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Simon Johnson

Simon Johnson

Posted: January 21, 2010 11:23 PM

Questions That Ben Bernanke Must Answer

What's Your Reaction:

Ben Bernanke's reconfirmation as chair of the Federal Reserve is in disarray. With President Obama having launched, on Thursday morning, a major new initiative to rein in the power of -- and danger posed by -- our leading banks, key Senators rightly begin to wonder: Where does Ben Bernanke stand on the central issue of the day?

There are three specific questions that Bernanke must answer, in some convincing detail, if he is to shore up his weakening cause in the Senate.

  1. Does he support the President's proposed emphasis on limiting the scope and scale of big banks?
  2. With regard to the key detail, is it his view that the size of big banks can be capped "as is" or - more reasonably - should we require these banks to contract or divest so as to return to the profile of system risk that prevailed say 15 or 20 years ago?
  3. If Congress cannot act in the short-term, because of opposition from Republicans and some Democrats, does he see the Fed's role as taking the initiative in this arena -- or will he wait passively for the legislature to act?

As running hard against the "too big to fail" banks is now a major theme of 2010 and beyond for the Democrats, how can any Democratic Senators feel comfortable voting for Ben Bernanke unless they know exactly what his position is on all of these points?

And given what we know about Bernanke's record and positions relative to these questions, absent new information it is not a surprise to see his support dwindling.

 
 
 
Ben Bernanke's reconfirmation as chair of the Federal Reserve is in disarray. With President Obama having launched, on Thursday morning, a major new initiative to rein in the power of -- and danger p...
Ben Bernanke's reconfirmation as chair of the Federal Reserve is in disarray. With President Obama having launched, on Thursday morning, a major new initiative to rein in the power of -- and danger p...
 
 
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09:37 PM on 01/24/2010
Ben,

Why are you putting up with this crap for civil service pay?
The brilliant back seat drivers who apparently lost their voice as the banking industry and economy went off the cliff think you don't know what you are doing or are in the pocket of the banks.
Ben, listen to me tell them to stuff it go work for wall street where a one year bonus is more than you will make working for the Fed in 10 years.

Ben this public service gig comes with too much baggage, stick up your middle finger and go the private sector and have the last laugh.

And where exactly were all these brilliant critics when there were no documentation loans, sub prime loans, car leases that were absurd and people financing 2 or 3 homes on spec.

Mr. Johnson where exactly were you and if you did send out a warning I humbly appologize
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SCG
01:54 PM on 01/24/2010
Leave it to Washington to reinstall the same order which has guided our country to near collapse.
12:28 PM on 01/24/2010
The neo's don't get it!!! If money is a derivative of growth and compounding debt interest is an exponentially growing deflationary anchor, we're SCREWED since our ability to service debt is RUNNING AWAY from us. DEBT IS NOT THE SAME AS CASH with regards to everyday transactions. Credit transactions IMMEDIATELY come with a huge price tag. You're 'pulling demand forward' but at a price.

Ben, Krugman, Greenspan do not get it! They want the entire nation to take on HELOCS, 2nd and 3rd mortgages and lever up while at the same time - the real economic growth which is the collateral for all money creation is eroding! We're "covering up" the painful reality. Politicians LOVE THIS since it gets them reelected but the truth is FRIGHTENING. 250 years of wealth and power are being dismantled in under 20 years by a handful of arrogant, "professors" that think physics, math and gravity can be ignored.

WAKE UP!!! - have enough humility to accept the fact that the Neo's are WRONG. What's next after this bubble bursts - neg rates?! DJIA 4K?! Oil at $125? $150? Insanity...

BRING IN THE BIG MAN - we need VOLCKER.
12:50 PM on 01/24/2010
IF...we could maintain an exponential real economic growth rate AND we had saved excess liquidity (cash) as Keynes recommended - the Neo's would have a chance. But since both are both unrealistic and/or impossible, we're heading towards a waterfall.
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09:33 PM on 01/24/2010
maybe your seeing that von mises was right and that is the economic model we should except. Keynes will always fail in the end. Bubbles will be created then pop.
sound money=freedom
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sathosiel
02:17 PM on 01/24/2010
Well said but you missing one thing, they do get it, there bankers the federal reserve is not or has never been part of the goverment there a private banks who's job it is to make money, and there books are secret, for all we know they could of finance our enemies in every war we fought, they don't care to much about how much debt we are in or inflation because tax payers pay the intrest on the debt they create, ask your self why is over half of our countires wealth now concentrated in the financial sector? they know exactly what there doing and they have bought there politicians well.
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AlanInGA
Why Turn Around When You Can Just Pivot
12:18 PM on 01/24/2010
Talk about corruption, how many people know that Tim Geithner hired a Goldman Sachs lobbyist as his chief of staff back in January 2009.

Geithner names ex-lobbyist as Treasury chief of staff

http://www.usatoday.com/news/washington/2009-01-27-lobbyist_N.htm

"WASHINGTON — Treasury Secretary Timothy Geithner picked a former Goldman Sachs lobbyist as a top aide Tuesday, the same day he announced rules aimed at reducing the role of lobbyists in agency decisions."

That my fiends, is change we can believe in.

And why, may I ask, are Americans angry?
schatsie
Wall Street is Worse than Vegas
10:07 AM on 01/24/2010
Dear Simon, please keep up the good work!!!
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peterg76
Freelance medical transcriptionist
10:03 AM on 01/24/2010
I thought the "central issue of the day" was getting rid of Bernanke.
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Star2000dancer
Pay it forward, the movie..
09:52 PM on 01/24/2010
I thought it was to end the fed.
07:22 PM on 01/23/2010
I wonder how Krugman would answer those five questions?

I would hope he has a far more enlightened understanding of systemic risk that Simon Johnson.
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PerryWhite
My micro-bio is still empty
01:05 PM on 01/24/2010
There were only three questions, but Krugman would probably give five answers.
12:59 PM on 01/23/2010
It was either Morgan or Keynes who said that the stock market is both a voting machine and a weighing machine. In other words people look at what is going on sociall, politically, and economically and then if they like what they see they buy stocks and if they don't they sell them. President Obama has had the biggest first year rally of any President in the past 76 years. Bigger than Bush, bigger than Regan, Bigger than Nixon; in fact, bigger than any Republican in history. The sharpest correction has come the day after the Democrats lost a fillibuster proof Senate. Yet the Republican spin machine has denyed Obama the credit for the rally and is placing the blame for the correction on his policies. Somehow, the Democrats have to do better at taking credit when credit is due and showing how the Tea Party attitudes of the Republicans nearly bankrupted us.
04:25 PM on 01/23/2010
Nice left wing spin there. Laughable too. The market went down because of the organized attack against the financial system by Obama. The financial markets and their actions are repudiating the policies of Obama’s. How can anyone actually believe it was because of the filibuster bill when the economy loves gridlock and politics out of the equation? Every time Obama gets out there trashing the banks and at the same time 80% of the people’s 401ks, the market tanks, and tanks hard. This is 100% a national repudiation of Obama policies. The left has been forever trying to deflect blame and the anger of the people at the congress hubris and excessive pork, onto the financial system for a long time. If they put forward a reasonable financial bill all this could be avoided. Instead they would rather risk the entire economy.

Keep the economic team. Get rid of congress and the far left academics trying to manipulate policy via experimentation. We cannot do this when the economy is on its knees during the great recession.
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fromdnorth
OK I checked my micro-bio (didn't know I had one
05:11 PM on 01/23/2010
NT: Unless you compare and contrast, for example, the Canadian banking or the new British system vis a vis the American system, your analysis is wanting, in my view...

You appear to be advocating for a US system status quo only.
Remember the US was the best basketball team in the world until they actually played other countries...
12:21 PM on 01/24/2010
Here's your rally:

s&p 500 earnings
11:22 AM on 01/23/2010
Mr. Simon, I hope you are happy promoting ideology over common sense and our economy.

Bernanke is a hero and all those overseas financial institutions would just love to see what is on our balance sheet so they can take advantage and manipulate our economy some more. If you do not think your friends like Soros who took down the Sterling and crashed the UK system and has even tried to manipulate his own home country banking system and apologized to it afterwards, want to finish the job they started in the fall of ’08, then you are not qualified to have this conversation. The only thing standing between them and our system is an apolitical Fed.

Wall Street = Main Street no matter what anyone says or wishes. We need to get regulations that are smart and not punitive. Millions of ordinary people lost their jobs that got paid less than union workers and government workers that worked on Wall Street in every town in the country. From tellers, to real estate agents, to the home improvement and home building industries and millions of small businesses that are parts of that chain.

Yes there are greedy bankers all over the world and they should be punished. But don’t ever think or say that Wall Street is not Main Street, and that you are attacking this country just because they are not ideologues, elitist from Mass, IMF members, union or government workers.
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fromdnorth
OK I checked my micro-bio (didn't know I had one
03:21 PM on 01/23/2010
An audit and public airing of confidential details for national security do not follow.
If an audit is not undertaken, then all we have is impunity.
France jailed the people in charge of the blood supply which carried the HIV.

The kids are watching...
04:18 PM on 01/23/2010
No! The GAO can do this and report to the congress. Once the ROW gets an idea of our balance sheet, (remember it is not the Feds like which is making money for us), they will attack the US financially as what happened in '08 and again in '09. This is the same logic that thinks our banks should be hyper regulated when we have only 5 of the 50 largest banks in the world. They, the sovereign funds and hedge funds and dark pools, will find the weak banks and then destroy them only to buy the assets later at fire sale prices, a few pennies on the dollar. This was the strategy in ’08 and when Bernanke saved the system, those international vultures were caught with their pants down with losses and now want more revenge.

NO WAY! The stupidest thing in the world unless your goal is to shoot yourself in the foot. It is a matter of National importance. Audit your congress instead if you really want to save America. Look at your health care bill. Keep the economic team and vote out congress!
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msbeal
Let no neo-con lie go unchallenged
07:40 AM on 01/23/2010
The real culprit was Greenspan. Ignoring clear signs for a need to contract the money supply, Bush and he decided to keep it full steam ahead for political reasons. They took the government ‘credit card’ and threw one heck of a party – with designer wars and government contract money knee deep. Practically the month he left office Bush hands Obama a stack of unpaid bills and a financial Armageddon to clean up.

You’ve got to love how the generic ‘republicans’ sit down on their cozy ‘generic’ ranchettes and complain the help isn’t cleaning up fast enough for them.

Bush, Cheney and the military industrial complex robbed this country’s treasury blind. The Reaganesk ideology of the Republicans is just flat wrong. You simply cannot run a country on the time frame of maximum quarterly earnings. Governments need to consider the welfare of generations.

We need to reacquire all the money siphoned off by the wealthy war-profiteer class over the last eight years and redistribute it both back to the people and pay off the public debt.

Just as Bush conducted wars with no sacrifice requested of the people except for the direct war casualties, Obama is trying to run a recovery with no one sacrificing except for the direct economic casualties. We can start this process by turning the Middle East back over to the Middle Easterners and focus on getting our own house in order.
04:29 PM on 01/23/2010
Agreed. So. Why dont we hold Greenspan, Mozilo, Fuld, Cheney, etc accountable. Plus just because they did this, the current congress feels like it is OK to do this as well and now we have an angry mob.
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msbeal
Let no neo-con lie go unchallenged
04:52 PM on 01/23/2010
Unfortunately I don’t think greed, stupidity and incompetence are against the law. The people are supposed to be smart enough not to elect people like that: which is, of course, the weakest link for all democracies
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AlanInGA
Why Turn Around When You Can Just Pivot
06:46 AM on 01/23/2010
Simon, you forgot one important item.

AUDIT THE FED
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Suzeeq
11:52 AM on 01/23/2010
That is quite correct, But what about to abolish the Feds??
Ron Paul and a bunch of congressmen want to to just that..abolish the Feds who have caused all these recessions and depressions since its creation. Let the Treasury do its Constitutional work for a change..create the credit and money supply for this country.
03:09 PM on 01/23/2010
Suzeeq What you arn't considering is the fact that the reason that the Fed came about is because of all the depressions that had occurred in the 1800's and that was toped off by the panic of 1907 where JP Morgan stepped in and acted like a FED. The plans for our current Fed were created after that panic. In general the Fed over the years has done a good job which is part of the problem in that a free market with a government back stop will take risks that it wouldn't otherwise. So, some how Congress has to set up rules that will allow those who take excessive risks to fail and yet have the appropriate reserves so that the system as a whole doesn't blow up. Higher taxes is one way to do that as they act as a governor to keep the system from overheating.
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Star2000dancer
Pay it forward, the movie..
09:56 PM on 01/24/2010
End the Fed. And this is why:

George Bush: The Unauthorized Biography
Chapter 1 - The House of Bush: Born in a Bank. The Bush family joined the Eastern Establishment comparatively recently, and only as servitors. ...
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opines
09:09 PM on 01/22/2010
Overweighted with massive Federal, State, Municipal, Corporate and Personal debt, our economy is in a free-fall that cannot be imoroved until it crashes. Stimuli and other measures pre-impact are like flapping ones arms when the parachute doesn't open.

Because we have been more than half a century from enduring and surviving depression type hard times, we have lost the confidence to understand that it is a necessary part of our boom and bust economy; a way of wiping out debt, and weeding out business entities not suited to the changing times.

Instead, we have chosen to believe that a 1930s type depression is 'unthinkable' and that printing and distributing unbacked currency will be a cure for already outsized indebtedness. After all, how can such a thing happen to the World's Only Superpower?

Even if there will be a total failure of our monetary system, we still will have the same amount of food and the same housing stock. We would suffer hardship but could muddle through with our system intact if there was wise, courageous leadership.

The blame placing must end if we are to survive. Our elected representatives must join together to find ways to cushion the damage, make sure lifelines and safety nets are in place. They must bring about an end to our overseas military adventures.

And, the voters must support the 'realists' and scorn the 'press on' adherents.
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Star2000dancer
Pay it forward, the movie..
10:00 PM on 01/24/2010
Our bread basket in Ca. is a desert now. The Ca.fisherman don't have fish. The basket provided 40% oh the world's food.
The Fla. orange crop is being destroyed. That's 40% of the world's oranges. The air is thick with chemicals. The water has up to 600 different chemicals in it. We are not the same country we were.
07:34 PM on 01/22/2010
Incredible-

Anyone who has ever watched a hearing and the embarrassing congress' lack of knowledge is astonishing!

Ever watch those?

Who is your favorite Congress person or Senator when it comes to Finance or Economoy?

Mr Shelby- Remember him?

In 2003 there was a Bill to regulate Fannie and Freddie that went nowhere.

The oversight Committees said that during Clinton yrs the subprime was only 3% of all mortgages, Bush admin raised to 50% of mortgages

In 2005, the Bill to regulate Fannie and Freddie passed the House and was dropped in the Senate.


Why did Sens. Shelby and Frist drop it from reaching the floor for a vote?
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imusintheevening
With,without,who'll deny it's whatthe fights about
07:48 PM on 01/22/2010
Thank you good post - I like Dorgan, too. He called this mess in a speech on the Senate floor a decade ago:

http://www.dailykos.com/story/2009/4/8/717702/-VIDEO-from-1999:-Byron-Dorgan-vs.-Gramm-Leach-BlileyWOW
09:58 PM on 01/22/2010
But wait- it gets better!

ONE YEAR LATER......

March 8, 2004

AIG, Citigroup Battle Unions on Political Donation Disclosure

http://www.bloomberg.com/

Merrill Backs Bush

Bush derives much of his campaign donations from executives at publicly traded companies, with employees at Merrill Lynch & Co., UBS AG and MBNA Corp. among those making up 13 of his top 20 donors last year, contributing $2.9 million.

Six of the top 20 donors to Senator John Kerry, who has clinched the Democratic Party's presidential nomination, were employees of listed companies, and they gave $275,000 since he began campaigning in January 2003, according to the Center for Responsive Politics.

$2.9 million- Bush

$275,000 – Kerry
joefoss
They'll never take my panache!
07:05 PM on 01/22/2010
=I think Bernanke should be re-appointed to another term--if he passes muster with the Senate committee and commits to a specific agenda of reforms. We do need some continuity at the top, and the Fed Chair, historically, has been seen as more of a symbol of stability and security for both our financial markets and their stakeholders than either the Secretary of the Treasury or the Chief Economic Advisor to the President.
=Speaking of those arrogant twins, Tim & Larry, Geithner should be replaced, period; and Larry Summers should be re-assigned, perhaps as ambassador to Outer Mongolia. They say the weather there is especially appealing to "free-marketers" and Larry can have the rest of the winter to explain to his new "subjects" all about his theory of why girls can't do math!
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Bitsko
He of the smoldering eyes
06:59 PM on 01/22/2010
Speaking of Friday night...

Yellowman -- Jamaica Nice/Take Me Home Country Roads

http://www.youtube.com/watch?v=Itsy4UM5Oh0