Rumors are floating around that Ben Bernanke might succeed Tim Geithner as America's next Treasury Secretary. Here is why he’d be a great fit.
There is a lot of distrust of the Federal Reserve, and, by proxy, of Bernanke. But the truth is that he knows his stuff, and if we let him, he might just help fix the economy.
“Bernanke as Treasury secretary would be very hard for Senate Republicans to oppose,” wrote Robert Kuttner, co-founder of The American Prospect in a HuffPost blog post. “Except for a few hard-core monetarists, most Republicans recognize that he kept a recession from turning into a depression. He's even a Republican, first appointed to the Fed by George W. Bush.”
Bernanke has spent his career learning from the mistakes of the Great Depression. He vowed not to let the financial crisis of 2008, over which he presided as chairman on the Federal Reserve, turn into the next Depression. We all know that the Great Recession, as it’s come to be known, was no picnic. But it certainly could have been worse.
When the stock market crashed in 1929, the depression that followed was avoidable. The Federal Reserve tightened credit and raised interest rates – the exact opposite of what was needed to expand the weakened economy. If they had pumped money into the economy, instead of tightening their hold on it, the crash could have been a bump in the road, not a historic catastrophe.
Bernanke, an academic until he came to the Federal Reserve, knew that the Fed had mishandled the Depression, and when he succeeded Alan Greenspan in 2006, he came in with a sure idea of what he didn’t want to do. He had studied the Fed from the outside, co-authoring a 2000 Wall Street Journal op-ed titled “What Happens when Greenspan is Gone?” And he had studied it from the inside since being hired in 2002 as a Federal Reserve governor. He came in prepared to do “whatever it takes” to prevent another depression, according to David Wessel’s bestselling book “In Fed We Trust.”
When the toxic effects of mortgage-backed securities began to attack the financial sector from within in 2008, the Fed and the Treasury under Henry Paulson brokered the sale of failing Bear Stearns to JP Morgan Chase, and essentially nationalized Fannie Mae and Freddie Mac. In doing so, they may have prevented another depression (for a time), but they also got a lot of blowback politically.
It didn’t look good to spend billions of federal dollars rescuing financial institutions that were in the hole because of shady lending practices, and attempts to explain the move’s necessity sounded like politically motivated lies.
Because of the flack that the Fed and Treasury got for the first bailout, Bernanke and Paulson were hesitant to commit taxpayer money to saving yet another financial institution when it became clear that Lehman Brothers was under water. Not wanting to cause further outrage, they let Lehman fail, which sparked the panic that allowed the recession to get as bad as it did.
But Bernanke seems to have learned from the Lehman disaster, and ever since, in domestic recovery efforts and in talks about the Euro crisis, has been staunchly anti-austerity and pro-short-term growth. And that’s exactly the attitude the Obama administration needs to kick the economy’s slow progress into high gear and toward full recovery.