Saturday, January 23, 2010

Paul Volcker for Fed chairman!

I keep hearing people arguing for the renomination of Ben Bernanke by claiming that there's no one else who can do the job. That's status quo bias taken to an extreme. (Four years ago, many people thought no one could replace the Maestro.)

Ben Bernanke was on the Federal Reserve Board of Governors from 2002-2005, when it willfully ignored the growth of the housing bubble. Thus Bernanke is like an arsonist firefighter, who creates a crisis and then gets treated like a hero because he resolved it. We need a Fed chairman who will act to prevent problems in the first place.

The truth is that there are many good economists who could take Bernanke's place. Although old, Paul Volcker is in good health and is widely considered to have been the best Fed chairman. He could do the job again. Another option would be Stanford economics professor John B. Taylor, inventor of the Taylor Rule. Got any suggestions? Leave them in the comments.

Update: Calculated Risk suggests Janet Yellen for the job. Also, Paul Krugman says appointing himself to the job would be crazy. I oppose Krugman because he favors a version of the Taylor Rule that mimics the bubble-blowing Greenspan Fed's interest rate policies.


  1. How about Ron Paul or Michael Hudson? These guys are honest, and know more about the economy than the entire Fed board combined.

  2. Gary Becker? Brilliant, conservative,
    will appeal to the markets, and he wanted to tax Oil a decade ago.
    Called it the "Terrorism Tax".

    Krugman? He's way ahead of a lot of these chuckleheads.

  3. I saw on the news that Dr Ron ran into "his old friend" Volker in Washington this week and said to him "He'd feel a lot better if Volcker was running the Fed again". Do we need a better reference than that? Besides , when Bernanke's confirmation crashes and burns who are they going to find that could sail through both houses unopposed?

  4. Absolutely....hope Volker gets it & Bernanke is fired - he more than deserved it.

    I don't think wall street will let it happen - as he will make things right.

  5. I would go for Ben Bernanke because of his experience and past performance. But would welcome any decision if we can get better than him.

  6. The S&P 500 peaked in early 2000 at around 1500 points. If the S&P 500 returns 6% annually for the next decade, then its level will be around 1970 points in early 2020. Hence, the market would have increased about 1.5% annually from 2000 to 2020 by just accounting for points level increase. The points level (i.e., 1500 in early 2000) is the price return and not the total return (which accounts for dividend). So assuming a typical 2% dividend, that means it would increase 3.5% annually from 2000 to 2020. Annual inflation typically is 3.5% during non-recession years.

    Any thoughts from our thoughtful readers?

  7. I'm sure you've gone through this debate before, but to "willfully" ignore the housing bubble, you need to have recognized housing as a bubble as it was happening. There aren't a ton of people who recognized the housing bubble. Volcker might have been one of them. But why don't we just split up the roles of managing monetary policy and bank supervision? Bernanke failed on one count (supervision) but seems to have done pretty well on the monetary policy side. Even Volcker says this (from a NYTimes interview): "We know that America’s bank regulators fell down on the job as the housing-mortgage bubble inflated. But that was a failure of bank supervision, not of monetary policy."

    Whatever Congress and the President does, I hope they do it quick. There will definitely be a shock to the markets if Bernanke's not approved, but it's better to have a shock and get it over with than to draw things out with political posturing and maybe not even replace him.

  8. I would like to see Tom Woods of the mises institute to be nominated

  9. Most of the serious people I've heard who support Bernanke don't do so because they think no one else can do the job, but because they believe no one better can get confirmed. The confirmation process makes it too easy for special interests to block appointments and as the current chairman, although i don't really like him, Bernanke may be the best that can actually get the job. Krugman has 0 chance and probably wouldn't want the job. Yellen has a better chance, but probably still couldn't make it because she's viewed as politically liberal and would be opposed by banking/financial corporate interests. Volker might have a chance but i think he's too old to want the job.

  10. James, come out and play! Here's a interesting excerpt from an article that I read.

    "Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision. Norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse."

  11. For all of you morality do-gooders!

    Over the past few months, arguments have raged about whether it is "immoral" for homeowners to send banks the keys to their houses and walk away from mortgages that it doesn't make sense to keep paying.

    Regardless of which side of this debate you're on, note that experienced professional real-estate owners don't even consider this a question.

    Tishman Speyer and BlackRock Realty, the owners of the huge New York residential real-estate complex Stuyvesant Town, have decided to hand over the keys and walk away, dumping the property on lenders who provided some $4.4 billion in loans.

    Stuyvesant Town is now estimated to be worth less than half of what Tishman and BlackRock paid for it four years ago, but they won't be feeling much pain. Tishman put up only $112 million of equity. Other investors, like California Public Employees' Retirement System, a Florida pension fund, and the Church of England, as well the boldholders, will eat the rest.

    In none of the stories reporting this decision was the question of "morality" ever mentioned. It was simply assumed, as it always is with corporate transactions, that the parties had reached their agreement at arms length and that default was always a possibility.

    It's no surprise why the mortgage industry tries to convince individual homeowners that they have a "moral obligation" to pay when corporate borrowers don't -- this sense of responsibility and guilt induces more of them to pay. But it's not fair. There are dozens of good reasons not to default on your mortgage, but "morality" isn't one of them.

  12. What's also interesting is that the same private wealth interests who dominate our US Federal Reserve are the same individuals who dominate the central banks of most other countries, the World Bank, the Bank of International Settlements (BIS) and the International Monetary Fund (IMF). Rothschild money is at the heart of it. This family owned half the wealth of the world in the 1850s.

    In other words, it really doesn't matter who is elected to replace Bernanke. The individuals who run the agenda also own the infrastructure, and nothing will get in the way of what they have planned. The discuss it at any length is to not fully grok the reality of the situation.

    As long as the conversation never touches on the actuality, the situation will never change.

  13. Another interesting discussion at Tech Ticker about the "morality" of walking away from a mortgage.

    They show an example of a corporate real-estate company walking away from a huge property due to "strategic" reasons, not that they couldn't make the payments.

    Not a word about it being "immoral." But, when individuals do the same thing, we're supposed to be outraged.

  14. My vote is with Ron Paul. Appoint nobody. The Fed should simply be abolished.