Despite the fact that it also required heroic efforts on the part of Congress and the President, Time even gives credit to Bernanke for the $700 billion Troubled Asset Relief Program (TARP) (Grunwald 2009, p.4).
Many, if not most of these decisions were profoundly unpopular and cost both the Obama and Bush Administration as well as Congress a great deal of political collateral. The relatively isolated Bernanke did not have to suffer such a risk in the court of public opinion, and even today critics of these policies ask: what of moral hazard? Supporters of the TARP and other aggressive government measures would counter that worshipping at the altar of moral hazard, caused the fall of Lehman Brothers and the freezing up of the microcredit market in the first place. But once the expectation of bailouts are created, one bailout tends to lead to another -- the bailout of Bear Stearns caused Lehman Brothers to assume it would be 'bailed out.'
Bernanke has often been the responder to crises, rather than an avoider or a hands-on manager acting alone. It was Treasury Secretary Hank Paulson who made the decision not to bail out Lehman but to bail out Bear Stearns, and the executive branch that orchestrated the TARP program. And Bernanke's current position seems fragile: "Ben Bernanke's term as Chairman of the Federal reserve ends in January. He has been nominated by the president for reappointment, but reappointment must be approved by the Senate" (Thoma 2009). Conservative critics are dismayed by Bernanke's orchestration of financial incentives to encourage spending, and say that historically low interest rates have continued for too long: "We see little in the chairman's policy history or guideposts to suggest he will be willing to endure the criticism that will come with tightening money amid a lackluster recovery, if that is what is required to protect the dollar or prevent an inflation outbreak," sniffed the Wall Street Journal in a recent editorial (Thoma 2009). However, liberals state that Bernanke's attempt to balance worries about inflation with worries about double-digit employment fail to take into account...
Liberals note that when the financial sector was doing poorly, protests about moral hazard and aid to major investment banks was muted. Now that it is ordinary Americans who are suffering in the 'jobless' recovery while worries about inflation affecting the banking sector have resumed. Bernanke, balancing the demands of both ideological camps, has pleased neither.
Bernanke likely did the right thing in the short-term -- given that the government had already created the expectation of a bailout, suddenly shifting to a policy of moral hazard would have simply driven the economy deeper into financial ruin. True, low interest rates caused the recession, but keeping them high and discouraging lending would simply put the brakes on the economy. What is needed is a more aggressive fiscal response in conjunction with loose monetary policy -- and here is Time Magazine's primary error when it proclaims it is Bernanke's economy. In over-estimating Bernanke's role, not enough attention has been given to the need job creation, and if the jobless rate continues to climb, even the confidence of employed consumers will be shaky. Ultimately, it lies in the Obama Administration's hands to stimulate job growth if private enterprise continues to downsize the workforce. Bernanke's monetary policy staunched the bleeding in the economy, but it did not solve the problem of unemployment, and no true recovery can take hold in a nation with double digit employment. The true person of the year is the unemployed American -- a person looking for work in an America where new jobs seem to have dried up.
References
Grunwald, M. (2010, January). Ben Bernanke: Person of the year. Time Magazine.
Retrieved January 3, 2010.
http://www.time.com/time/specials/packages/article/1,28804,1946375_1947251,00.html
Thoma, Mark. (2009, December 21). Is criticism of Bernanke justified? Moneywatch.
Retrieved January 3, 2010.
http://moneywatch.bnet.com/economic-news/blog/maximum-utility/is-criticism-of-the-bernanke-fed-justified/356/
