Volcker: "Bernanke a One Termer"
The following information comes from a well-placed sourced, whose partner was present at the event -- but since its 2nd or 3rd hand to me, consider it a rumor until proven otherwise.
>
Over the prior weekend of April 6, former Fed Chair Paul Volcker was present at a small gathering. Several luminaries from the worlds of finance, economics and trading were in also attendance.
The conversation turned to the present Federal Reserve. The blunt, straight talking Volcker stated that Ben Bernanke is not likely to serve more than one term as FOMC chief. Quote: "He's a one-termer."
Why?
For reasons both political and economic.
The economic reasons are the weaker of the two issues. Most of the forces leading to the current situation were in effect long before Bernanke became Fed chief. But if the current crisis gets worse -- a possibility only a few economists and analysts see as likely -- heads will have to roll. While the current administration does not believe in falling on your own sword in the event of failure, it has been considered honorable amongst other, less disingenuous administrations.
Regardless of who wins the White House in November, there is a strong impetus for change across the board. Bernanke was George W. Bush' Council of Economic Advisers Chairman. If a Democrat wins, the political pressure for change will be even greater.
It is only fair to point out that Ben Bernanke essentially inherited the current crisis. As far as assessing where the blame goes, between him and Greenspan, I find its 85/15 in favor of Greenspan.
Why only 15% responsibility? As we have long lamented, the policies that led directly to the current crisis trace directly back to Greenspan. His malfeasance in refusing to allow the Fed to perform its duties as regulator of banks -- despite Ed Gramlich's warning about predatory lending -- is the enabling governmental act for the reckless and irresponsible lending frenzy. Easy Al then compounded the problem by dropping rates to generational lows at 1%, and then keeping them at 1% for an unprecedented length of time. His actions are what is primarily at fault here.
Bernanke only gets 15% for his prior words, not actions. 5% responsibility as CEA chair -- but he was so late in this admin that most of the economically problematic policies were already well in effect. He gets another 5% for his now infamous deflation speech. That rationalized Greenspan's ultra-low rates, and deflected criticism. Lastly, the "Savings Glut" meme he help to propagate is also worth 5%. Each of these two speeches were influential, and raised Benrnake's profile. They also served to provide intellectual cover for the now discredited and otherwise indefensible policies of Alan Greenspan. Hence, but 15% is Bernanke's fault.
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The bottom line remains this is an ongoing issue, one that is likely to be increasingly costly for US taxpayers, and damaging to the global economy.
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Previously:
Must See TV: Volcker's Speech on Financial Crises http://bigpicture.typepad.com/comments/2008/04/paul-volckers-s.html
Sources:
Deflation: Making Sure "It" Doesn't Happen Here
Governor Ben S. Bernanke
November 21, 2002
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
The Global Saving Glut and the U.S. Current Account Deficit
Governor Ben S. Bernanke
Federal Reserve, April 14, 2005. http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm
Ex-Fed Chairman Chides Current One
MICHAEL M. GRYNBAUM
NYT, April 9, 2008
http://www.nytimes.com/2008/04/09/business/09fomc.html
Volcker Says Fed's Bear Loan Stretches Legal Power
John Brinsley and Anthony Massucci
Bloomberg, April 8 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aPDZWKWhz21c
Volcker's Demarche
WSJ, April 9, 2008; Page A14
http://online.wsj.com/article/SB120769723589099695.html
Monday, April 14, 2008 | 07:10 AM | Permalink
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Tracked on Apr 14, 2008 9:59:38 AM
Comments
So here’s my first, fanciful thought. We had the fairly direct assault on BB from PV—the borderline illegal Fed action in the Bear takeover interview.
Recall that Volcker’s an economic advisor to Obama. It’s spread by PV himself, as the start of a viral movement to undermine BB. Obama’s elected? As one of his first moves, he announces the appointment of a new head of the Federal Reserve, former chairman Paul Adolph Volcker.
Posted by: Scot Frew | Apr 14, 2008 7:13:28 AM
One termer nominee(s): Anyone who used the term "contained" in 2007.
What happened to the impeachment push? Was it contained too?
Posted by: VennData | Apr 14, 2008 7:45:33 AM
A new broom sweeps clean.
Posted by: Ross | Apr 14, 2008 7:54:37 AM
PV would get my vote. He would be a very good first step in turning this thing around.
The Fed has gotten too cozy/politically-connected with Wall Street.
My only fear in replacing BB is that we could end up with someone who is even worse! It's kind of like averaging down on a stock. You had better know what the hell you are doing or you could wind up in worse shape than if you had done nothing at all.
Posted by: BG | Apr 14, 2008 8:20:19 AM
The same will be true of the next president. A one termer, who will be hamstrung by the fact the current administration has stripped clean any resources or reserves a president might formerly have counted on.
Posted by: Sue | Apr 14, 2008 8:22:22 AM
« Selon que vous serez puissant ou misérable,
Les jugements de cour vous rendront blanc ou noir »
to be read
"Crownies judgements will make you guilty or innocent in accordance with your power"
Les annimaux malades de la Peste
J de Lafontaine
Posted by: Philippe | Apr 14, 2008 8:33:38 AM
You may not like Obama, but consider that Clinton thinks Greenspan should be a go to advisor in her administration, and that McCain has Phil Gramm running his team. I'll go w/Volcker every time thank you very much.
Posted by: weinerdog43 | Apr 14, 2008 8:54:21 AM
I imagine there will be a retail sales post at some point, but look past the headline and look at the data. Sales up $586 mil. Gas station sales were up $439 mil, and non-store retailers were up $537mil. Gas and home heating oil inflation represented the bulk of the retail sales gain.
Posted by: Brian | Apr 14, 2008 8:54:39 AM
Recall that Volcker’s an economic advisor to Obama. It’s spread by PV himself, as the start of a viral movement to undermine BB. Obama’s elected? As one of his first moves, he announces the appointment of a new head of the Federal Reserve, former chairman Paul Adolph Volcker.
Posted by: Scot Frew | Apr 14, 2008 7:13:28 AM
___________
God help you if you have a historically unfortunate name and a wignut gets ahold of it.
Posted by: Marcus | Apr 14, 2008 9:02:06 AM
My full name didn't go through:
Marcus "Ghengis Khan" Aurelius
Posted by: Marcus Aurelius | Apr 14, 2008 9:04:30 AM
@Sue - Great call! I wouldn't want either job at the moment.
Posted by: Wayne Mulligan | Apr 14, 2008 9:14:12 AM
But for that Bernanke's term doesn't end until 2010. So whoever wins is stuck with him for at least two years.
Posted by: Andrew | Apr 14, 2008 9:33:17 AM
I think that the prsent Congress is a good model for what will happen to the next administration. The Bush administration has literally screwed up every cabinet department by placing ideological hacks into them and allowing no development of public policy by the departments. So think of the next president as a lot like Waxman. Where does he or she start to look and by the time they look at one problem several others flare up. Competence will not matter as you will be constantly behind the curve. The publics short term memory will play into this and create more difficulties. More interesting times ahead.
Posted by: larster | Apr 14, 2008 9:39:23 AM
Clean house? The two party system is a monopoly on power that feeds off of each other. They both benefit from this 'arrangement' that I opposed from the start of this great experiment. There is literally no difference. The fact that these clowns have everyone bickering amongst ourselves as to whether a D or R should win puts us exactly where elitists want us. That is, the eye is off the problem and attention is diverted away from their cronyism and a busted political process that benefits those in power.
I'm going to say something that no one on here will agree with because nearly everyone believes the pablum the media feeds them. And, everyone believes these problems were created by low interest rates in 2001. Both completely erroneous.
Greenspan was the lackey that was used to take the hit for the mess WALL STREET made. He was thrown under the bus to divert attention. The Fed simply follows the markets. They can't save or fix any economy. That is completely ridiculous. They don't impact economic policy except through any regulatory enforcement powers given to them by Congress. Congress that resides in the belly of the Wall Street beast. Financial clowns created this mess. Clowns who repeatedly make these messes and ALWAYS blame someone else.
Greenspan diverts attention from what is needed to fix this problem. Regulate Wall Street's monopoly, bust up the big financial firms and return transparency to the markets that the crooks have paid off politicians to achieve.
Posted by: Thomas Jefferson | Apr 14, 2008 9:46:07 AM
Andrew:
What would stop Obama from telling "B-B52" Ben to resign? Or firing him? I hope you aren't telling me that Ben can't be fired.
Posted by: Joe Klein's conscience | Apr 14, 2008 9:50:07 AM
Speaking of ongoing issues, here's that word, "surprise," again.
"Wachovia Corp. will slash its dividend and raise $7 billion in a share sale after reporting a ****surprising**** first-quarter loss on Monday of $393 million."
Adrenaline junkies need to start forecasting earnings. The "surprises" will really jumpstart their days.
Posted by: Contrarian | Apr 14, 2008 9:50:47 AM
TJ,
We all thought you was dead!
Couldn't agree with you more. So, how soon til we get Andy Jackson?
Posted by: Ross | Apr 14, 2008 10:00:01 AM
Without Paul Volker in 1982, we'd never have had "Morning in America" in 1984. When money is the problem, it matters who runs the fed.
Posted by: Ronald Reagan | Apr 14, 2008 10:09:49 AM
I think the problem is that this post tends to always be given to an economist. And economists don't know anything about the economy until it after it happens. If we were to make the next head of the Fed some big psychic like Miss Cleo, we would not only know about a recession months in advance but also be told if our spouses are cheating on us.
[EDITOR: see link below]
http://blog.murraytrillionaire.com
Posted by: Murray Trillionaire | Apr 14, 2008 10:15:44 AM
Ahh, I love Paul Volcker as much as anyone but there is substantial evidence that inflation had broken and that the Fed and Volcker had nothing to do with it. That all they did is cause the worse recession in ages. That the markets had taken care of the inflation genie. But, those steeped in nonsense that is taught in economics courses believe whatever they are told. And, correlation equals causation in that camp. It matters not who runs the Fed. It matters most that the underlying economy is structural sound. Something Fed policy has zero control over. Old beliefs die hard Mr. Reagan.
Posted by: Thomas Jefferson | Apr 14, 2008 10:15:50 AM
Brian, and if you "ex-out" food as well as energy, the way it's done for inflation calculations, retail sales fell rather than rose in March.
Posted by: Sue | Apr 14, 2008 10:17:45 AM
The problems with China's economy are such that being out of emerging stock markets is a very good idea. China's leaders have fooled the world's population into thinking they have a huge amount of dollars at their disposal, which is untrue. The trade surplus is being used to a) line the leaders' pockets; b) feed the trillion peasants who earn around $5 per day; c) build the thousands of buildings to house and work the population; d) build a world-leading defence for the upcoming commodities war e) build a space ship to flee to Mars once global warming gets going f) buy all the abortionable records their pop stars release g) invest in lead h) you're still reading this? You are a div.
Toastmeister
Posted by: Toast | Apr 14, 2008 10:29:57 AM
Who is running (leading) the Federal Government response and the Federal Reserve response right now?
The hard-charging Paulson or the quiet academic Bernanke?
Posted by: JRip | Apr 14, 2008 10:46:17 AM
PV may or may NOT deserve all these accolades but when he was in the FED ruled the world. Now, a debtor nation with a declining standard of living, the FED doesn't have the sway it did. The Euro raising rates, capital flight from the US, rising commodities. PV talks a big game when there is nothing on the line for him.
As I recall, thanks to PV Carter was a one termer too, and Cater had way better economic performance than Bush.
Count me out for going back to PV and his draconian BS.
Posted by: me | Apr 14, 2008 10:48:28 AM
Tom Jefferson wrote:
Ahh, I love Paul Volcker as much as anyone but there is substantial evidence that inflation had broken and that the Fed and Volcker had nothing to do with it.
I'd love to see that evidence, Tom.
Posted by: MitchN | Apr 14, 2008 10:50:19 AM
