ALG Editor’s Note: In the following featured symposium from the New York Times, economist Yves Smith agrees with ALG News that Ben Bernanke should not be given a second chance.
No Second Chances
Yves Smith writes the blog Naked Capitalism and is the head of Aurora Advisors, a management consulting firm. Her book, “Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism,” will be published in the spring.
Ben Bernanke, a major architect of the financial crisis, bears significant responsibility for our economic woes. He provided the intellectual justification for the Greenspan Fed’s bubble-stoking, dot-bomb era super-low interest rates.
He also embraced the Greenspan policy of letting the inmates run the financial system. For instance, even the bank-friendly Office of the Comptroller of the Currency took its responsibilities to monitor and restrain subprime lending far more seriously than the Fed did.
Mr. Bernanke’s “defense” is that having helped produce the worst meltdown since the Great Depression, his actions kept it from being as awful as it could have been. But he was slow to recognize the severity of the crisis, then engaged in emergency, ad hoc measures of dubious legality. We now have a financial system running on subsidies so extensive that it’s the equivalent of a patient attached to an oxygen supply, with 24/7 nursing to make sure nothing further goes amiss. Yet the Fed and the banksters stand united in proclaiming the industry to be healthy, a “diagnosis” based on ludicrously lax “stress tests.”
The U.S. is looking more and more like post-bubble era Japan, and with good reason. Like Japan, the U.S. response under Ben Bernanke has been to cover up banks’ losses and provide them with hidden subsidies. Despite promising greater transparency, the Bernanke Fed continues to stonewall repeated requests by Congress to get to the bottom of these back-channel cash infusions, thereby preventing an accurate tally of the true costs of the huge rescue operation.
Denying Mr. Bernanke a second term as Federal Reserve chairman is a sound move. Failed generals and C.E.O.’s are removed from their posts; why should an even more important job be held to lesser standards of performance?
While new leadership at the Fed will not have much impact on monetary policy, a “no” vote challenges both the Fed’s and the administration’s allegiance to Wall Street over Main Street. Despite its tougher talk, Team Obama continues to propose bank “reforms” that leave the status quo intact. A repudiation of this magnitude keeps pressure on President Obama to abandon his “business as usual” stance on the financial services front.
