A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Saturday, July 11, 2009

Podcast Transcript: Bernanke Volume 2: "Please, God, make it stop."

If there is a volume 2 of Ben Bernanke's tenure at the Fed, it will come to be entitled, "Please, God, Make It Stop."

By way of Brad DeLong, we get:

Jon Hilsenrath, Sudeep Reddy, and David Wessel write:

White House Ponders Ben Bernanke's Future

As the White House begins to ponder whether to reappoint or replace Ben Bernanke when his term expires in January, the Federal Reserve chairman's standing on Wall Street is on the rise while attacks on him from Congress mount. Treasury Secretary Timothy Geithner is expected to play a key role in advising President Barack Obama on whether to reappoint Mr. Bernanke. Mr. Geithner has worked closely both with Mr. Bernanke and with the leading alternative for the powerful post -- Lawrence Summers, the former Treasury secretary, who is currently the president's top economic adviser.

There is no doubt that Bernanke's standing on Wall Street is high. How could it be otherwise when his whole strategy is to save the Street and the jobs on it? Hundreds of billions of dollars have been spent on keeping the big banks in business. The economy is no better, but the financial sector has stopped screaming. Is it stable? It depends on whether you think hundreds of billions of dollars per year in support to the sector which torpedoed the economy is a stable long-term strategy.

Before making a decision later this year, the White House also is expected to look at other economists, including Roger Ferguson and Alan Blinder, former Fed vice chairmen; Janet Yellen, president of the San Francisco Federal Reserve Bank; and Christina Romer, chairman of Mr. Obama's Council of Economic Advisers.

Of these, I would like to see Christina Romer, and perhaps secondly, Alan Blinder. Bernanke was chosen because of his pro-Street philosophy. Bankers, in either Keynes or John Kenneth Galbraith's words, believe they understand the economy because of their proximity to money. It is, unfortunately, a vacuous understanding and a false belief.

Mr. Bernanke's reputation on Wall Street has ebbed and flowed. But a Wall Street Journal survey conducted this week of 46 private-sector economists found that 43 endorsed his reappointment. "Bernanke's leadership during this financial crisis was outstanding, but not flawless," said Scott Anderson of Wells Fargo & Co., one of those surveyed. "But given human limitations and the limitations of economic and financial knowledge he deserves another tour of duty." Some saw benefits to continuity. "Don't change horses in midstream," said David Wyss of Standard & Poor's. Others cited the alternatives: "Stated differently: Don't appoint Summers," said Nicholas Perna of Perna Associates.

But ultimately, What better recommendation for change than the support of 43 out of 46 economists from the Street. Continuity is no longer a positive attribute in a recession. What we want is some sort of change. The quote limitations of economic and financial knowledge ..." Is code for "We didn't know what we were doing, we don't know what we're doing now, but we can make it sound good."

The White House isn't rushing to decide on reappointing Mr. Bernanke, who hasn't sent any signal that he wants to leave the post. The Intrade online wagering Web site puts 60% odds on reappointment. But a bad turn in the economy could prompt Mr. Obama to seek a new helmsman of his own choosing, or new embarrassing revelations about Mr. Bernanke's handling of the financial crisis could alter the picture before the president makes a decision. For now, the White House is concentrating on finding new members for the Fed board. Two of the seven seats are vacant. Two sitting governors -- Kevin Warsh, 39 years old, and Donald Kohn, 66 -- are widely believed to be eyeing the exits. The White House is seeking at least one candidate with financial-market experience, a tough task at a time when likely choices are tainted by Wall Street ties....

How appropriate to look to a wagering Web site for clues to Bernanke's future. He made his mark by coddling the casino culture. It was a case of the hen guarding the fox house. Let us not forget that the onset of the credit crunch was nearly one year prior to the crash in September of '08. There was no organized response in September. Only an excruciatingly expensive bailout.

Mr. Bernanke has come under tough questioning on Capitol Hill, and new powers that the Obama administration proposes to give the Fed have intensified congressional scrutiny of the central bank. "If these new powers are going to be granted to the Fed, then maybe a professor of economics will never again be the best choice for the Fed chairman," said Darrell Issa (R., Calif.). Rep. Brad Sherman (D., Calif.) accuses the Fed of "a Wall Street mentality." Regarding Mr. Bernanke, he said, "Of those who are infected... better than average," but he said he would prefer a Fed chairman with "populist Democratic values."

Still, Mr. Bernanke has influential admirers -- including Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, and Rep. Carolyn Maloney (D., N.Y.), chairman of the Joint Economic Committee. Ms. Maloney, who backs Mr. Bernanke's reappointment, said, "He's basically an academic working in a nonpartisan way to save the economy." Mr. Bernanke would need to be confirmed by the Senate if reappointed for a second four-year term. Both the chairman of the Senate Banking Committee, Christopher Dodd (D., Conn.), and the panel's senior Republican, Richard Shelby of Alabama, have been critical of the Bernanke Fed...

Bernanke gets high marks for finding ever more inventive ways of flooding the system with liquidity, and for doing his honest best. Unfortunately a man's honest best when locked in a room of his own ideology is not very good. The liquidity in the absence of a bottom to the housing crash is like blowing up a tire with a hole in it. It doesn't matter what the pressure. In fact the more pressure, the worse. We are providing liquidity to market players. Players. Not to productive investment. Lower interest rates and more money affect the housing market through refinancings, not through new purchases, for the most part. Hence, no end to the downturn.

DeLong comments:

A year ago I would have said that Ben Bernanke was almost certain to be a one-term Fed chair. The financial crisis was bad enough and enough decisions had to be made quickly enough that it was certain that he would make some big mistakes, and in the aftermath too many people would remember and he would be too damaged to be the right choice moving forward.

But given the quality of the opposition to a Bernanke reappointment that Hilsenrath and company have been able to dig up, it seems that I was wrong. The complaints about Bernanke seem... incoherent. And the consensus judgment appears to be the correct "outstanding but not flawless."

And, yes, Larry (or Janet, or Roger, or Allen, or Christy) would in all likelihood be very, very good at the job as well.

DeLong is a good mainstream liberal, I suppose. But this is far too easy on Bernanke. He tried to take the Greenspan line and run with it. Hands off. Easy money. Watch out for inflation and when it shows up raise the federal funds rate. The Greenspan line didn't work. He was forced to his academic predisposition of saving the big banks first. We see what that has done. Unfortunately we will have it with us for a long time.

We cannot afford to ratify another one of George W. Bush's bad hires.

Please..Here is a clip from Tom Keene, Robert Shiller, Ken Pruitt and Nouriel Roubini you may have heard from a Bloomberg special discussion, commercial free.


The Fed as a culture missed the boat. The Fed is captive of Wall Street. The efficient market hypothesis and the cocktail of market fundamentalism mixed with corporate control has blown up in the Fed's face.

It is not simply that one man may be better than the other. It is the voodoo economics, the primitive economics of trust in markets because they are so powerful that has made everybody worse off.

The shamanic cult is still in power, but with no rationale, since their road to prosperity has led only over a cliff into the brink. They are in power because they are the choice of the pollitically powerful.

The consequence of having people continue to run things when they have run them into the rocks will o nly bring more trouble. It might seem like less because the ship is grounded and the shaking has stopped. But we need to get going again. Not sit here while the thing slowly disintegrates.

No comments:

Post a Comment