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"If this is success, what does failure look like?"

Dean Baker on Ben Bernanke:

The Senate finance committee overwhelmingly voted to approveBen Bernanke for another four-year term as Federal Reserve board chairman. This is a remarkable event since it is hard to imagine how Bernanke could have performed any worse during his last four-year term. By Bernanke's own assessment, his policies brought the US economy to the brink of another Great Depression. This sort of performance in any other job would get you fired in a second. But for the most important economic policymaker in the country it gets you high praise and another term.

There is no room for ambiguity in this story. Bernanke was at the Fed since the fall of 2002. (He had a brief stint in 2005 as chair of President Bush's council of economic advisors.) At a point when at least some economists recognised the housing bubble and began to warn of the damage that would result from its collapse, Bernanke insisted that everything was fine and that nothing should be done to rein in the bubble.

This is worth repeating. If Bernanke knew what he was doing, he should have been able to see as early as 2002 that there was a housing bubble and that its collapse would throw the economy into a recession. It was also entirely predictable that the collapse could lead to a financial crisis of the type we saw, since housing was always a highly leveraged asset, even before the flood of subprime, Alt-A and other nonsense loans that propelled the bubble to ever greater heights. Of course as the bubble expanded, and the financial sector became ever more highly leveraged, the risks to the economy increased enormously.


How on earth can you do worse in your job as Fed chair than bring the economy to the brink of a total collapse? If this is success, what does failure look like?

Questions we won't find answers for in this topsy turvy world led by liberals elected by the ignorant.



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Comments (7)

Yep, he did a heck of a goo... (Below threshold)
JC Hammer:

Yep, he did a heck of a good job, just like Brownie did.

"Ignorant"? Perhaps you sh... (Below threshold)
Big Mo:

"Ignorant"? Perhaps you should check out what Charles Krauthammer has to say about Bernanke.


Hey, we've got a whole Admi... (Below threshold)

Hey, we've got a whole Administration of losers right now, what's one more?

Bernanke knew the housing b... (Below threshold)

Bernanke knew the housing bubble existed long before its collapse. He also knew that far too much economic and political capital was invested in that bubble for anyone to pop that bubble without severe personal consequences.

As head of the Fed he's acting primarily as a politician NOT an economist.

The economic ruin of America is proceeding right on schedule.

For those who doubt that assertion, what exactly is anyone in a position to positively affect the economy doing?


Absolutely nothing beyond half-measures designed to keep it temporary afloat and those 'measures'; a deficit triple Bush's and greater than the combined deficits of all prior generations is guaranteed to collapse this economy, it's not a matter of if but of when.

#2, even Krauthammer can be wrong and on this, he's taking out of his rectum.

The lower you are in the sl... (Below threshold)

The lower you are in the sleazee pile the higher you rise in the dem Heirarchy.

Bernanke probably isn't the... (Below threshold)
Jim Addison:

Bernanke probably isn't the sort of fellow you want heading up the Fed, but neither was Greenspan. They see the task as a mandate to optimize, which requires more skills than any human since J.P. Morgan has shown evidence of possessing.

What's needed at the Fed is a Volcker: impervious to politics and fanatically devoted to the soundness of the currency and the efficacy of the supply of it.

But it is entirely unfair to blame the financial crisis on Bernanke. He didn't foresee it, but few did except for those who are forever predicting crises and occasionally hit home in the same sense a stopped clock is right twice a day. This wasn't a crisis "caused" by any "housing bubble" at all.

It was caused by government interference, through mandates, regulations, and threats and intimidation, which forced the mortgage industry to lend to people who did not qualify for the loans they sought, either through creditworthiness or income. First the CRA, and promises of further regulations, began the drift. Then the whiny Democrats like Frank and Rangell and Waxman, although in the minority in the early '00s, managed to spread this nonsense to the quasi-independent mortgage giants Fannie Mae and Freddie Mac.

Republicans, in the majority at the time, failed to stop this crap because they were afraid of being labeled "racist" since many or most of the poor-credit borrowers enabled by these moves were minorities (as if not acting prevented such spurious accusations).

The amount of loans to the unqualified exploded. The rash of new buyers exacerbated what was already a housing boom into a frantic bubble. The groups of mortgage instruments which had become a major staple of the investment portfolios of all major financial entities, including insurance companies, suddenly were of doubtful value. No one knew, because no such disclosure was required, if any given security contained a high % of "subprime" mortgages, and there was no way to tell.

This made investors skittish, naturally, and no one would buy the things at any price. The insane "mark to market" accounting rule had just come into effect, and forced all those banks and insurance companies to list all their mortgage securities' value at ZERO, making many of them insolvent on paper. The value, of course, could never have been zero, because the instruments included an interest in the real estate collateral, but thanks to our brilliant regulators, that's what they counted as.

The crisis was brought to you by The United States Government (motto: "We screw our citizens and pass the savings on to you - IF you're one of our cronies."). Bernanke's role in that was a bit part, not a leading role.

Krauthammer is quite correct that TARP was a necessary evil at the time. The request was for twice what was needed; the first installment of $350 billion proved quite enough to avert the crisis. Once Obama got in, he proceeded to use some of the leftover cash to nationalize GM and Chrysler. Bernanke's role in deciding how much to request is unknown, I believe.

big mo ""Ignorant"? Pe... (Below threshold)

big mo ""Ignorant"? Perhaps you should check out what Charles Krauthammer has to say about Bernanke."

Screw Krauthammer, bet he's singing another tune now that fanny and freddie are asking for another 800 billion to be delivered before the end of the year AND the FDIC is requesting a budget increase of 35 percent to be used in 2010 for the hiring of 1600 new employees.

Gee, why would the FDIC need so much? Could it be another train wreck of bank failures is right around the corner?






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