Analysts on Bernanke's Performance

By The NewsHour, The NewsHour - December 16, 2009

KWAME HOLMAN: The Federal Reserve kept interest rates at historic lows today, near zero. And, in a statement, it reported, the fragile economy continues to pick up and job losses are slowing.

To the man at the helm, Chairman Ben Bernanke, it may be further evidence the Fed's policies are working, as he told a Senate hearing this month.

BEN BERNANKE: We played a central role in efforts to quell the financial turmoil, for example, through our joint efforts with other agencies and foreign authorities to avert a collapse of the global banking system last fall.

KWAME HOLMAN: And, today, Bernanke received a boost of his own. The Fed chairman was named "TIME" magazine's person of the year for helping, in the magazine's words, ensure that 2009 was a period of weak recovery, rather than catastrophic depression.

In an interview, Bernanke countered criticisms that his actions have helped Wall Street, at the expense of Main Street. "I come from Main Street, from a small town that's really depressed. This is all very real to me," he said, adding, "I'm not happy with where we are, but it's a lot better than where we could be."

The former Princeton economics professor is expected to be confirmed by the Senate for a second four-year term in the near future. But he's also been taking some heat, like this from Republican Senator Jim Bunning.

SEN. JIM BUNNING, R-KY.: The AIG bailout alone is reason enough to send you back to Princeton.

KWAME HOLMAN: His critics on the right, left and in between say Bernanke did too little before last year's crash, but used unchecked powers after crisis set in.

And, today, Vermont independent Senator Bernie Sanders, who has put a hold on Bernanke's nomination, continued his push to have the chairman replaced.

SEN. BERNIE SANDERS, I-Vt: One of key functions, as you all know, of the Fed is to oversee the safety and soundness of our financial system. He was chairman of the Fed. And, all around him, wild speculation, illegal behavior, gambling, casino-type activities were taking place. Where was Ben Bernanke, the chairman of the Fed, when all this was happening?

KWAME HOLMAN: The nation's top banker has taken extraordinary actions, using the Fed's power in novel ways to pump trillions of dollars into the financial system. Last year, amid debate over the Wall Street bailout, he answered critics who said the government should let the crisis take its course.

REP. KEVIN BRADY, R-Texas: Why don't we allow free market system to correct itself?

BEN BERNANKE: My response is that the pain would be very significant. It would be very difficult for Main Street. If this credit system broke down, it would be very costly to average people.

Here's a better solution. The better solution is to recognize that things went wrong. We have got a problem now that we can solve if we address it with enough force.

KWAME HOLMAN: Bernanke defended his use of that force again at his Senate confirmation hearing two weeks ago.

BEN BERNANKE: Taken together, the Federal Reserve's actions have contributed substantially to the significant improvement in financial conditions and to what now appear to be the beginnings of a turnaround in both the U.S. and foreign economies.

KWAME HOLMAN: Even with that nascent recovery, the Fed faces moves in both the House and the Senate to strip it of some powers and increase oversight of its balance sheet.

JIM LEHRER: Now two differing views of Chairman Bernanke's performance.

Alice Rivlin served as vice chair of the Federal Reserve during the Greenspan era, and she was director of the Congressional Budget Office. She's now at the Brookings Institution. James Galbraith is a longtime observer of the Fed. He's a professor of government and business relations at the University of Texas at Austin.

Professor Galbraith, you do not believe Bernanke should be confirmed. Why not?

JAMES GALBRAITH, Professor of Government and Business Relations, University of Texas at Austin: Well, I have a great deal of respect for Chairman Bernanke, both as a civil servant and as a professional economist.

But this was an institutional failure of the first magnitude. He was chairman of the Fed in advance of the crisis. He failed to heed the warnings that were being offered about the dangers in the housing market, about the dangers in derivatives. The Fed was lax in its approach to the regulation of the financial system at that time.

And the crisis happened on his watch. In a sense, he was the admiral of a fleet. It went aground. It seems to me that, in the principle of command responsibility, the institution should get new leadership at this time.

JIM LEHRER: Alice Rivlin, you see it differently.

ALICE RIVLIN, Former Congressional Budget Office Director: I do.

JIM LEHRER: Tell us why.

ALICE RIVLIN: I think the whole financial community bears a lot of responsibility. And there were regulatory failures. And the Fed acted too slowly.

But, when the crisis came, Ben Bernanke was absolutely the right person to be there. He was calm and collected. He was very knowledgeable. He was bold in using the powers of the Fed to stabilize the financial system. It was a really dangerous, chaotic situation. We could have had domino effect, big institution after big institution going down, and a total meltdown of the financial system. He avoided that.

JIM LEHRER: But you don't believe -- you don't buy Professor Galbraith's captain-of-the-ship analogy, right, that he was -- it happened to his watch, so he should go?

ALICE RIVLIN: No, I don't.

I don't have a good explanation of why so many people who watched the Fed carefully and who watched the markets carefully missed this crisis, but almost all of us did. And I don't think Bernanke, who came in rather late in the development -- he took over the Fed in 2006 -- now, they might have acted more quickly in 2006 and '07, before the crash, but nobody saw this coming.

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