U.S. Monetary Policy and the Man
In the last year and a half, as the U.S. struggled through its worst financial crisis in over 70 years, the Federal Reserve, under the leadership of Ben Bernanke, conjured up trillions of new dollars and blasted them into the economy. The Fed engineered massive public rescues of failing private companies and ratcheted down interest rates to zero. It jump-started stalled credit markets in everything from car loans to corporate bonds and provided loans to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of Fed cash. The moves generally transformed the staid arena of central banking into a stage for desperate improvisation. Bernanke not only reshaped U.S. monetary policy; he led an effort to save the world.
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View from the Fed
Bernanke concedes that he failed to anticipate how fragile the American economy had become. He did not anticipate that fear about a $1 trillion subprime mess could paralyze a $60 trillion global economy, that the overnight lending markets that got banks and corporations through the day could seize up overnight. He doesn't share his predecessor Alan Greenspan's ideological faith that markets always knew best, but he was surprised how spectacularly financial firms misjudged risk in their own portfolios. "None of use appreciated what a jury-rigged thing the financial system had become," he says.
Brothers in Arms
Bernanke meets with Treasury Secretary Tim Geithner every week; during the Bush Administration, when Geithner served as head of the New York Fed, he was essentially Bernanke's Ambassador to Wall Street.
Open Door
Bernanke has made subtle changes in the Fed since taking over for his predecessor Alan Greenspan. He has pushed for more transparency and clarity. He has worked hard to explain his actions to the public, holding town hall meetings, writing op-eds and testifying frequently -- a record 13 times this year along -- before Congress.
Game On
The chairman works out at the Fed's squash court, which has been converted for basketball.
Hoping For A Rebound?
Though he declared in September that the recession was ending, Bernanke says it might feel like a recession for quite a while, partly because beat-up businesses tend to be gun-shy about hiring after a downturn; typically it takes modest growth just to absorb new workers.
No Rest for the Weary
Though the Fed is forecasting slightly stronger growth for the next twelve years, it still expects 7% unemployment as late as 2012. "I really regret all the hardship," Bernanke says. "The scars of unemployment can last a long time."
Hot Seat
Now that Obama has decided to keep him in his job, Bernanke has become a lightning rod in an intense national debate over the Fed and its role. "I understand why people are frustrated. I'm frustrated, too," Bernanke says. "I'm not one of those people who looks at this as some kind of video game. I come from Main Street, from a small town that's really depressed. This is all very real to me."
SOURCE: TIME MAGAZINE
