Posted by: msundermier | December 2, 2009

Ben Bernanke: Friend or Foe?

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Ben Bernanke, the chairmen of the Fed (the “non-governmental” financial entity responsible for the United States’ monetary policy) has a hearing with the Senate tomorrow.  The hearing is officially a congratulatory event in the wake of his reappointment to a 2nd 4-year term as chairmen.  But unofficially, it will be used  to blast him and the Fed’s decisions during Bernanke’s 1st term (which included the final stages of the housing bubble and the financial crisis of 2008).

None of this makes sense to me.  The man is re-appointed for (presumably) a job well done while simultaneously taking heat for a poor job done.  Which is it?  Is Big Ben our friend or foe?

In my opinion, Ben Bernanke’s decisions during the 2008 financial crisis and the challenges thereafter should be applauded.  And guess who agrees with me?  Warren Buffett (watch this video).   Ben spent decades prior to 2008 unknowingly preparing for the tough decisions he had to make last year.  He is a “scholar” on the Great Depression, and while studying at Stanford he wrote a transformational thesis that identified the unexplained reasons for the Depression.  He essentially said this: banks are disproportionately important to the health of a society’s economy.  When banks are overly concerned about lending money, businesses suffer and thus the economy suffers.  When the economy suffers, banks lend out less money and businesses suffer more, and the downward spiral continues.

When faced with the unprecedented problems of 2008, Ben seemed to use this road-map-of-sorts thesis when figuring how to deal with the crisis.  #1) he saved banks to instill confidence in the financial markets; #2) he took over Fannie Mae & Freddie Mac to infuse liquidity into the mortgage lending market; and #3) he created and borrowed boat loads of money (trillions!) out of thin air to do #1 and #2).  He and the Fed saved the entities worth saving in order to save the greater good.  Yes, big banks were bailed out and  individuals were dismissed, but it was for the greater good.

I hope that in the coming months the direction of our country’s monetary policy remains in the hands of financial geniuses like Ben Bernanke who have spent their careers steering our country’s finances.  Let’s all hope we don’t turn the monetary keys over to ill-equipped Congressmen and women who have plenty of other policies (Social Security, Health Care, etc.) to tackle.

Agree?  Disagree?  I’d love some discussion.

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