BLOG VIEW: Did it ever occur to you that Federal Reserve Chairman Ben Bernanke may not know what he's talking about? In looking back through MortgageOrb's coverage of Bernanke during the past five years, I find evidence that Bernanke may only have a passing acquaintance with reality.
If you don't believe me, consider some of the following quotes.
March 2007: When asked about the hideous hissing sound coming from the housing bubble, the Fed chief said: ‘The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.’
Based on that statement alone, Bernanke should have been disqualified from getting a second term at the Fed's helm. Alas, no one at the White House asked for my opinion on the matter.
May 2009: In commenting on the state of the economy, Bernanke opined: ‘The housing market, which has been in decline for three years, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes have firmed a bit recently, though both remain at depressed levels. Although some of the boost to sales in the market for existing homes is likely coming from foreclosure-related transactions, the increased affordability of homes appears to be contributing more broadly to the steadying in the demand for housing.’
More than three years later, the market is still not showing signs of bottoming. Talk about premature enthusiasm!
July 2009: When asked in an interview on PBS about his advocacy of the 2008 bailouts, Bernanke claimed, ‘I had to hold my nose,’ but he quickly added that he had no choice. ‘Nothing made me more frustrated, more angry, than having to intervene. [But] I was not going to be the Federal Reserve chairman who presided over the second Great Depression.’
Actually, he was the Fed chairman who presided over the second Great Depression – it is just that no one has the guts to call the past few years ‘the second Great Depression.’
January 2010: When asked about the Fed's role in the 2008 crash, Bernanke (who took office in 2006) offered this answer: ‘When historical relationships are taken into account, it is difficult to ascribe the house-price bubble either to monetary policy or to the broader macroeconomic environment.’
Later, he called monetary policy a ‘blunt tool’ and said that interest-rate increases in 2003 or 2004 would have constrained the housing bubble, but would have also weakened the economy ‘at just the time when the recovery from the previous recession was becoming established.’
Translation: don't blame me, because it's Alan Greenspan's fault!
July 2012: When asked about efforts by Rep. Ron Paul, R-Texas, to demand greater Fed transparency, Bernanke said: ‘I think the term 'audit the Fed' is deceptive. The public thinks auditing means checking the books [and] making sure you're not doing special deals.’
Well, checking the Fed's books against special deals is no easy task. Bloomberg News, for example, filed Freedom of Information Act requests and pursued litigation in order to access the Fed's lending data during the peak of the financial crisis. What it found was astonishing: nearly half of the 30 top borrowers that received $1.2 trillion from the Fed were foreign institutions. Yes, U.S. taxpayer money helped to bail out Royal Bank of Scotland Plc ($84.5 billion), Switzerland's UBS AG ($77.2 billion), Germany's Hypo Real Estate Holding AG ($28.7 billion), as well as banks from such financially destitute nations as Canada, France, Japan, Taiwan, Malaysia and Bahrain.
Bloomberg News also estimated that the $1.2 trillion figure was the combined outstanding balance of seven Fed programs and was approximately three times the size of the U.S. federal budget deficit for 2008 – something that Bernanke's press reps casually forgot to share with the U.S. public. You see, that's why we need to audit the Fed!
Today: Speaking before the Economic Club of Indiana, Bernanke defended the latest round of quantitative easing by saying this: ‘Although monetary policy cannot cure the economy's ills, particularly in today's challenging circumstances, we do think it can provide meaningful help.’
Yes, I'll remember that quote when the Fed comes back in the very near future with QE4…and QE5…and QE6…and QE7…
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
