As he seeks reconfirmation as chairman of the U.S. Federal Reserve's Board of Governors, Ben Bernanke has some things going for him. He is as knowledgeable and smart as he was when he became chair in 2006. His willingness to make aggressive use of unorthodox liquidity programs helped prevent the financial crisis from spiraling into a depression. And behind-the-scenes accounts portray him as hardworking, pragmatic, and dedicated.
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Nevertheless, the Senate should not reconfirm Bernanke. Confirmation would reward what was, on balance, a failed tenure as chair. More importantly, Bernanke's recent statements and actions do not indicate that he is the person the United States needs to fix its still-broken financial system.
The principle of accountability holds that those responsible for failure should lose their jobs. There can be little doubt that the Federal Reserve of Alan Greenspan and Bernanke bears a significant share of the blame for the financial crisis. I have previously argued that Greenspan is more responsible for the crisis than any other single person -- because he ignored asset price inflation (therefore allowing the housing bubble to inflate), failed to heed warnings that the Fed should crack down on predatory lending, and failed to recognize and curb the risks being taken by bank holding companies under Fed supervision.
Bernanke didn't do much better than his predecessor -- indeed, he didn't do much differently, whether as a Fed governor or as Fed chair, as the Washington Post recently documented. Plus, as late as 2007, Bernanke argued that problems with subprime mortgages would be contained and would not threaten the financial system -- despite having more and better access to bank information than anyone else in the country.
Thus far, Bernanke has not acknowledged the errors of the Greenspan doctrine, which holds that it is difficult to identify bubbles and that monetary policy is the wrong tool to use to fight them. Rather, he has defended them, most recently in a major speech to the American Economic Association (AEA). There, he argued that the housing bubble was not the product of cheap money. Reasonable minds disagree about that. But, as Paul Krugman has pointed out, Bernanke at the very least seems to be repeating some major pre-recession analytical errors -- in particular, focusing on national average housing prices, which moderated and thus hid obvious local bubbles in cities like Los Angeles.
Moreover, Bernanke has argued that monetary policy is less important than regulation: "Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates," he said in his speech. True; but shouldn't the head of the Federal Reserve -- the United States' chief banking regulator -- take some responsibility for the failure of regulation? Bernanke does admit that the Fed did too little, too late regarding predatory lending practices, but fails to add that it botched the oversight of bank holding companies as well.
More important than Bernanke's past record, however, is the question of whether he can adequately tackle the challenges we face today. Here the case against Bernanke is most damning.
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