Jan

Time to say bye-bye to Bernanke

The past three months have seen major upsets to the Left, including improbable Democratic losses in the New Jersey governor’s race and the Massachusetts Senate seat. This week, conservatives should also wish a similar fate upon Ben Bernanke, a man who has done more to grow the U.S. federal government than perhaps FDR and LBJ put together.

Yes, Bernanke was appointed chairman of the Federal Reserve by George W. Bush. And yes, he tended to fall more on “the right” when it came to issues such as self-regulation of the banks and supporting free trade. But he has also followed a socialist path of subsidizing failure at the expense of the general public, and used government fiat to distort prices in a way that would make Jimmy Carter blush. Just as Americans decided that four years of gas lines and limp-wristed foreign policy under Carter was enough, we should also hope that Senators on both side of the aisle find their senses and show Bernanke the door before he’s allowed to run roughshod over our economy and savings for another term.

The first problem with Helicopter Ben is that he’s followed an established tradition of subsidizing failure. Ever since the 1980s, regulators and central bankers have bent over backwards to shield the financial system from its own mistakes. As a result, institutions and doctrines that should have perished decades ago have survived unpunished, and in some cases come back stronger than ever to harm the system again and again.

The first instance was the Latin American debt crisis of the 1980s, which according to the FDIC could have sunk major lenders such as Citicorp and BankAmerica. Instead, the authorities allowed them to fudge their numbers to avert panic. They also pushed for the creation of the Brady Bond system, under whic the prestige and diplomatic power of the United States were used so that banks could magically remove toxic assets from their balance sheets. Most Americans don’t even know it happened.

The second instance was the Savings and Loan Crisis, when banks again faced major solvency problems. This time the Federal Reserve lowered short-term interest rates, allowing financial institutions borrow cheaply and make free money by investing in risk-free Treasury bonds. That allowed them to overcome big losses resulting from bad commercial-real estate loans across the country. This policy, which also forced millions of Americans to accept artificially low interest rates on their bank deposits, is being replicated today in spades.

Another kind of bailout occurred in 1998 after the collapse of Long Term Capital Management. This time instead of rescuing a single institution, the Fed saved bad ways of thinking: mathematical modeling and unscrupulous accounting. After all, LTCM used egg-headed academic theories to predict outcomes with an imagined certainty. The model would say, for instance, that certain prices will always converge. Deluded by this imagined certainty, LTCM borrowed huge amounts of money and used more than $1 trillion of off-balance sheet instruments to finance its bets.

Yes, LTCM was allowed to perish. However, the doctrines of modeling and off-balance sheet financing came back with vengeance less than a decade later in the mortgage bubble.

In each case, the power of the Fed and other arms of the government were used to shelter corporations, their leaders and analysts from the consequences of their own actions. In so doing, they embraced the principles of big-government liberals who offer rent subsidies and food stamps. Just as welfare is immoral because it pays people to be unproductive and sends the message that it’s ok not to learn new skills, the Fed has taught the financial system that failure will not be punished.

That’s why no self-respecting conservative should support an official such as Bernanke, who has allegedly “averted crisis,” but in reality done little more than embrace the philosophy of the welfare state. Next column we’ll knock down the assumption that he’s even helped the country.

Just as voters in New Jersey and Massachusetts have sent a message to the Democratic establishment, our Senators should send a message to the financial establishment that we’ve been rewarding failure and incompetence for long enough. It’s time for Bernanke to go.

Next post: How Bernanke is hurting you

This post and the contents thereof are the views of only the author identified immediately above and do not necessarily represent the views of the New York Young Republican Club, Inc. (the "NYYRC"), its officers or its members. The NYYRC expressly disclaims responsibility for the contents thereof and by its charter documents may not, and does not, endorse any candidate for any office, except in a general election.