Friday, June 10, 2011

Does Ben Bernanke Make the Grade?

     Ben Bernanke appeared at the International Monetary Conference in Atlanta this week, acknowledging that the pace of economic recovery is frustratingly slow. Even while he was talking, the stock market swooned.

     JP Morgan Chase ceo Jamie Dimon wondered if the Fed was actually hurting the economy, and he asked Bernanke if he had taken the time to study the cumulative effects of all the Fed's new banking regulations. Bernanke had to admit that, no he hadn't done that. Suddenly, people were criticizing the chairman for not doing his homework, and his credibility took a hit.

     Bernanke not doing his homework? That seems unlikely. Let's see how he makes the grade.

     When young Ben Bernanke found out his high school in Dillon, SC, did not offer calculus, he set out to learn it on his own. I don't know if you've ever taken calculus, but I have, and it's hard enough with a teacher, let alone without one. He was class valedictorian; he scored 1590 out of 1600 of his SATs; he went to Harvard, graduated summa cum laude, and went on to earn a Ph.D. in economics from MIT. Grade on his educational background:  A+ 

     Bernanke taught at Stanford, NYU and Princeton, where he became chairman of the economics department. He went to Washington in 2002 to become a member of the Board of Governors of the Federal Reserve. In 2005, President Bush appointed him Chairman of the Council of Economic Advisers. Then in 2006 Bush sent him back to take over as Chairman of the Federal Reserve. Remember, the housing bubble peaked in 2006. So while Ben Bernanke's hands might not have been completely clean, since he was active in Washington, you can't really blame the housing bubble on him. The bubble was created under Alan Greenspan's watch. Grade on Bernanke's career:  A 

     It was Barack Obama who nominated Bernanke for a second term as Fed chief. The new President credited him with preventing another Great Depression in 2008, saying he "approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking." Time magazine thought enough of Bernanke to name him Man of the Year. Bernanke's actions have come under criticism only now, three years later, when memories of the financial crisis have faded. Nevertheless, those bankers are still sucking wind out of the American economy. Bailout grade:  B+ 

     Bernanke won reconfirmation as Fed chairman from the Senate, but 30 senators voted against him. Who were his opponents? Mostly intensely partisan right-wingers like Jim DeMint and David Vitter, or ultraliberals like Bernie Sanders. Reasonable elected officials in the center supported him. Grade:  A- 

     Bernanke rescued the country from financial collapse. But has he managed to get the economy moving again? His answer was QE1 and QE2, the monetary easing that lifted some asset prices (stocks and bonds, not real estate), but has had little impact on the unemployment rate. Grade:  B- 

     What about the future? Bernanke believes his most important goal is to bolster the U.S. economy and breathe some life into the job market. Beyond that, he has stated that it's important to reduce the budget deficit, largely by reforming Social Security and Medicare. He has offered no specific plan to do that -- only expressed the opinion that we need to face future funding issues to ensure financial stability and economic growth in the long term. His prescription does sound a little mealy mouthed. And yet, taxes and spending are the responsibility of Congress and the President, not the Federal Reserve, so he can't be faulted too much for skirting the issue. Grade:  A for effort 

     Everybody wants someone to blame for the bad economy. But Bernanke clearly gets a passing grade. If you really want to know who the guilty parties are, I recommend reading a new book Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon by Pulitzer Prize-winning New York Times columnist Gretchen Morgenson and coauthor Joshua Rosner.

     They point out that there are many people who failed us. The avaricious bankers. The predatory Wall Street traders. Self-serving politicians from both the Democratic and Republican parties. And yes, the short-sighted, corner-cutting homebuyers who took out liar loans. These are the people who deserve the dunce caps.

     {A slightly different version of this article was first published as "Does Bernanke Make the Grade?" on Technorati.]


Robert the Skeptic said...

Bernanke and the Obama administration are trying to restart a car that has run out of gas, to use an analogy. Jobs have left this country that are never coming back... NEVER! The few that are created are in low paying service jobs. The housing market will not return if people cannot afford mortgages. Medicare will flounder unless the continually increasing costly medical delivery system is overhauled.

It doesn't look good for our country and Bernanke and the Obama administration are going to take it on the chin this next election even though there is nothing they can do to fix it. As I say, the car is out of gas.

Retired Syd said...

Just downloaded Reckless Endangerment onto my reader. Gretchen Morgenson's coverage of the meltdown has been stellar in the NY Times. Also very good were "The Big Short," "The Devil's Casino," and "Too Big to Fail." Thanks for the new recommendation.

June said...

I am a dunce about economics. I wish I were smarter about all of it, but I was part of an economics class in high school to which the teacher yelled in frustration: "I have never seen such a bunch of 'but where's the money?!?!' people!"
I left college after three semesters because I could no longer avoid calculus and physics.
But the "calm and wisdom, with bold action and out-of-the-box thinking" alone make a good case for Mr. Bernanke.
I'll take calm and wise, bold action and original thought any day if the alternative is drama and sound bites.

Linda Myers said...

I'll be downloading the book. Thanks for the recommendation.

Dr. Kathy McCoy said...

Thanks for the book recommendation. I'll be sure to read it. I really do want to have a better understanding of this distressing economic situation. said...

Don't know why I am having difficulty commenting today, but I wrote that I appreciate your analysis and agree that Ben did the best job he or anyone could have done. Others are to blame for the mess. Dianne

Nance said...

I've read my brains out on this and I conclude that, based on what we know so far, Bernanke is no Rand-sucking Greenspan, which gives him a point or two in my book.

I got curious and went in search of a late '07 statement from Bernanke, found this at Forbes for 11-080'07:
"The U.S. economy is in for a rough winter and a better spring, Federal Reserve Chairman Ben Bernanke told congress today.

The moderate 3.9% gross domestic product growth rate of the economy in the third quarter will slow in the months ahead, amid turmoil in the housing and credit markets and rising energy prices, but "by spring, the broader resiliency of the economy" will help it recover "to a more reasonable growth pace," he told Congress' Joint Economic Committee Thursday.

While he didn't dare predict a recession, Bernanke said the rate-setting Federal Open Market Committee at its meeting last week "did not see growth performance as likely to be sustained in the near term." He told lawmakers Thursday it could be April before the freeze on the economy from the mortgage fiasco begins to thaw."

That's not an A or even a B in my book, but the secret might lie in that "dare" phrase in the Forbes article. Bernanke knew better than anyone what a panic would look like. And he still does.

As to the long-term grade? We won't know for another thirty years. In November of '07, I was telling my (ex) financial adviser that this little blip was different and recovery would be a fifteen year prospect. I know nothing about economics, but I can read. This post was good reading.

Nance said...

P.S.: Here's a great article on Bloomberg on Jamie Dimon's self-serving question to Bernanke.

Terry said...

Sightings you make valid points, and I agree that Bernake is smart , I guess I'm feeling jaded about the entire system. My feeling is these people are all in on it together. I like Mish's blog, as well as Financial Armageddon. James Howard Kunstler's blog is a bit over the top, but he makes valid points. After reading some of this for several years, I've become a cynic. (sigh) good post though

MerCyn said...

We - Americans - want everything fixed NOW. It took years to get us into this mess, and it will take years to work our way out. There are no quick fixes. Hopefully politicians will make at least some of the right moves to get the country moving again in the right direction. Great post.

Robert the Skeptic said...

@Nance - I had to smile when you quoted: " spring, the broader resiliency of the economy..."

That reminds me of my absolute FAVORITE Peter Sellers movie, "Being There" and the beloved Chancy Gardner assuring the president and the country that "There will be growth in the spring". Here it is. Enjoy

Dick Klade said...

I'd give Bernanke an overall A. My January 2010 blog post, just before he was reconfirmed, said: "His bold actions probably were the biggest factor in keeping the world financial system from collapsing."

Haven't seen anything since to chance that opinion. Thanks for your very good analysis.