Friday, December 04, 2009
Following on the heels of yesterday's stellar performance by Sen. Jim Bunning (R-KY) who mentioned the former Fed chairman's name 12 times in his prepared remarks during current Fed chairman Ben Bernanke's confirmation hearing (and not in a good way) comes the spotting of this op-ed in the Wall Street Journal that qualifies as one of the most impressive "Greenspan mess" sightings I've come across.
He supplied ample liquidity when it was most needed last autumn, and he has certainly been willing to pull out every last page of the central banker playbook. If some of those decisions were mistakes, the conditions the Fed faced were extraordinary. Anyone at the helm would have made calls that in hindsight he'd regret.Obviously, the Journal is not in favor of another Bernanke term, recommending instead a "hard money" chairman to clean up what will, in the fullness of time, most likely be referred to someday as "The Mess That Bernanke Made".
The real problem is Mr. Bernanke's record before the panic, with its troubling implications for a second four years. When George W. Bush nominated the Princeton economist four years ago, we offered the backhanded compliment that at least he'd have to clean up the mess that the Alan Greenspan Fed had made. That mess turned out to be bigger than even we thought, but we also didn't know then how complicit Mr. Bernanke was in Mr. Greenspan's monetary decisions.
Now we do, thanks to the release of the Federal Open Market Committee transcripts from 2003. They show (see "Bernanke at the Creation," June 23, 2009) that Mr. Bernanke was the intellectual architect of the decision to keep monetary policy exceptionally easy for far too long as the economy grew rapidly from 2003-2005. He imagined a "deflation" that never occurred, ignored the asset bubbles in commodities and housing, dismissed concerns about dollar weakness, and in the process stoked the credit mania that led to the financial panic.