Ben Must Go

"I feel reasonably confident that we'll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that."

-Ben Bernanke on Bear Stearns, Congressional testimony, 4/2/08


U.S. taxpayers may be stuck with losses on $30 billion of Bear Stearns Cos. assets owned by the Federal Reserve even though the central bank has said otherwise, according to Robert A. Eisenbeis, Cumberland Associates Inc.’s chief monetary economist.

“There is no prospect for a profit on the assets,” Eisenbeis wrote in a report yesterday. “Losses are mounting.”

“The transaction was not structured with adequate over-collateralization to protect the taxpayers from losses,” based on the risks associated with housing-related assets at the time, Eisenbeis wrote.

-Bloomberg 2/4/09


I keep wondering what one has to do these days to be deemed unfit to run monetary policy. Presiding over a potential depression and one of the worst bubbles and collapses in world history isn't enough, I guess. I've found that those who defend Bernanke as having inherited Greenspan's mess are most likely to have first heard Bernanke's name on the day Bush nominated him. But he's played an important role in shaping monetary policy, the regulatory environment, and the financial system itself for many years. And as I've noted before, he voted for every one of the FOMC's devastating decisions to keep the Fed funds rate at 1% during the crucial 2003-2004 period. Bernanke has become the bearded elephant in the room. As one of the intellectual architects of a failed system, he cannot credibly stand alongside Tim Geithner or other administration officials while they cite the damaging policies of the past eight years.

His continued employment is a symbol of new standards for accountability and performance. Apparently the financial system has become so complicated that simply being up to speed on its intricacies is good enough. This is why someone who didn't pay taxes now oversees the IRS. (Wall Street executives have started reading from the script: "Who else knows our business well enough to run it right now?") Remember who nominated Bernanke. He's a holdover from a group that includes Bernie Kerik, Harriet Miers, Alberto Gonzales, Heckuva Job, and Chris Cox. He's been complicit in mistakes that have been far more destructive than any made by Cox. What would have been the reaction had Obama asked Cox to stay on as head of the SEC? Bernanke should be getting his morning coffee at the Princeton Starbucks while Congressional investigators sort through his email and other records to get a more detailed picture of his role during the bubble years.

Obama can't remove Bernanke, but he could make it clear privately that he would like him to step down. One of the goals of policymakers right now is to stabilize financial markets. A Bernanke resignation -- depending on who replaced him and how the public announcement was handled -- could send the Dow up 500 points. The alternative is to suffer through the rest of Bernanke's term while a soft-focus media runs stories about what a nice guy he is and how he aced his SAT's forty years ago. It could be a long summer.