Catastrophe seems to have a more forgiving master in the Senate banking committee than in the pages of history. The captain of the Titanic was not given another chance at the wheel. And unlike Mr. Bernanke, he had the decency to hit an iceberg only once.
The Senate banking committee voted 16 to 7 today to confirm Ben S. Bernanke for a second term as chairman of the U.S. Federal Reserve System. It is unfortunate for E.J. Smith that he went down with the Titanic in 1912, because, if you follow the committee’s logic, it would have reappointed him to captain another ship if it had had the opportunity.
Mr. Bernanke was part of the crew who allowed the housing and liquidity bubbles to build in the first part of the 21st century. As Fed chief, he missed the early warning signs of the impending financial collision completely, predicting that any problems would be contained and not spill over to the real economy. Watertight compartments did not work for Captain Smith, either. Only a few months ago, Mr. Bernanke told Congress that unemployment would not reach 10 percent in the U.S. He was an early supporter of the TARP, the nearly trillion-dollar fund which he and others sold to Congress on the basis that its quick passage was vital to the survival of the economy. Turns out it was not really about toxic assets, which the Fed never bought, but about propping up the capital of major Wall Street players -an idea that already skeptical lawmakers likely never would have bought. Captain Smith was known to be of the view that his ship was too big to sink. His modern financial counterpart has given new meaning to the concept that certain institutions are too big to fail. It is worth pondering whether the philosophy, practices and vision demonstrated by Mr. Bernanke will end in a similar calamitous outcome.
At a time when opaqueness and lack of openness are widely regarded as being forceful contributors to the near economic collapse of Wall Street, Mr. Bernanke has adopted that model himself in the Fed’s anonymous transactions at the discount window and its handling of bank collateral, which is the original cash-for-clunkers program. He was quite happy to have taxpayers kept in the dark about the AIG bailout, which fast-tracked added billions into the coffers of Goldman Sachs and other banks. After the details became public, he offered the implausible excuse that it was not possible to negotiate a better deal and make Goldman take a “haircut.” The world’s most powerful central banker can’t take on Goldman, but Mr. Bernanke tells the banking committee he is up to taking on a bigger role as the nation’s financial super regulator.
There is a widely held view in some circles, especially in those given to the folly of excessive public spending (which view is oddly shared by those on Wall Street and in corporate America who are driven by the vice of excessive compensation) that the Fed under its current chairman has navigated recent choppy financial waters with skill and courage. In their view, Mr. Bernanke saved the banks, brought the economy back from the brink of a depression and performed a number of other miracles that place him somewhere between Albert Einstein and Mother Teresa–Wall Street version. Perhaps these are less the outcome of brilliance and wonder than they are of a Fed printing press capable of producing unlimited dollars and support for a spending and debt binge that soars into cosmic frontiers where no Fed has dared to go before. In that imaginary world, anything is possible–for a while.
Wall Street demanded, and Mr. Bernanke dutifully provided, a zero Fed rate that is the banking community’s equivalent of billion dollar bills pouring out of helicopters. And they are making billions more from it. New York State officials announced today that Wall Street is poised to report record profits for the first three quarters of 2009. The $50 billion in profits is almost two-and-a-half times the previous 2000 record (another year associated with a bubble). Bonuses will be 40 percent higher than last year. Such numbers are a direct result of the Fed’s easy money policy. It is not surprising that it can also buy untold support for the chairman who made it possible.
Question for the Senate: How exactly do you go from being on the edge of the worst Wall Street crisis since the Great Depression to record bank profits in little more than a year? Could it have happened if Mr. Bernanke had not supplied a very expensive taxpayer-bought getaway car?
The Fed and Wall Street have become an endlessly accommodating club of insiders that Mr. Bernanke has shown he is ill-disposed to disturb, especially after his collision of miscalculation last year with that other iceberg known as Lehman Brothers. He has been willing to enter into the policy arena and indicate to Congress his disapproval of the House provision authored by Congressman Ron Paul for regular, though delayed, audits of the Fed’s monetary policy, but he has offered not a word of criticism over the New York’s Fed’s governance, for instance, which functions as a self-perpetuating clique of Wall Street bankers electing their own in furtherance of their own interests. Another well-regarded champion of current financial reform in the Obama administration, under a President whom we admired and supported even before his nomination, seems to share the same view. Treasury Secretary Timothy F. Geithner was president of the New York Federal Reserve Bank for several years prior to assuming his current duties. There is no indication that he was ever troubled by the singular Wall Street view that the New York Fed personified, which accounts at least in part for the economic devastation that has ensued under its supervision over the past few years.
It is likely that the full Senate, except for a handful of members on both sides of the political spectrum, will also vote to confirm Mr. Bernanke. Whether members of the Senate will be around when the U.S. economy collides with the mountain of inflation and another Fed-induced debt bubble that are advancing toward them, and whether the Fed under Mr. Bernanke will even see the products of its myopic policies as they approach, is uncertain.
What is clear is that catastrophe seems to have a more forgiving master in the U.S. Senate than in the pages of history. The captain of the Titanic was not given another chance at the wheel. And unlike Mr. Bernanke, he had the decency to hit an iceberg only once.