Jackson, August 25: Ben Bernanke began as Federal Reserve chairman by meekly promising to maintain the status quo. He ended up facing the worst downturn since the Great Depression and changing central banking in ways that will reverberate for decades.
Bernanke took office promising to follow in the footsteps of his storied predecessor, Alan Greenspan, and to bring greater transparency to a historically secretive institution.
But as a devastating financial crisis hit, he went on to deploy daring policy maneuvers never before attempted by central bankers in what seems to have been a successful effort to tame the credit market meltdown.
While a participant in the hands-off regulatory consensus that prevailed before the crisis, his imaginative thinking during the financial break-down and painful recession that followed earned him a respect that makes President Barack Obama’s decision to renominate him seem unsurprising.
“Given the challenges still ahead, we need a chairman who has the experience and the demonstrated good judgment and leadership to navigate the economy to a sustained recovery and then to smoothly make an exit from the Fed’s extraordinary … policies,” former Fed Governor Laurence Meyer said.
Criticized for initially being slow to acknowledge and react to the crisis, the Fed began an aggressive series of actions in the summer of 2007. By the end of 2008, the Fed had cut benchmark overnight interest rates to near zero for the first time in the central bank’s modern history.
In addition, Bernanke threw open emergency lending programs to financial firms beyond depository banks to bolster other financial firms that were critical to the flows of money in the economy. He opened currency swap lines with central banks around the world to ease bottlenecks for banks overseas trying to access U.S. dollars in global markets.
Bernanke also showed his mastery of monetary policy tricks by opening a dizzying array of lending and other programs to give life support to small business, consumers, and housing markets.
But Bernanke’s chairmanship so far may best be defined by the emergency bailouts of investment bank Bear Stearns and insurer American International Group, the decision to let Wall Street icon Lehman Brothers fail, which fueled a vicious slump in global markets, and his pressure on Congress to write a USD 700 billion blank check to the Treasury Department to stave off economic meltdown.
Bernanke has faced gale-force blowback from Congress and other critics over those actions, many of which were midnight decisions taken only with a handful of trusted advisers in chaotic situations.
–Agencies