With his new memoir, Bernanke opens the door on the decisions he made at the Fed post-crashDan Winters
During Alan Greenspan's 18-year tenure at the helm of the Federal Reserve, the central banker once dubbed "The Maestro" was so revered by Republicans and Democrats alike in Congress that they practically genuflected in his presence—even when they didn't have a clue what he was talking about. His successor, Ben Bernanke, a low-key, collegial academic with a penchant for speaking plainly, would have settled for a little more public civility and a lot more help in combatting a meltdown that triggered the worst global economic slump since the Great Depression.
Bernanke, 61, who retired from the Fed last year, would engineer the boldest rescue ever undertaken by a central bank. He would also transform the way it went about its business—pushing for greater transparency; ditching the Oracle-like pronouncements of his predecessor; meeting ordinary people on Main Street; holding press conferences to explain decisions; and appearing on CBS's 60 Minutes, which showcased his small-town southern roots.
Yet he managed to irritate—and in some cases infuriate—politicians on both sides of the aisle, sparked controversy in economic circles and provoked considerable hand-wringing over the Fed's embrace of unorthodox measures to stabilize the financial system, save Wall Street from itself and put a floor under the sinking U.S. economy. One argument, that the Fed's massive bond purchases (known as quantitative easing) and its decision to keep interest rates effectively at zero for years would debase the currency and unleash a wave of economy-killing inflation, persists despite being utterly wrong. "I haven't heard any mea culpas," Bernanke says drily in an interview from Washington.
In The Courage to Act, his engaging and occasionally revealing memoir of his tumultuous eight years as the world's most influential central banker, Bernanke leaves little doubt about his disgust with politicians who had no qualms about launching personal attacks during public committee hearings while enjoying friendly conversations with him in private. What's worse, they didn't mind leaving the Fed to hold the fort in the midst of the crisis—and to shoulder any blame if its efforts went awry. And they threatened to chip away at the Fed's vital independence.
Apart from 2009 and the early months of 2010, U.S. fiscal policy "was not very supportive of recovery, and it left the Fed to do most of the heavy lifting," Bernanke says. While the central bank controls such monetary policy levers as interest rates and money supply, Congress is responsible for tax and spending programs that could stimulate the economy. "I do believe that a better balance between monetary and fiscal policy would have given us a stronger recovery without putting so much burden on the Fed."
The former Republican reserves particular venom for the party's vociferous right wing, whose grasp of economics "leaves much to be desired." He writes that he still considered himself a conservative. "But I had lost patience with Republicans' susceptibility to the know-nothing-ism of the far right." It was enough to turn him off party politics altogether. Today, he calls himself "a moderate independent."
Growing up in a small South Carolina town (1), Bernanke spent a lot of time at the local library and won a state spelling bee at the age of 11 (2). As an Ivy League academic, he would become
a leading expert on the causes of the Great Depression. His research prompted him to lay much of the blame for those years of misery at the feet of overly cautious central bankers whose policies made things far worse.
His conclusion: "Policy makers confronted with extraordinary circumstances must be prepared to think outside the box, defying orthodoxy if necessary." He would get to test that view to the fullest after the collapse in September, 2008, of Lehman Brothers, which he insists could not be saved. In the fallout, the financial crisis that began with the bursting of the housing bubble in 2007 went into hyper-drive.
Shortly after being appointed to the Fed's board in 2002, Bernanke made his celebrated "deflation speech," laying out options for central banks once they ran out of room to cut rates. "I argued that central banks are not out of ammunition when interest rates go to zero....That has certainly been confirmed."
The crisis left Greenspan's reputation in tatters. The staunch advocate of financial deregulation and unfettered markets was blamed for sowing the seeds of destruction that were already sprouting on his watch. Meanwhile, the reputation of the Fed chief who played a crucial role in cleaning up the mess seems certain to grow with time.
Footnotes
(1) His family owned a pharmacy that was bought in 1941 by his grandfather, an immigrant from what is now western Ukraine.
(2) His first trip to Washington was for the national bee, whose winner would be introduced on The Ed Sullivan Show. He finished 26th after misspelling "edelweiss."