Felix Salmon

Ben Bernanke, Person of the Year

By Felix Salmon
December 16, 2009

Reading Michael Grunwald’s homage to Ben Bernanke, the 2009 Person of the Year, what’s striking is the list of defenders and opponents. At the top of the piece, Grunwald talks about how he has been assailed by “criticism from all directions”, but doesn’t really name names, relying instead on generalities such as “bleeding-heart liberals and tea-party reactionaries alike”. The list of named detrators is: Ron Paul, on the right, and Paul Krugman, on the left.

Meanwhile, the people lining up to praise Bernanke include Stanley Fischer; Mervyn King; monetary historian Liaquat Ahamed (who wrote the book Bernanke “wishes he had written himself”); Alan Greenspan; Frederic Mishkin; Jean-Claude Trichet; Kevin Warsh; Tim Geithner; and Hank Paulson. It’s heavy on Davos-circuit central bankers — the kind of men who instinctively circle their own wagons in times of crisis and will always say nice things about each other if asked. Besides, substantially all of them, bar Ahamed, would implicitly be criticizing themselves if they said anything bad about Bernanke’s decisions: they all signed on to what he did.

Grunwald himself has clearly decided that Bernanke is a hero, dismissing serious criticism of say the decision to let Lehman fail by simply saying that “it’s not clear how the Fed could have saved Lehman without a buyer”. (Of course there was a buyer — Barclays — and it’s precisely by stepping in with some short-term Bear-style financing that the Fed and Treasury could have allowed a smooth acquisition to proceed.)

Most interestingly, Grunwald never mentions the Fed’s massive loss of independence over the course of the crisis. While it’s understandable as a policy response — the last thing you want in a crisis is the fiscal and monetary authorities pulling in different directions — it also carries much greater risks than some of the other things that Grunwald worries about. On the other hand, Grunwald I think understands the black-swan world that Bernanke’s facing:

He’s got to worry about currency traders too; the Chinese and other holders of U.S. debt could lose confidence and start a run on the dollar that could shake up the world, or a Dubai-style default hysteria could start a run to the dollar that could cripple U.S. exports.

It’s not that either of these things are likely, of course, but the point is that markets are volatile, and that the dollar is liable to move sharply in an unknown direction with very little warning. The same is true of stocks and credit: if they can rise as far as they have done over the past 9 months, they can fall fast too.

So Bernanke needs to remain on a war footing, willing to react as necessary to chaos if it re-emerges, and staying in very close contact with Treasury. That will only solidify the degree to which he’s defended by the international technocracy, but it also makes it much harder for him to break the ropes tying him to the White House when he needs to start making politically-unpopular decisions.

7 comments so far | RSS Comments RSS

It is pretty extraordinary that Bernanke, whose whole life and background was basically a preparation for a credit and liquidity crash, landed in the Federal Reserve chairmanship just ahead of the greatest credit and liquidity crash in the history of the world.

That said, one must wonder whether he is the man for the next big battle, which most believe is inflation. Considering that unemployment may remain high for a decade, controlling inflation may require raising rates in a bad economy. Will he do that? Failure to do that could result in a capital flight.

Posted by DanHess | Report as abusive

It’s hard to argue that Bernanke was not well-situated for this unique moment in history, and I think he’s done a marvelous job in the wake of Lehman’s devastation. But I also agree that he has to be held complicit in the Lehman decision, which stopped financial markets in their tracks and dramatically steepened the economic drop. What’s done is done, though, and at this stage, I’m not sure I’d want anyone else in that seat.

Posted by suozman | Report as abusive

It is pretty extraordinary that Bernanke, whose whole life and background was basically a preparation for a credit and liquidity crash, landed in the Federal Reserve chairmanship just ahead of the greatest credit and liquidity crash in the history of the world.

Just as extraordinary as when our other hero, Sully Sullenberger, a man who had been preparing his entire life for just such a scenario as the miracle on the hudson, and had specialized and trained in gliding big jets down, was at the wheel on exactly the right flight. (There was something weirdly symbolic about the presence of the Concorde jet at the scene, and the popularity of “Flight of the Conchords” on the telly at the time too).

Posted by Uncle_Billy | Report as abusive

There is something so Shakespearean about this situation, with all this faint praise flying about when decisive burials are called for…

It chiefly serves to remind attentive audiences that the U.S. Economy is well into the brief Third Act of a Five-Act tragedy.

Posted by HBC | Report as abusive

“A Comedy Of Heirs”

Posted by Uncle_Billy | Report as abusive

It’s amazing, and truly worrying, that a man that many consider to be one of the most dangerous criminals in the world can be seen by others as “man of the year”.

One cannot overlook the fact that the organization he presides over is responsible for no less than a worldwide holocaust on democracy and social development, and operates with a dictators impunity in the shadows that lie at the heart of the global economic system.

Posted by brian-decree | Report as abusive

These men should be arrested and tried for treason, their personal assets and the assets of their banks should be transferred back to the state where they belong.

Posted by brian-decree | Report as abusive

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