THE STASH DECEMBER 17, 2009
Before I answer that question, let me recommend Mike Grunwald's excellent cover story for the Person of the Year issue. It's a great introduction to Bernanke for readers who aren't economics or finance nerds, but you'll find it compelling even if you are such a person. I especially agree with Grunwald's verdict on Bernanke as crisis-manager:
None of this was pretty, and reasonable people can disagree about the judgment calls. The Fed is supposed to lend only against safe collateral; the Bear and AIG deals clearly crossed the Rubicon into risk. Letting Lehman fail nearly croaked the global economy. Saving AIG — an insurance company! — the next day seemed strangely inconsistent. Maybe the Fed could have devised a way to restrict bonuses at rescued firms while giving creditors haircuts. Maybe TARP could have required bailed-out banks to lend more. Certainly, all the interventions created moral hazard, sending a perverse message that "too big to fail" financial firms will be rescued no matter how badly they screw up, encouraging Wall Street traders to start gorging on risk again.
But that's what happens in panics when leaders actually try to preserve the financial system. The central bankers of the 1930s avoided moral hazard but betrayed the world. ... Now that the fire is out, it's easy to attack the firefighters for getting the furniture wet or holding their hoses improperly. [emphasis added.]
There was one sure way to not be overly-generous to fat-cat bankers, and that was to let them fail. Unfortunately, that would have also collapsed the supply of money and credit, which happens to be a sure-fire way to create a Depression. Conversely, if you're determined to prevent a Depression, then there's no way to do it without being overly-generous to the fat-cats, at least when you have the collection of too-big-to-fail institutions we had last fall. Now that doesn't mean you don't reform the system to avoid ending up there again. But those were the choices we actually faced. Given that, it's hard to believe anyone would have preferred that Bernanke make a different call.
Having said all that, should Bernanke have been person of the year in 2009?
It seems like there was a more persuasive case for giving him the honor last year. Yes, Bernanke has presided over some pretty unprecedented expansions of liquidity and credit this year (through his quantative easing program, and the Fed's various credit facilities). But the truly remarkable stuff--the Bear and AIG interventions, the marriage of Merrill to Bank of America, dropping interest rates to zero--all happened last year. And Bernanke was arguably a lot better at averting an absolute financial collapse than he has been at reviving growth. He could, for example, be more aggressive with his quantitative easing efforts--basically buying long-term Treasury bonds and other financial assets to lower long-term rates, as Paul Krugman and others have suggested--given that short-term rates can't go any lower.
In fact, you can make a solid case for switching last year's person of the year--Barack Obama--and this year's. Yes, getting elected president against overwhelming odds is an accomplishment of a sort. But it's not really an accomplishment for anyone other than the person who does it. On the other hand, actually being president and making strides on your legislative agenda affects hundreds of millions of people.
Grunwald writes that:
Even the big political stories of 2009 — the struggles of the Democrats; the tea-party takeover of the Republicans; the stimulus; the deficit; GM and Chrysler; the backlash over bailouts and bonuses; the furious debates over health care, energy and financial regulation; the constant drumbeat of jobs, jobs, jobs — were, at heart, stories about the economy. And it's Bernanke's economy.
Yes, but it's Obama's agenda. And to the extent there are victories here (and have already been--like the stimulus), they're Obama's, too.