The Washington Post

Why the Fed deserves props


We have an unfortunate tendency in this country to treat people as either heroes or villains, with no gradations in between.

Take Fed Chairman Ben Bernanke. He’s being called exceptionally vicious names by right-wing types for supposedly undermining our currency and planting the seeds for inflation — while also being excoriated by liberals for not doing enough to help the economy. Now comes The Atlantic, which calls Bernanke a hero on its cover, touching off yet another debate among the chattering classes, which, I suppose, include me.

Allan Sloan is a columnist for The Washington Post. He is a seven-time winner of the Loeb Award, business journalism's highest honor. View Archive

I don’t know about you, but I’ve had enough of the hero-or-villain standard. Bernanke isn’t a villain; he’s not a hero. He’s just a guy trying to do a complicated, high-pressure job the best he can, making plenty of mistakes along the way. The Fed is attracting lots of criticism from both sides because it’s trying to play things down the middle, as Bernanke sees it. In addition, the Fed is the only major Washington institution that seems to be doing anything other than jockeying for position in the November elections. It’s actually trying to do something, with no help from the other major players. And no, Bernanke isn’t whispering in my ear — we’ve never had a meaningful conversation. But what I’m saying is obvious to anyone studying the situation dispassionately.

Look, I’m no Fed lover. I think that the Fed’s recent bank stress tests are public relations eyewash that bear little resemblance to serious regulation. I’ve said early and often that the Fed’s zero-interest-rate policy penalizes prudent savers to benefit imprudent borrowers and idiotic lenders. And I think things are going to get really ugly when interest rates rise — which might be sooner than the Fed wants (possibly now). I could fill entire columns with mistakes Bernanke has made, including obsessing over deflation a decade ago and letting AIG pay off its counterparties in full in 2008 rather than making them take haircuts.

But the Fed deserves credit and respect for acting, as opposed to Washington’s other major players, who are doing nothing but talking and posturing.

The Obama administration, the Republican presidential contenders, tea party types, liberal babblers, and the House and Senate do nothing substantive — and then complain that the Fed is doing too much or not enough. These players talk a lot, and propose things that are either small bore (such as Obama’s mortgage-refinance program), harmful (such as the ridiculous, now bipartisan JOBS legislation) or have absolutely no chance of being enacted (Paul Ryan’s budget plan). They play — make that pander — to their bases; they try to look and sound brave, but they take no risks.

By contrast, the Fed is taking plenty of risks to its reputation, political power and balance sheet. I’m especially impressed by the way the Fed is acting against its own financial and political interests by promoting simplified, low-cost mass refinancing for homeowners who have faithfully made their mortgage payments but can’t refinance at today’s ultra-low rates because they have little or no equity in their homes.

Whatever you think of the refinancing idea — it’s one of the few Fed programs that I like unreservedly, but there’s plenty of room to disagree — it’s noble for the Fed to be pushing it. This policy, enunciated by New York Fed Chairman Bill Dudley, attracted the predictable flak from the “inflict enough pain and we’ll clear up the housing mess” crowd. But the Fed itself would be the biggest financial loser if mass refinancing takes hold. That’s because a refi surge would benefit homeowners at the expense of owners of above-market-rate mortgage securities — and the Fed is the biggest holder of those securities. The Fed is risking financial and reputational grief to help Main Street homeowners. What other player is taking a risk like that?

So let’s give the Fed points for effort, even if we don’t like much of what it’s doing. And let’s lose the hero-or-villain standard. Who knows? One small step toward moderation in public life might beget more. And someday we might even remember how to talk politely to people with whom we disagree instead of shouting at them. 

Sloan is Fortune magazine’s senior editor at large. To read his previous columns, go to



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