I'm convinced that Ben Bernanke was a deserving choice for TIME's Person of the Year, if for no other reason than that the runner-ups -- Stanley McChrystal, The Chinese Worker, Nancy Pelosi, Usain Bolt (??) -- strike me as second stringers compared to the man who embodies our response to the economic crisis.
The essay is also very good. In particular I want to pull out two paragraphs: First...
Now that the fire is out, it's easy to attack the firefighters for getting the furniture wet or holding their hoses improperly. "The fire metaphor doesn't even do it. The Fed is more like the Pentagon," says Geithner. "It defends the freedom and security of Americans from existential threats ... This wasn't a war of choice. It was a war of necessity." And they won.
Well, the firefighter-attackers (or banking reformists) like Simon Johnson didn't just dock points for hose-holding protocol. More deeply, they're saying the very existence and success of the fire department is encouraging homeowners to play with fireworks indoors. This is obviously true. Whether you're a liberal economist or an efficient market hypothesis guru, you'll agree that the implicit guarantee of bailouts for big financial companies encourages a more reckless pursuit of profit, because the potential yield of betting big is higher and the potential floor of failing is buffeted by the government.
And yet, I don't think this point can be repeated enough: The trouble with bashing the moral hazard of bank bailouts is that our track record with allowing many banks to fail is very bad (see: Great Depression) and our track record with rescuing the bank system is rather successful.
Certainly, all the interventions created moral hazard, sending a perverse message that "too big to fail" financial firms will be rescued no matter how badly they screw up, encouraging Wall Street traders to start gorging on risk again. But that's what happens in panics when leaders actually try to preserve the financial system. The central bankers of the 1930s avoided moral hazard but betrayed the world.
I think this is a key point. I don't know that we want to shutter the fire department. We just want to make the fires smaller and more manageable. Despite the underlying critiques of the financial regulation plan's approach to the largest financial companies, I think it responds to this challenge admirably.
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