THE PLANK MARCH 10, 2009
I just got back from a talk by Ben Bernanke at the Council on Foreign Relations. The Fed chair laid out a rather compelling vision for stabilizing the financial markets, including the obvious (but still refreshing to hear) principle that the more systemically important the institution, the greater the need for government oversight. This should go without saying, and yet clearly the last generation of public regulations have tilted in the opposite direction. He also called for a new systemic risk authority, in the form of either greater powers at the Fed or a new independent regulatory body (left unanswered was how this would jibe with larger moves to restructure the federal and state regulatory system). If we tackle the problem successfully and soon, Bernanke said, there was good reason to expect the recession to end this year and for 2010 to be a growth year.
This is all well and good and optimistic, in the measured way our Fed chairman needs to be right now. Still, one thing bothered me. At the outset, Bernanke made clear that he was only going to talk about the U.S. economy; "I will," he said, "take as self-evident that, in light of the global nature of financial institutions and markets, the reform of financial regulation and supervision should be coordinated internationally to the greatest extent possible." Fair enough, but in predicting growth next year, he was not only recommending but assuming that the world would pursue equally vigorous and coordinated stabilizing actions. Is that at all likely--especially when the Fed chair decides not even to address it? And, absent international action, will any of his recommendations this morning make a sufficient difference?
In other words, Bernanke's speech encapsulated all that is wrong with Washington's current approach. They talk a great game about working with other countries and coordinating policy, but when it comes to proposing and implementing concrete steps--say, a global financial regulator--they are speechless. As for why, I'm not sure which option is worse: Either they don't take the inextricably global nature of the crisis sufficiently seriously, or they do, but have no idea how to address it.