In an editorial this morning, the NYT lauded Fed chairman Ben Bernanke for his steady hand at the wheel during the recent turmoil on Wall Street:
Over the last two weeks, as debt-market woes have mounted, Mr. Bernanke has come under pressure to cut rates in order to ease borrowing and, in the process, boost stock prices. But the main effect of a rate cut to calm the financial markets would be to protect big investors from the consequences of their bad decisions. That’s not the Fed’s job, and it would violate the precept that a healthy market requires investors to accept responsibility for the risks they incur.
The Federal Reserve today approved a half-percentage point cut in its discount rate on loans to banks, saying that it now feels that “tighter credit and increased uncertainty have the potential to restrain economic growth going forward.” Stocks immediately surged when markets opened on Wall Street, but shed much of the gains in morning trading.
Apparently, Bernanke’s Fed now exists only to serve the interests of Wall Street and Big Business. The necessary adjustment in the American economy — a long overdue repricing of assets, accompanied by a much necessary shakeout among irresponsible lenders — is now pushed forward to the future. And again, those of us who’ve acted responsibly during this irrational period are told we’re suckers.
So I give Bernanke a title I reserve for only the most ethically challenged of public leaders — Sackless Wonder. Can we impeach the chairman of the Fed?
Krugman has a nice compromise in his op-ed today. He says that it used to be the case that the bank would re-negotiate the terms with the borrower in order to prevent foreclosure, which was a hassle for both parties. But they can’t do that anymore, b/c the mortgage has been packaged and sold off. So he suggests: