Sunday, July 26, 2009

The Bernanke ReappointmentTour

by Bill McBride on 7/26/2009 09:21:00 AM

Fed Chairman Ben Bernanke kicks off his reappointment tour with a town hall meeting today in Kansas City, Mo. Jim Lehrer will host.

From Don Lee at the LA Times: Chairman Ben Bernanke confronts challenges to Federal Reserve's record

With his term expiring Jan. 31 and his reappointment a question mark, Bernanke makes a rare public appearance today in a nationally televised forum that has all the earmarks of a reelection campaign.

At a town hall meeting in Kansas City, Mo., the soft-spoken, longtime economics professor can be expected to defend the Fed's record, explaining why the controversial bailouts and other efforts to revive moribund credit markets were necessary. ... He will take questions from news host Jim Lehrer and an invited audience ...

"This is an extraordinary time," he told The Times. "It's important for me to hear from people outside of Washington. And I want to answer the questions that I know people have about the economy, the Fed and the Fed's actions during this crisis."
...
[Laurence Meyer, a Washington economist and former Fed governor] and many others ... say odds favor Bernanke to be reappointed by Obama. Bernanke has strong backing from economists and is well regarded in the White House ...
Roubini says Bernanke should be reappointed: The Great Preventer
Ben Bernanke ... deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.
...
[A]n endorsement of Mr. Bernanke’s reappointment comes with many caveats. Mr. Bernanke, a Fed governor in the early part of this decade, supported flawed policies when Alan Greenspan pushed the federal funds rate (the policy rate set by the Fed as its main tool of monetary policy) too low for too long and failed to monitor mortgage lending properly, thus creating the housing and credit and mortgage bubbles.
...
Still, when a liquidity and credit crunch emerged in the summer of 2007, Mr. Bernanke engineered a U-turn in Fed policy that prevented the crisis from turning into a near depression.
Anna Schwartz say no: Man Without a Plan
As Federal Reserve chairman, Ben Bernanke has committed serious sins of commission and omission — and for those many sins, he does not deserve reappointment.
Mark Thoma at Economist's View agrees with Roubini: Should Bernanke Be Reappointed?
Here's how I see it. It's true that [Bernanke] failed to notice that the patient was getting sick. The signs of disease were there, but [Bernanke] either didn't see the signs or they were misdiagnosed. In fact, there's a case to be made that [Bernanke] saw some of the changes in the patient as signs of improving health. Had [Bernanke] made the correct diagnosis early enough, maybe we could have prevented the patient from getting sick ...

And once the patient showed up in the office and was clearly sick, [Bernanke] didn't get it right initially either. [Bernanke] thought the patient needed fluids - liquidity as they say - and the patient did need some of that, but [Bernanke] didn't immediately see that there were also some key nutrient deficiencies and chemical imbalances that were threatening to cause further problems.

But [Bernanke] kept at it with tests and other diagnostics, and eventually got a handle on the problem. ... The patient will get better, the deterioration was rapid and turning it around will be difficult - it won't happen fast enough to suit any of us - but what has been done prevented a complete collapse, and is helping to move the patient towards recovery.

So I'm with Nouriel, Bernanke should be reappointed.
Here is what I wrote about Bernanke last month (when he was being heavily criticized):
Given all the recent attacks, I'd be remiss if I didn't write something about Bernanke ...

I've been a regular critic of Ben Bernanke. I thought he missed the housing and credit bubble when he was a member of the Fed Board of Governors from 2002 to 2005. And I frequently ridiculed his comments when he was Chairman of the President Bush's Council of Economic Advisers from June 2005 to January 2006.

... once Bernanke started to understand the problem, he was very effective at providing liquidity for the markets. The financial system faced both a liquidity and a solvency crisis, and it is the Fed's role to provide appropriate liquidity.
I believe the attacks on Bernanke's personal integrity were unfair and unjustified. But I'm not sure he should be reappointed.

Professor Thoma's analogy to a doctor who kept getting it wrong - but never gave up trying new possible cures - is pretty good. Is that the kind of doctor I'd want?

I'd like a doctor who never gave up trying for a cure, but I'd prefer someone with better diagnostic skills. I don't oppose Bernanke for a second term, but I think there are better choices.

(San Francisco Fed President Janet Yellen, as an example, recognized what was happening much earlier than Bernanke).