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| The Federal Reserve Chairman Ben Bernanke at the National Community Reinvestment Coalition annual conference on Friday. Pablo Martinez Monsivais/AP |
Bernanke and Paulson: economy's two key crisis managers
The Fed chairman and the Treasury secretary face tough scrutiny as policymakers.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the March 17, 2008 edition
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With America in deepening financial floodwaters, the task of crisis manager falls disproportionately on two Washington officials.
One is a longtime academic economist who is as fascinated with the Great Depression as some people are with model trains. The other is a former star on Wall Street, long the top banker at a top investment bank.
This storm began brewing well before they took the helm of policy. But dealing with it now becomes a defining moment in the public careers of both Ben Bernanke and Henry Paulson. For Federal Reserve Chairman Bernanke, whose tenure comes up for review by the next president, the stakes include a simple personal matter: His job is on the line.
Neither is sitting idly by.
On Friday, for example, with the major investment firm Bear Stearns on the verge of collapse, a panic was averted thanks to
intervention involving both the Fed chairman and Mr. Paulson, the US Treasury secretary. By Sunday, they had moved again,
pushing the company into a sudden merger before stock trading began in the new week.
And on Tuesday, the Fed is expected to cut interest rates for its sixth time since September.
Given the scope of the challenges, it's not surprising that both men face criticism – sometimes for not doing enough, sometimes for doing too much. But for some experts, the outsized challenge leads to a more charitable assessment.
"They inherited a bad hand to play," says Paul Kasriel, director of economic research at the Northern Trust Co. in Chicago. "I don't see how it could be played much differently [to help the economy]."
Many economists believe the nation is now in recession. The depth and length of this economic downturn will hinge on the trajectory of a nationwide housing slump and a credit crunch. That's the aftermath of an epic boom in lending and leverage – making investments with borrowed money..
"Risk is being repriced and markets are deleveraging," Paulson said last week.
Among the things that look riskier now than a year ago: Houses, stock shares in financial firms, and even the US dollar itself.
The currency has sagged to historic lows against the euro. Home values are falling, wiping out trillions of dollars in consumer wealth. In this climate of fear, lenders are calling in loans instead of making them – a factor that caused an implosion at the venerable firm Bear Stearns.
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