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Bernanke and the Corruption of Washington Culture

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.


December 23, 2009 - Posted by | Corruption, Progressive Hypocrite


  1. Isn’t it obvious to all by now that all this is intentional, that the plan is to destroy the American economy and transfer the wealth that’s left in the US to the wealthy elite? That’s why they approved this bald, bearded POS for another term, he doing the job he is suppose to do and doing it rather well too.

    Comment by j r walker | December 23, 2009

  2. @ j r walker:

    I agree totally. So we should all stop paying U.S. federal income taxes. Stop paying the people who are trying to bankrupt and enslave us!

    U.S. federal income taxes are unconstitutional (not ratified in accordance with the U.S. Constitution – according to “The Law that Never Was: The Fraud of the 16th Amendment and Personal income Tax” – whose author, Bill Benson, was apparently sent to prison for his writing/actions, but he seemingly remains steadfast in his verified beliefs).

    U.S. federal income taxes are also illegal, according to the well-supported idea that the U.S. government and military are terrorist organizations, which commonly violate international law. According to U.S. law, it is a crime to financially support terrorists – therefore, via such reasoning, we may conclude that it is illegal (even according to U.S. law, never mind int’l law!) to support the immoral, arrogant, incompetent ‘Uncle Sam’.

    Any American who pays such income tax, knowing that ‘Uncle
    Sam’ will spend over 1/2 of its discretionary budget on the
    bloodthirsty, socially-destructive killing machine AKA “The Pentagon”, and also supports another rogue state AKA “Israel”, thus becomes indirectly complicit in the crimes the US military/CIA/NSA/Israel military carry out.
    (An overall history of some of those U.S. crimes can be read in the book “Rogue State, 3rd Edition: A Guide to the World’s Only Superpower”, by William Blum (
    Also, a very detailed history is compiled in “Killing Hope: U.S. Military and C.I.A. Interventions Since World War II-Updated Through 2003” ( ). )

    Henry David Thoreau: “If a thousand men [and women] were not to pay their tax-bills this year, that would not be a violent and bloody measure, as it would to pay them, and enable the State to commit violence and shed innocent blood.”


    From :

    “…Anti-militarist tax resisters are fond of noting Principle IV of the Nuremberg Principles… “The fact that a person acted pursuant to order of his Government or of a superior,” the Principle reads, “does not relieve him from responsibility under international law, provided a moral choice was in fact possible to him.” The moral choice for
    Milner is clear: withhold taxes from the government, in spite of the unpredictable risks. …”

    The consequences for war tax resistance are unpredictable, as are most direct actions for peace, so please think carefully about what you do, before acting. I for one know what I wanted to do, and am doing it.

    “… The majority of tax resisters redirect federal income tax money independently, choosing to donate to a wide variety of local, national and international peace and justice organizations in critical need of
    financial support. …”


    We all must make decisions based upon our circumstances and
    conscience. Then we are each individually responsible for our decisions. I have made mine, and feel good in my heart about it. I hope you have the courage to do what your conscience advises you to do… After all, which is more frightening – the thought of going to prison, or the thought
    of being partly responsible for the bullets & bombs killing
    Iraqi/Afghani/American/etc. children? (Oh, and one more thing about the CIA – several writers have stated that it appears the CIA is profiting from drug dealing via Afghanistan! Just another thing to think about…)


    Finances are the Achilles heel of ‘Uncle Sam’ – no money, no bloated politician salaries, no military-industrial complex! (^o^)

    “Let them march all they want, as long as they continue to pay their taxes.”
    -Alexander Haig, U.S. Sec. of State, June 12, 1982

    “The sinews of war are infinite money.”
    -Marcus Tullius Cicero, Roman statesman (BCE)


    So please consider joining the Tax Resistance Movement. Below are some links:
    History of War Tax Resistance
    Anti-War Activists Promote ‘Tax Resistance’ As Direct Protest
    by Martha Baskin
    3.1 Redirection
    3.2 Refusing specific taxes
    3.3 Refusing to pay
    3.4 Paying under protest
    3.5 Tax avoidance
    3.6 Tax evasion
    3.7 Reducing expenditure and income


    Thanks for all the good you do.

    Sam Bolivar

    Comment by Sam Bolivar | December 28, 2009

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