Brownanke, you're doing a heck of a job

Many politicians are so guarded about their views, you never feel you know what they REALLY think. Sure, they have carefully thought-out positions on key issues (sometimes determined, at least in part, by poll results). But put them on the spot about a pressing issue of the day and you are likely to get a sound bite that, while it may have a convincing ring, doesn't really say much of anything when you analyze it.

Not an issue with Rep. Barney Frank, D-Mass. Whether you like his politics or not, Frank has the ability to liven up a dull press conference or hearing with off-the-cuff remarks that cut to the chase -- often with little regard for who might take offense. That's a talent that can help a politician get network air time, but can also backfire on occasion.

When Frank was quoted this week in a story that suggested he agreed with financial analysts and pundits who have slammed the performance of Federal Reserve Chairman Ben Bernanke -- and questioned whether he would keep his job if a Democrat moves into the White House next year -- Frank took the unusual step of issuing a press release defending Bernanke's performance.

In the Reuters story, Frank is quoted as saying Bernanke was "a little slow in cutting" interest rates because he was a too concerned about the threat of inflation. "I think a Democratic president might find someone who's more in tune with Democratic views," Frank told Reuters.

Frank doesn't say Reuters misquoted him, but he does maintain he was responding to a leading question and was quoted "very selectively." That, he said, "gave a very inaccurate view of my opinion of the job that Federal Reserve Chairman Ben Bernanke has done."

On the whole, Frank said, he has been "favorably impressed" with Bernanke's performance at the Fed -- particularly in the last few weeks. The Fed's dramatic action in cutting rates "was a very good example of leadership that we needed at a difficult time," and Bernanke played a role in helping House Democrats and Republicans agree on an economic stimulus package, Frank said.

Hmmm. But should a Barney Frank press release be considered as sincere as a Barney Frank off-the-cuff remark?

Frank says he was motivated to set the record straight because, "This is a very difficult time for our economy and unbalanced and unfair criticism of Mr. Bernanke is therefore not simply a matter of his feelings, but of potentially, even if inadvertently, undermining the confidence people must have in the public policy response to our current problems."

So it sounds like Frank may be trying to take some of the edge off his views about Bernanke's performance for the greater good of the economy. But the press release has the ring of sincerity, because he's willing to take some of the blame himself.

"I made a rookie mistake, about which I am embarrassed and which I believe it is important to correct," Frank said.

The "leading question" Frank says he was asked concerned whether Bernanke would be replaced if a Democrat was elected president.

"My answer should have been that it was silly to speculate about that because the factors that would go into a President’s decision to name a Fed Chairman more than two years from now remain largely unknown," Frank said. Instead, he said, "I gave what I thought was a fairly trite answer" which "gave some the impression that I was already beginning to think about the need to replace Mr. Bernanke. That is entirely untrue."

Of course, this rather "meta" discussion doesn't address heart of the matter, which is the criticism that's been leveled at Bernanke.

Critics say the Fed chair under reacted when the secondary markets for mortgages and other debt broke down in August, and is overreacting now to volatility in the stock market.

Putting aside the fact that monetary policy decisions are made by a 10-person committee, those arguments may hold water in the end -- especially if it turns out that the tumult in European stock markets that triggered an emergency 75-basis point cut in the federal funds rate on Jan.  22 was the result of some bad futures bets by one trader at French bank Societe Generale (see previous post).

The stakes are high. The drastic cuts in short-term rates instituted by the Fed in the last eight days -- greater than all of the actions taken last year -- could send long-term rates up, and worsen the housing downturn.

A recent New York Times Magazine cover piece noted that economist Milton Friedman "warned against an indecisive Fed acting like a 'fool in the shower' fumbling with first the hot water and then the cold."

The story asserted that under Bernanke's leadership, the Fed "has gotten close" to acting like Friedman's fool in the shower. "Perhaps worst of all," the story warned, Bernanke "has failed to persuade investors that the Federal Reserve, which was formed in 1913 for the very purpose of halting market panics, is up to the job."

Given the mounting criticism of Bernanke -- and the stubborn persistence of the credit market seizure -- it's strange to see a left-of-center Democrat come rushing to his defense. It's hard not to think of President Bush's defense of FEMA chief Michael Brown, as New Orleans residents suffered in the aftermath of Hurricane Katrina: "Brownie, you're doing a heck of a job."

But the government's power to deal with events on the scale of Hurricane Katrina and the credit crunch may be more limited than we would like to think. Once events of this magnitude get rolling, they take on a life of their own. It's probably safe to say, however, that many people saw both of these tragedies coming, and that the government could have done more to prevent them.

In New Orleans, the inadequacy of the levies in the Mississippi River delta and the inevitability of a storm of the magnitude of Hurricane Katrina was front page news for years before calamity struck.

During the U.S. housing boom, while few may have realized the dramatic impact the inevitable bust would have on the global economy, there were plenty of warnings about the loose lending practices that helped drive up prices.

In both cases, anybody who wants to point the finger of blame probably needs to point that finger back in time, rather than at one person struggling to influence events that, for all we know, may be beyond anyone's control.

To be fair to Bernanke, whose intellect and work ethic is beyond dispute, his name should probably never be mentioned in the same breath as Michael Brown's. We can at least rest assured that he is not exchanging jocular e-mails with co-workers about his shopping trips to Nordstrom, and that nobody feels the need to tell him to roll his sleeves up at photo ops to demonstrate that he is on the job.

   

 

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