Before confirming Bernanke, let’s take a close look at the Fed
Excellent column by Dean Baker and Mark Calabria:
The following is a joint piece by Dean Baker, the co-director of the progressive Center for Economic and Policy Research, and Mark Calabria, the director of financial regulations studies at the libertarian Cato Institute.
Congress will soon consider whether Ben Bernanke merits another term as Chairman of the Federal Reserve. It is fair to say that no single individual played a larger role in responding to the recent financial crisis. The Fed has directly lent more than $2 trillion to financial and non-financial institutions in the last two years. It has guaranteed trillions more. It is also fair to say that few individuals and institutions played as large a role in the economy leading up to the crisis than Ben Bernanke and the Federal Reserve.
However, at the moment Congress lacks the independent and objective analysis needed to fully assess Bernanke’s performance and therefore to make an informed judgment as to whether he deserves re-appointment. For this reason, Congress should put off a vote on Bernanke’s nomination until there has been a full audit of the Fed’s actions preceding and during the crisis.
Before considering Bernanke’s role in containing the financial crisis, Congress should, via the Government Accountability Office (GAO), investigate the role of Fed policy in allowing the housing bubble to grow. This is not just an effort at playing the blame game; an objective assessment of this policy will also be helpful in avoiding future bubbles.
It is often noted that Mr. Bernanke’s research on the Great Depression makes him well prepared to run the Fed in this period of crisis. Unfortunately, Mr. Bernanke’s research apparently did not tell him the obvious: that allowing an $8 trillion housing bubble to grow unchecked would lead to an economic disaster like what we are now experiencing. He and his colleagues at the Federal Reserve Board either could not see, or did not care about, this huge bubble. As a result, Ben Bernanke has been running around for much of the last year and a half telling us about his knowledge of the Great Depression…
