Ben Bernanke: The Economy's Fall Guy
Ben Bernanke is emerging as a high-profile scapegoat as critics ridicule his new "quantitative easing" policy. Charlie Gasparino on why mocking the non-partisan Fed chair is bad for America.
Here's how you know Ben Bernanke, the mild-mannered chairman of the Federal Reserve, a scholar of the Great Depression once considered a sage for saving the banking system during the 2008 bank meltdown, has suddenly found himself a target of ridicule lumped in with the financial morons and evildoers like Dick Fuld, Lloyd Blankfein and the rest of the fat cats of Wall Street.
Go to YouTube.com, and one of the most watched videos Wednesday (more than 800,000 views the last time I checked) is an animation titled " quantitative easing explained." In it, two cartoon bears, which have been previously used to lampoon all manners of buffoonery, explain not just how the Fed's recent move to prop up the faltering economy is really all about printing lots and lots of money, thus setting the stage for another economic collapse, but also how the Fed has missed every economic malady over the past 20 years and has been right about "nothing."
And who is the guy behind such recklessness and stupidity? Its chairman, a man named "The Ben Bernak" who has "no business experience…no policy experience…has never run in an election."
"So what qualifies him to run the Fed…and play God with the economy?" asks one of the characters in the video. The answer: "I don't know, but maybe the fact that he has a nice beard."
"But my plumber has a nice beard," is the response, "but I wouldn't trust him to play God with the economy," before adding "the plumber is clearly smarter than The Ben Bernak."
It gets worse, and while it's easy to blow off a YouTube video as nothing more than a cheap shot created by someone with too much time on his hands, the fact that Bernanke or any Fed chairman has gone from relative mainstream obscurity—fed chairman for all the power in navigating the economy through their control of the country's money supply have never exactly been house hold names in the majority of American households—to an object of popular derision and scorn really says something about Bernanke's ability to remain an effective Fed chairman.
I should point out that I was told to download the YouTube video not by some dopey trader during a slow day in the markets, but by a CEO in New York City who runs one of the biggest financial firms in the world. Bernanke's senior staff has seen it too, I'm told, though a spokesman wouldn't say whether the chairman has.
Bernanke has gone from mainstream obscurity to an object of popular derision and scorn.
"This video is going fucking viral," the CEO told me with a laugh.
Down in Washington, so is Bernanke. His list of foes reads like a who's who of the Republican Party establishment (it's hard to believe Bernanke was appointed by a Republican), while some members of his staff are now questioning whether they should pull back on his quantitative easing plan altogether. Others in D.C. are now predicting that he'll resign after the 2012 presidential elections because he's tired of the constant attacks, a full-on bloodsport after the Fed announced its so called "QE-2," or its second round of quantitative easing—a fancy way of saying that the central bank wants to print money in the coming weeks by purchasing securities from the big banks, infusing the financial system with cash that will somehow find its way into the hands of business and consumers.
To be sure, QE-2 will probably work as well as QE-1, which means it probably won't do much to spark an incredibly weak economy staggering under the weight of 9.5 percent unemployment. But that doesn't mean Bernanke deserves all the crap he's getting. He doesn't because attacking Bernanke obscures some of the big problems facing the American economy as we conclude the second year of President Obama's hope and change agenda that clearly isn't working.
Some basics about Bernanke: Under law, the Fed chairman is appointed by the president, confirmed by the Senate and is required to appear before Congress just twice a year to give testimony and answer questions. He serves four-year terms (Bernanke's runs out in 2014). He can act pretty much autonomously in carrying out the Fed's mission of promoting economic growth by managing the nation's money supply, and most have.
Paul Volcker for instance withstood tremendous pressure from politicians, business leaders and the media in the late 1970s and early 1980s when he caused the last great recession by jacking up interest rates to squeeze inflation out of the economy. (It worked, by the way.)
Likewise, his successor Alan Greenspan seemed impervious to political criticism and control; he worked under both a Democratic President (Bill Clinton) and Republicans (Ronald Reagan and both Bushes) and largely ran the Fed as he saw fit despite more than occasional political sniping.
But both Volcker and Greenspan operated during different times, before the 24-hour news cycle kicked into high gear, before YouTube, and before the public got a real taste of what the Fed does and who its chairman really is.
That all began in 2008 when the Fed and Bernanke in particularly played a central role in what ultimately came to be one of the most controversial policy decisions in the past three decades: The bank bailouts. Ben Bernanke, of course, didn't cause the financial meltdown that year. (Greenspan's policy of super low interest rates helped fuel the housing bubble; Bernanke was a Fed governor during many of those years) but he was left with the mess that was years in the making.
Bernanke took over as Fed chairman in early 2006, and by end of his first year in office the banking crisis had officially begun. By the end of third year, nearly every major bank in the country needed a government bailout or they would have failed.
Bernanke's efforts during the 2008 meltdown initially earned him kudos on Wall Street and he was dutifully re-appointed as chairman by President Obama, and confirmed by the Senate.
But it wasn't long before he became a symbol of populist outrage. The more Americans started to grasp the notion of bailing out bankers and traders who took enormous risk, the less they liked it, no matter how many times they were told by Bernanke, and the rest of the Wall Street-Washington establishment, that it was a necessary evil to prevent the economy from imploding a la 1929.
Even worse for Bernanke, was that the new president's economic policies have benefitted Wall Street much more than Main Street. Unemployment in Middle America has remained abnormally high for two years, all those "shovel ready" projects the president promised with the $800 billion stimulus package never materialized. Meanwhile banks continue to shell out huge bonuses and make billions thanks in large part to Bernanke's policy of spurring the economy through super-low interest rates that is supposed to encourage business spending and create jobs but also allows large financial firms to rake in huge profits.
As a result, Bernanke as head of the Wall Street clean-up squad, and chief regulator of the banking business has become the poster child of populist scorn that's really a function of a failed economic (fiscal) policy he has no control over. Say what you want about his decisions to cut interest rates to near zero and now create billions of dollars of new cash through various QE's, but Ben Bernanke isn't stupid. He isn't purposely debasing the currency or setting the stage for massive inflation.
Rather, he's hitting the panic button, worried that the economy weak growth's will slip into a double-dip recession, or worse, and he's using the only tools at his disposal to prevent economic disaster that stems from the failure of Obamanomics. Remember Bernanke is a student of the Great Depression.
What's scary for Bernanke is that the attacks against him aren't merely a populist fringe outrage. The new Republican Party, controlling the House, and gaining seats in the Senate, was propelled by the Tea Party movement, which preaches a mixture of fiscal responsibility and economic libertarianism. One of the movement's patron saints is Republican Congressman Ron Paul—he's written a book for the eventual dismantling of the Fed. That might not happen, but Paul has new found power. With the Republican control the House, other prominent Republicans, such as Congressman Mike Pence are joining the anti-Fed bandwagon.
Pence recently announced new legislation that will limit the Fed'spowers and I am told that there are other efforts afoot to hold the Fed more accountable.
Accountability is good. Why should the Fed get a free ride when it bails out AIG on the taxpayers' dime and when that bailout disproportionately benefits Goldman Sachs, which is exactly what happened during the dark days of the financial crisis of 2008? Likewise Bernanke and the Fed should be held accountable on why they think we need to print so much money so quickly.
My guess is that Republicans will like what they hear: That the president's economic policies are failing, and that we need fiscal stimulus such as extending the Bush-era tax rates. But what's happening to Bernanke now isn't accountability, it's a feeding frenzy. And for the good of the country, it should stop.
Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His latest book, Bought and Paid For, is about the Obama administration and Wall Street.