Alan Blinder on Ben Bernanke – Phooey!

I understand that it’s a bit of a stretch for a low rent guy like me to take on a former Fed Governor and world class academic. But I’m going to try. Mr. Blinder wrote an Op-Ed in the Times today in support of his “friend and colleague” Ben B.

In a weak attempt at creating balance to his praise of the ‘man of the year' AB points to a few areas in the past where a mistake or two had been made. Possibly. He dismisses even those with a suggestion that it was Greenspan’s fault. On the failure of Bernanke to see the wave of problems before it was too late AB brushes it off with the excuse, “Who did?” Well Mr. Blinder, I did. I have been writing and talking about this for years. I saw Sub-Prime and 100% LTV ‘enhanced’ loans for what they were. Junk. I make investments and read prospectuses. I saw the crap that was being sold. I’m no oracle. There were thousands of us shouting into the wind when this was happening. I guess you did not hear us, being so isolated down in Princeton.

I loved this line:

His job performance since October 2008 has been superlative.

AB, I know you are ‘good buds’ with this guy, but really, “superlative”? What does that word mean in this context? Is that like a 10+? Why did you feel it necessary to write this Op-Ed? The answer is because your boy has not done a superlative job at all. There are Senators and Congressmen all over Washington that think he has not been superlative. There is a good many that have the academic status as you that think he has done a rather poor job. If this were put to a vote of the people your guy is finished. You think he is the guy that saved us. What you are missing is that more than half the population thinks he is the Prince of Darkness

AB: “He led the Fed to lower interest rates to virtually zero, and to hold them there.”

Please. What is hard about that? You make an announcement that says, “As of tomorrow we are lending at a ¼%”, and then you call the NY Fed desk to change the O.N. rate. Doing it is easy. Managing the consequences is a whole other matter. AB gives credit where none is due. I wonder if AB considered the consequences to people who are trying to save a few dollars? Unless you gamble in the stock market those savings have a negative future value because of the “0” stuff AB and BB are so fond of. Lousy incentive you are creating for a nation that needs savers.

AB: “(the Fed) breathed some life into the moribund MBS market”.

I’m sorry, what are you talking about? “Breathed some life?” The Fed has purchased $1.1 TRILLION of MBS. That is not a breath of life. That is a step that has no precedent in modern history. Your ‘best bud’ has just monetized $2 T bucks. Of course that is going to work. For a while. You throw gas on a fire, it burns. No trick to that.

AB: “The plain truth is that, as bad as the recession was it turned out less horrific than expected, and Ben Bernanke is one of the reasons”

Mr. Blinder is far too good a historian to make that statement and mean it honestly. Yes Ben wrote a biblical sized check. And yes that check avoided some things that would have happened. But it is far too soon to say that we have ‘won’. This comment reminds me of George Bush on the aircraft carrier with the banner “Mission Accomplished”. AB is drinking champagne a little early. Wait a few years until we see and feel the weight of what has been done. The easiest part of this was writing the check, paying it back could cripple us.

What prompted me (pissed me off) to post this was the last sentence of the Op-Ed. AB was clearly addressing his comments to just 100 people. The Senators who actually have a say in this. He reminded them that in 1983 there was a bit of a squeaker on the nomination of then Fed chairman Paul Volker. That vote went 84-16 in favor of Volker. Mr. Blinder concluded with:

Those 16 Senators look pretty foolish in the eyes of history. There may be a lesson there.

Mr. Blinder could have said it more bluntly, but left the same meaning:

If you don’t vote for Bernanke you’re stupid and history will prove it so”.

Well the vote is in. 70 30. Some of those 70 were no doubt influenced by the kind words by AB. Thirty Senators stood up and voted against this nomination. In ten years history will not judge them harshly. This will not be a repeat of 1983. They will be looked at as the ones who made a vote at critical time and were ignored.  They will not look stupid as Mr. Blinder has suggested.  At some point I will remind Mr. Blinder that it is always a mistake to judge history before history has been made.


 

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