The Value of Bernanke's Reconfirmation

Federal Reserve Chairman Ben Bernanke is up for a reconfirmation vote in the Senate tomorrow. He will likely be confirmed, and that's good news.

A perceived surge in populism is roiling both the Democratic and Republican parties, and a strange combination of all the political tension somehow fell on Ben Bernanke. And it was bipartisan. Politicians got the message that voters were angry: angry at Wall Street, angry at Washington policies, angry at elites wherever they may be. So Ben Bernanke, the calm-voiced Princeton professor and author of macro textbooks, became the fall guy for all those who really contributed to the subprime mortgage-induced recession. There's been a drumbeat of attacks on his stewardship of the central bank. But a funny thing happened on the way to guillotine. A majority of Senators seem to have decided to reconfirm.

In our view, Chairman Bernanke has been creative when others were dogmatic. He was decisive when others were silent. For that reason alone he should be praised, as Time magazine has done, certainly not condemned.

Second, what too many fail to understand is that for millions of Americans the U.S. recession is not over. There is no certain destiny for a recovery, strong or weak, in the coming year. And the biggest danger remains the fragility of the global financial system. The Chairman has demonstrated that he understands that danger. We need him now as much as we needed him in September 2008 when things looked much darker.

The third value in reconfirming Bernanke has hardly been noticed, but here it is. In a city drowning in partisan rancor, the bipartisan victory of the chairman reconfirmation will emerge as an invaluable island of sanity, and perhaps point the way toward more bipartisan, constructive action ahead. Let’s hope.

SIGNED

Robert Litan and Tim Kane

Comments

[Cracka]

shut up. STUPID!

[Andy]

Are you guys Keynesians?

[earn money easily]

As much as Bernanke understands the economic climate and what may be needed to bring back a period of sustained growth. I myself think that a complete overview of the fiscal system is in order. The very essence of money is prone to inflation. Tie in other factors like interest and debt and it's easy to see that we'll continue to live in periods of boom and bust whoever is in charge of the Fereral Reserve.

[online doctor]

from health care to less job opportunities, america is now facing a lot of problems that need to resolve.

[Tim Kane]

I am more of a Schumpeterian than a Keynesian. Can government make effective counter0cyclical policy? I would say yes with two strong conditions. First, the cycle must be long enough so that policy can be implemented in time. This is best done with auto-stabilizers rather than discretionary policy. Second, deficit tax cuts can be effective in ways that spending cannot. In other words, much government spending in the name of counteracting economic downturns is actually counter-productive. It locks in old industrial structures (e.g. GM bailout and Wall Street bailouts), and often filters through ineffective limitations that are not in Keynesian models (e.g. Davis bacon laws).

But this is all beside the point, no? Opinion in favor of an independent central bank is vastly larger than the school of JM Keynes.

[dlr]

In my book Bernanke deserves to be fired for guaranteeing Bear Stearn's debt, that's a 29 billion dollar present from you and me to the bondholders and shareholders of a private company. No one should have to ability to make a gift like that with taxpayer dollars. And he didn't do it just once, he did it 2 more times that I know of; 300 billion in guarantees of the worst of Citibank's toxic assets, and another 100 billion or so in guarantees of the worst of Bank of America's toxic assets. So, a 429 Billion dollar present of taxpayer money to the rich and wel connected complements of Ben Bernanke. And those are just the most egregious ones. I understand he is giving out non-recourse loans toxic assets from a number of banks, with the valuation levels chosen by the banks themselves. Who doubts that they are choosing 100 cents on the dollar for dreck that they couldn't sell for 10 cents on the dollar? Who is going to be surprised when they 'strategically default' in a year or so, and walk away clean?

And don't be mislead that it isn't US taxpayer dollars that are being given away here. It is an accounting fiction that it is Federal Reserve dollars that are being spent here, but all profits (and loses) of the Federal Reserve are borne by the Treasury. In the past of course, it was modest profits that were turned over each year, reflecting the interest on Treasury bills that the Fed was holding, less their expenses. Get ready for those modest profits to turn into massive losses.

Bernanke has turned the Fed into a money machine to be looted for private profit.

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