So today we learn we'll be getting seconds on Ben Bernanke. I'm inclined to think that's a good thing. As more than one economist has pointed out, if you were going to pick the one guy most qualified to see us through the financial crisis, you'd probably pick Ben Bernanke.
So why wasn't it closer to perfect? Why did Goldman Sachs end up with gigantic profits, while we ended up with the bill? Why did he rescue Bear Stearns and leave Lehman to twist in the wind? Why didn't he know that money markets would lock up? Why didn't we do what either left or right wanted: let the bastards fail, or take them over?
Well, in part because policy is never perfect. Crises are sui generis, and information is limited. Bernanke bailed out Bear Stearns to prevent contagion, and let Lehman fail to prevent moral hazard, and only during the fallout from Lehman did he learn that contagion was the bigger risk. He had a choice between becoming the fiery avenging angel of justice, or keeping the system from collapsing. In the long run, no doubt there will be bad results from this, and many will wish that he had not done it. But in the long run, the possibility of bread lines and 25% unemployment will seem comfortably far off.
But mostly, because central banking has always been a bit of a muddle. Hard and fast rules are intellectually appealing, but they have so far always failed in practice. Put yourself in Ben Bernanke's place and imagine that there was a 10% chance that either nationalization or letting banks fail would spark a panic violent enough to push us back into another Great Depression. Would you be willing to try the experiment for the sake of principle? Or would you be inclined to worry about the long term problems later?
As it says in To Kill a Mockingbird, Bernanke did the best he could with what he had. It was not perfect. But looking around at the mostly employed people on the streets, I'm glad he was there.
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the possibility of bread lines and 25% unemployment will seem comfortably far off.
Oh, but many fervently wish for "bread lines and 25% unemployment"! They long for a good harsh depression to cleanse the rot out of the system.
I call them neo-melloites - but there must be some long German word meaning: to ferventy wish for others to be brought low.
Jmo - I fervently wish for our system to cleanse itself, but not for others to be brought low. Does that make sense?
I want to see people become more risk averse with large chunks of their portfolios, and to thinkof 8-10% gains to be good enough. I want to see consumption be cut down to levels which can be maintained without deficit spending (by consumers, states, and federal governments).
I think this is possible without 25% unemployment and breadlines, but that is a surefire way to make people buck up and suck it up.
What I'm more worried about now is that our currently elected officials have at least several years to enact massive spending programs that are not sustainable under the premise that the populace neeeds them and the populace can handle more taxation to fund them.
Personally, I find my overall rate of taxation to be outrageous. I define taxation as any monies taken out of my control by a government entity. I'm middle-class and between incomes taxes, social security, medicare, unemployment, sales tax, state income tax, local taxes, school taxes, gas taxes, and beyond....
I believe i'm paying something around 40-50% of my income in taxes to support some form of government.
While I wholeheartedly support schools, and maintaining roadways, and a good unemployment benefit, etc....the overall government spending rate needs to decrease dramatically commensurate with a reduction in tax revenue.
Someone needs to cut the fat.
Are some of "they" dominant members of alternative status hierarchies? I suspect that some survivalists (some!) hope for a "grid-down" scenario, because they will be the rich and others will be brought low.
Klug,
"alternative status hierarchies" & survivalists
I've often wondered if the survivalist community is primarly populated with low status men. That would be the group I'd imagine most likely to be intriuged by the concept.
If they're really so sui generis, why would we most want someone who studied a previous crisis, and thus might have learned all the wrong lessons?
So because today's problem is unlike previous problems, best to hire someone who's never studied any problems? I'm glad you're not responsible for any engineering I depend on.
People who are moderately intelligent can study problem A, learn lessons from it, and apply their acquired knowledge and skills even to a new, dissimilar problem B. In fact, their in depth knowledge of problem A might even help them to recognize the differences in problem B.
B-52 Ben at the controls, and Tim loading the bond-bay...
What's funny is that the timing of the Bernanke appointment appears to be cover for the fact that the AFL-CIO just took over the New York Fed.
The mafia takeover of New York is now complete.
Hughes has been acting chairman since May - so the de facto mafia takeover is just now de jure.
I still don't like the bailout, and there are too many too-big-to-fail time bombs still lurking out there. But overall, Bernanke hasn't been too bad. Looking back on some of the historical craziness that's been tried, he's done alright.
It's too soon to assume we won't have 25% unemployment and bread lines in this crisis; I don't think we will, but it's far from a sure thing. And Helicopter Ben's green light for vast and unproductive federal spending won't help. That may not be what he wanted when he pressed for the stimulus package, but it's very predictably what he -- and we -- got.
Nor is it yet safe to say that contagion was a greater risk than moral hazard. The former was a short-term risk; the latter, medium to long term; so we won't know for at least 2-3 years how Bernanke's actions have affected Wall Street's and the banks' assessment of risk.
And I would love to hear Megan's take on the AFL-CIO chief being handed the Fed. I don't panic at this, but I do wonder WTF?
Hmmm. If only there were some other person who were involved who might have been the CEO of one of those companies before serving in a certain department of the government. A person who got down on his knees before Nancy Pelosi in late 2008. Hmmm.
Oh, yeah. There was.
It's funny how people talk about Timmeh and helicopter ben, but seem to forget that it was hitman hank who was calling a lot of the shots.
Conflicts between populist and financial factions are as old as the Republic. It's deliciously ironic that Hamilton (the banker) and Jackson (the anti-banker) are both on the currency. And Old Hickory got the higher billing!
[Anyone know why Grant got the $100, and Franklin the $50? Gives a new meaning to "Helicopter Ben."]
Since modern economics calls for an independent central bank but the Constitution calls for Congressional oversight of the currency (Article 1 Section 8), this conflict, like the poor, will be always with us.
Since modern economics calls for an independent central bank but the Constitution calls for Congressional oversight of the currency (Article 1 Section 8), this conflict, like the poor, will be always with us.
That's where modern economics can go wrong. We know that The Fed is not truly independent.
"Congress shall have the power to..." does not prevent it from using an arms-length body to exercise that power. There's no inherent conflict between that clause and the Fed.
I had predicted a few months ago that Bernanke would not be reappointed. His campaign the last two months was brilliant.
Or your prediction was clueless.
Given your record on, well, anything, I'm inclined to think the latter.
It may well have been clueless, but I have never seen a Fed Chairman campaign for reappointment like Bernanke. However, I can't remember one ever really wanting reappointment that needed to campaign for it, until now.
I find it worrying that everyone is using TARP repayments and the rise in banking shares as an argument for Bernanke's reappointment. After all, to achieve this (temporary) rise the Federal Reserve has been pumping even larger sums of money into the MBS market in order to artificially inflate the prices.
My major complaint with the bailouts is how they were done. OK, we can't let the credit markets lock up, but the bailouts should ALL have been predicated on breaking up these behemoths into entities that don't threaten the entire economy when they collapse like this (which some inevitably will as soon as there's another bubble to invest in).
As you point out, the interventions were sometimes arbitrary, and some sticky fingers have already been found in TARP. It's hard not to view this as partly a giant transfer of wealth from taxpayers to the politically connected.
It's hard not to view this as partly a giant transfer of wealth from taxpayers to the politically connected.
That's exactly what it was. And most Democrats outside the Beltway(as well as a lot inside) aren't happy about it.
Hey, we agree on something!
Surely the Apocalypse draweth nigh.
I would say again that economic history did not begin in 1929, there is a rich record of previous crises handled by letting the system collapse.
When the banking system collapses, as it has many, many times in economic history, the replacement is not a nullity. Liberals act as if the banks collapsed there would never be banks again. This never happened in the actual laizze faire crises of the Gilded Age, In every panic, many large banks went under, new banks emerged, and the economy moved on with sub 3% unemployment (Hong Kong status) and ever expanding real production. In the course of 30 years of complete non intervention America was industrialized and emerged as the dominant economic power.
The former aristocracy cum progressives set themselves against these developments and have ever since been trying to convince us that what happened over and over in the past is, in fact, systemically impossible. How do they get away with it? In the works of my favorite anonymous man, "you elected them".
Really?
Estimates of Unemployment during the 1890s (Source: Romer, 1984) Year Lebergott Romer
1890 4.0 4.0
1891 5.4 4.8
1892 3.0 3.7
1893 11.7 8.1
1894 18.4 12.3
1895 13.7 11.1
1896 14.5 12.0
1897 14.5 12.4
1898 12.4 11.6
1899 6.5 8.7
1900 5.0 5.0
When the banking system collapses, as it has many, many times in economic history, the replacement is not a nullity. Liberals act as if the banks collapsed there would never be banks again.
What liberals are you talking about? Names, please!!
The former aristocracy cum progressives set themselves against these developments and have ever since been trying to convince us that what happened over and over in the past is, in fact, systemically impossible.
Why are you conflating Aristocracy and Progressives? The Aristocracy represents the status quo. Progressives don't.
That rather depends on what the status quo is and who is trying to change it, now doesn't it?