Investigating Ben Bernanke For Saving the Universe

(Or a big part of it anyway)

 

I sat next to Ben Bernanke for almost three years at the FOMC table when he served as a Fed Governor. This was before he became Chairman of the President's Council of Economic Advisors and later returned as Chairman of the Board of Governors of the Federal Reserve System, appointed by President Bush. The cliché, "a gentleman and a scholar," was surely coined to describe Ben Bernanke. He seemed to be the quintessential Ivy League, high I.Q. nerd. I saw no bully in him. No attitude. Just a gentleman and a scholar.

He shocked me when he told me he was from South Carolina and had worked at South of the Border. I grew up in neighboring North Georgia and was familiar with South of the Border. As I recall, snakes were one of the tourist attractions. We had more in common than I ever dreamed, except, of course, for the high I.Q. and SAT scores. Not that he ever mentioned either. I inferred his high I.Q. from his career progression- which obviously required high-powered math skills- and learned of his almost-perfect SAT scores from a network TV special.

A digression: I once thought I'd caught a glimpse of my I.Q. score across the table from my high-school records and was very pleased with myself- until I discovered the number was my weight rather than my I.Q. So, I don't know officially. On two occasions during my Fed career when it seemed like all my colleagues were on the wrong side of an issue that seemed obvious to me, I considered the possibility that I might be the dumb one and bought a self- take I.Q. test from the book store to check myself out. They were inconclusive given the difference between being smart and being wrong, but the experience did leave me feeling better about myself. I've had a third "pocket IQ test on my desk for a year now unopened. I guess I don't want to push my luck.

Anyway, that was a digression. This is about Ben Bernanke, whose intelligence and integrity- and memory- are not in question in my mind.

However, most frustrating to me is the cynical question, so what?  As I indicated to Larry Kudlow in the interview posted two-days ago, so what if he played hardball in the cause of holding the financial system and the economy together. The fall and winter of 2008 was a national emergency the equivalent of war. If he- and Ken Lewis-did what they had to do in the national interest, I applaud them both. In any case, TARP money was provided to make the deal work, and present indications are that it is working well.

Somehow, this reminds me of the news over the week-end that the CIA may have had a secret plan to deal with terrorists. Well, duh! Shame on them if they hadn't. Both are examples of no good deed going unpunished.

Comments (5)

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  1. JustOne says:

    Bob,

    I really appreciate your sharing your understanding, experience and perceptions here for us mear mortals to review. Your approach and common sense all tend to help me when the paranoia attacks and conspiracy theories start to swirl. I saw the PBS special on Bernanke too. And I guess after that and your guidance, I am willing to give Ben the benefit of the doubt.

    IQ and “common” roots or not, strong arm tactics tend to attract questions and concerns that are hard to keep from growing too large. I still don’t understand why it took so long to change the MTM accounting rules.

    If I understood your earlier posts, much of the “crisis” was due to improperly assessed capital asset values based on a “market” that became illiquid and the application of rules that were intended for widely traded, very liquid securities. Additionally leverage limit exemptions for the big 5, ridiculous loan underwriting/approval practices, inept/inadequate government regulation and an “inbred” credit rating process made major contributions to the sudden loss of confidence and perceived systemic risks. The results and causes are still to be determined but, in time, I suppose all these factors and their impacts will be understood.

    As for me, I am trying to take a deep breath and let the wiser, more experienced folks like you take the time needed to assess and recommend corrections to the system. If Ben did “what he had to do” then he will be lauded in time.

    For now the inquiries serve a purpose. Our system is based on trust and confidence and honesty and the rule of law. The iquiries serve to strengthen these in time. Let’s not “cut them off at the pass” until the work is done to examine what happened, why and what it takes to prevent such future implosions.

  2. Jon says:

    How will we ever know what would have happened had the deal not gone through for Ken Lewis? I feel it is irresponsible to chuck ones principles in the name of what if? No one knows what would have happened.

    One thing we do know is government has influenced our capitalist system in ways it has never done in U.S. history. Are we capitalist? I would have rather lost all my money than lose my country. I’m afraid we are losing our country’s foundation due to the “experts” opinions for what if? I listened to Bernanke and Paulson throughout most of 2008 tell us the fundamentals of our economy were strong. Were those lies or did they just get it wrong? We entrusted them to make bold acts of socialism after they either lied to us or made the worse analysis in history. Either way we should have learned to not trust their “expert” opinion. So what about their IQ and SAT scores, judge them by their poor decisions prior to the fall crisis. If one judged them by their prior policy and analysis, then we would not acknowledge them as experts.

  3. JustOne says:

    Bob,

    Bernanke looks a little uneasy in this video — http://www.ritholtz.com/blog/2009/07/qa-of-fed-reserve-chair-bernanke-by-alan-grayson/

    I have been wondering about these entries in the balance sheet for some time. Finally someone else is curious. Franks was quite willing to cut off the line of questioning … coincidence?

    Any comments Bob? Seems a little “funny” to have a very sudden factor of 20 increase in central bank swaps (approx $30B vs $600B)? At what interest rates? Why? Do we pay interest on their currency side of the swap? Same rates? Could some of that money be coming back to buy U.S. companies at fire-sale prices? Like the Chrysler “arrangement”? If the Fed can do that without congressional coordination, why did they bother to ask for the TARP funds?

    Paranoia? Perhaps, but just because one doesn’t feel paranoid does not mean that you are not under attack.

    EnjoyIt … What ever It is.

  4. Able says:

    All Ben did was kick the can down the road. Just like you as a Fed member and board of director at Guaranty Financial (another failed bank) did. Day of reckoning is coming, but not til the rest of America is fleeced well and good. Nice work. Texans will remember.

  5. Waheed says:

    The Bail Out does not help Main Street; it is welfare for Wall Street!Small bsusnesies cant get loans; kids cant get loans to go to college; home owners cant get loans; but the elite of Wall Street get to keep their billions of dollars in Christmas bonuses last year!And these banks are using the money to give more bonuses to their executives; buying more banks; and, extending gratuitous benefits pedicures to the corporate aristocracyBankruptcy court would mean returning their bonuses