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Wednesday, August 26, 2009

What a disaster. Ben Bernanke to be reappointed Fed Chairman

This reveals very deep problems in the Obama program.

Bernanke was chief economist to George W. Bush, from which position he rose to Fed chairman. It is often remarked that we are so lucky to have an expert on the Great Depression in charge when the second Great Depression came knocking.

Bernanke was put in charge not because he is an expert on the Great Depression, but because he values the big banks above all else. He is deep in the pockets of Wall Street. His theory of the Depression is that it could have been avoided if we'd just saved the institutions that caused it. Witness the hundreds of billions of dollars in transfer from the taxpayer to the big banks, the free too-big-to-fail insurance, the many missed calls and predictions, the absence to this day of real help for mortgage holders when their main asset goes down.


The Monetarists are alarmed at the unprecedented direct loans and guarantees to specific Wall Street firms. Why? It's just socializing the risk. And extending the disease. And making sure we don't solve the problem so we can have another big crisis in a few years.

But by far the worst element is what it says about the Obama team and Obama's understanding of what is wrong. Sixty years of New Deal protections worked, but there is no inkling to go back to them. Market discipline is out the window when banks are too big to fail, but no move to break them up, only to backstop them. The Fed has arrogated new powers to itself, but apparently with the consent of the Treasury and Administration.

The policy adjustments we had hoped for are clearly not in the cards if this is the preferred path. Boomers look out. You saw your wages stagnate for thirty years. Now you can retire in the Great Recession.

It is no fun saying "I told you so." Half the responses are, "You did? I don't remember." The other half are silent gestures. This post is for the first half.

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