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May 5, 2015

Hero or Zero: Bernanke Cashing in

We recently wrote about Ben Bernanke’s deft moves to make some coin from his former position as the US chief central economic planner by getting a job as a consultant for highly leveraged hedge fund Citadel. As we have pointed out on this occasion, it is a virtual certainty that contrary to the press releases on the matter, Citadel didn’t hire Bernanke for his revolutionary economic insights or his forecasting prowess. If that were indeed the reason for employing him, Citadel might as well shoot itself in the head.
Two years ago the Atlantic celebrated Bernanke as the “hero who saved the global economy” by the expedient of printing truckloads of money andsuppressing interest rates to zero. Today the WSJ is telling him to “stop blaming others for his mistakes”.  
The reason why large financial companies are prepared to pay big bucks for the advice of formerly high-ranking monetary bureaucrats are the latter’s contacts to and insights into the bureaucratic apparatus and its workings. This revolving door syndrome it is a well-known feature of modern-day corporatism and as such certainly worth criticizing. As we have pointed out, we are not begrudging Bernanke that he is finally getting a real job outside of the ivory tower and the bureaucracy. It is however clear that the only “expertise” his new employers want to tap is directly connected to his former role as an interventionist. In short, his free market value is a subsidiary function of the government’s interventionist policies.
However, it is difficult to fault the companies hiring him for trying to gain a small advantage in this manner. To some extent this applies actually to a great many instances of revolving door cronyism and corporate lobbying. Given the fact that government does intervene in the economy and thus represents a grave threat to the private sector at all times, companies are not merely trying to purchase political influence in order to gain privileges and competitive advantages. Often they are simply trying to take out insurance against becoming a target or victim of government intervention, and in most cases this is certainly at least an additional motivation. The lines between purchasing undue influence and trying to protect one’s very existence are definitely blurry.
Last week PIMCO also hired Bernanke as a “consultant”. The company has already hired his predecessor Alan Greenspan previously. Once again, the press releases and statements accompanying this event are hilarious, although PIMCO at least admits in an off-hand remark that hiring the man may actually have something to do with his former job:  
“Former Federal Reserve Chairman Ben S. Bernanke is joining Pacific Investment Management Co. as a senior adviser, his second consulting agreement with a top money manager in as many weeks.
Bernanke will contribute his economic expertise to the firm’s investment process, the Newport Beach, California-based firm said Wednesday. Bernanke previously spoke at Pimco’s client conference in March and advised on the last two of its quarterly economic forums that guide investment strategy.
“We think our clients expect this of us — we’ve had a long history of attracting top-notch talent and contributors,” Group Chief Investment Officer Daniel Ivascyn said in a telephone interview. “Obviously his experience within central banking is important at the moment, given where we may be in terms of the U.S. economic cycle, but we’re looking for and excited about his ability to make broad-based contributions to our strategy.”
At Pimco, which suffered record redemptions following the departure last year of co-founder Bill Gross, Bernanke will also engage with clients. The 61-year-old, who led the U.S. central bank during the deepest economic downturn since the Great Depression, earlier this month joined Citadel, the hedge fund run by Chicago billionaire Kenneth Griffin, to advise on monetary policy, financial markets and the global economy.
Bernanke is working with only these two firms, according to DJ Nordquist, a communications director at the Brookings Institution in Washington, where the former chairman is a distinguished fellow in residence. Bernanke remains a full-time employee at Brookings, she said.
(emphasis added)
All these comments about wanting to obtain access to Bernanke’s “economic expertise” are lough-out-loud funny in our opinion. As noted above, Citadel and PIMCO might as well commit seppuku if that’s what they hired him for. We also wonder how someone can possibly hold three theoretically demanding jobs at once and hope to perform well in all of them. Last time we looked, the day still had only 24 hours.   
Bernanke’s Constant Stream of Fed Apologias Under Attack
It seems Bernanke’s blogging efforts are not as widely appreciated as he perhaps hoped. For a while he and arch-Keynesian Larry Summers bored readers to tears with their back-and-forth about the latter’s revival of the “secular stagnation” theory. We may soon write about this debate in more detail, in the meantime we only want to point out that it is deeply ironic that two men who have been instrumental in ruining the structural integrity of the economy with the policies they have advocated and implemented are now arguing over just how desolate an economic wasteland they have left behind.
Intermittently Bernanke continues to pen the occasional Fed apologia, in the process absolving himself of any responsibility for the state of the economy. Surprisingly, the Wall Street Journal has recently taken aim at this habit. Although the WSJ stops short of admitting to the utter futility of central planning by monetary authorities, the article does contain a few unusually candid remarks. This is unusual because the modern-day central economic planning architecture is rarely questioned at all in the mainstream media. A few pertinent quotes:  
Mr. Bernanke’s theory of post-crisis monetary policy is that if it’s working, then do more of it. And if it’s not working, then do more of it too.
[…]
[But] perhaps Ben should consult Stanley Fischer, the Fed’s current vice chairman, who recently said on CNBC that “we are going to be changing monetary policy from the most extremely expansionary we’ve been able to do in all of history to an extremely expansionary monetary policy.” That doesn’t sound like a return to tight money. Lifting rates off zero means beginning an inevitable return to monetary normalcy that lets markets set rates and allocate capital.
We can understand that Mr. Bernanke doesn’t like being tagged with any responsibility for poor economic results. He absolved himself for any mistakes before the financial crisis too. But sooner or later he and the Fed have to stop using the financial crisis as the all-purpose excuse for slow growth.
(emphasis added)
As you can see, the author of the WSJ opinion piece is incongruously still hoping for a world in which “markets set rates and allocate capital”. He provides no elaboration on how such a world is supposed to come about in a central bank-directed fiat money system. Still, the fact that the author indicates that Bernanke and the Fed at least share someresponsibility for the economy’s poor performance is a surprising development as such already. It is perhaps a subtle sign of a change in social mood for the worse. One of yesterday’s “heroes” is suddenly in danger of being pushed off his pedestals.   

Conclusion

We offer the above as tentative evidence that yet another hero of the recent cyclical bull market, resp. echo bubble, may be in danger of falling from grace. This has already happened to his predecessor Alan Greenspan, who has been gradually demoted from “Maestro” to “irresponsible bubble blower”. The reputation of another icon of the bull market era, Warren Buffett, is in peril as well in light of the well-documented fact that he furiously lobbied for tax-payer bailouts of companies he was a large investor in.
This is mainly interesting from a sociological perspective, and with that it is indirectly of relevance to financial markets as well. It actually indicates that the bubble may be on increasingly thin ice. As long as a bull market’s persistence is not coming into doubt, public figures who are closely associated with the trend tend to be widely revered. Once the trend changes or is close to changing, the public’s mood will turn sour and these formerly esteemed figures will suddenly find themselves increasingly under attack. In this sense the somewhat less praise-laden verdicts that are lately emerging with respect to Ben Bernanke could be seen as an early warning sign.
Courtesy Pater Tenebrarum at Acting-Man.com (Article Archive Here)

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