I'm on the record as thinking Bernanke has done a pretty good job in a pretty scary crisis. Nothing I've heard recently has changed my mind on that. However, I have to say, watching his testimony to Congress today, I suspect that he's not going to be reappointed when his term ends next year. Whatever happened between him and Paulson and Ken Lewis, he is now giving a very good impression of someone who is lying. And Congress wants someone to blame. Besides, firing Bernanke lets Obama portray all of the failures of this year as Bush errors in policy or appointment.
I think if he's pushed out it will be a real pity, for several reasons. First, Bernanke really is the most superbly qualified economist out there to deal with this particular sort of crisis. But perhaps more importantly, regulatory uncertainty is not what we need now. Bernanke may be tempted to keep monetary policy loose in order to make the economy look better and save his job. Obama may be tempted to appoint someone insufficiently interested in inflation, both to goose the economy ahead of the midterms, and to ease his debt problem. And whoever it is will be getting his feet wet at exactly the wrong time. There's a strong argument to be made that one of the reasons the Great Depression was so bad in America was that the Fed power vacuum left behind by the death of Benjamin Strong left the central bank too divided to take appropriate action.
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Obama may be tempted to appoint someone insufficiently interested in inflation, both to goose the economy ahead of the midterms,
One would imagine Obama's priority is to have the economy running as smoothly as possible come November 2012. How things will look for the midterms is surely of secondary importance.
I agree. First term presidents are almost entirely focused on getting reelected, and getting some of the punishment put on their party at midterms often smoothes the way to that reelection.
Obama's priority being the economy running smoothly presupposes he has the interests of the economy and the private sector in mind. Actions thus far indicate a to me a far greater thirst to grow the government exponentially. No model serves this purpose better than that of FDR and the Great Depression. Perhaps an economy continuing in the doldrums allows him to play the fear of instability card and win via the "stick with the evil we know" factor that allowed Bush to defeat Kerry.
Holman Jenkins wrote an essay, published yesterday in the WSJ, in which he supposes Obama will, at some point soon, jettison his agenda in order to remove the strong sense of uncertainty afflicting business investment in order to get himself reelected. One could argue that he is letting Congressional Democrats fall on their swords as we write on both the healthcare bill/s and the climate change bills. It is interesting times we live in.
And why would he want Congressional Democrats to fall on their swords for? That you believe anything you read on the op-ed page of the WSJ is laughable.
One plausible reason is that he's a politician and, like most politicians, an egomaniac who cares more about power and getting reelected than the party.
Like it or not, Obama's reelection depends on a vigorous recovery, and he is stuck backing initiatives that do nothing but hinder this, but he can't pull them either. So, the next best option is to have them fail in Congress- a Congress with large majorities of Democrats in both houses. This is not unlike 1993-94.
Of course, Obama may go to the wall with these, but then we can call him Jimmy Jr. at that point.
Yancey Ward:
But why? When Obama decided to whip votes himself(see recent War Supplemental) he got all the Blue Dogs(aka fiscal scolds) on board. Every last one. What does that tell you? It tells me that when Obama wants to lean on the wayward Congresspeople from his own party, they'll fold like a cheap tent and vote the way he wants them to vote. Us Progressives would wish Obama does that for health care as well.
Calvin,
So what? The war supplemental is more likely to be supported by blue dogs than any other element of the Democratic caucus, even with their professions of fiscal rectitude. Like I wrote, if Obama goes to the wall and wins these, his chances of reelection decline, even if their passage pleases great numbers of the Democrat Party's base.
However, I predict both big initiatives ultimately lose (the climate bill in the House, and healthcare in the Senate), and Obama won't much care in the end- the base has nowhere else to go anyway, and Obama's reelection will be far more likely without these albatrosses.
I too believe that Obama can whip congress to get anything he wants right now. Seriously what dem is going to publicly stand up to him? So if he really believes in Cap-N-Trade then why isn't he personally calling up reluctant congressmen and getting them on board? My guess is that he really doesn't believe and just tells us what we want to hear. He is using this issue for his own political purposes and no one really knows what those are. I don't think he is overly concerned about reelection yet and it is just as well as the dice are already rolled. Either the stimulus works and employment and housing improve or he is Jimmy Carter part deux.
However, I predict both big initiatives ultimately lose (the climate bill in the House, and healthcare in the Senate), and Obama won't much care in the end- the base has nowhere else to go anyway, and Obama's reelection will be far more likely without these albatrosses.
You are wrong. You really think passing a good health care bill is an albatross? Seriously? Do you really think he doesn't care about his legacy? And besides, what will bring Democrats out to the polls for the mid-terms if Obama fails on health care? Clinton learned that the hard way in 1994. And if he fails on health care, what brings them out for his re-election?
Yancey,
Sorry, but I don't buy that. For two reasons, really. One, you assume that Obama initiatives are impeding recovery. Now, we can argue about that all day, but I think you've erred in assuming Obama feels the same way. I'd disagree. I'd say that this administration is cautiously hopeful that the economic malaise will stall and, if it does, can take credit for it.
I also say that it's far from a foregone conclusion that the Republicans will sweep back into the houses in the mid-terms. They've made some gains, but this is after catastrophic losses last year. They could pick up dozens of seats in the house and a few in the Senate and still not effect the Democratic majority.
And, face it: a Democratic congress, even an unruly one, is still going to be kinder to Obama's agenda that a Republican one. He wouldn't take actions to lose his congressional majority two years into a hoped eight-year run.
And another thing! (Shock! Gasp! Surprise!) I agree with Calvin, above - contrary to the talking heads, universal health care is one of the most popular initiatives currently being floated in the country. Look at the polls. 70% of Americans think there should be a public entity to compete with private insurers. And it's going to happen - it's just a question of which form, and the what extent, Congress is willing to pass.
I also think Yancey commits a bit of a false reading of politics. Yes, the president has a lot of authority, but that's far cry from being able to snap his fingers at congressional democrats. Look at all the scurrying Rahm Emmanuel had to do to get the stimulus bill passed. Look, FDR was probably the most powerful democratic president in history, and his relations with the legislature were hallmarked by pressure at retreat. Obama isn't pressing for cap and trade because there are other things dearer his heart that are going to require more pressure than that.
@YanceyWard - I'd hate to agree with Calvin . . . I spent so much time disagreeing with him, below - but the Journal editorial page? Save yourself, man!
It's not that I don't love the Journal. The Wall Street Journal exists to happily remind me that the Wall Street Journal is desperately out of touch.
I shall summarize every editorial they have ever written, Twitter-style:
WALL ST RULZ!
Woot the Bush Admin!
WTF do da Dems thinking? Market will take care o' itself.
Senate to discuss any financial regulation, at all. Sad face. :-(
Strawman:
Thanks!!
There was an article in HuffPo recently about the (Obama) Dem team having a Clinton group of economists who were going to get the economy going. He does have a bunch of bright folks. Roubini has praised Geithner. Orzsag is no slouch. Obama's likely going to have put up with awkward silences in meetings with his economists if he doesn't go with pragmatic answers to economic questions.
I'm on the record as thinking Bernanke has done a pretty good job in a pretty scary crisis. Nothing I've heard recently has changed my mind on that.
You are kidding right? He watched this crisis unfold and did nothing. Now you say he did a good job cleaning up? Any 1st year economics student could balloon the Fed's balance sheet like he has to clean up the crisis.
I would hardly call TARP nothing...
@Calvin,
I kinda agree with McCardle on this one - it's very easy to second guess Bernake's actions, but we really were standing on the brink of another Great Depression - and if we avoid this, as we've avoided a massive round of bank runs and record illiquidity - then at some point we need to ask why. The actions he took worked, to the degree the world economy is still barely functional.
As for ballooning the fed balance sheet - in light of those events, what exactly is wrong with that? Would it have been better to let lapse any assurance of liquidity in our major banks and watch B of A, Citibank, et al fail? After what happened after Lehmann Brothers, I can guarantee you that won't be pretty.
I think Bernake was done for, not by his policies, but by his politics. Insisting that the crisis would be confined to the mortgage market and was, in essence, a small market correction was suicidial. Even if he dealt effectively with the crisis he was never going to survive saying that.
Strawman:
I agree to an extent. Except I doubt we'd have bank runs. I mean what is the FDIC for? Citibank looks like it will fail anyway. BofA is far from out of the woods. But that is the problem Bernanke made. You can't bailout Wall Street and then Main Street(meaning the car companies) go bankrupt. The gig would be up then. Of course Bernanke was done in by his politics. Despite what CNBC says, I bet most of Wall Street laughs at "B-52" Ben.
I think that it's a bit of a stretch to say that Citi will fail - and from reading your posts, you'd probably say that that's part of the problem. And I agree that there is a continuing cloud of illiquidity and insolvency that makes our banking system anemic.
I've also thought we should have nationalized the big players, anyway. I mean, seriously. Easiest re-branding exercise ever. Just change, "Bank of America' to "THE Bank of America." Marketing. Gold.
More seriously, this would have cleared up the balance sheet issues, permanently.
But then, that's not Bernake's decision, nor is it really his decision to enforce greater regulation on these banks, which is also needed. He had two options. One, use the tools at his disposal to prevent a massive economic collapse. Or two, do what he had to do to prevent it.
The rest, the whole cloud of negativity that still surrounds these banks, isn't necessarily something you can blame on him. I don't think anyone in his position had the tools to prevent that. And, as a supporter of the administration, I have to admit that the greater share of the responsibility is theirs.
Any 1st year economics student could balloon the Fed's balance sheet like he has to clean up the crisis.
Yes, and any overeducated neo-mellonite could have run this country right into the Great Depression II.
The fun will start when said "goosing" fails to occur and turn into what happened every other time in human history when the state tried to replace economy with money printing, moar inflation! Seriously, its like end of the world predictions, none in human history has ever come to pass yet each succeeding generation takes up the banner as if it were invented.
Ah! Another Hooverite. Let me know how your deflationary policy worked circa 1929, eh?
McCardle's a big-un for inflation fears, and I've never understood why. First, the excess money supply is being soaked into bank balance sheets to recapitalize, which means it's not running around the economy willy-nilly, inflating asset prices like a doped up teenager.
Don't get me wrong - inflation WILL be a concern. Eventually. I'm more concerned with escaping a crisis of liquidity with something resembling an economy, and to do that, you need to inflate. I agree that timing, in this case, is everything - if the Fed doesn't take aggressive action to reduce the money supply after the crisis eases, than inflation will become a serious concern. Mr. Greenspan's "quarter point every year or so, so long as a I get my cup of coffee" is probably not the way to go about it.
Smoot-Hawley?
Do you know anything about the Great Depression?
Monetary dilution just pushes resources into industries that can't survive at healthy interest rates but have access to higher levels of monetary creation.
The panic of 1929 (caused by fed inflation and excessive leveraging by banks during the 20's) would have been over and done in a year or two if not for the policies of the government.
My solution is reappoint Paul Volker. He is here, he is complaining he has nothing to do, and he would put the hyperinflation meme to rest.
Won't happen. Volker had to kill the economy in order to save the dollar. Nobody has the stomach for that kind of discipline anymore. Besides, he's not Jewish and I think that's a job requirement now.
There was a pretty good Frontline detailing this situation recently:
The Ivy League alphas bullied Ken Lewis into buying Merrill Lynch.
The entire financial system was on the brink of failure and they needed Bank of America to save it. It was an extraordinary time. John Thain was so distressed that he had trouble calculating his bonus.
Which is funny because Countrywide is what will destroy B of A. Not Merrill. Why Lewis would touch Countrywide is beyond me.
As someone who simply cannot listen to anyone from Washington DC anymore, could you tell us what he is lying about today?
If Bailout Ben is axed the markets will tank. I don't think Obama wants that. I think Bernanke will survive.
Why would they tank? Do you have any proof of that? Besides Jim Cramer's stupidity?
The TARP money should have gone into FDIC, supporting innocent and hard working savers, not thieving bankers!
I would have advised Bernanke to be a bit more blunt with respect to the Merrill issue. I mean, you could certainly make a compelling case that preventing the collapse of yet another iconic American global investment house was something the government had very good reason to want to prevent. I think he should have just said:
Reasonable people can disagree about whether such pressure was entirely appropriate, but there certainly were rather extenuating circumstances, and one could hardly accuse Bernanke of not having the national interest at stake.My own opinion is that arguing over the efficacy of any Fed chairman in a supposed capitalist economy is like arguing over which fox best guards the hen house. It's an invalid argument. Free markets have invisible hands, not big 5 fingered clumsy hands.
Ditto Spork. I'll go even further to say that Great Depression II has not been averted yet, but delayed. Bernanke has NO credibility to preach about inflation and government deficit spending, not when his printing presses are running full tilt.