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Ben Bernanke, Fed Chairman and Newly Minted Radical

Federal Reserve Chairman Ben Bernanke works the room at the National Press Club.
Federal Reserve Chairman Ben Bernanke works the room at the National Press Club. (By Brendan Smialowski -- Bloomberg News)

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By Dana Milbank
Thursday, February 19, 2009

Ben Bernanke hadn't yet sampled his dessert -- a dollar-sign cookie atop chocolate cake -- when his hostess at yesterday's luncheon rose to deliver a brutal assessment of his tenure at the Fed.

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"Since Ben Bernanke became chairman of the Federal Reserve two years ago," USA Today's Donna Leinwand told the crowd at the National Press Club, "the S&P index has declined 35 percent, unemployment rose to 7.6 percent, the highest rate since 1992, and the economy has sunk into a deep recession."

Some laughed. Others groaned. Bernanke nodded and smiled. "I've actually been chairman for three years," he said when his turn came at the microphone, "so those statistics are not quite as good as you made them out to be."

True enough: The drop in the S&P has been closer to 40 percent since Bernanke took over.

History will no doubt judge Bernanke as the man left holding the bag when maestro Alan Greenspan left the Fed. But the economic collapse seems to have had a salutary effect on Bernanke: The academic known for his bland answers and brown socks has been liberated in both word and deed. This student of the Great Depression has taken extreme and unprecedented actions to avert a modern-day sequel, and he's taken the Fed chairman's lexicon well beyond basis points and LIBOR and M1 and M2.

"I think we can break the back of this thing," he told the luncheon crowd yesterday. He didn't hesitate to say that economic indicators "have been dismal" and that unemployment, now 7.6 percent, will go "above 8 for sure."

"Extraordinary times call for extraordinary measures," the radicalized Fed chairman said. To prove that, he's dropped interest rates to near zero and has the Fed lending directly to corporations and buying mortgage securities. Yesterday, Bernanke left the door wide open to the most radical step of all: nationalizing the banks.

President Obama over the weekend said a "good argument" could be made for Sweden's temporary nationalization of banks. And no less a free-market authority than Greenspan, in an interview with the Financial Times this week, said "it may be necessary to temporarily nationalize some banks," calling this the "least bad solution" to the financial crisis.

When Bernanke was asked at lunch about his predecessor's sentiments, he voiced no opposition to the idea. While discouraging government ownership of banks "for a protracted period," he offered no such objection to short-term nationalization. "Whatever actions may need to be taken, at one point or another, I think there's a very strong commitment, on the part of the administration, to try to return banks or keep banks private or return them to private hands as quickly as possible," he said.

It would have been hard to imagine Bernanke giving a green light to nationalization when he was an economist in the Bush White House. He was, after all, an architect of some of the policies that created the housing bubble and collapse. He bristled when asked yesterday "what should be done about regulators who simply fail to regulate, like the Fed's hands-off stance toward subprime mortgages?"

"I'll drop the innuendoes and the slurs and not get into that part," replied Bernanke, who was on the Fed's board of governors earlier in the decade. He maintained that the Fed "had no direct supervisory authority over what was happening in most subprime lenders."

Even now that he has a security detail, Bernanke still has the affect of an economics professor. At yesterday's lunch, he put his index finger in his mouth to dislodge food from a molar. His trim white beard, corresponding to a similarly shaped band of black hair around the sides and back of his head, caused his profile to resemble a sort of yin-and-yang symbol as he sat at the dais yesterday, picking at his Press Club lunch.

But while he still retained the language of his trade, the "temporary bilateral liquidity agreements" and the "Term Asset-Backed Securities Loan Facility," Bernanke displayed a newly acquired talent for straight talk. He acknowledged that policymakers haven't "stopped the bleeding." He said plainly that the huge stimulus package just enacted won't "lead to a sustained recovery" if the banking system isn't stabilized. And he volunteered that the Fed's usual responses "have proven insufficient" to halt the fall.

This time, the old professor came equipped with a personal anecdote to supplement his data. "The unemployment rate in the small town in South Carolina where I grew up has risen to 14 percent," he said, "and I learned the other day that what had once been my family home has been recently put through foreclosure."

He was armed with sharp rejoinders, too. Asked whether it was a mistake to let Lehman Brothers fail, he shot back: "Well, the word 'mistake' implies choice or an option."

And he even indulged in a bit of economist humor when talking about the paradox of encouraging people to spend even though overspending caused the problem: "Somebody once called this the Augustinian principle, which says something like, 'Let me be moral, but not quite yet.' "

A Fed chairman who talks like a normal person? To paraphrase Ben Bernanke, extraordinary times call for extraordinary measures.


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