Friday, August 21, 2009

Dean Baker: More Reasons Not to Re-Appoint Bernanke

Dean Baker writes:

The NYT reports that Fed Chairman Ben Bernanke seems to be cruising to reappointment in spite of having missed the largest financial bubble in the history of the world, giving us the worst downturn since the Great Depression. The article notes that there are also critics of the way that he has handled the bailout effort, but does not provide details.These details would be helpful to readers.

First, he misled Congress last fall to help gain quick approval of the TARP. He told Congress that the commercial paper market was shutting down, so that non-financial corporations could not raise the money needed to pay their bills and meet their payrolls. In fact, the Fed had the ability to prevent a shutdown of the commercial paper market by directly buying commercial paper. Bernanke announced plans to establish a special lending facility to buy commercial paper the weekend after Congress approved the TARP.

Bernanke has also chose to keep all of the Fed's lending secret. While anyone can go to the Treasury's website and find out which banks received money from the TARP and under what terms, Bernanke has refused to make information on Fed's lending available even to members of the relevant congressional oversight committees.

Finally, Bernanke has allowed the distinction between commercial and investment banking to be obliterated. After Goldman Sachs became a bank holding company, Bernanke has allowed it to continue to operate as an investment bank. This means that it has effectively gambled with the FDIC's insurance fund money. Even proponents of the repeal of Glass Steagall insisted that they would never allow this sort of mixture of government insured deposits and speculative investment banking.

For these reasons, even some people who don't think that Bernanke's responsibility for the greatest economic disaster in 70 years disqualifies him for reappointment do not want to see him get another term as Fed chair.
I have no complaints with any of the facts listed by Baker, however, in the world of realeconomik, where Barack Obama is not going to name Ron Paul Fed chairman, the devil we know may be better than the devil we don't. Do we really want Larry Summers, Janet Yellen or Alan Blinder as Fed chair?

Further, for whatever reason, over recent months Bernanke is doing pretty close to what an Austrian economist would do as Fed chair, he is keeping the money supply (M2 nsa) pretty much constant.

There are a lot of economists I would put ahead of Bernanke, if it was my choice, but it is not and the names being tossed around as alternatives to Bernanke scare me.

1 comment:

  1. If Bernanke follows an Austrian money supply prescription (0% growth), he is likely to get Austrian results -- a shake out of weaker firms starting in the financial system and moving through the rest of the economy and a general liquidation of the malinvestments of the last boom. Since this is the very thing he's been desperate to avoid, he's not likely to appreciate these results and will want to reverse course.