On the ride home last night, I read Roger Lowenstein’s longish piece in The Atlantic, titeld The Villain.

It was fascinating and engrossing:

The formative experience for the European Central Bank was the hyperinflation in Germany in the 1920s, which ever since has steeled central bankers on the Continent against the perils of printing money. In Frankfurt, the idea of “lender of last resort” wasn’t, and isn’t, embraced. For the U.S. Federal Reserve, the formative experience was a series of depressions beginning in the 19th century and culminating in the Great Depression. After the demise of Biddle’s bank in the 1830s, “money” in the U.S. consisted of whatever notes banks printed and people agreed to take. Even after the Civil War, when “money” became more uniform, currency was often a scarce commodity, and banking panics were frequent.

You come away with the sense that even if you disagree with what Bernanke did during the collapse, its hard to think of who else you would want holding Fed chair during that era . . .


The Villain
Roger Lowenstein

Category: Bailouts, 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.

23 Responses to “Lowenstein: Bernanke Saved the Economy”

  1. cognitive dissonance says:

    This argument of should The Bernanke have printed or not is not the issue –it never has been. It’s the treatment of the capital structure that IS the issue:

    Capital was GIVEN to the banks (and sorry they ALL NEEDED it regardless of what Jamie says). This infusion should have wiped out the equity and nationalized the banks. They are after all Federally Regulated Institutions and need to be treated as such. When we get the conversation oriented around the right issue perhaps we as a nation can start to heal and move forward. Capitalism — it only works if you follow all the rules.

    thanks for listening.

  2. Petey Wheatstraw says:

    cognitive dissonance:

    You’re damned straight on that.

    But it leads us down a rabbit hole that few care to recognize: What is the source of “capital” in our economy, and how does it differ from “money” or “currency?”

    Where did Bernanke, or Greenspan, or any other pseudo-governmental banker get the “capital” to inject into the system, in the first place?

    In a purely fiat currency economy, “capital” is, as Humpty Dumpty would say, “what I choose it to mean—neither more nor less.”

    So much for the concept of Capitalism. Alas, poor Humpty — yolk spilled all over the place, and us, the King’s men, without enough toast to sop it all up.

    Outside the rabbit hole, “capital” and “capitalism” are marketing terms, Nothing more, nothing less.

  3. Sechel says:

    The initial steps/programs undertaken by the Fed such as lowering of rates and some of the financing facilities to revive lending were arguably helpful and necessary, but I do question how much of the recovery we’ve had in the past year would’ve occured anyway or perhaps would ‘ve been stronger without the most recent initiatives such as qe2.

    Also have to take these articles with a grain of salt. The Fed certainly has a p.r. machine and is out to promote itself, more so now than ever considering how much its been under attack.

  4. b_thunder says:

    They’re looking at the scoreboard before the game’s over! I think we’re still int he the 1st half of the game!

    The pain comes not from printing money, but from taking it away “the liquidity” when needed.
    The pain comes not from being criticized by the neanderthals like Rick Perry, but from arrogant pricks like Jamie Dimon who, without a doubt, survived and profiteered thanks to the Fed, but will “turn” on Bernanke as soon as the latter will attempt to reign in The Street.

  5. Old Rob says:

    It’s amazing what one can do without serving jail time. I suppose the “Villain” article could be reworded with reference to Pancho Villa’s accomplishments.

  6. constantnormal says:

    “its hard to think of who else you would want holding Fed chair during that era . . .”

    ummm … Paul Volcker? Sheila Bair? Barry Ritholtz?

    … not difficult at all. Not even a little bit …

  7. VennData says:

    An American hero

  8. HEHEHE says:

    The Fed has been on an all out PR extravaganza the past few months. I think it’s no doubt a result in part of the Republican nominees throwing around names like Jim Grant as the next Fed chair. You KNOW the management of the TBTF banks don’t want somebody like that in place. They might actually be held accountable and have to swim on their own for once.

    The problem with the Fed/Treasury’s maneuverings are many. The most obvious, as has been pointed out, is leaving the same Wall Street management in place that created this mess. The second is their complete lack of transparency and often bold faced lies as to the amounts/variations of the bailouts.

    End of day these bailouts/interventions were done and the management was kept in place because Wall Street owns Congress via their campaign donations. You kill the goose, or even restrain it via removing management or criminal prosecutions, and the perception of both political parties is that they have to find their campaign money elsewhere and there is no elsewhere with that deep of pockets. Until you get a constitutional amendment that gets corporate and special interest money out of politics this country will continue its swirl down the toilet bowl. The Democrats will blame the swirl on Capitalism and the rich etc; the Republicans on not going to church enough and abortion etc; but the swirl will continue so long as CRONY capitalism runs this country.

  9. Old Rob says:

    With reference to a previous post, ‘constantnormal’ is on the mark. Someone like Barry seems to have the integrity that is missing in today’s Illuminati.

  10. SivBum says:

    constantnormal, I didn’t do it either. As for the professor, he can’t escape responsibility to watch over the subprime meltdown. Thanks to the web archives, his words and actions during the era cannot be changed. And like a brilliant doctor who had shot my foot, no flowers from my family after his successful treatment.

  11. tradylady says:

    Is this the front cover indicator?

  12. Concerned Neighbour says:

    Bernanke did not see the crisis coming. While his initial cutting of interest rates was a prudent thing to do, his use of “extraordinary measures” has completely destroyed price discovery in the market and has sown the seeds for the next implosioin. The Fed and the other central banks ARE the market now, and the market they’ve created absolutely murders responsible savers. In addition, as others have noted, the Fed has rewarded the TBTF institutions instead of advocating their breakup and/or their temporary nationalization.

    So yes, Bernanke is far from a hero in my books.

  13. rd says:

    I think he was a hero for a 6-month period when everything was falling apart.

    Now, why was it falling apart? One of the primary reasons was that the Fed believed its own press releases and blundered repeatedly over the previous decade in not regulating the financial institutions using its available tools and having lax money policy from 2003-2006.

    After early 2009, Bernanke also has been the lone man holding down the fort as Congress and the Administration have been MIA on fiscal and financial regulatory matters. In the land of the blind, the one-eyed man is king.

    I also agree with cognitive dissonance above that the 2008-2009 help should have come at a real price to the banks with management changes at a minimum.

  14. theyAllcrooks says:

    constantnormal.: Paul Volcker ?….held in high regard for solving the 80′s crisis…BUT….and correct me if I’m wrong …usury laws ushered out under his watch have allowed high credit card rates to hurt the common man and let the big banks make a killing..No?

  15. farmera1 says:

    This reminds me of a personal story.

    I worked for a company that was expanding a manufacturing plant. The local man in charge was unsympathetic to locals concerns about a warehouse being built right next door to homes. This concern eventually built into a big demonstration and a lot of noise. The local man in charge who originally could care less about what the locals thought and caused the problem (he had been warned by others and myself to change the plans slightly with minimal cost but he said to hell with’ em.) was later given cash rewards and recognition by the company for solving a problem by using changes that had been proposed to him before the issue exploded. In other words he caused the problem by being stupid, but he was rewarded for “solving” the problem after local protests.

    That pretty much fits with what I think of the FED. It wasn’t Bernanke necessarily, but the FED and Ayn Rand loving predecessor Greenspan (and Congress) that clearly caused the problem.

  16. Bill Wilson says:

    Did he save the economy or did he save the status quo? I’ll concede the argument that the FED’s actions in 2008 were necessary, but look at what’s happened since. More precisely, what hasn’t happened.

    In 2008, the free market was dismantling our financial system. If Ben Bernanke felt that it was necessary to save it, then he has a responsibility to reform it. He owns it now, and he’s done nothing fix what caused the 2008 meltdown in the first place. Exhibit A is the FED’s recent decision to allow TBTF banks to pay dividends. Couldn’t that money be used for a capital cushion or to write down bad loans? How silly of me, the FED is the capital cushion for the TBTF, and write downs never need to be taken.

    If a firefighter rushed into a burning building and saved a family, he’d be a hero. If he then handed matches to the kids who set the fire, he’d be a fool.

  17. Syd says:

    As Barry and others have pointed out, the choice wasn’t just between bailing them out or not bailing them out. A bailout of some kind was probably necessary for the greater good, but the Fed/Federal Gov side showed their true colors by giving the banks/shareholders/bondholders a sweet deal instead of forcing them to take their losses. The goal seems to have been to preserve the big banks’ business model, despite the fact that it failed spectacularly.

    Also, I continue to be skeptical about how much the Fed’s QE actions have helped the real economy. Yes, it has been great for stock investors, and has helped keep borrowing costs down. But I’ve never bought this “credit is the life blood of the economy” meme, nor do I think the Fed should act to prop up the stock market. When the Fed cites their dual mandate to justify their actions, it rings hollow; their job #1 is helping the big banks.

    I can’t say how much Bernanke is to blame for the way this has gone down. But I can say that it stinks.

  18. bear_in_mind says:

    Barry: Really? Was this before your second cup of coffee?! C’mon, you seem to have conveniently forgotten he presided over the creation of the very crisis he had to clean-up!! So, does he get credit for not committing hare kare, even though he helped drive the economy over a cliff? Me thinks your ‘Street nostalgia from yesterday may have creeped into your view of The Bernank.

    As for “Who else?”, how about Brooksley Born? Or Elizabeth Warren? Or as others suggested, Mr. Volker? I doubt that any of them would have allowed the situation to get so out-of-hand in the first place. That is where Bernanke was a miserable failure, and all of his studying of the Great Depression was rendered worthless because he clearly failed the exam on “The Roaring Twenties” and their implications on economic health.

  19. Super-Anon says:

    Everybody with a triple digit IQ knows that all he did was re-create the scenario that caused the problem to begin with.

    He saved the drug addict from withdrawal by giving him a stronger opiate.

    He saved the cancer patient from chemotherapy by putting him on stimulants and painkillers.

  20. Super-Anon says:

    “For the U.S. Federal Reserve, the formative experience was a series of depressions beginning in the 19th century and culminating in the Great Depression.”

    The Federal Reserve caused the Great Depression by cutting interest rates in 1927 and creating a credit bubble.

    They used the problem that they themselves created as an excuse for their existence.

    Is it possible to be more sociopathic?

  21. Robert M says:

    How is it possible you want to put the arsonists back in charge w/ gasoline and matches? The mere fact he was at the FED and voted w/ Greenspan should have made him ineligible for the job. His appointed is part and parcel of the job of aiding and abetting the theft of the average American’s wealth.

  22. V says:

    Reminds me of the old joke when Mao Tse Tung was asked what had been the consequences of the French Revolution, he replied that it was too early to tell.