The Bernanke Record: Positive, But Not Perfect

The Federal Reserve’s meeting this week will be Chairman Ben Bernanke’s last before he leaves to make room for Vice Chair Janet Yellen to assume her new position at the head of the world’s most important central bank.

Much has been written speculating about what Yellen will or will not change, but before we look too far forward, it is worth looking back at how Bernanke did in the job.

I think Bernanke will be remembered first and foremost for playing the key role in preventing the financial crisis of 2008- 2009 from becoming a world-wide depression. It was he, along with then-Treasury Secretary Henry Paulson, who after the disastrous mistake of allowing Lehman Brothers to collapse decided to underpin the world financial system with an essentially unlimited supply of money, backed by the U.S. government’s credit and its magic dollar printing press.

It was a bold step, controversial and risky at the time, but as a result the crisis of confidence passed and there was time for global financial regulators to sort out which institutions needed to strengthen their capital base and by how much. Even in the darkest days of the crisis, the world wasn’t truly bankrupt. (It just felt that way.) Time magazine named Bernanke its “Person of the Year” for 2009, recognizing the extent to which his leadership and creative thinking minimized the potential damage of the recession and kept it from turning into a true global disaster.

Historians will remember Bernanke’s refusal to surrender to an atmosphere of panic as a heroic action, and they will doubtless contrast his willingness to invent his own measures to keep the economy afloat with the passivity with which central bank heads allowed their economies to spin out of control in the 1930s and, to a lesser extent, in the 1970s. An avid student of the Great Depression, Bernanke’s consciousness about the dangers of deflation helped spur him to action, sometimes in unconventional ways.

Though his crisis management skills were remarkable, Bernanke’s policies during the recovery from the 2008 crisis will probably draw more of a mixed verdict from economic historians, even though the jury is still out on the ultra-easy money policies that have persisted since the crash. Certainly those policies have helped the housing and stock markets to regain their footing, and as Bernanke and his colleagues intended, they have probably bolstered the country’s foundering employment numbers, which nevertheless remain relatively weak. The surge in inflation that many critics, including me, have predicted has not happened so far. But the unwinding process, in which the Fed will eventually need to back off its current multi-trillion dollar position, will inevitably be difficult and messy. The prospect is already producing turmoil in emerging market currencies and contributed to a nasty week on Wall Street last week.

Bernanke has not been as vigorous as he could have been in defending the financial industry against politically motivated attacks. He was also ineffective in arguing against wrong-headed reforms that will limit his successors’ flexibility in dealing with financial crises. Future chairmen won’t have as much latitude as Bernanke himself had. Bernanke did his successors a disservice by not arguing frankly and publicly against the changes that stripped Fed powers to respond to crises.

In addition, whatever economic growth that quantitative easing rounds one, two and three have produced has come at the expense of savers. Restoring healthy incentives for saving and growing capital for future needs is a problem that Bernanke passes to Yellen, who seems to have as little interest in the matter as Bernanke did.

A little over a year ago, my colleague Paul Jacobs noted that Bernanke did not need to worry, as it was reported he might, that anyone would criticize him for doing too little. He was an exceptionally active Fed chairman. While Bernanke’s scorecard is not perfect, I think he will ultimately be remembered as the right chairman to serve at the Federal Reserve at just the time he did.

About Larry M. Elkin 551 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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