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Roll Call

Ben Bernanke Collection Shows Fed Chairman's Train of Thought

Bill Clark/CQ Roll Call File Photo
Bernanke’s series of lectures to university students, now available as a book, acts as a primer on the Federal Reserve and 2008 financial crisis.

It looks increasingly likely that we won’t have Ben S. Bernanke to kick around much longer.

Bernanke’s second term as chairman of the Federal Reserve ends in January, and he’s been mum about his plans.

Still, in his most recent public comments on the matter, he emphasized that he was not irreplaceable, and most Fed-watchers don’t expect him to ask President Barack Obama for a third term. Predicting who’ll next lead the central bank has already become a favorite parlor game throughout Washington and on Wall Street.

If he does leave the Fed, many — including this reporter — will surely hope that Bernanke pens a memoir detailing his sleepless nights to keep the financial system from unraveling in the fall of 2008.

But if he chooses not to, his book “The Federal Reserve and the Financial Crisis,” recently published by Princeton University Press, would be a fitting substitute.

Available in hardcover for $19.95, it’s free to read — and watch — on the Fed’s website: federalreserve.gov/newsevents/lectures/about.htm.

That’s because the book is a collection of four videotaped lectures on the Fed that Bernanke gave to George Washington University students in March 2012.

For experts in monetary policy or financial regulation, the lectures will provide few new insights. But for those interested in why we have central banks, what led to the 2008 financial crisis and how the nation’s top officials reacted, there isn’t a better primer.

The former Princeton professor devotes one lecture each to the “Origins and Mission of the Federal Reserve,” “The Federal Reserve After World War II,” “The Federal Reserve’s Response to the Financial Crisis” and “The Aftermath of the Crisis.”

This is no boring textbook, despite the occasional chart. Bernanke presents a clear and engaging narrative of the economic history of the United States, while also tackling a few of the perennial anti-Fed bugaboos.

For example, Bernanke ably considers and refutes the idea that the United States should return to the gold standard. While it may be theoretically comforting to tie the dollar to something more tangible than government fiat, Bernanke details gold’s impracticality and the range of negative consequences that would ensue, including an increasingly volatile economy.

One of the book’s most important achievements is to place the Fed’s extraordinary interventions during the crisis — including the emergency lending of $1.2 trillion to the financial industry — in context.

Bernanke does so by laying out in the early lectures the nuts and bolts of how the Fed works. Namely, in addition to its power to raise or lower short-term interest rates to help the economy, central banks act as the lender of last resort in cases of financial panic.

If markets are disrupted and solvent banks suddenly lack access to funds, central banks are there to make short-term loans and provide liquidity to help stabilize the financial system.

As Bernanke notes in his fourth lecture, “One of the points that we can now draw, having looked at the history, is that rather than being some ad hoc and unprecedented set of actions, that the Fed’s response was very much in keeping with the historic role of central banks, which is to provide lender of last resort facilities in order to calm a panic.”

The government’s rescue of the financial industry will likely always elicit the public’s anger — and rightfully so. The Wall Street bailouts and the fact that certain entities were deemed “too big to fail” pose fundamental questions about the nature of American capitalism.

But Bernanke makes a strong case that however distasteful the Fed’s and Treasury Department’s activities were, they were necessary to prevent a second Great Depression.

That’s not to say his defense of the government’s response is completely convincing. Asked by a student during a question-and-answer session (a surprisingly delightful part of the book) how authorities decided to draw the line between bailing out a bank and allowing its failure, he comes up short.

Bernanke says Lehman Brothers probably was “too big to fail” in that its collapse rattled the global financial system but that the Fed and Treasury were powerless to save it because of legal constraints. That argument seems wanting, considering the government was essentially making up the rules as it went along.

With immense power to shape the economy, the Fed has long been an easy political punching bag. But since the crisis, a deeper hostility has emerged, largely on the political right and driven by the populist tea party movement.

If the Wall Street bailouts helped ignite the anti-Fed flame, Bernanke’s efforts to pull the economy out of recession through unorthodox monetary stimulus threw gasoline on the fire (even as those on the left accused him of timidity in the face of mass unemployment).

In short order, attacks on the Fed were coming not just from former Rep. Ron Paul, R-Texas, and the political fringe but from the mainstream of the Republican Party.

Texas Gov. Rick Perry memorably likened Bernanke’s quantitative-easing program to treason and suggested that the chairman would be treated “pretty ugly down in Texas.”

GOP presidential nominee Mitt Romney pledged not to renominate Bernanke — a registered Republican first appointed by President George W. Bush.

Last summer, the House passed a bill to “audit” the Fed’s monetary policies, a longtime goal of Paul’s. While it was a seemingly modest proposal, Bernanke and others warn it would seriously undermine the central bank’s prized independence and is intended to bully the Fed into ending its support for the economy.

The audit campaign is also somewhat ironic considering Bernanke has made boosting the Fed’s transparency and communication a hallmark of his tenure.

He is the first Fed chairman to hold news conferences with reporters and under his leadership, the Fed has more frequently released the economic projections that underpin its policy choices and provided more details on its decision-making process.

And of course he’s the first Fed chairman to give a series of lectures to college students that can then be watched around the world.

Toward the end of his final lecture, a student says Bernanke has demystified the Fed for him, but that many others are likely to remain skeptical.

Bernanke agrees, noting that the tension surrounding central banks is part of a long American tradition and is not likely to disappear. After all, the patron saint of the “End the Fed” movement is really Andrew Jackson, not Ron Paul.

But that doesn’t mean Bernanke, always the professor, won’t try his best to educate people. This book is a good step.

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