August 25, 2009: Bernanke's Re-Appointment
Today, President Obama announced that he was nominating Ben Bernanke for a second term as Chairman of the Federal Reserve's Board of Governors. In my mind, this is like rewarding a firefighter-arsonist for putting out the fires he started. Without the Fed's bungled handing of Bear Stearns, Lehman Brothers, AIG and Washington Mutual, the crisis of confidence would never have escalated into a near-meltdown of the U.S. and world financial system. Bernanke, along with then NY-Fed President and now Treasury Secretary Timothy Geithner, spearheaded these efforts.
As Walter Bagehot set forth in his classic 1870s book Lombard Street, the role of a central banker in a crisis is to lend freely, albeit at a penalty rate, to anyone with good collateral. Bernanke turned Lehman away because it was not a "bank," but, less than 48 hours later, gave up the store to AIG, which also was not a "bank." In so doing, he threw the financial markets into a panic from which they have yet to recover.
For this, President Obama rewards Bernanke with another term during which to rescue his tarnished legacy. Of course, President Obama rewarded former NY-Fed President Timothy ("I forgot to pay my taxes") Geithner for his part in bringing about the financial crisis by appointing him U.S. Treasury Secretary. Nothing seems to succeed like failure when it comes to this administration's financial team!
