In Defense of Ben Bernanke

It is quickly becoming an American pastime to bash Bernanke, but I think that he is acting responsibly.

Ben Bernanke seems to be stuck in the middle. Many of this site have argued that it is irresponsible to cut rates at this time as commodity prices are risking to cause massive inflation. Others have argued that Bernanke has been slow to respond to a growing crisis. Bernanke strikes me as acting very responsibly.

Indeed, Bernanke could not slash rates because of the risk of commodities causing significant inflation until the entire world caught the US flu. That happened yesterday and today and will now bring some stability to commodity prices and inflationary pressures.

The Fed's action isn't and shouldn't be perceived and designed to save irresponsible homeowners who got into mortgages that they couldn't afford (the "financial iliterate"). A lot of responsible people also were forced to overreach by virtue of the fact that the housing bubble was so pervasive. The reality is that during the extended housing bubble which lasted from 1997 until 2006, a young family could only buy the space to grow in New York, Boston, LA and SF by overreaching.

Bernanke's action in cutting rates isn't designed to save Mozilo and Countrywide or the banks. I agree with the other opinions on this site that Bernanke should not be responsive to these folks and shouldn't be bailing them out.

Rather, the reality is that home ownership has gone from a traditional rate of around 63% to almost 70%. It is going to go to back towards the historic norm of 63% over time, but it has to get there through a process where both the financial iliterate and the young families forced into this mess aren't turned on the street into Hoovervilles, which is what would happen if he weren't to take action.

Let's forget whoever caused this mess (I agree that it was Mozilo, incidentally), and let's focus on the fact that Bernanke is acting very responsibly in trying to avert a societal disaster.

By the way, I think that Jim Cramer is the biggest horse's ass on the face of the planet. Not only is he constantly bashing Bernanke (he doesn't even know why), but he also said on CNBC this morning that he has been calling for a crash for 6 months and has been constantly advising his viewers to sell which is complete BS.

 

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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