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Oregon economist knocks Senator Merkley on Bernanke

December 18, 2009

By Patrick Emerson
Oregon Economics Blog

From the Wall Street Journal: “Sen. Jeff Merkley of Oregon became the first Democratic member of the Senate to announce that he’ll vote against Ben Bernanke’s nomination to a second term as Federal Reserve chairman. In a statement ahead of Thursday’s Senate Banking Committee vote of President Barack Obama’s nominee, Merkley said Bernanke “failed to recognize or remedy the factors that paved the road to this dark and difficult recession. Following our economic collapse, it is also apparent that he has not changed his overall approach to prioritizing Wall Street over American families.” “For too many years, federal regulators turned a blind eye to signs of an impending financial crisis,” Merkley continued. “Tricks and traps proliferated in the credit card and consumer lending industries. Predatory mortgage loans exploded, fueling an unsustainable housing bubble. Regulators lifted rules requiring banks to keep adequate capital, and a laissez-faire approach to securitization, derivatives, and proprietary trading encouraged excessive risk-taking on Wall Street. As a member of the Board of Governors, Chair of the Council of Economic Advisers, and then ultimately as Chairman of the Board of Governors, Dr. Bernanke supported each of these decisions, failing to take the necessary precautionary steps that could have averted or mitigated financial collapse.”

Patrick Emerson: Never mind the fact that Bernanke has never worked on Wall Street, comes from a family that ran a small business (on Main Street no less) and, oh-by-the-way may be the reason we did not have a global collapse of the banking industry that would have left main street mired in depression for years thanks to stunningly bold and swift action.

To lay the blame of all of the excesses of Wall Street at his feet is just plain stupid, to accuse him of acting in the interest of Wall Street and in so doing hurting Main Street is just plain ignorant, and to do both in this manner is crass populism. What I would like from my Senators is leadership not pandering and political theater.

For shame.

NB: It appears to be playing well to the intended audience. Interesting that lefties that understand economics, like Krugman and DeLong, support him and understand his contribution.

— Amendment and second post on this subject
In Defense of Ben
By Patrick Emerson
Oregon Economics Blog

In response to my post yesterday castigating Jeff Merkley for his outspoken stand on Ben Bernanke, a few commentators have stated that they may be willing to accept that his actions post-crisis are commendable, but what about his pre-crisis actions? To this I have four responses:

1. The liberalization of the nations banking laws, most notably the Gramm-Leach-Bliley Act, which repealed parts of the Glass-Steagall Act in 1999 and allowed the merger of commerical and investment banks, and that played a major role in the crisis, were done far before Bernanke’s time as a public servant. The lack of regulation of collateralized debt obligations is ostensibly under the SEC’s purview, not the Fed’s so to pin that on Ben is also misguided.

2. The idea that he should have seen the bubble for what it was and ‘popped it’ basically suggests that he should have had more foresight than millions of investors that controlled investments in the trillions. For if the bubble really was so obvious to everyone, short-sellers should have popped it long before the crisis. Why didn’t they? It is easy for a lot of people to look and say, wow housing prices seem too high – but how do you really know, by your gut instinct?

3. In order to ‘pop’ the bubble Bernanke would have had to raise interest rates to very high levels which would have given us, perhaps less painful, but very real recession and would have hurt main street for which he would have been roundly condemned – ‘who is this guy to decide the economy needs correcting when everything is going fine?’

4. The idea that Bernanke needs to look out for consumers and main street represents a misunderstanding of what the Feds role in the economy is: promote full employment and control inflation. During the real estate boom both were just fine, thank you very much. What he has done since the crisis is to do just that, prevent a depression which disproportionately hurts the most vulnerable in society.

I am troubled by the suggestion in general that we want some technocrat in the Fed who feels that they need to be an economic ‘oracle’ and act on feelings about the future of the economy. What I think is that we need regulations and reforms that control the ability of any one or few financial entities to leverage up so much and to take on so much risk as to pose a threat to the entire financial system should those risk turn out to be too great.

Thus to damn Bernanke for not doing enough to prevent the crisis is unfair. A good thought experiment for those who do is to ask just exactly who would have been better and what exactly would you have had them do? And don’t forget that financial innovation, while run amok in other areas, did manage to get credit in the hands of individuals that would not have otherwise have had access – read the working class and the poor. Yes, it got to the point of over-extension, but it was not just the fat cats on Wall Street that were benefitting.

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Discuss this article

Marvin McConoughey December 18, 2009

Senator Merkley is swinging outside of his league. Mr. Bernanke is likely the best present choice as Fed chairman. Had Merkley studied economics more, and politics less, he would have a deeper understanding of the extraordinary challenges that face Mr. Bernanke. I listen to the senator on some issues, but not on economics.

Victor December 18, 2009

Emerson, you don’t have a fucking clue what your talking about. Who did you blow to get a job writing for a business journal when you don’t even know what money is or how it’s created. Or how bubbles are formed.

It’s little state worshipers like yourself that will soon be gone.

Jeff December 18, 2009

I own a small business, study economics and generally understnad that there are people who know more abuut these issues than I do. What I do is listen to the smart people in economics I recently had a conversation with a member of the San Francisco federal reserve board who also has a degree in economics. She told we what we needed at the moment was for unqualified elected officials to stay out of monetary policy and to let people best trianed to deal with the issues do just that. Later that day, I had a chance to share her thoughts with Senator Merkley before a town hall. He nodded his head when I spoke, seeming to understand the concept. He then, during the town hall meeting proceeded to bash Bernanke and the Federal Reserve. His actions in committee yesterday were similar….but here is the thing….he NEVER offers an alternative in the way of monitary policy. This guy is either dumber than a box of rocks or he is very diciplined with just sticking to his talking points.

Rachel Hillenger December 18, 2009

You go Jeff. That son of a bitch Bernake got us into this mess. Pretending he has not “wall street” creds is bullshit. He’s an inside trader. Standard stuff for the mob currently in charge of the whitehouse. Fuck him with a frozen rope.
In a good way of course.

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