A Few Thoughts and Updates

Now that Obama has made the mind-numbingly easy decision of re-appointing Bernanke as Chairman of the Federal Reserve, a few loose ends need to be tied up. First, we are taking Laurence Summers, head of Obama's economic council, off of the Bernanke Arch-Nemesis list. Replacing Summers will be Kentucky Republican Senator John Bunning. Today, in a show of splendid ignorance, Bunning criticized Obama's decision. Then Bunning proceeded to criticize Bernanke for what Bunning called a "delayed response" to the crisis. This puts Bunning on the dreaded Bernanke Arch-Nemesis list and is a good lead into the next loose end that needs to be tied up.

The Bernanke Files argues that Bernanke's response to financial crisis was late... and occurred at the exact right time. Let me explain: to be fair, one must look at Bernanke's response in context with the Federal Reserve's day to day environment. If you a critic says, "Bernanke should have speculated about the future of the economy and put into motion drastic measures to stave off the recession," then it is only fair to say that "Bernanke should ALWAYS speculate about the future economy and put into motion measures to stave off the recession." This means that when unemployment was going from 7% to 3.9% but half way down it turned around for a month (from 5% to 5.1%), Bernanke should have closed down AIG, Bear Stearns, McDonalds and urged Congress to pass Armeggeddon resolutions mandating the purchase toilet paper and water by every American citizen.

But, the Federal Reserve DOES NOT SPECULATE- as crazy as it sounds, the Fed actually waits for facts and data to come to them, then it makes the best decision it can with the resources it has at hand. This maintains confidence in the Fed, and makes sure its decisions are not too drastic, or not enough.

In hindsight, of course Bernanke's response was late... by 20 years. Bernanke, Bush, Clinton, Summers, Bush 1, Reagan, Greenspan and every Congressmember since the 1980's could have made the sub-prime mortage backed security market less leveraged, yet none of them did because rational people don't look into crystal balls to make decisions.


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