At a time of shrill politics, the former Fed chief reminds us of what mature leadership is about.
FROM POLITICO | OCTOBER 15, 2015
Ben Bernanke’s new memoir, The Courage to Act, is neither easy nor scintillating reading. But clunky and dry as it is, the 600-page tome serves as a provocative reminder that not all high officials in our largely dysfunctional government are motivated by partisanship or the desire to protect bureaucratic turf. It offers proof that Bernanke and the Fed were the grown-ups in the room during a period of crises unprecedented since the Great Depression, regardless of whether you believe they have conducted themselves brilliantly or poorly.
For those who want to know the minutiae of how the financial crisis unfolded beginning in 2007 and continuing through the collapse of Lehman in 2008, and then the Fed’s extraordinary measures that included the $85 billion bailout of insurance giant AIG and the far -arger program of quantitative easing that saw the Fed become a multi-trillion purchasers of mortgages and assorted bonds, the memoir is catnip. It is laden with technical details of how the Fed works, its statutory authority, and the behind-the-scenes debates over how to implement its various policies. And all brought to life with sentences such as: “Our March 11  announcement described the TSLF in technical financial language and lacked any mention of emergency powers or 13(3) authority.”
No matter. The larger message is that Ben Bernanke is a wonk, an academic, a policy economist and a central banker who utterly lacks the arrogance and self-aggrandizement so evident in so many in Washington. He came to Fed with a low-key, low charisma mien, and he left the Fed with that largely intact. He also did some truly extraordinary things under pressure, especially, for a fairly conservative, Republican-appointed Fed chief, and often in defiance of political expedience.
True, the Federal Reserve has always been somewhat different, given the usually reserved character of bankers and highly educated, wonky staffers. It shares more with the mandarins of the Supreme Court and the stewards of the Interior Department than it does with the partisan politicians so typical not just of Congress and the White House but of many other federal agencies large and small.
Yet the Fed has become a source of considerable controversy and animus over the past years as it has vastly expanded its interventions and seen its balance sheet balloon to the trillions. It attracts criticism on both the left and the right for being both overly secretive and overly powerful while remaining only marginal accountable to Congress and to the public. A vocal minority sees Bernanke and the Fed as puppets of Wall Street and villains of the financial crisis. In that analysis, he and his are just the latest in a string of dark figures, along with his predecessor Alan Greenspan and stretching back into the 20th century chairmen such as Arthur Burns during the ill-fated stagflation of the 1970s and then back to the bewildered souls who led the institution and the country astray in the Depression years of the 1930s.
Bernanke certainly makes for a bland villain. Unless his memoir is a complete fabrication, it is stretch to imagine him as part of some Illuminati, Trilateral conspiracy to defraud the American people. Maybe I’m just being naïve…
Instead, his account of his years is testament to a banal yet powerful fact: he and the Fed and most of its staff and governors really did do the best they could to keep the financial system afloat, prices stable, inflation in check, and employment from completely imploding.
From 2007 to mid-2009, the Fed struggled with a cascading series of crises that appeared briefly contained before the next one erupted with even greater intensity. We all now the litany: Bear Stearns, Countrywide, Merrill, housing bubble bursting, Fannie, Freddie, Lehman, AIG, Wall Street, Main Street, the United States, the Eurozone, the world. Which to save, which could be saved and which could not, what the Fed could do even with an elastic interpretation of its considerable but still bounded powers to lend and regulate, all had to be assessed and addressed with no ready or easy formulas to act as guides. Bernanke was determined not to repeat the mistakes he perceived during the Great Depression, when the Fed was a classic case of too little and too late. Other than that, he and everyone else managing the crisis were making it up as they went along.
Criticize the decisions all you want, and indeed, the critics may prove right in the end. The vast experiment in bailouts and loans and easing may end badly and spectacularly, even though as of this moment it has ended decently for the global financial system, for the billions of people worldwide depending on the viability of the U.S. dollars, and for the bulk of Americans. Many have suffered terrible reversals of fortune, but the financial levees erected by the Federal Reserve held.
All of which raises the vital question of what can we expect from public servants? We can expect that to the extent they can, they check their egos at the halls of whatever office they inhabit. We can expect that they keep in mind at all times that amorphous thing called the public good and attempt to act as stewards. We can expect that they try to do the right thing not for themselves but for the collective that they serve, and that they work hard and question everything, including their own decisions.
On that score, Bernanke demonstrates that the Fed has acted honorably, and he as well. Future generations may excoriate his decisions, or laud them, but it would be grossly unfair to question motives, character, or intent. If only we could say the same for the bulk of our elected officials in Congress, in the White House, in state houses across the nations.
The one real weakness in Bernanke’s approach to crises may be what his successor Janet Yellen has recently underscored: The Fed is increasingly the banker for the world because the dollar has only become more important as the world’s reserve currency. Any doubt about the extent of that should be laid to rest by the Economist’s recent special report detailing the dollar’s increased economic prominence.
By exploding the Fed’s balance sheet to ward off Depression, in other words, the shy Fed chairman may have inadvertently made his institution vastly more powerful for a long time to come. While Bernanke certainly coordinated actions with global counterparts, particularly in 2011 as the Eurozone threatened to implode, he may not have fully digested the degree to which the Fed now must consider the effect of its actions on the global system and not just the U.S. economy.
Considering that may well be more red meat to those who think the Fed is already too powerful: If it overdid it in bailing and easing, now it is going to bail and ease for everyone everywhere? Yet even here the issue is not one of institutional aggrandizement as much as some trying to fill a vacuum, to be the adults, the guardians, what have you. And here as well, bringing the Fed down a notch won’t fix whatever ails us. Better global institutions that have the mandate to think of the financial system as a complicated but transnational entity would be great, but that doesn’t appear to be on the near horizon. In such a scenario, is it better for the Fed to overreach or not reach at all?
We all have to answer that question, but no matter how answered, we need institutions and people dedicated to our commons, to our public good domestically where needed and internationally when necessary. History can judge whether this group of bankers led for a few years by Ben Bernanke made the right decisions, the wrong decisions or some messy mix of both.
For now, we can and should nod our heads in acknowledgment that they acquitted themselves honorably in a world where public service is in short supply.