Nouriel Roubini says that despite some early mistakes, including holding interest rates down for too long, and not appreciating the seriousness of the subprime crisis, Ben Bernanke has done an admirable job as Fed Chief and deserves to be reappointed.
He made his argument in a NYT op-ed, published today:
[Bernanke] introduced a wide range of other programs, like those to maintain the functioning of the commercial paper market (which makes short-term loans to companies so they can cover operating expenses like payrolls). The Fed was involved directly in the rescue of financial institutions like Bear Stearns and American International Group. It lent money to foreign central banks to ease a global shortage of dollars. The Fed even committed to purchasing up to $1.7 trillion of Treasury bonds, mortgage-backed securities and agency debt to reduce market rates. These are all radical actions that had almost never been undertaken before.
Some of these moves have raised important questions: Did the Fed help bail out institutions that should have been allowed to fail? Did it cause moral hazard as reckless lenders and investors were effectively bailed out? How and when will the Fed mop up the excess liquidity that its actions have created? Will these actions eventually cause inflation and a sharp fall of the value of the dollar? Has the Fed lost its independence as it has accommodated the fiscal needs of the government by bailing out banks and printing money to cover large fiscal deficits?
Still, the basic point remains: The Fed’s creative and aggressive actions have significantly reduced the risks of a near depression. For this reason alone Mr. Bernanke deserves to be reappointed so that he can manage the Fed’s exit from its most radical economic intervention since its creation in 1913.
It seems pretty clear that Ben Bernanke is emerging from the crisis as a winner.
He has his critics in Congress, but even they seem to have lost their appetite to go after him for anything. Assuming we don’t have a double-dip crisis, and assuming all the Fed programs don’t blow up in a big way (two big ifs, surely), then it’s hard to imagine why Obama would replace Ben Bernanke.
Bernanke’s also helped by the ongoing decline in Larry Summers’ (his most likely replacement) stock. Does Obama really want to replace the sagely and bearded Bernanke, with the man who, during his controversial tenure at Harvard, decided to have some fun speculating on interest rates? Would the market really prefer Summers to a man who’s entire life has been spent studying depressions and deflation? Please.
Besides, Bernanke even has Cramer’s blessing as BEST FED CHIEF EVER. What more could Obama want?
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