Ben Bernanke: The Smooth Criminal

I know this isn’t a universally held opinion, but to me there is a simple reality. Between September and December we were facing a significant chance of another Great Depression. Beyond that, we were potentially looking at a financial disaster from which the United States would never recover.

Today, it looks like we are merely facing a very bad recession.

Who deserves credit? Certainly not Hank Paulson and the Bush administration. They choose philosophy over pragmatism every chance they got. They gave in to the moronic “moral hazard” bullshit argument. They stuck to their right-wing “fuck off and die” mentality toward the banking system. That worked out great didn’t it? Then when they had the chance to use the TARP right, they failed miserably. Again, they gave into the moral hazard wing of the Republican party and instead of buying up bad securities, they initiated the Capital Assistance Program. No moral hazard there!

Can’t credit Obama either. I’ll admit that the Stress Test was a much better idea than anything Bush ever came up with, but I’d argue that by December we had already turned a corner. Obama just managed to keep the momentum going. Besides, his $800 billion stimulus program is, at best, a waste of time, and at worse, contributing to rising Treasury yields and thus retarding the recovery.

I have to give most of the credit to Ben Bernanke. He understood that while liquidity wasn’t the whole problem, illiquidity could have made (and was making) the problem much much worse. He understood what really made the Great Depression a 15 year affair rather than a 2 year recession. He understood what created Japan’s lost decade (and counting). He saw how dangerous debt deflation could be, and he attacked it with both guns blazing.

Some people derided the Fed’s efforts as ineffective. That’s because they were looking at how the stock market or housing market was reacting to Fed rate cuts. But the cuts were never meant to “solve” anything. Housing prices had to fall to more affordable levels. Nothing could (nor should have) been done to stop that. Stocks had to fall in reaction to the oncoming recession as well as the reality of a weak recovery. For that matter, unemployment was bound to rise as workers are moved from leverage-oriented jobs to someplace else. The Fed wasn’t trying to solve any of these problems.

Compare this with Alan Greenspan’s constant manipulation of the stock market. In today’s FT, Greenspan says as much in an opinion piece:

“In my experience, such episodes [rising or falling stock prices] are often not mere forecasts of future business activity, but major causes of it.” ( emphasis added).

That sums up Greenspan’s tenure at the Fed doesn’t it? He’s basically saying that by creating bubbles, he was able to spurn real economic activity. Look, a lot of us fell for it for a long time. He was called the Maestro for the Force’s sake. But now, in hindsight, we can certainly see the folly in this philosophy.

Now the morons in congress are coming for Ben Bernanke for how he handled the Bank of America/Merrill Lynch merger. Seriously? Now, let there be no doubt. Ken Lewis was pressured by the Fed in a way that should leave a bad taste in the mouth of any free citizen. But we were in the middle of an economic war. Sometimes some bad shit happens on the battlefield and sometimes its OK if we look the other way.

If the Republicans push this, though, Obama will be left with little choice but to not reappoint him. Then we’ll get Larry Summers. Great. Even if you forget all the virtues I’ve just bestowed on Bernanke, remember this. The key to an effective Central Bank is independence. Otherwise we have Arthur Burns. It was Burns, not oil, which caused the Great Inflation of the 1970’s.

How can we seriously assume Summers will be independent of Rohm Emanuel? If Summers winds up running the Fed, mark my word, inflation will follow.

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About Accrued Interest 118 Articles

Accrued Interest provides unique, expert insight to developments in the U.S. bond market. It is written by an anonymous professional working in the field.

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4 Comments on Ben Bernanke: The Smooth Criminal

  1. A 2-year recession? Really? We have briefly postponed the pain, nothing else. If you think more debt and QE really solve our systemic debt problem, I think you’re due for a rude awakening.

  2. “I know this isn’t a universally held opinion, but to me there is a simple reality. Between September and December we were facing a significant chance of another Great Depression. Beyond that, we were potentially looking at a financial disaster from which the United States would never recover.”

    The only depression would have been in the bankers balance sheet, after their derivitives casino would have blown up and the criminal banking entities put out in the spotlight this country could have started righting itself. But now we are aimlessly adrift in debt with a currency on the verge of callapse with CONfidence the only thing holding it up. The casino and it’s FED mafia still in charge, I have no confidence in that at all. The depression you speak of has only been delayed and will now be worse because of it. And as for the U.S. never recovering? what are you speaking of, the REAL economy and it’s people who are the real backbone of this land? or the phony economy, it’s crooks and cronies? I think we would be just fine as a nation without the FED and it’s private bankers criminal activity.

  3. by the way Inflation has already occured, cost of living adjustments will follow the bubble in the currency (M3 aggregate) so you can already start blaming for the irreversible inflation train that is on it’s way. Greenspan and Bernanke are no different. they have the same agenda working for the same criminal banking families, and that agenda is to inflate the value of currency away over time. AKA stimulate the economy.

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