‘Tis the season for rehabilitation it seems. First is the rehabilitiation of Hank Paulson and the TARP and now Jim Cramer is out calling Bernanke the greatest Fed Chair in the history of Fed Chairs.
And this is pretty high praise from a guy who famously screamed that Bernanke needed to WAKE UP and had NO IDEA what was going on, early in the crisis.
I’ll just come right out and say it: Ben Bernanke will go down as the greatest Federal Reserve chairman in history. The soft-spoken academic who has toiled in the shadows of his legendarily self-promoting predecessor, Alan Greenspan, will be known as the man who averted the Great Depression Two, a sequel that could have eliminated the United States as a world financial superpower and reduced us to this century’s Britain. Make no mistake about the parentage of this success story. President Obama pushed through a stimulus plan that will ultimately help the economy later this year, and Treasury Secretary Tim Geithner chose to adopt Bernanke’s strategy of allowing banks to raise money themselves rather than bowing to calls from politicians and pundits to have taxpayers bail them out even more than they already had. But it was the 55-year-old former Princeton professor who spent his teaching career studying how the Great Depression could have been prevented who deserves the bulk of the credit.
I wasn’t always a fan. For a year after he took the helm from Greenspan in 2006 until the middle of 2008, as it became increasingly clear that the housing market’s crash and the subprime fiasco were getting out of hand, Bernanke simply toed the official line of George W. Bush: The fundamentals are sound. He was slow to cut interest rates, his primary tool to stave off recession, and he handled the Fed as if it were a Princeton debating society, polling the members endlessly and deferring to the inflation hawks. His unwillingness to challenge those who were calling for rate increases to fight inflation in what remains the closest we’ve come to a deflationary spiral since the mid-fifties froze the Fed at a time when the worst of the crisis could have been avoided. Bernanke can’t be absolved for his lack of decisive action in that moment. He assured people in the spring of 2008 that there was no financial chaos worth worrying about. He looked at an economic canvas that resembled a kindergartner’s finger painting and saw a Van Gogh. (At least that was a more accurate critique than that of then–Treasury Secretary Hank Paulson, who thought we were looking at the Mona Lisa.)
But then, says Cramer, Bernanke discovered the wisdom of free money:
But the downfall of Lehman Brothers, a collapse Bernanke and then–New York Fed chief Tim Geithner acceded to when Paulson decided that someone had to pay for the moral hazard, changed everything. Suddenly, as credit froze and production and stocks plummeted as fast as they had between 1929 and 1932, Bernanke broke ranks with the complacency crowd and the inflationistas and relied on the lessons he’d learned back at Princeton to quickly take interest rates to an unheard-of zero per cent. He turned on the Fed’s printing presses, forcing dollars into the banking system, and began to buy $500 billion in mortgage bonds to force rates down to stop runaway foreclosures and keep people in their homes. That was the most aggressive policy change in the Fed’s history, something that amounted to nothing short of an economic putsch that bridged the interregnum between presidents and continues to this day. Read the whole thing >
Here’s the original Cramer rant on Bernanke. Hard to believe it was so long ago (August, 2007). It’s actually a great time capsule, complete with stock charts of Bear Stearns trading over $100. And actually, having recently finished “Street Fighters,” about the fall of Bear Stearns 6 months later, we think this rant was actually surprisingly prescient. The really good stuff starts around the 2:00 minute mark.