in the making, well established long before Bernanke joined the FOMC in 2002.

Stephen Roach is even more critical of the Fed Chief as FOMC governor in the FT. He notes that “It is as if a doctor guilty of malpractice is being given credit for inventing a miracle cure. Maybe the patient needs a new doctor.”

Heh. From Firefighting Pyro to MedMal Miracle cure, the metaphors are flying.

Where Roach shines is when he gets more granular. Specifically, Roach identifies “three critical mistakes” that Bernanke made prior to the September ’08 collapse:

1) Like Greenspan, Bernanke was deeply wedded to the philosophical conviction that central banks should be agnostic when it comes to responding to asset bubbles.

2) Bernanke was the intellectual champion of the “global saving glut” defense that exonerated the US from its bubble-prone tendencies; Much to the annoyance of our Asian financiers, BB blamed their savers for our rate conundrum.

3) Philosophically, Bernanke is cut from the same libertarian cloth that led the Greenspan Fed into this mess. He is “Steeped in the Greenspan credo that markets know better than regulators.” Even worse, Bernanke was part of the “prevailing Fed mindset that abrogated its regulatory authority in the era of excess.”

Points 1 and 3 are critical to the Fed — and the global economy — going forward.

I am less critical than Roach regarding the Bernanke renomination as to his 3 year terms as Governor. Let’s not forget that Greenspan was know as the Maestro back then. Congress, which is now pillorying Bernanke every appearance, was adoring of Easy Al’s visage and garbled Greenspeak each and every appearance. AG ran the Fed as an unchallenged stronghold, a fiefdom where he was the central-banker-in-chief as rock star. No one challenged him directly.

That seems to be lost in a lot of the revisionism now taking place. Roach writes “While America’s head central banker deserves credit for being creative and courageous in orchestrating an unusually aggressive monetary easing programme, it is important to remember that his pre-crisis actions played an equally critical role in setting the stage for the most wrenching recession since the 1930s.”

Not exactly. It was Greenspan’s Fed. Under his leadership, the FOMC and its governors were all second bananas to the Wolrd’s most famous banker. In Bailout Nation, I criticize this deference: “The Federal Open Market Committee (FOMC) must take responsibility for following [Greenspan] so obsequiously, especially in the latter years of his reign.”

However much I blame the FOMC, I have a hard time holding them to the same level of accountability as I do Greenspan. He was the master architect, the maestro conducting the monetary policy orchestra.

Second bananas cannot should the blame for what the head of the bunch does. Once they become banana-in-chief, the standards and level of accoutanbility all go up accordingly.

>

Sources:
The troubling side of Ben Bernanke
Ambrose Evans-Pritchard.
Telegraph 8:29PM BST 25 Aug 2009
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6089383/The-troubling-side-of-Ben-Bernanke.html

The case against Bernanke
Stephen Roach
FT, August 25 2009
http://www.ft.com/cms/s/0/a2ba2378-9186-11de-879d-00144feabdc0.html

Economists React: Bernanke Reappointment Is ‘Good News’
Phil Izzo
Real Time Economics, AUGUST 25, 2009
http://blogs.wsj.com/economics/2009/08/25/economists-react-bernanke-reappointment-is-good-news/

More Articles:
Deja Vu: The Next Credit Bubble Is Now – Heidi Moore, The Big Money
Sorry Larry Summers, Ben’s Here To Stay – Jeff Madrick, The Daily Beast
The Troubling Side of Ben Bernanke – Ambrose Evans-Pritchard, Telegraph
The Day Wall Street Was Shaken To Its Core – Todd Harrison, MarketWatch
Bernanke’s Re-Up Is a No Brainer – Robert Samuelson, Washington Post
The Unwarranted Deification of Gentle Ben – William Greider, The Nation
Bush’s Fed Mistake Is Now Obama’s – John Tamny, RealClearMarkets
Betting Against Ben Bernanke’s Federal Reserve – Steve Hanke, Forbes
Bernanke Is Obama’s Proverbial Bird In Hand – Caroline Baum, Bloomberg
Banks Brought Down By New Peter Principle – John Kay, Financial Times
The Dangers Ahead for Bernanke – James Galbraith et al, Room for Debate
Some Words of Wisdom for Mr. Bernanke – James Stewart, SmartMoney
Bernanke Reappointment Makes for Certainty – David Kotok, Cumberland
Ben Bernanke’s Next Tasks Will Be Undoing His First – New York Times