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The Cult of Bernanke Bashing

I subscribe to several financial newsletters, and I got one today that linked to a post that made my blood boil a bit, wherein the author seizes on Time Magazine's having named Ben Bernanke as "Man of the Year" as evidence that "American culture rewards bad behavior".

It seems we cannot learn the actual lessons taught by the ongoing economic meltdown. Instead, the money men seem determined to sort the causes of this mess into neat ideological categories, prepackaged to divert blame from the originating causes, and onto their favorite bugaboo "lib'rul Democrat" boogeymen.

Somehow, their narrative goes, loosening credit to poor families on the part of FannieMae and FreddieMac single-handedly caused the Great Recession. Deregulating the financial and insurance industries, somehow, did NOT have anything to do with this. Somehow, the creation of a $600 TRILLION derivatives market --a market entirely consisting of imaginary products backed only in the loosest of senses by tangible goods-- didn't cause this mess, when that market happens to represent TEN TIMES the GDP of the ENTIRE WORLD.

I see it's becoming increasingly popular to blame Bernanke for having to deal with the faults of his predecessor, the guy who thought the Good Times would never end, and who was cheered most of the way by many of the same people trying to pretend the 1990's never happened.

From my perspective, once the bubbles started bursting like so much bubble wrap, Bernanke's hands were tied. Either way, the real costs of average people's day to day lives were going to increase: whether in immediate terms by deflating the value of the homes and other assets people have become too-accustomed to borrowing against, or by a longer-term threat of inflation that will certainly result as a result of the Government firing up the printing press.

But, unfortunately, a government has to think of more than just the money men. Investors are merely inconvenienced by what's going on; regular people are losing their jobs, homes, and livelihoods. A government that goes all-in on pure austerity when people are homeless and starving is a government that will have to mobilize the army to quell domestic revolts shortly thereafter. (To say nothing of the increases in property crimes that naturally result from bad economic times.)

Thus, I'm forced to conclude that short-term inflation created by an expanding M1 is a necessary evil. Later, we will certainly want to start winding down the easy credit and the nonsense with ridiculous derivatives. But for now, it's quite enough that as many people as possible have been preserved in their jobs, homes, and have food to eat.

That's a start. And a damned good one, too, considering just how bad off we were at the close of the last year.

But mainly, we have to put the blame for this mess where it belongs: fifteen years of ridiculously loose monetary policy from Greenspan, and sixteen years of GOP Congressional dogma that deregulating the financial and insurance industries could have no possible bad consequence.

If the government printing money is so terrible, then why have we allowed financial institutions to create a notional market worth ten times the entire world's yearly output to begin with? Why are we allowing --and continuing to allow, from the looks of it-- financial institutions to create assets out of thin air?

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Editors' Note: Yes, I hear some of you now: the GOP Congress of 1994-2006 was enabled in its rampant deregulation by Robert Rubin and others in the Clinton Administration, and I agree, they too bear blame. But the entire dogma of deregulation being automatically good began and ended with the 1994 "Republican Revolution"; even Ronald Reagan didn't propose what ultimately got chalked up to "Reaganomics".