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Tuesday, December 22, 2009

Ben Bernanke

I thought you all might appreciate reading about Ben Bernanke, Time's Person of the Year.

Here are a few snippets:

The overriding story of 2009 was the economy — the lousiness of it, and the fact that it wasn't far lousier. It was a year of escalating layoffs, bankruptcies and foreclosures, the "new frugality" and the "new normal." It was also a year of green shoots, a rebounding Dow and a fragile sense that the worst is over. Even the big political stories of 2009 — the struggles of the Democrats; the tea-party takeover of the Republicans; the stimulus; the deficit; GM and Chrysler; the backlash over bailouts and bonuses; the furious debates over health care, energy and financial regulation; the constant drumbeat of jobs, jobs, jobs — were, at heart, stories about the economy. And it's Bernanke's economy.....

In 2009, Bernanke hurled unprecedented amounts of money into the banking system in unprecedented ways, while starting to lay the groundwork for the Fed's eventual return to normality. He helped oversee the financial stress tests that finally calmed the markets, while launching a groundbreaking public relations campaign to demystify the Fed. Now that Obama has decided to keep him in his job, he has become a lightning rod in an intense national debate over the Fed as it approaches its second century.
But the main reason Ben Shalom Bernanke is TIME's Person of the Year for 2009 is that he is the most important player guiding the world's most important economy. His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world.

The Depression Buff
Bernanke says his first spark of interest in the Great Depression came as a boy listening to his mother's parents on their porch in Charlotte, N.C., where his grandfather was a kosher butcher. Their family had survived pogroms in Lithuania, but the story that captivated Bernanke involved a town full of shoe factories that closed during the Depression, leaving the community so poor that its children went barefoot. "I kept asking, Why didn't they just open the factories and make the kids shoes?' " he recalls. He would devote his career to questions like that.
Bernanke calls the Depression "the holy grail of macroeconomics," the ultimate intellectual challenge. To understand geology, he says, study earthquakes; to understand the economy, study the Depression. "I don't know why there aren't more Depression buffs," he wrote in a book of essays about the period. "The Depression was an incredibly dramatic episode — an era of stock-market crashes, breadlines, bank runs and wild currency speculation, with the storm clouds of war gathering ominously in the background ... For my money, few periods are so replete with human interest."

The first thing any Depression scholar comes to understand is that nothing — not hyperinflation, megadeficits or irked Chinese creditors — is as bad as a full-on Depression....

Depression scholars — including Bernanke — tend to see the Hoover Administration's approach of balancing budgets and tightening belts during the downturn as a tragic mistake. They embrace the Keynesian view that aggressive government action backed by government money is needed to reverse death spirals by restoring confidence and reviving demand. Get people money, and they can buy shoes for their barefoot kids, so shoe factories can reopen and rehire, which gets more people money. "People saw the Depression as a necessary thing — a chance to squeeze out the excesses, get back to Puritan morality," Bernanke says. "That just made things worse." In contrast, the Roosevelt Administration's New Deal stimulus and try-everything attitude made real, albeit uneven, progress against the downturn.....

Bernanke quickly emerged as a staunch defender of the Greenspan Fed and its loose monetary policies. He suggested that raising interest rates to deflate the dotcom bubble before it popped would have been like using a sledgehammer to perform brain surgery. He delivered a call to arms against deflation, proposing ways the Fed could keep juicing the economy even if rates fell to zero. When he took over the Fed in 2006, after an uneventful eight-month White House stint leading Bush's Council of Economic Advisers, he said his top priority would be continuing Greenspan's policies. "Ben and I have never had a serious disagreement," Greenspan says.
In fact, Bernanke did make subtle changes, pushing for more transparency and clarity, speaking last instead of first at rate-setting meetings to avoid imposing his views. And while Greenspan had been laissez-faire about the Fed's oversight responsibilities, Bernanke pushed through long-overdue subprime-lending reforms in 2007. Still, Bernanke was as clueless as Greenspan about the coming storm. He dismissed warnings of a housing bubble. He insisted that economic fundamentals remained strong. In March 2007, he assured Congress that "the problems in the subprime market seem likely to be contained." The day before the global crisis erupted with a run on a French bank, the Fed was still saying its primary concern was inflation. "Bernanke had no idea what was going on," a foreign central banker tells TIME. "Once he got it, he really got it, and he acted swiftly and decisively. But wow! It took a while.".....

"We were the most aggressive central bank in the history of the world," says Fed governor and Bernanke confidant Kevin Warsh. The Fed used its magic money to shovel out more than $1.6 trillion worth of unconventional loans and is now buying over $1.7 trillion worth of unconventional assets....

In June, Bernanke was savaged on Capitol Hill for supposedly pressuring Bank of America to buy Merrill; by December, Bank of America was healthy enough to repay its $45 billion in TARP aid. In fact, all but one of the 19 financial behemoths subjected to stress tests have received decent bills of health, and taxpayers are on track to profit from TARP's wildly unpopular bank bailouts. Bernanke says major financial crises generally cost nations 5% to 20% of their national output. This panic seems likely to cost the U.S. a fraction of 1%. "How much would you pay to avoid a second Depression?" he asks. "I mean, this is a pretty good return on investment."


1 comment:

Cynthia said...


Ron Paul on MSNBC's Morning Joe on Ben Bernanke as Time Magazines man of the Year.