Ben Bernanke has been named as the Time Magazine person of the year. And I have to agree wholeheartedly with this nomination! After reading the article, I found once again that I am much in line with the way he thinks about economic policy and disaster mitigation in the wake of the biggest economic crisis in 75 years. He was the man for the moment.
Here is the article: http://www.time.com/time/specials/packages/article/0,28804,1946375_1947251_1947520-1,00.html
While I take issue with much of Keynesian economic policy, which is where my persuasions differ from those of Bernanke’s, I have long considered the actions of the Fed over the past year as absolutely necessary, though troubling and unprecedented. I had always been taught that the biggest factor in the Great Depression was inaction and massive blunders by the Federal Reserve.
Recently, there has been a lot of Fed bashing, and craziness, even from pundits like Glenn Beck, all slandering the Fed as some kind of money-printing-inflation-happy-mind-trust. But let’s remember how absolutely reluctant Bernanke’s Fed was to take action in the first place. It doesn’t seem like the about-face actions of the recent Fed could all be part of some planned conspiracy to doom the economy or be some sort of power-grab for the greedy like Ron Paul would have us all believe. Wall Street enthusiasts like Jim Cramer were crying foul and screaming at the top of their lungs that Bernanke’s inflation worries and tentative, hands-off policies were causing massive problems before the bog meltdown in 2008. Bernanke stood by, almost to his own undoing and disaster, because he obviously believes more in hands-off policy than that of Keynesian ways. But when it was inevitable that action be taken, he took it and dramatically changed the landscape of the financial world.
Since the disaster started in 2008, I have thought of the collapse and ensuing ‘bailouts’ as being similar to a fire. Why do cities and communities pay for a fire brigade using tax revenue? Why isn’t it corporations, such as insurance firms, that use their revenues to fund the fire brigade as part of your insurance policy? I’ve come to a plain conclusion that city governments know what their assets are: property. That is a large source of their revenues. They can tax the properties, they can tax the businesses that operate on those properties, they can tax things that are stored on those properties, and they can tax the individuals that live in those properties. Indeed, it is property that is the most important asset to a city’s revenue stream.
Recall the great fire disaster of the Chicago Fire of 1871. 34 city blocks, or more than 2,000 acres encompassing some 17,500 buildings and $222 million in property – one third of the city’s valuation, were destroyed by a fire that started in a small wood shed on a small alley in the city. The city made fatal errors in not responding soon enough, and lost a substantial amount of its assets, and the ensuing revenue streams.
Where are most of our assets as Americans? Housed in financial institutions. Securities, bonds, cash reserve, mortgages and titles, insurance policies, loans, etc., are all housed in these firms. Why, when one of them catches fire financially, would we not use taxpayer funds to send the fire brigade and put out the financial fire just like we do with real fires? Would we really want to cling to a wait-and-see policy and allow ’34 blocks’ of financial institutions that hold our hard earned assets to burn to the ground? Interestingly, that number above, the one third of Chicago’s value, is similar to the number of banks that were allowed to fail in the Great Depression – one third.
While it is still early, and hard to tell where the crisis will end, everyone on this email list still has a job, and has not had to endure bread lines and bank runs to the extent that they were endured in the 30s. As 2009 comes to a close, a year who’s beginning was laden with fear, I for one am very grateful for that fact. And I can’t help but think that Bernanke’s academic preparation and professional action had a lot to do with it.
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