Grading Bernanke's Fed


Washington Post columnist Neil Irwin stopped by to discuss his book, The Alchemists: Three Central Bankers and a World on Fire. It's a great read on the history of central banks, including how they responded to the financial crisis and the challenges they face in the future.

Popular opinion generally has plenty to say about the current chairman of the Federal Reserve, but hindsight is keen and often vindicates -- or vilifies -- key players after the fact. In this video segment, Irwin is hesitant to qualify Ben Bernanke's legacy just yet. A full transcript follows the video.

Morgan Housel: You write in the book about how hated Paul Volcker was back in the '70s, when he was raising interest rates to slay inflation, which almost purposely sent the economy back into recession. You had all these homebuilders were sending him two-by-fours in the mail. You had auto dealers sending him keys to unsold cars in the mail. He was really hated at the time.

In hindsight now ,we look back at him, I think broadly, as saving the economy -- one of the better Fed chairmen.

Then on the opposite spectrum you have [Alan] Greenspan, who, back in the '90s and early 2000s, people loved him more than anyone. He was responsible for the boom, and they loved him. They stopped him on the streets to thank him, and now we look back at him as one of the people responsible for the crash.

My question is, how do you think history will judge Bernanke's actions in 2008?

Neil Irwin: The things you just described have made me modest in my ability to predict and know what the ultimate historical legacy of Ben Bernanke will be.

Look, I think fundamentally Ben Bernanke has done a marvelous job the last five years. Yes, they missed a lot of stuff heading into the crisis. They didn't see beyond the horizon of how bad it could be. Yes, they shouldn't have let Lehman Brothers fail. That set the stage for all that followed.

But in their speed, their creativity, and his willingness to analyze the world as it is and find ways to use his limited tools to try and keep the economy afloat, I think he has a lot to be proud of.

But, again, for exactly the reasons you're describing, I think his ultimate legacy is something that can't be written for quite a few years to come. If his successor can get through these next few years and do an exit that's as skillful as the entry into all this easy money and bailouts and all the stuff they did, then I think we can say Ben Bernanke is a great historical figure.

Until then, he's a guy who made some hard decisions in a hard time and looks so far, so good, but I think we have to reserve judgment until we know more, and that'll be a few years.

Housel: On that same point, Ben Bernanke is probably the most criticized person in America for the past five years. That may be a stretch, but pretty close.

On a personal level, how does he take that? Does he ever doubt himself? Is he pretty stubborn in his views that he knows he's right, or does he take criticism pretty seriously?

Irwin: I think he takes certain criticism pretty seriously. He had to learn this whole thing of becoming a public figure, and having to develop the thick skin you need if you're going to be a public figure who people are criticizing all the time.

In a way, he was the accidental Fed chairman. He only came to Washington in 2002. He got a call from Glenn Hubbard, who was George W. Bush's economics advisor, saying, "Hey, would you like to come to Washington and be a Fed governor?"

It was right after 9/11; it was kind of a time of patriotism. Ben Bernanke said: "OK, yeah. It seems like a good way to do a couple of years of public service, see what it's like." Four years later, through a kind of random series of events, he ends up chairman of the Federal Reserve, one of the most powerful people on Earth.

Two years after that, this tremendous crisis happens that turns him from this kind of "man in the gray flannel suit" -- he did not want to be a flashy Fed chairman. He doesn't like going to fancy parties in Georgetown. He prefers to lay low and go to a Washington Nationals game with his wife.

But the crisis thrust him into this prominent, celebrity kind of role, going on 60 Minutes, and all this stuff he's done. But I think it's not a natural fit for his personality. I think through that process, he's had to evolve the thicker skin to get used to people complaining about what he does, and criticizing every move he makes.

I think he's much more savvy now than he was when I started covering him in 2007. In 2007 I think he was not as politically savvy; I think he was not as market savvy. I think he was not as accustomed to this experience of being a public figure who people are going to complain about all day long.

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