In a crisis, the other thing the Fed does is to “provide liquidity”—that is, it lends reserves to prevent bank runs. This has been widely accepted policy since the 1840s and there is no central bank anywhere in the world that would not act as a lender of last resort in the sort of situation Bernanke faced. In fact, Bernanke was a bit slow to the gate on this, and never seemed to fully understand what he was doing. While he should have lent reserves without limit, to all comers, and against any kind of collateral, he played around with a variety of limited auctions, let a major financial institution fail due to lack of access to the Fed’s lending, and demanded good collateral for far too long. If anything, the Fed’s slow learning curve contributed to the crisis. Man of the year? I think not.
Finally, the Fed is supposed to be a regulator of financial institutions—through the thick and thin of the business cycle. Let us suppose a counterfactual: what if Bernanke had been a competent regulator from the time of his appointment? In truth, he consistently and persistently opposed any regulation that might have prevented this crisis, but in that he only followed his predecessor. And most of the damage had been done, with Greenspan at the helm since 1987 and with most of the important deregulation already accomplished by 2000. Clearly Bernanke deserves a grade of D- as a regulator (Timmy proudly earned an F when he testified before Congress that in all his years at the helm of the NY Fed he had never acted as a regulator!). So, he is certainly no worse than a Rubin or a Paulson and by 2005 when he was appointed he would not have had sufficient time or influence to overcome all the damage that had already been done. But a Man of the Year might have at least sounded a warning—rather than continually claiming even through summer 2007 that all was fine and dandy.
Bernanke will win reappointment. He has probably learned a bit as a result of this crisis so he will be a better head in his second term than he was in his first. Much is made of his scholarship that focused on the Great Depression. It is indeed a great advance over the work of Milton Friedman, who claimed the Fed caused the crisis by reducing the money supply. Bernanke also blamed the Fed for the initiation of the crisis, but the prolonged depression resulted because of the failure of financial institutions—which disrupted the relation between banks and their customers. When the bank of a farmer or entrepreneur failed, they were unable to borrow to finance operations—which collapsed production and employment. This is probably why Bernanke wants to prop up Wall Street institutions at all costs, to get “credit flowing again”. What he does not understand is that Wall Street banking has evolved—these are not lenders. They are speculators that serve no useful public purpose. If Bernanke were ever to figure that out, and would start to close down these predators, then he might deserve to be called Maestro.
Bernanke has gone from the man who will save us whatever it takes to the guy who did what he could, but it was not enough.The only reason to reappoint him is that there is nobody else on the list that would do much differently.His saving of the big banks did nothing to save the banking function for businesses (or farmers, for that matter). Functional banking is being done directly through the Fed.Ignoring the massive private debt is the most obvious indication that Neoclassicals have no clue.
Nice post! A couple technical points: it's now person of the year, not man of the year. The other thing is the award isn't issued to the best person, but instead the person "for better or for worse, …has done the most to influence the events of the year." source: Person of the Year: 75th Anniversary Celebration (Special Collector's Edition ed.). New York: Time Books. 2002.Maybe it is Gramm, Leech and Rubin who really deserve the credit for most (negative) influence.
The studied, "thoughful" mein notwithstanding, Bernanke is simply at core the most loathesome of maggots. Yes, he will be confirmed, and perhaps rightly so as the quintessential expression of a putrescent system dedicated to the upward transfer of wealth, pre-emptive war, torture and the destruction of countless civil liberties. Snakes like Bernanke make simple analysis of the rot at the very heart of things. In that sense, he does us a service. If it weren't him, it would be some other reptile. Andrei Vyshinsky
Thanks to both of you for comments. As Warren Mosler said in his post on this topic, it would be good to have someone who understand monetary ops in charge. How about Scott Fullwiler, who understands this better than anyone? And so long as the Fed will continue to monkey around with rate targets on the mistaken belief that it can fine-tune the economy, it would be better to have someone who is not an inflation hawk. Hence, even among the mainstream (who do not understand monetary operations), there are better choices than Bernanke. Even Blinder would be better. LRWray
Ignoring the massive private debt while continuous hand wringing over the level of public debt. The Neoclassicals live in the 180 degree universe.
Isn't the Fed responsible for oversight of lending standards? The effects of lax oversight cannot be corrected by interest rate changes. The Fed is the problem. Quis custodiet ipsos custodes. The Congress has abdicated responsibility by the divide and conquer grid lock type of actions that give a free hand to special interests that do not have the best interests of the country at heart.
Disagree. Overly simplistic argument that takes no account of the connection between well street finance firms, main street economics and fed policy.Besides, as another poster has said, the award is for the person who most influences the news. It is NOT an all-round whatta-guy-heckuva-job-well done award. AHven't we just had eight years of that nonsense and isn't it enough?
Hi michigan: Not clear exactly what you want to give Bennie an award for. Influencing the news? The media does not understand monetary ops. (Neither does Bernanke.) Is that award worthy? Give me the fulcrum and I could manipulate the news. (Remember the bubble boy?) If we just want to go for the guy who got the most press, Bernie beats Bennie hands down. So does Paris. Google it. LRWray