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Home Publications Blogs Beat the Press Steve Rattner on Bernanke: Defining Down the Meaning of "Godsend"

Steve Rattner on Bernanke: Defining Down the Meaning of "Godsend"

Friday, 31 January 2014 05:48

Steve Rattner gives us a glowing appraisal of Ben Bernanke on his departure from the Fed. I have written on Bernanke elsewhere, but the basic story is that he bears a large amount of responsibility for the housing bubble and its subsequent bursting, since he was a Fed governor and chief economic advisorin the Bush administration as policymakers allowed it to grow to ever more dangerous levels. The result has been a loss of more than $7.6 trillion in output to date ($25,000 per person) and an economy that is still down more than 8 million jobs six years after the beginning of the downturn. There were few people better positioned than Bernanke to try to stem the growth of the bubble, but he consistently insisted that it did not pose any problem to the economy.

Bernanke also made the decision to leave the financial industry intact at a time when the market would have sent Goldman Sachs, Citigroup and most of the other Wall Street giants into bankruptcy. He misled Congress to rush it into passage of the TARP and he gave hundreds of billions of dollars worth of loan subsidies and guarantees to keep Wall Street alive. As a result, the financial industry is more concentrated than ever.

Bernanke does deserve credit for his aggressive monetary policy in the face of harsh opposition from Republicans and some Democrats. It has boosted the economy, although other banks, notably the Bank of Japan, have been more aggressive. Anyhow, his monetary policy over the last four years certainly is a plus, but it doesn't qualify Bernanke as a "godsend" by the usual meaning of the word.

Comments (5)Add Comment
written by foosion, January 31, 2014 5:22
If not for the housing bubble, would the economy and employment be in better shape today? We'd lose both the increase and the drop.
written by Ron Alley, January 31, 2014 7:45
When I read Rattner's praise of Bernanke, I was not surprised. After all, Rattner, Bernanke, Paulson, and Geithner played on the same Super Bowl team. Criticizing your teammates, especially those who kept you on the team, is unseemly.
Double Standard of "Godsend": One to Prevent the Accident, the Other to Clean It Up
written by Last Mover, January 31, 2014 8:10

As Rattner says, Bernanke, Paulson and Geithner threw out the rule book and therefore were a "Godsend" in cleaning up the aftermath of economic carnage.

It's easy for the "who could have known" perpetrators of the crisis to duck into the closet like Superman for a quick change of costume and reappear as heroic first responders after the fact.

The problem of course, is they are effectively the arsonists who started the fire with others in the private sector, then return in disguise to help put it out.

Further, the fires will be allowed to continue as "a necessary and acceptable risk of doing business" which decoded means, no economic predator who started the fire will be held accountable and in fact, many were and will continue to be rewarded with huge bonuses for "doing their job".

Of course they were very careful not to throw out the most important rule of all. Never disturb the current structure under which economic predators thrive because they - the predators - are always the first to be called upon to rescue others from the crises they - the predators - caused themselves.

You see in America, there is a double standard of "Godsend" to deal with accidents. One is the kind that stops the accidents from happening in the first place, like the Godsend that could have prevented the housing bubble and subsequent financial crisis that were conveniently wiped off the economic map by the predators. This is the kind of Godsend Rattner never writes about that should have happened but didn't.

The other kind of Godsend is the condescending, patronizing version carefully designed to allow the economic "accidents" to continue on a "who could have known" best effort, good faith basis ... run of course, by the predators themselves who can always be counted on to show up in their Superman costumes and rescue the nation selflessly when something does go badly wrong.

As any economist knows, when the cost of clean-up is less than the cost of avoidance, well hey, why bother with avoidance? What's $7.6 trillion in lost output anyway?
written by Dryly 42, January 31, 2014 1:00
The Socialist/Republican Bush-Cheney administration did prevent another great depression by socializing the losses of Wall Street financial institutions on the backs of the American people. Bernanke said 13 of the largest 14 financial institutions were insolvent or on the brink when the bailouts took place. So we should give them a certificate.

However, I don't think what they(or anyone who contributed) did by way of destroying the "strict supervision" of finance put in place by the New Deal and returned to the laissez faire of Harding, Coolidge, Hoover, and, Mellon. Between October 1929 and September 2008, a period of 78 years and 11 months, provided the longest period of financial stability in the 225 years of American history. No certificate for that.

Then, what a real man does when he screws up, especially with respect to a screw-up of this magnitude, stands up like a real man and admits he screwed up. That would help to restore a safe and sound financial system. No one has and we do not now have a safe and sound financial system today. No certificate here.
Bernanke's Mortal Sin
written by Paul Mathis, February 01, 2014 11:02
Barry Ritholtz provides the details:

"In 1994, Congress provided the Fed with the express statutory authority to ban liar’s loans by any lender – even if they were not federally insured. Congress mandated Fed hearings on predatory lending that produced urgent pleas by a host of housing advocates plus state attorney generals and prosecutors alerting the Fed to the endemic abuses and risk of terrible losses and begging the Fed to ban liar’s loans.

Alan Greenspan did not simply refuse to act. He refused his colleague (Board Member Gramlich’s) plea that the Fed use its examiners to find the facts. Much of the senior leadership of the Fed attacked the Fed’s supervisors when they provided data on the largest banks enormous origination of liar’s loans.

Ben Bernanke continued to refuse to use the Fed’s unique authority to ban liar’s loans. Finally, in 2008, in response to acute Congressional pressure, Bernanke finally used his HOEPA authority to ban liar’s loans. Even then he delayed the effective date of the rule by over a year because he did not want to inconvenience the CEOs of fraudulent lenders."

While Alan Greenspan committed the original sin that caused the housing bubble, Bernanke committed the mortal sin of letting the fraud proceed until it was too late.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.