Tuesday, August 25, 2009

Ben Bernanke gets four more years

I'm not a fan of this decision. I think in hindsight that Bush made a big mistake four years ago with Bernanke and Paulson. Obama repeated the mistake with Bernanke and Geithner.

Desmond Lachman of Forbes magazine said it best:

Despite Bernanke's many egregious errors of judgment during his first term, which have cost the nation so dearly, President Obama is choosing to give him a second chance. And the president is doing so at the very time that the Federal Reserve will be facing extraordinarily difficult challenges of meeting its twin goals of maintaining price stability and promoting economic growth, which will require the exercise of the soundest degree of judgment.

In deciding to stick with Ben Bernanke, President Obama is exercising the most selective of memories. Indeed, the president is choosing to remember only Bernanke's valiant role over the past nine months in pulling the economy from the brink and from preventing the country's worst economic and financial crisis from morphing into a second Great Depression. What the president is blithely choosing to forget, however, is the role that Bernanke might have played during his first two years as chairman in creating the very economic and financial conditions that got us into the mess in the first place. He is also choosing to forget Bernanke's role in the Lehman Brothers ( LEHMQ - news - people ) debacle that was the trigger for the Great Panic of 2008.
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Being charitable, President Obama's decision to reappoint Bernanke is perhaps understandable given how Bernanke's aggressive and innovative policy response helped prevent our financial system from literally imploding following the Lehman bankruptcy debacle last fall. It is also perhaps understandable given how relatively well Bernanke has performed during President Obama's short term in office this year in calming financial markets and in helping to lay the basis for a sustainable economic recovery.

However, in a more sober state of mind, what is difficult to understand is why at the very time that the Federal Reserve is going to need the most judicious of leaderships, President Obama is choosing to turn a blind eye to Bernanke's all too many errors of judgment in 2006 and 2007. The president is choosing to forget that it was on Bernanke's watch as Fed chairman that the worst of the subprime mortgage lending was made and that the worst excesses of the housing market and credit market bubbles occurred without as much as an expression of concern from the Fed. The president is also choosing to forget how slow Bernanke was to comprehend the seriousness of the bursting of the housing market bubble and how slow he was to start cutting interest rates to provide much-needed support to the economy.


I hope I'm wrong about this.

1 comment:

bear said...

Bernanke is the bagholder when the wheels really fall off the economy later this year/next year.