Thursday, December 17, 2009

Stupid, ignorant, populism...

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From the Wall Street Journal:

Sen. Jeff Merkley of Oregon became the first Democratic member of the Senate to announce that he’ll vote against Ben Bernanke’s nomination to a second term as Federal Reserve chairman.

In a statement ahead of Thursday’s Senate Banking Committee vote of President Barack Obama’s nominee, Merkley said Bernanke “failed to recognize or remedy the factors that paved the road to this dark and difficult recession. Following our economic collapse, it is also apparent that he has not changed his overall approach to prioritizing Wall Street over American families.”

“For too many years, federal regulators turned a blind eye to signs of an impending financial crisis,” Merkley continued. “Tricks and traps proliferated in the credit card and consumer lending industries. Predatory mortgage loans exploded, fueling an unsustainable housing bubble. Regulators lifted rules requiring banks to keep adequate capital, and a laissez-faire approach to securitization, derivatives, and proprietary trading encouraged excessive risk-taking on Wall Street. As a member of the Board of Governors, Chair of the Council of Economic Advisers, and then ultimately as Chairman of the Board of Governors, Dr. Bernanke supported each of these decisions, failing to take the necessary precautionary steps that could have averted or mitigated financial collapse.”
Never mind the fact that Bernanke has never worked on Wall Street, comes from a family that ran a small business (on Main Street no less) and, oh-by-the-way may be THE reason we did not have a global collapse of the banking industry that would have left main street mired in depression for years thanks to stunningly bold and swift action. To lay the blame of all of the excesses of Wall Street at his feet is just plain stupid, to accuse him of acting in the interest of Wall Street and in so doing hurting Main Street is just plain ignorant, and to do both in this manner is crass populism. What I would like from my Senators is leadership not pandering and political theater.

For shame.

NB: It appears to be playing well to the intended audience. Interesting that lefties that understand economics, like Krugman and DeLong, support him and understand his contribution.


Oliver said...

On the one hand, I agree with you. On the other hand, James Galbraith made some good points in an interview with the BBC the other day that just because Bernanke went to great lengths after the crisis hit shouldn't excuse his lack of action before the crisis. So I'm kind of torn.

Regardless, mixing populism and monetary policy strikes me as dangerous.

Runner737 said...

Not real convincing. You focused on one statment Merkley made and ignore his broader argument that Bernanke failed in the run up to the crisis and supported the policies that got us into this mess. Why is it lefties like Dean Baker, who actually saw the coming collapse of the bubble, are against his reappointment?

Jonathan William said...

Exactly, Bernanke was part of the policy formation that led us into the crisis. How can we say he did a great job? We aren't out of the recession, unemployment is very high, and none of the root factors causing the crisis have been dealt with.

Major financial institutions went home with bonuses and the American people are losing jobs.

Are we sure Bernanke really avoided a great depression, or just postponed it? We'll have to just let time tell us, right?

Chuck said...

Whoa, , , "crass populism"? How about sound economics! Galbraith is competely right. "lefties that understand economics, like Krugman and DeLong" , , really? Yes, they are left of center politically relative to the U.S. political frame. Which means what? If my memory serves me right, I believe Krugman stated matter of factly in a NYT piece he was "unaware" of Elinor Ostrum. Holy cow.

I like Krugman but his contribution to economics, his expertise if you will, is highly specialized. Krugman wrote on May 19 of this year a piece titled "The night they reread Minsky." He then states "Brad DeLong offers a neat little model of speculative fluctuations in asset prices, based on the idea that investors gradually switch strategies based on what seems to work for other people: if people buying stocks seem to be doing well, more people move into stocks, driving up prices and making stocks look even more attractive. It’s very close to Shiller’s notion of bubbles as natural Ponzi schemes. And Brad’s version is very much what I was saying in this piece written in 1999 — one I had a lot of fun writing."

"What’s missing, as Brad himself points out, is the asymmetry of booms and crashes. What he doesn’t say is that what we really need is a model that can produce a Minsky moment — the point at which margin calls force deleveraging."

"I’ll be giving the Robbins Lectures at the LSE next month. The title of this post is also the title of my third lecture. I hope I actually have a model by then,,,,"

Good on Krugman for knowing when it's time to catch theory up to the real world.

Many economists need to reread Minsky. Others just need to read Minsky. Then they need to go back and reread Keynes. Then they need to move forward and catch up with economists like Keen. It's really all about dynamics.

MPPBrian said...

I don't think it is reasonable to blame Bernanke for not doing enough to prevent the crisis. The seeds of the crisis were sown by a variety of decisions and actors that far predate Bernanke. The repeal of Glass-Steagel in the 90s (Bill Clinton and the Republican
Congress), keeping interest rates too low for too long (Alan Greenspan and the fed), the lack of willingness to regulate the mortgage market and crack down on subprime loans (the Fed, Congress, States, lots of people), the unwillingness to regulate derivatives (Clinton, Bush, Robert Rubin). There is a lot of blame to go around, so I have a hard time putting most (or even some) of it on Bernanke.

I don't know enough about him to have a firm opinion, but I would say that one thing I like about Bernanke is that he seems more pragmatic than ideological. In today's world, that is a rare outlook and one that I think is beneficial.