By Dean Baker | The Guardian Unlimited | December 21, 2009
The Senate Finance Committee overwhelmingly voted to approve Federal Reserve Board Chairman Ben Bernanke for another 4-year term. This is a remarkable event since it is hard to imagine how Bernanke could have performed worse in his last 4-year term. By Bernanke’s own assessment, his policies brought the economy to the brink of another Great Depression. This sort of performance in any other job would get you fired in a second, but for the most important economic policymaker in the country it gets you high praise and another 4-year term.
There is no room for ambiguity in this story. Bernanke was at the Fed since the fall of 2002. (He had a brief stint in 2005 as chair of President Bush’s Council of Economic Advisors.) At a point when at least some economists recognized the housing bubble and began to warn of the damage that would result from its collapse, Bernanke insisted that everything was fine and that nothing should be done to rein in the bubble.
This is worth repeating. If Bernanke knew what he was doing, he should have been able to see as early as 2002 that there was a housing bubble and that its collapse would throw the economy into a recession. It was also entirely predictable that the collapse could lead to a financial crisis of the type we saw, since housing was always a highly leveraged asset, even before the flood of subprime, Alt-A and other nonsense loans that propelled the bubble to ever greater heights. Of course as the bubble expanded, and the financial sector became ever more highly leveraged, the risks to the economy increased enormously.
Through this all, Bernanke just looked the other way. The whole time he insisted that everything was just fine.
To be clear, there was plenty that the Fed could have done to deflate the bubble before it grew to such dangerous proportions. First and foremost the Fed could have used its extensive research capabilities to carefully document the evidence for a housing bubble and the risks that its collapse would pose to the economy.
It then should have used the enormous megaphone of the Fed chairman and the platform of the institution to publicize this research widely. The Fed could have ensured that every loan officer who issued a mortgage, as well as all the bank officers who set policy, clearly heard the warnings of a bubble in the housing market, backed up by reams of irrefutable research. The same warnings would have reached the ears of every potential homebuyer in the country. It’s hard to believe that such warnings would have had no impact on the bubble, but it’s near criminal that the Fed never tried this route.
The second tool that the Fed could have pursued was to crack down on the fraudulent loans that were being issued in massive numbers at the peak of the bubble. It is absurd to claim that the Fed didn’t know about the abuses in the mortgage market. I was getting e-mails from all over the country telling me about loan officers filling in phony income and asset numbers so that borrowers would qualify for mortgages. If Bernanke and his Fed colleagues did not know about these widespread abuses, it is because they deliberately avoided knowing.
Finally, the Fed could have had a policy of interest rate hikes explicitly targeted to burst the bubble. Specifically, it could have announced that it will raise rates by half a point at every meeting, until house prices begin to fall and it will keep rates high until house prices approach their pre-bubble level.
This is what a responsible Fed policy would have looked like. But Ben Bernanke did not pursue a responsible Fed policy. He insisted that everything was just fine until he had to run to Congress last September, saying that if it didn’t immediately give $700 billion to the banks through the TARP program then the economy would collapse.
How on earth can you do worse in your job as Fed chair then bring the economy to the brink of a total collapse? If this is success, what does failure look like?
But, in Washington no one is ever held accountable for their performance. The economic collapse is treated like a fluke of nature – a hurricane or an earthquake – not the result of enormous policy failures.
So, it is the 15 million unemployed that go without work, not Ben Bernanke. Instead, the senators praise Bernanke to the sky and thank him for his service. The running line in the Senate is: “it could have been worse.”
That is the way Washington works these days. And, everyone should be very very disgusted.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, “Beat the Press,” where he discusses the media’s coverage of economic issues.
By Adam Horowitz · December 23, 2009
Abdallah Abu Rahmah, a leader of the weekly nonviolent protests in Bil’n, has finally been charged after being arrested nearly two weeks ago by the Israeli military. Abu Rahmah’s arrest has been part on an ongoing Israeli campaign against Palestinian nonviolent resistence leaders. The charges against him could not be more creative. From a Popular Struggle Coordination Committee press release:
Abdallah Abu Rahmah, a school teacher and coordinator of the Bil’in Popular Committee Against the Wall, was indicted in an Israeli military court yesterday. Abu Rahmah was slapped with an arms possession charge for collecting used tear gas canisters shot at demonstrators in Bil’in by the army and showcasing them in his home.
An indictment was filed in a West Bank military court yesterday for incitement, stone throwing and arms possession charges against Bil’in Popular Committee coordinator, Abdallah Abu Rahmah. On receiving the indictment Adv. Gaby Lasky, Abu Rahmah’s lawyer said that “the army shoots at unarmed demonstrators, and when they try to show the world the violence used against them by collecting presenting the remnants – they are persecuted and prosecuted. What’s next? Charging protesters money for the bullets shot at them?”
Here is a photo of the “arms” in question:
Nablus – Ma’an – An Israeli military bulldozer demolished a gas station, a grocery store, and a cargo container in the northern West Bank village of Qusra south of the city of Nablus on Wednesday.
Palestinian sources told Ma’an that more than 20 Israeli military jeeps escorted a bulldozer into the village, which proceeded to demolish the structures one kilometer away from Israeli settlement Magdolin.
The owner of the demolished buildings, 30-year-old Mu’tasim Uda, said he received the latest demolition order from Israeli authorities a year ago. He estimated his loss to be about 120,000 Israeli shekels (31,000 US dollars). He explained that he recently stopped operating the gas station, but all the facility’s equipment was still there when the demolition crew arrived.
Uda said Israeli forces used to warn him that stones were pelted at Israeli vehicles by Palestinian youths who used to hide in the gas station area.
Ghassan Daghlas, a Palestinian official charged with monitoring settlement activities in the northern West Bank, condemned the demolition and appealed to the international community to intervene and stop Israeli policies aimed at displacing the Palestinians from their own lands.