I have to admit, I was no fan of Bernanke. He appeared to have an ability, in his Congressional testimonies, to say things that caused unnecessary market gyrations. He looked to be very late to the game in reacting to the subprime turmoil. He seemed to me to be one of those guys who was probably very book smart but just didn’t have the business common sense to be a successful leader of the Fed.
I may have been wrong.
I’ve written about Bernanke and the Bear Stearns take out. While I’m still holding onto some healthy skepticism, each day that passes in which we don’t see another financial shoe drop, causes me to believe that that single transaction was a master stroke and saved the US a really awful experience of financial meltdown. there’s been a lot of consternation and wailing over this transaction, complaining that the Fed didn’t have the authority to do what they did because Bear Sterns wasn’t a bank. Again, I’ve written on that, and while I agree with the concern of the issue, I believed at the time, and Bernanke has stated in his recent testimony to Congress, that he felt it necessary to act on Bear Sterns to save the broader financial system.
Following his win with Bear Stearns, it would have been easy for Bernanke while “feeling his oats,” to have let his swagger carry him into other issues. This would be especially true if Bernanke really had a desire to broaden, or move past the Fed’s established boundaries as some have suggested.
In today’s testimony to Congress, Bernanke had the following exchange with “The Swimmer,” Ted Kennedy:
- Mr. Kennedy (raising his voice): "What are we going to tell the states? What are you suggesting that you’re going to do to help assist the states and what are you suggesting that we do to try to be a partner and help the states so they’re not going to have the results of a significant reduction in terms of services or also in terms of the taxes?"
Mr. Bernanke said the Fed would meet its mandate of "establishing a strong, growing economy" with high employment, price stability and financial stability.
Mr. Kennedy was unmoved, raising his voice: "I’m asking what we ought to be doing. What’s your position with regard to the states? Are you going to provide help and assistance to the states so that they do not have to cut back in terms of services?"
Mr. Bernanke (remaining calm): "You’re going to have to make a decision about whether you want to provide assistance to the states. "¦ That’s a decision that’s up to Congress to make."
Mr. Kennedy (growing much louder): "But what’s your recommendation. Should there be fiscal help and assistance? What’s your position?"
Mr. Bernanke (still calm): "That’s the Congress’s purview"
Mr. Kennedy (even louder): "What’s your recommendation. We have monetary and fiscal policy. You have responsibility in monetary, Congress does in fiscal policy. But you have to have some position in terms of the economic crisis that we’re facing."
Mr. Bernanke (still calm): "No sir."
Mr. Kennedy (at his loudest): "You’re not prepared to tell us, to try and provide help and assistance to the states "¦ to try and help and assist families, working families."
Mr. Bernanke: "I’m all in favor of assisting people, sir, but it’s Congress’ position"
Mr. Kennedy (at his loudest): "You don’t have a recommendation?"
Mr. Bernanke: "No sir."
Mr. Kennedy then lowered his voice and moved on to another question.
The fact that Bernanke suffered the ignorance and pomposity of Kennedy with grace and didn’t allow himself to be sucked into an area, even in the way of advice, that is clearly outside of the Fed’s jurisdiction, furthers my confidence that what Bernanke did with Bear Sterns was truly a unique episode.
It may just be that with Bernanke’s vast research, understanding and writing on the economic, banking and financial issues of the Great Depression, we may have the right guy, at the right time in the right job.
