Like Paul Krugman, I am torn over the issue of Bernanke’s confirmation.  Certainly, he was instrumental in bringing us back from the brink.  Regrettably, he was also instrumental in getting us there in the first place.  Here are some of my observations about Dr. Bernanke over the past several years.

On August 9, 2005, Bernanke, then chairman of president George W. Bush’s Council of Economic Advisors, met with the president and subsequently fielded questions from the media.  I recall the question below as if it were only yesterday.  (Director Hubbard is Al Hubbard, then Director of the National Economic Council.)

Q Did the housing bubble come up at your meeting? And how concerned are you about it?

DIRECTOR HUBBARD: Let me let Ben answer that question.

CHAIRMAN BERNANKE: We talked some about housing. There’s a lot of good news on housing. The rate of homeownership is at a record level, affordability still pretty good. The issue of the housing bubble is one that people have — whether there is a housing bubble is one that people have raised. Housing prices certainly have come up quite a bit. But I think it’s important to point out that house prices are being supported in very large part by very strong fundamentals.

And particularly, we have a strong economy, we have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason for why housing prices have risen as much as they have.

I think over a period of time, the housing prices are likely to stabilize. I don’t expect them to keep rising at this rate indefinitely; I don’t think anybody really does. But, again, I do think that the bulk of the increases are associated with strong economic fundamentals.

Bernanke’s position on housing would soon begin to evolve, and continue to do so over the next couple of years, as economist David Rosenberg — then plying his trade for Merrill Lynch – chronicled beautifully in August 2007:

“Low mortgage rates, together with expanding payrolls and incomes and the need to rebuild after the hurricanes, should continue to support the housing market. Thus, at this point, a leveling out or a modest softening of housing activity seems more likely than a sharp contraction, although significant uncertainty attends the outlook for home prices and construction. In any case, the Federal Reserve will continue to monitor this sector closely.” (15 February 2006).

“At this point, the available data on the housing market, together with ongoing support for housing demand from factors such as strong job creation and still-low mortgage rates, suggest that this sector will most likely experience a gradual cooling rather than a sharp slowdown.” (27 April 2006).

“Home prices, which have climbed at double-digit rates in recent years, still appear to be rising for the nation as a whole, though significantly less rapidly than before. These developments in the housing market are not particularly surprising, as the sustained run-up in housing prices, together with some increase in mortgage rates, has reduced affordability and thus the demand for new homes.” (9 July 2006).

“Although residential construction continues to sag, some indications suggest that the rate of home purchase may be stabilizing, perhaps in response to modest declines in mortgage interest rates over the past few months and lower prices in some markets.” (28 November 2006).

“Some tentative signs of stabilization have recently appeared in the housing market: New and existing home sales have flattened out in recent months, mortgage applications have picked up, and some surveys find that homebuyers’ sentiment has improved. However, even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters as homebuilders seek to reduce their inventories of unsold homes to more-comfortable levels … Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.” (14 February 2007).

“Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency. We will continue to monitor this situation closely.” (28 March 2007).

“The rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. Moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets. All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable”. (17 May 2007).

“Of course, the adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected. Thus far, however, we have not seen major spillovers from housing onto other sectors of the economy … However, fundamental factors–including solid growth in incomes and relatively low mortgage rates–should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.” (5 June 2007).

“Rising delinquencies and foreclosures are creating personal, economic, and social distress for many homeowners and communities — problems that likely will get worse before they get better … even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further as builders work down stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time.” (17 July 2007).

Now let’s get back to Bernanke’s August 2005 presser.  The fundamentals were anything but strong, as Rosenberg had pointed out in this prescient piece (a true gem of research) he penned in August of 2004, which I wrote up over at Blah3.com after the bubble had popped.

In response to Bernanke’s affordability comment at the press conference, I dropped him a note through then Chief of Staff Gary Blank:

Dear Mr. Blank:

On August 9, Dr. Bernanke participated in a press briefing during which he fielded questions about his meeting with the president.

Among the questions Dr. Bernanke was asked was this one:

Did the housing bubble come up at your meeting?  And how concerned are you about it?

Dr. Bernanke’s answer, in part, follows [emphasis mine]:

We talked some about housing.  There’s a lot of good news on housing.  The rate of home ownership is at a record level, affordability still pretty good.

I have reproduced below two charts created by brokerage firm Merrill Lynch using data compiled from the National Association of Realtors.

The charts speak for themselves:  First-time buyer affordability has collapsed to a 16-year low, and overall homeowner affordability has plunged to a 14-year low.

So, Mr. Blank, my question is simply this:  Given the hard data, on what basis did Dr. Bernanke make the claim that housing affordability is “still pretty good”?

Below is an updated chart of the National Association of Realtors Monthly Housing Affordability Index, one of two I’d included in my letter.  At the time Dr. Bernanke spoke (solid line), the fact of the matter is that housing affordability was already at about a 14-year low — hardly “still pretty good.”  (The dotted line is where it’s gone since, which actually is “pretty good.”)

[Source: National Association of Realtors]

I never did get a response.  Fancy that.

Regardless, unlike Calculated Risk, I’m not sure we should be looking for a better steward for the Fed at this time.  I believe the economy is still way too fragile and the risks of new Fed leadership at this time are too great.  Personally, I’m with the “Don’t Block Ben” crowd.  If Bernanke’s confirmation is not to be, however, my preference would be to see San Fran Fed president Janet Yellen get the job.

Category: Current Affairs, Economy, Federal Reserve

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

54 Responses to “Observations On Bernanke”

  1. rktbrkr says:

    I think there will be much regret over reappointing Gentle Ben when the details of the AIG bailout and other secretive events are pried free

  2. wally says:

    “Certainly, he was instrumental in bringing us back from the brink.”

    For the life of me, I cannot understand why so many economists believe this. We are not ‘back’ from anywhere. We have temporized a solution; we have still to confront the issue of excess debt. By moving that debt onto the public ledger (ie: ultimately the SAME consumer/taxpayer who also has too much personal debt), Bernanke has effectively prevented debt destruction. That is to say, he has prevented resolution of the problem. The burden now falls not to big investors in major banks but, instead, to ME (at least in part) and, meanwhile, I’m out of a job due to the slowdown that Bernanke was totally ineffective about preventing – even though his mandate is employment and inflation, not big buddy bankers. I say: Bernanke OUT, and sooner is better.

  3. rktbrkr says:

    I’m emailing my senators urging them to vote against BB – maybe i enough “little people” do that they’ll see a “NO” vote as a safe, popular move

  4. Transor Z says:

    Barry, one of the things everyone likes about your blog is how quick you are to point out that, as an investor and fund manager, you are not just sometimes wrong, you are often wrong. But that doesn’t mean you lose client (or your own) money. There’s great integrity in your position. So maybe, knowing markets and the economy as you do, you are inclined to cut people (like Bernanke) some slack on the basis of sometimes getting it wrong — even very wrong.

    There seem to be two values in conflict here: continuity/stability in time of crisis and democracy. I’m on the democracy side and believe that the markets, banks, and foreign economies simply need to “price in” the fact that the United States is a democratic republic and occasionally goes through transitions. It certainly looks like the democratic process in the U.S. has been discounted for a long time now with an artificially imposed “stability” resulting from regulatory capture. It is a sad state of affairs, but it’s just TPTB reaping what they have sown. Like they say, the medium is the message — and people mobilizing to call their senators and participate in the democratic process (the medium) does send an important message right now.

  5. dead hobo says:

    By Invictus – January 26th, 2010, 7:30AM

    Like Paul Krugman, I am torn over the issue of Bernanke’s confirmation. Certainly, he was instrumental in bringing us back from the brink.

    reply:
    ————–
    That’s the popular myth. I think all he did was pump the stock market, provide the illusion of wealth, give free money in massive amounts to those who created the problem, finance the 2009 bonus pool for Wall Street, scare new money away from Investment and job creation because the value of everything is in doubt due to his artificial pumps, and maintained the illusion of the Fed as Mount Olympus all at the same time. Fire the bastard.

  6. @tz

    Not a BR post in case you missed it

  7. Transor Z says:

    @common man:

    Did miss it, thanks. Is Invictus somebody whose opinion I should care about?

  8. beaufou says:

    http://www.youtube.com/watch?v=9QpD64GUoXw

    Always a pleasure to watch.
    Thank God the man has brought back bankers bonuses from the brink otherwise we would have no “strong fundamentals” anymore.

  9. @ tz,

    I assume if Barry is letting him blog he must be up to snuff :)

  10. cognos says:

    TransorZ — So BR is “often wrong”…. but doesnt lose client money? I cant figure that one out. He DOES lose client money right?

    Congress d/king Bernanke is sick. You guys really side with congress?

    I get that Bernanke might not be perfect. I get that he might not be your choice, or congress’ choice. But the role of congress is not to “nominate”. We all are not all “nominators” … we are confirmers. We CONFIRM that someone is “fit to serve”.

    Any hesistation in this… is a great illustration of the petty incompetence of our congress.

  11. Transor Z says:

    @ tz,

    I assume if Barry is letting him blog he must be up to snuff :-)

    Yes, I’m sure you’re right. I’m just pissed that I missed the by-line and wasted impassioned commentary responding to some dude/dudette I’m not familiar with. :-)

    ————–
    @cognos: Net, buddy, net. Ah, forget it. It’s an integrity thing. You wouldn’t understand.

  12. ashpelham2 says:

    I have a hard time with CHANGE just for the sake of CHANGE. While Bernanke is getting way too much credit that isn’t deserved, he’s probably the worst of all possible nominees. Face it: the person who probably could do the job to it’s fullest and do the nation a service at the same time is not going to get the job. A wrecking ball is what is required, and that’s just too politically hot to handle. If the Feds pulled the plug on the bathtub of government money right now, we’d go right back into near depression levels of everything, for a time. In time, it’d get better. No one wants to face the short term medicine for a longer term cure.

    Too many mouths to feed to turn back now. I’d say let Bernanke stay, lucky bastard. But, LIMIT LIMIT LIMIT his and the Fed Reserve’s power in the future. Curb their policies so that the Greenspan effect never happens again. Water down their powers so much that it’s basically just a ceremonial position. Kind of like President.

  13. jdmckay says:

    Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable”. (17 May 2007).

    Ben’s “growth in jobs and incomes” take on things precisely inverse to any objective assessment of reality, even well before that date. Eg. domestic manufacturing way down, US debt growing (Iraq) rapidly, and “financial obligations of most households” were remaining “managable” through an extremely… no dangerous level of re-fi’s on bubbled assets.

    And we haven’t begun looking at toxic growth of financial sector in any light: eg. whether as it’s % of GDP (around 40% at this time, always historically a harbinger hazard), leveraged (45:1 by this time, and approved by Ben’s consensus) mortgage bonds, and in particular saturation levels of investment in these bonds (CDS) across US investment sectors: insurance, managed retirement (both public/private), etc. etc.

    So when you say:

    I’m not sure we should be looking for a better steward for the Fed at this time. I believe the economy is still way too fragile and the risks of new Fed leadership at this time are too great.

    hmmm…, I don’t know Barry.

    Nothing’s been fixed… nothing. “Growth” is term foisted on the not-so-economic-savvy populace as a euphemism for massive carry trade… on taxpayers dime, to recapitalize the suits who brought us to the brink.

    Obama has given appox. -0- indication is comprehends, possesses the will, much less has an intention to at least attempt addressing the fundamental core problems.

    So yah, it’s a damn fragile time alright. And US, under Ben/Tim/BO etc. have rolled the dice completely upon a foundation built on that fragility.

    So maybe, w/momentum so ingrained to “stay the course”… seemingly in such mass that it often appears beyond the scope of our institutional leaders to affect, perhaps you are right. Perhaps the actions of a FED chair are, at this point, irrelevant.

  14. sellthekids says:

    don’t worry, Linda Robertson of Enron fame is going to help Little Ben with his troubles:

    http://blog.littlesis.org/2010/01/25/bernanke-lobbyist-authored-enroncheney-energy-plan/

    worked for Ken – until some higher powered being snuffed him out.

    who do i pray to for a little help w/Bennie?

  15. Invictus says:

    @TZ

    I’ve got around a dozen other posts here, give or take, on which you probably missed the byline, many of which you even commented on. BR reads, sometimes edits, and always signs off on everything I submit, so it’s passing his sniff test before it goes up on TBP. I’ll try to keep it interesting and fresh.

  16. bsneath says:

    If one was not aware of the rampant fraud in the mortgage financing industry, then one would assume that most of the mortgages were lent to persons who had reasonable prospects to repay. Thus the industry was fundamentally sound.

    However, once one learned that the industry allowed buyers and speculators to lie about their financial capabilities and once it became apparent that a large percentage of housing transactions were pure and simple fraud where the parties siphoned off funds and never intended to make even the first mortgage payment, then it becomes clear that housing is a bubble of monumental proportions.

    Yes, Bernanke should have had access to much more timely information than the rest of us and he should have reacted earlier to the potential consequences. It is his responsibility to regulate the industry specifically to prevent such fraud from happening.

    So yeah, one can understand how he missed it but at the same time it was his responsibility to catch it.

  17. DeDude says:

    Although a little late, I think he pretty much knew and expressed that housing was overheated and that it could not continue at that pace forever. His failure was in realizing how overheated it was and how much it eventually would have to correct. But remember that in his position you cannot overdo it in public statements, because that can precipitate collapses. He was supposed to use much stronger language behind closed doors, but as far as we know he failed to do that. So he probably was clueless as to how much of a bubble housing was.

    The biggest problem was that he failed to have the intellectual curiosity to ask the “what if” question. What if the most concerned voices within and outside the system are correct and this is a big bubble? What happens if housing corrects 20% down? Who are the players and what will happen to them? It is OK to develop a consensus picture of current and future reality, but if there are other alternative models that cannot be repudiated by clear facts, then you have to test and prepare for them also. That is where these arrogant idiots and their whole system failed; nobody asked the question “what if we are wrong and they are right”?

  18. abaumga says:

    I agree with Wally.

    We have not been brought back from the brink. All Ben Bernanke has accomplished has been to postpone the eventual day of reckoning. In the process he has only encumbered the Fed’s balance sheet so that when the day of reckoning does get here it will only be worse than it otherwise would have been if he had dealt with the real problem – excessive levels of debt.

    A depression is unavoidable at this point. It is the cure to the problem of more debt than can be possibly be paid back. The sooner we deal with that truth the sooner we will be on the path to a sustainable recovery.

  19. Mannwich says:

    Competence isn’t a factor anymore. It just doesn’t matter in a Banana Republic. In fact, the LESS competent you are, the better.

  20. BR reads, sometimes edits, and always signs off on everything I submit

    A regular benevolent control freak ;)

  21. Mannwich says:

    I agree with Wally as well. I consider this past year an entirely wasted year. All the problems pushed off to a later date and many made bigger for a later date.

  22. Transor Z says:

    @Invictus:

    My smart-ass remark at 8:54 am didn’t merit a response from you and I apologize for it. I am sure that I have read your pieces, have appreciated them and have commented on them in the past. The fact that Barry posts your pieces here speaks for itself, as far as I’m concerned. Me missing the by-line is my problem, not yours. Peace.

    TZ

  23. DeDude says:

    Wally “back from the brink” means we did not fall into the abyss and that is just an indisputable fact. Anybody living in the fact-based world could see that we were heading straight for a great depression with financial system and economy both collapsing, and the fall has been at least temporarily stalled. It does not mean we are not facing the same fundamental problems, or that he put us on the path to salvation. We were saved from immediate and complete destruction and bought time to come up with some permanent solutions (although unfortunately we have not done so well on that front yet, but mostly wasted that time).

  24. sharkbait says:

    I’ll let someone with more experience in the financial markets address Ben’s tenure/the Fed:

    ——————————————————————————————————–

    Jeremy Grantham – GMO Quarterly Letter, Jan 21, 2010:

    “Yet the Fed has been
    reckless in facilitating rapid asset booms in the tech and
    housing bubbles. As we know, the offi cial policy remains
    to avoid trying to contain asset bubbles, but to ameliorate
    the pain of any setbacks should asset prices reverse course
    and collapse. Indeed, the Fed claims never to have been
    sure that bubbles even exist.”

    “Up until the last few months, I was counting on the Fed and
    the Administration to begin to get the point that low rates
    held too long promote asset bubbles, which are extremely
    dangerous to the economy and fi nancial system. Now,
    however, the penny is dropping, and I realize the Fed is
    unwittingly willing to risk a third speculative phase, which
    is supremely dangerous this time because its arsenal now
    is almost empty.”

    “Lessons Learned in the Decade

    – The Fed wields even more financial influence than we
    thought.

    – Low rates have a more powerful effect on driving
    fi nancial assets than on driving the economy.

    – The Fed is capable of being extremely out of touch
    with the real world – “what housing bubble?” – plus
    more doctrinaire – “no, the low rates had no effect on
    housing” – than anyone could have imagined.

    – Congress is nearly dysfunctional, primarily controlled by
    large corporations, and hamstrung by the supermajority
    now routinely required in the Senate.

    – Government administrations can be incompetent for
    long periods.

    – Poor leadership can really damage a country’s hardwon
    reputation in a mere 10 years.

    – Obama is not a miracle worker!

    – Being a global policeman is expensive, and somewhere
    between difficult and impossible.

    – The Fed learns no lessons!”

    —————————————————————————————————-

    Let’s call a spade (a spade!). The Fed has done more damage than good. Some would say that this is intentional:

    http://www.zerohedge.com/article/scandal-albert-edwards-alleges-central-banks-were-complicit-robbing-middle-classes

    and

    http://jessescrossroadscafe.blogspot.com/2010/01/financial-services-from-servant-to-lord.html

    finally,

    “Successful crime is dignified with the name of virtue; the good become the slaves of the wicked; might makes right; fear silences the power of the law.” Lucius Annaeus Seneca

    “Single acts of tyranny may be ascribed to the accidental opinion of a day; but a series of oppressions, begun at a distinguished period and pursued unalterably through every change of ministers, too plainly prove a deliberate, systematic plan of reducing a people to slavery.” Thomas Jefferson (from above link)

  25. beaufou says:

    Manny at 10:16
    Competence matters still.
    Most in the financial world (and other worlds) cannot tell the difference between freedom and the free exercise of cupidity, they are very competent, destructive and driving to a bankrupt cul-de-sac taking the rest of us with them.
    Vast subject.

  26. Invictus says:

    @TZ

    No worries. It’s all good. I knew coming in that this was a tough crowd.

  27. DeDude says:

    In a great depression it is not just the debt that is “destroyed” it is all the associated assets, and GDP, and growth potential, and capital willing to risk leaving its hiding place from under the mattress. Anybody that thinks that we could just simply let all the companies implode and everybody default on all their obligations and then society would magically recover and go on its old marry way as if nothing had happened, are idiots who need to read some history about the first great depression.

  28. bookokane says:

    The Bernanke refrain was to be repeated with unabashed vigor over the following months by Larry Kudlow. I can’t forget his screaming about the absolute insignificance of a few mortgage delinquencies. Turns out it’s a lot easier to be a talking head with no responsibility than to make a living putting one’s record and reputation on the line every day.

  29. Mannwich says:

    @beaufou: Good point. Depends on the definition of “competence”, I suppose. Ben, Timmy, Larry and others have been VERY competent at serving THEIR real and only constituents (the banking elite).

  30. Mannwich says:

    @DeDude: Why you keep repeating the same false mantras/arguments is beyond me. It’s well beyond tired, but go ahead, and cling to your false arguments. It wasn’t simply either we do it THIS way OR the apocalypse will occur. There were/are many complicated choices that could have been (and could still be) made to rescue the system and country (while punishing those responsible), rewarding people and companies who did the right thing (and continue to do so), and truly fixing the system and country’s ECONOMY (not markets) so we can get away from this fixation on “money” and the markets and move towards a productive economy again.

  31. cognos says:

    @ Dedude — Great post. So simple, but crazy types and crumugeon types dont seem to get it.

    @ Mannwich /Transor — Other than the “housing bubble” which is now fixed, what part of our economy do you not like? The iPhones? The internet? The private jets? The big beautiful condos with marble showers and granite kitchens? The world travel. The wealthy chinese lifting themselves out of poverty? The $1 menu at every fast food place? The great steak houses and crab shacks and lobster rolls? The wonderful universitys and researchers inventing the next fuel cels, wind turbines, and polution clean-up algae? The healthcare keeping us alive longer and longer? The bars full of beer, football, and cute cocktail waitresses? BR’s blog that he created out of thin air and is worth a few $M?

    Seems like the basic foundation of our economy is pretty good?

    Unless you’re just holding onto your gold, guns, and spam waiting for “armageddon” to set everything straight. Give it up. Get to work creating something of value… and you too will enjoy the world economy. Crisis is over.

  32. Transor Z says:

    Fuck you, cognos. I built a successful law practice “out of thin air” that employs people and allows them to support their families. Nobody handed me shit.

    The part of our economy that I do not like is the one that I am afraid is about to really take off: jobs for shill mouthpieces like you.

  33. Mannwich says:

    @Transor: X2.

    @cognos: Let me give this a shot. It probably won’t get through your obtuse skull though. The problem that I have with many of our policies over the past few decades is that too much of it is focused on the unproductive, parasitic FIRE sectors (and what “the market” “likes” or “doesn’t like” in the SHORT term), with the mindset that if we just set everything up for those sectors to thrive, it will flow down/to the other sectors of our economy. And many of our brightest minds are gravitating towards fields in those sectorts to “get-rich quickly”, rather than going to fields that might actually produce something usefel for the economy and country. Small businesses are hurting badly and are having a hell of a time getting funding right now. So much for “trickle down” theory. What’s good for Wall Street has obviously not been good for Main Street. Time to stop worrying about what “the market” may “like” or “not like” in the short term and do the right thing for the economy (Main Street) and nation for the long term.

  34. DeDude says:

    @Mannwich; I am not saying that they used the most efficient and desirable way to save the economy. I have always supported the idea that we should have gone Swedish at the end of 2008 (although I recognize that the political situation made that impossible). All I am saying is that if the choice was between doing what they did or doing nothing then I prefer the imperfect solutions to a perfect destruction of the american economy. It is an indisputable fact that an indebted economy as ours that builds its growth on borrowed money, will vaporize if overnight all credit freezes and remain locked for years. Any idiot who can be bothered with understanding just the simple facts of business creation and product sales and what is in the GDP should be able to understand that.

    So yes they should have done it differently, but no what they did was not worse than just leaving it all to itself. If you disagree with that then give me a credible point by point scenario for what would have happened if there had been no interventions at all. What would have stopped the fall? who would have capitalized new banks and businesses? why would they do that? how would unemployed people buy the products from those few newly capitalized businesses? etc., etc. It took 150 years for the US to go from an agrarian community where everybody build their own houses and grew their own food to a modern industrialized specialized economy, if we fell back to the “good old days” why should it take less than a few decades and/or a huge public works project (a la WW2) to get back up again?

  35. Mannwich says:

    @DeDude: I’m not one of those people who believes they “should let it all burn down”, so I agree with you on that point. I just take issue with the ways they’ve done it.

  36. DeDude says:

    “Nobody handed me shit”

    Sorry pall society handed you the laws and infrastructure that allowed you to build a successful law practice, not thin air. You go build that same wealth for yourself in Zimbabwe and then we can begin to talk about independent self made and all that other self-absorbed self-agrandizing BS.

  37. cognos says:

    @Mannwich — Of course businesses are “hurting right now”. That the business cycle. Its much better than it was 1-yr ago, and it will continue to get better. Again, business cycle.

    Wasnt the problem “housing speculation”? I mean every silly individual investor I know was speculating in housing. Its not really “the system” that bought all those condos in Miami.

    @ Transor Z — Hmm… lawyers do tend to not get economics. Its not about how things “should” be. There is no judge. Just a bunch of individual decisions and people trying to make lives better. I asked you a simple question — “Why dont you like this economy? It looks pretty good in the broader perspective. Life seems to be much better for society over the past 10 and 20 years.” I referenced a number of specifics. You chose to avoid answering.

  38. DeDude says:

    Mannwich@11:41, my original post was actually a response to somebody else not you. From previous debate I know we agree on a lot of things being wrong with the way this has been handled. Main difference is that I just don’t see how the right things could have been done, at the time of quick action Bush was in charge, and even after Obama took over and you still had to get 60 senators behind any solution. The country is to divided and full of willful ignorance and secondary agendas.

  39. dsawy says:

    Invictus does a great job laying out why Dr. Bernanke’s competence is subject to critique and question. If we take the Fed’s mission statement at their word, ie:

    * conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
    * supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
    * maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
    * providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

    the Dr. Bernanke failed at items 1, 2 and 3. The Fed has been going overboard on the fourth item.

    If we look at the situation today, we can see the outlines of the next bubble forming – because the Fed is still not stringent enough in exercising their regulatory powers to deal with the “too big to fail” syndrome that they’re bailing out.

    Invictus makes a good case for not re-confirming Bernanke, and then is reluctant to press home the consequences, mostly (as I read it) because Invictus is worried about what the markets would do in response. We now have larger issues than what the market thinks about policy decisions day to day, and we should recognize that and not be scared of “the market won’t like that” when we’re talking about the long term viability of our financial system, the US dollar, etc.

  40. j_rod says:

    “Like Paul Krugman, I am torn over the issue of Bernanke’s confirmation. Certainly, he was instrumental in bringing us back from the brink. Regrettably, he was also instrumental in getting us there in the first place.”

    That makes about as much sense as this . . .

    “Like my wife, I am torn over the issue of asking out neighbor to watch our dog again. Certainly he was instrumental in giving him a proper burial. Regrettably, he was also instrumental in shooting him in the first place.”

    Only in the fantasy lands of Wall Street and Washington can a total failure of a human being not only keep their job but also be considered the best person for the job even after said failures have been blatantly displayed throughout the entire press.

    Let me ask you this B.R.; if The Beard were employed by your firm would you keep him on after his long history of not only being wrong, but being completely fucking wrong? Doubtful. So why would you advocate keeping him employed by the other 300 million people in this country whose future will be shaped by his lack of financial IQ?

  41. mountainaires says:

    Given the hard data, on what basis did Dr. Bernanke make the claim that housing affordability is “still pretty good”?

    Perhaps Bernanke made the claim on the basis of LAX LENDING STANDARDS:

    The Bernankes “refinanced their Capitol Hill home in late 2009 because they “had an adjustable-rate mortgage and it exploded.” Now they have a 30-year fixed rate mortgage at a rate of a little over 5%.”

    http://en.wikipedia.org/wiki/Ben_Bernanke

    http://www.time.com/time/specials/packages/article/0,28804,1946375_1947251_1947520,00.html

    Fortunately Bernanke had the power to keep interest rates low, so he could refinance at a good rate; but honestly, an ARM? He’s really that clueless? In 2006?!

  42. Invictus says:

    @dsawy

    It’s not that I fear what the markets might do in response to Bernanke’s non-confirmation. I’m simply not sure who could take the reins at this point and steer any better course. What would Don Kohn do differently going forward? Janet Yellen? The time to let institutions fail has probably passed (though it could resurface) and, frankly, I think if they had Lehman to do over again they would have pushed harder for a different outcome. To be sure some extraordinarily unpalatable things have taken place — things make me sick to have witnessed from a front row seat. But we’re not Sweden on so many levels and in so many ways that it’s almost folly to suggest we could have gone the Swedish route (not that you did, just sayin’). It worked for them — I have my doubts as to whether it could have worked for us.

    There were plenty of mistakes made along the way and plenty of blame to go around. Just seems to me as though at this point Bernanke’s becoming a scapegoat, an easy target who clearly made his share of mistakes. So, to those who want to see him go down — a sentiment that I can both sympathize and disagree with — who would you put in his place?

  43. Brett Tibbitts says:

    The Bernanke reappointment decision is ridiculously an awful one.

    Which is worse? Reappointment of the man who supported the policies that helped get us here or having this administration appoint someone new? This administration showed us its true colors in its all encompassing desire to appoint Geithner despite all of his OBVIOUS warts at the time. The world was going to end if it wasn’t able to appoint this man.

    So given the worst of the two choices, it’s best to reappoint Bernanke.

  44. Transor Z says:

    who would you put in his place?

    Alternate candidates for the position were vetted by the White House. The claim that no one else on g-d’s green earth can do what he does is dangerous and, when it comes from the WH, is dishonest. There is a short list of possible replacements. There always is. It’s called “succession planning.” Nobody is irreplaceable. Love the quote that the graveyards are filled with indispensable people. So let’s kill that fallacy as a starting point.

    As dsawy pointed out, wow, talk about “burying the lead.” You don’t even state your endorsement of BB in the title or until the very end of your piece. It is much like the Krugman op-ed piece in being one of the lamest justifications for supporting someone you’re going to read. That’s not a criticism of you, just an observation.

    But this alleged “fragility” is too susceptible to being used as hostage-taking by TPTB to be trusted on its face, IMO. Lloyd Blankfein even used the term in his FCIC testimony. [N.B. that we also use "fragile" when we discuss weakened holds on power.] “Fragile” becomes an excuse to dole out $60 bil to AIG counterparties in “secret” transactions. “Fragile” is also code for: you better be walking on eggshells, America, because if you upset the apple cart your job is toast — and your “fragile” hold on paying your bills and the dignity of work will surely go down with us. Mutual Assured Destruction.

    I’m done with being held hostage by the rhetoric of utterly corrupt politicians. You can only cry wolf so many times.

    There are good people to take their places EVERYWHERE, man. They just don’t have the money or backing to build media brand-names for themselves. They don’t get plastic surgery, botox, $400 haircuts, TV makeup and Italian suits. There are good people heading regional banks. And on and on. After arguing for hundreds of words AGAINST BB — as inattentive and wrong — you slapped that conclusory paragraph on there with no backing. There are ALWAYS choices. Always.

  45. Mannwich says:

    @Transor: Amen brother. Amen indeed. Your entire post should be the “quote of the day” on TBP.

  46. Invictus says:

    @TZ

    A well reasoned response, to be sure. I respect your opinion and agree 100% that Washington has become poisoned and rotted to its very core, possibly beyond repair. It sickens me, it really does. BR just posted a video I sent him that captures it perfectly. D. C. both shames and embarrasses me.

    With all due respect, however, you quoted my question without providing an answer. Who — specifically — would you put in his place and, equally importantly, what would/should that person do differently from this point forward — let’s focus on that, as what’s done is done, and we can rehash it some other time. Would it be Kohn? Yellen? Which regional bank exec do you think has the gravitas to run the Fed? And what’s the plan going forward?

  47. hgordon says:

    “who would you put in his place?”

    Before you can start to answer that question, you (presumably the POTUS) have to make a decision –

    1. do you want to preserve the banking system in its current form, but add some oversight which might prevent future excesses, or

    2. do you want to return to a pre-1990′s bank system where bankers were limited to the business of loaning money and servicing their own loans ?

    Before we heard about the “Volcker plan”, #2 seemed pretty unlikely. But all bets seem to be off after last week.

  48. Invictus says:

    I’ll throw out this snippet from Rosenberg’s research note yesterday:

    “The fact that Ben Bernanke, despite all his faults, is now at risk of not being reconfirmed is another part of this “blame game”. As if Don Kohn is going to do a better job? He was there at the Fed throughout the entire Greenspan and Bernanke era in any event.”

    So who would be the guy — or gal — to take Ben’s place, and what would really change other than Congress getting its human sacrifice?

  49. Transor Z says:

    Maybe somebody like Robert Wilmers from M&T:
    http://www.forbes.com/2009/04/25/robert-wilmer-banks-tarp-personal-finance-croesus.html

    quote:
    Wilmers cites Goldman’s $40.6 million in lobbying and campaign expenditures and compares it to the $12.9 billion Goldman received from AIG ( AIG – news – people ) to liquidate its “risk position without loss,” an event which set off a firestorm of controversy. The M&T boss also raises his eyebrows at the $503 million Goldman’s top five executives received as compensation in 2006 and 2007 alone. Wilmers, who has a substantial equity position in M&T, was paid $650,000 for his service in 2008.

    Wilmers believes Goldman Sachs became a “giant hedge fund … unchecked and largely unremarked upon by regulators, despite the fact that it constituted a radical change in our financial system.”

    Wilmers was a Fed director and has some international experience. Just one name that comes to mind.

  50. patient renter says:

    Just because Janet Yellen isn’t as big an idiot as Bernanke doesn’t mean she’s still not an idiot.

    “Typically, recessions occur when monetary policy is tightened to subdue the inflationary pressures that emerge during a boom. This time, the cause was the eruption of a severe financial crisis.” – Janet Yellen

    http://www.frbsf.org/news/speeches/2009/0104a.html

  51. Lugnut says:

    The US is back from the brink much like North and South Korea are no longer at war.

    As to Ben, cut him some slack, he has a lot on his plate; he’s also the guy that orders all the copier paper and red pens they plow through. Busy guy.

  52. Invictus says:

    @Patient Renter

    If the bar for disqualification is having made one comment that proved wrong/inaccurate/foolish — in real-time or in retrospect — I think it’s fair to say the position would remain vacant…forever.

  53. dsawy says:

    @Invictus

    Apologies to be responding so late.

    Who would I put in? I have been keeping my eye on Thomas Hoenig, the president of the Kansas City FRB. He’s been a staunch critic of the whole “too big to fail” idea.

  54. [...] Observations on Bernanke -Barry Ritholtz is not necessarily against another term for Ben Bernanke, but his column has testimony from Bernanke’s past that clearly turned out to be wrongheaded on whether gains in home prices years ago were forming a bubble or not.  I’m not in tune enough to know whether or not Bernanke is the best guy, but I think a lesson to be learned is if a regulator is saying the same thing as the industry he is in charge of regulating, take what both are saying with a grain of salt. [...]