Say Goodbye to Ben

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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January 23rd, 2010 1:31 PM

Bernanke's approval is clearly on the ropes. This has prompted the Wall Street and elite media crew to rustle up all the tricks they used to push TARP through back in October of 2008.

First and foremost, they are pointing to the decline in the stock market as evidence that the failure to reappoint Bernanke will devastate the economy. Of course the stock market is not the economy and no serious economist would ever advocate making policy based on daily movements in the stock market (or at least not when they are being honest). Furthermore, there is no way to move the economy away from its current Wall Street bubble-driven growth path, to one built on a productive economy, without at least some temporary decline in stock prices. Such a decline is inevitable if for no other reason than the fact that Goldman Sachs, J.P. Morgan and the rest account for a substantial portion of the value of the stock market.

If we can never do anything that even temporarily hurts stock prices then we can forget about ever reining in Wall Street.

To briefly summarize the case against Bernanke, at the top of the list is the fact that his failures at the Fed (both as chairman since 2006 and as a governor since 2002) brought the economy to the brink of a second Great Depression (Bernanke's assessment, not mine). Anyone else who had failed so completely at their job would be fired in a minute. Only in Washington and on Wall Street could such a disastrous record be rewarded with another term in office.

Second, the focus of his bailout was to return Wall Street to health while leaving the rest of the country reeling. Bernanke rightly tapped the Fed's virtually unlimited resources to keep the financial system from collapsing, however he gave out money to the banks at below market interest rates with no strings whatsoever. They were able to use this money to restore themselves to health, but were not required to do anything about compensation practices, risky trading, or helping homeowners facing foreclosure. Nor were their shareholders and bondholders required to incur any losses. In effect, Bernanke gave a huge gift from the taxpayers to the Wall Street boys who were responsible for the crisis in the first place.

Finally, he misled Congress to help get the TARP passed back in October of 2008. He told Congress that the commercial paper was shutting down, which meant that even healthy companies would not be able to borrow the money needed to meet their payroll and to pay other bills. this would have quickly led to an economic collapse. Bernanke did not tell Congress that he was planning to set up a special lending facility to directly buy commercial paper. He announced this facility the weekend after Congress approved TARP. It is not the Fed chairman's job to deceive Congress. Nor is it his job to bailout Wall Street at the expense of the rest of the country. And, it is his job to prevent the growth of dangerous bubbles. That's three really big strikes.

Bernanke should be sent out to enjoy his Time "Person of the Year" status in retirement.

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