Reappointing Bernanke

By Felix Salmon
December 4, 2009
contrite yesterday, as well he should have been:

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Ben Bernanke was contrite yesterday, as well he should have been:

“There were mistakes made all around,” Mr. Bernanke said. “I did not anticipate a crisis of this magnitude and this severity.”

We should have required [banks to hold] more capital, more liquidity,” Mr. Bernanke added. “We should have required more risk-management controls.” He also said the Fed was “slow on some aspects of consumer protection.”

All the same, he says, he should continue to have the job he failed at:

“In the area where we had responsibility, the bank holding companies, we should have done more,” he told lawmakers. “That is a mistake we won’t make again.”

I tend to agree with him. It’s true that the litany of accusations against Bernanke is a long one: a loyal Greenspanite during the Maestro era, Bernanke not only failed to see the financial crisis coming, but reacted to it in an ad hoc manner, losing his independence from Treasury in the process. But that just goes to underline how hard it is to construct a strong, proactive regulator. The way to maximize your chances of success when constructing such an entity is to start with the strongest, smartest regulator you have, and then improve it. Clearly, that’s the Fed, with its control of the money supply, its intimate knowledge of national and international capital flows, and its outposts scattered all around the country.

Is Ben Bernanke the right person to lead the Fed of the future? I’m less sure about that, but for the time being it makes sense to keep him where he is. With any luck, by the time his second term has ended, the government will have passed a comprehensive regulatory reform bill of some description, and it will be much clearer what the Fed’s role in general, and the chairman’s role in particular, is going to be. At that point, the president will know exactly what skillset is required. For the time being, it’s hard to see that replacing Bernanke with anybody else would constitute an improvement — especially not when the leading other contender for the job is Larry Summers.

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Comments
3 comments so far

One of the more disappointing moments of his testimony yesterday was when he was so forceful in saying that Social Security and Medicare should be cut because “that is where the money is”, but demurred on taxes. First, I am concerned about his addressing policy, but if he feels the need to, the lack of even-handedness is an issue: if he is concerned about the deficit all options should be on the table, not just the expense side.

Posted by scott1959 | Report as abusive

A Fed Chairman needs to feel comfortable issuing pain. Bernanke does not have that. That is a problem.

Bernanke was admirable in the face of a deflationary collapse and we are very lucky for that. But the time for economic pain is now, since aging boomers and unfunded liabilities mean great future challenges.

Bernanke’s policies are making Congress’s present profligacy possible. We are raising troop levels in Afghanistan with borrowed money. Considering America’s fiscal position, this is the height of insanity.

Posted by DanHess | Report as abusive

Felix, I think your analysis is flawed if you are assuming Larry Summers would be the next nominee. If Bernanke fails to be reappointed, it will be becasue of voter disgust with “wall street bailouts” and incompetence. In this regard, Bernanke, Geithner and Summers are all lumped togetherr in the public’s mind. Obama woul,d not risk having another confrontaion over this, and would nominate someone he thought would be an easy nomination. If he listens to the public, it would be Volcker, although I think it is unlikely. Anyways, it is not going to be Summers.

Posted by andrew12345 | Report as abusive
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