Saving Ben

The Chairman of Morgan Stanley Asia chose to be the (visible) lone wolf in saying that Ben Bernanke should not have been nominated for a second term, citing Obama’s move as “a very short-sighted decision”. His arguments against Ben were laid out in a Financial Times op-ed which came to my inbox as a breaking news.

  1. He was deeply wedded to the philosophical conviction that central banks should be agnostic when it comes to asset bubbles.
  2. He was the intellectual champion of the “global saving glut” defence that exonerated the US from its bubble-prone tendencies and pinned the blame on surplus savers in Asia.
  3. He is cut from the same market libertarian cloth that got the Fed into this mess.

There were other things in the op-ed which I found contentious.

It is as if a doctor guilty of malpractice is being given credit for inventing a miracle cure. Maybe the patient needs a new doctor.

Malpractice covers mistakes committed by doctors, but if they invested a miracle cure for some illness, I don’t see why he/she would be replaced by someone who doesn’t have the cure.

No one knows for certain as to whether the Fed’s strategy will ultimately be successful… But the sustainability of any post-bubble recovery is always dubious.

I don’t know how that makes reappointing someone else a path to ensuring that strategies will be successful and post-bubble recoveries any less dubious.  Fact is, there’s uncertainty, whether or not we have Bernanke sitting on the post.

Roach closes the piece by saying that “as a student of the Great Depression, he should have known better.”

Yes, he reacted strongly after the fact in taking actions to avoid the pitfalls highlighted by his own research. But he lacked the foresight and courage to resist the most reckless tendencies of the era of excess.

Bernanke’s reappointment is not so much an act of rewarding him for averting another Depression-like crisis, but more so because he has proven himself to be a creative policymaker.  Almost none of the policies in place now were implemented during the GD era, but Bernanke surely stepped up and attacked the problems with new and radical solutions.  We are aiming for continuity of policies that have so far stabilized the economy, domestic and international.  We’re not assured of successful Fed policies but neither are we with putting someone else on the position – even someone who has seen the crisis coming, such as Nouriel Roubini.  But even HE backs the reappointment of Bernanke.

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