Grading Bernanke….

Well, it looks like Ben Bernanke has one foot out the door.  At least that seems to be the consensus view after President Obama hinted at the end of the chairman’s tenure the other day and rumors have circled about who the next Fed Chief will be.  I think this is probably correct.  At heart, Ben Bernanke is just an economics professor who was thrust into one of the hardest jobs on the planet at one of the worst possible times.  So it’s easy to understand why he might want out….

So, how will the world remember Ben Bernanke?  It’s easy to be hard on him.  It’s also easy to be easy on him. There will be two views in all likelihood.  There will be those who remember him for missing the housing crisis entirely and stating that sub-prime was “contained” in 2007.  And there will be those who remember the Fed Chief who helped piece together the rescue plan that brought the global economy away from the brink of disaster in 2009.  These two groups will battle over his legacy, but I think his legacy is far from having played out entirely.  I think there is a potential third group of people who will wait to pass judgement on Dr. Bernanke.  After all, some of us remember how Dr. Greenspan was lauded as a great Fed Chief when his tenure ended only to learn just years later that many of his ideas were, by his own admission, “flawed”.

Personally, I have a hard time believing that history will treat Dr. Bernanke all that well.  After all, he works from the same basic set of economic beliefs that led his predecessor to believe that his approach was well grounded.  We have suffered through 20 years of a boom bust business cycle that has been largely predicated on protecting financial institutions and targeting asset prices.   To me, there is very little in what Bernanke has done, that hasn’t already been done before.  In fact, you could argue that we’ve seen this movie and we all know how it ends.  Of course, this movie isn’t over and no one really knows how it ends, but given the similarities in the approaches between that of Dr. Bernanke and Dr. Greenspan, I have a hard time seeing how history will treat Dr. Bernanke any differently than it treats Dr. Greenspan.  But the legacy of Dr. Bernanke has yet to fully play out.


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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • LVG

    Bernanke is out of paradigm for us so he was destined to fail from our perspective. I just hope his legacy isnt actually a boom followed by a bust. But why would we expect it not to be????

  • InvestorX

    Agree. Possible views:

    – From a central banker’s / banker’s view: a hero, although he was a bit behind the curve in 2008
    – From an asset manager’s view: the most important driver of asset class return, correctly upwardly biased, but could be more aggressive
    – From an independent thinker’s view: a catastrophy, Greenspan on steroids, broke the law with his fiscal gifts to banks in QE1, doing more of the same and expecting different results, does not understand the Great Depression, a servant to the bakning cartel, should have acted in public interest or closed down the Fed, distorts the only signalling mechanism in capitalistic markets – prices.

  • InvestorX

    Isn’t it ironic? It shows you the schizophrenic nature of people today – the old “Maestro” is discarded, but his successor (Ben) is a hero for doing more of exactly the same.

  • Stephen

    Grade A/B for reactive policy. Grade D/E for proactive policy. In other words he did a reasonable job with policy at mopping up the mess he helped to create.

  • Gary-uk

    So how does the movie end then Mr Roche?

    We never hear your long term views do we?

    Care to share?

    You know my view…..

  • But What Do I Know?

    What’s with the “Dr. Bernanke” and “Dr. Greenspan”? Sounds a bit fawning, and predisposes the reader to view them as having qualifications which, as we all should realize by now, an economics doctorate does not confer.

  • Jeff

    Considering the fiscal policy of the US encouraged home ownership and it would be difficult to combat the mortgage back securities abuses with monetary policy. Especially, when Dr. Greenspan was in China encouraging the purchase of Fanny and Freddy bonds as equivalent to US Treasuries.

    I don’t think that Dr Bernanke missed the sub prime crisis as much as he didn’t have the tools to combat disaster. For the first half of 2007, the spread on the 2yr to 30yr Treasuries was zero.

    You could say the same about the student loan bubble. What should the Fed do to fix this bubble?

  • Cowpoke

    Gary, doesn’t Cullen tell you here:
    “To me, there is very little in what Bernanke has done, that hasn’t already been done before.”
    “We have suffered through 20 years of a boom bust business cycle”

    So from that, I would take that Cullens view of the movie not actually ending, just playing reruns.

  • Tom Brown

    Sumner’s been oddly quiet, but Glasner had a few words about yesterday:

    … not really touching on Ben’s legacy though.

  • Anonymous
  • Steve

    I can’t help but think he acted responsibly with monetary policy in the gaping vacuum of responsible decision making (globally) when in came to fiscal policy.

    Unfortunately, the Masters of the Universe are more numerous (and better) than the Maestro’s successor.

  • Mr. Market

    I think Obama & Co. wanted a weak(er) USD but instead the USD became stronger. And now poor old Benny B. has to carry the blame. Poor Benny B., he tried his best to depreciate the USD and he failed because “Mr. Market” had something else in mind.

  • Cullen Roche

    Not with hyperinflation in the USA. :-)

  • Tom Brown

    The way you wrote that somehow brought to mind a song lyric (although I know this isn’t right — but now it’s in my head!):

    Hy-per inflation-in-the U – S – A!
    Hy-per inflation-in-the U – S – A!

    What am I thinking of?

  • Tom Brown

    OK, I figured it out:

    Geez! … I’ve been spending too much time at financial blogs I guess.

  • Johnny Evers

    R-o-c-k in the USA…. Johnny Cougar.

    The boom-bust cycle has been around for the entire length of human history — Greenspan thought he had it figure out (the so-called Great Moderation) but no such luck.
    Bernanke seems to a transitional figure, bravely carrying out the conventional Fed chief actions to support the banking system, but not having the broad politcal or banking support to make big structural changes. Those won’t come until we have a bigger crisis than the last one.

  • midas2

    Wasn’t the FED established so it could moderate the volatility in American banks? Recurring banking crisis got so bad even J P Morgan could not handle it. Required reserves and the discount window were supposed to help.

  • Gary_UK

    Yeah, as expected, silence.

    Like most commentators, they trend follow.

  • Paul

    I see a lot of criticism, but let’s hear some alternatives. What should have Bernanke done that he didn’t? We had messes all over the place from housing, to banks, to investors, to foreign interests, etc. I can’t think of any other options he had other than driving interest rates down.

  • Paul

    And that means short and long term rates.

  • Tom Brown

    Gary, did you know that feline AIDS is the number one killer of domestic cats? Wahhhhhhh Waaaaaaaaaa!

  • Johnny Evers

    Some MR alternatives:
    — Could have went to Congress and said, ‘Deficit spend an extra $1 trillion a year and I’ll buy the bonds.
    — Sent letters to every student in debt and said, ‘Send me your statement and I’ll clear your debt.’
    — Called up the emergency manager in Detroit and said, ‘Listen, I see you need $100b to pay down your debt and start fresh. What’s your routing number?’
    — Tell the IRS to send a $20k check to every tax filer and picked up the cost.