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Economist Weighs Bernanke Renomination

ROBERT SIEGEL, host:

Ben Bernanke also set out to demystify the Fed. Instead of the cryptic oracular observations of Alan Greenspan, we got the Fed chairman taking "60 Minutes" to his hometown in South Carolina.

Mr. BEN BERNANKE (Chairman, Federal Reserve): Our family came here in 1941. My grandfather, Jonas Bernanke, bought this building, made it into the J.B. Drugs, after his initials.

SIEGEL: And on PBS, Bernanke took part in a town hall meeting with Jim Lehrer, fielding questions like this one about banks that were deemed too big to fail.

Unidentified Audience Member: But I truly believe small business and the companies that support…

Mr. JIM LEHRER (Journalist, "The NewsHour"): Question. Question.

Unidentified Audience Member: …small business are getting shortchanged by the Federal Reserve, the Treasury Department and Congress. Am I wrong on that perception?

Mr. BERNANKE: It's a great question. A tough question, but a great question. And let me just emphasize that nothing made me more frustrated, more angry than having to intervene, particularly in a couple of cases where taking wild bets had forced these companies close to bankruptcy.

SIEGEL: In both style and substance, Ben Bernanke has been an unusually high-profile Fed chairman, and not always to the liking of economist Simon Johnson of MIT, who joins us now. First, in style, Simon Johnson, is it a good thing for the Fed chair to be out in public explaining his institution?

Professor SIMON JOHNSON (Economist, MIT): Yes, I think it is good. It's very new, of course. The Fed has always been - prided itself on opaqueness. And Alan Greenspan was the master of opaqueness. So, what Bernanke has done over the past nine months has been quite, quite radical in that regard.

SIEGEL: Now, as for the policies that he has explained and brought more transparency to, how do you judge his term so far?

Prof. JOHNSON: Well, I think you have to divide it into two parts. The first part, as you heard in the report, since September, since the collapse of Lehman and the near collapse of AIG, has been one of improvisation and trying to rescue the economy and prevent a collapse of the financial system. And he gets high marks for those efforts.

But then you have to ask: How did we get into this situation? Let's say, think of Ben Bernanke as a fireman, and he's done a great job putting out a massive forest fire. But wasn't he also involved in the conditions that made the fire possible? And, you know, where was he and where was the Fed and where was he when he, of course, when he was Fed chairman, before that, when he worked at the Fed under Greenspan?

Where was he with regard to the kinds of risks that these financial markets were taking on and that caused all these problems? And the answer is, he wasn't very much on top of that ball.

SIEGEL: Lawrence Summers, President Obama's economic adviser, speaks of all the soul searching that's taken place at the Fed since those days. Are you impressed with that? You're impressed that there is a real examination of what went wrong and how we missed it?

Prof. JOHNSON: No, I'm not that impressed so far. Of course the Fed, you know, judging its words very carefully and perhaps they've come to some realizations and understandings of what we need to differently going forward - that they haven't yet explained to us. But based on what we've seen so far, it looks like a lot of the Greenspan mentality, a lot of the views that sort of finance is good and big finance is even better, it seems that that view is still there. It seems that that's the line that they're still pushing and that's very worrying.

SIEGEL: That there hasn't been an eagerness to go in and reform the financial sector still more aggressively?

Prof. JOHNSON: Yes, exactly. Now, it's not entirely up to the Fed. The Treasury and the White House matter a lot. Congress is incredibly important. But if the chairman of the Fed is not leading you intellectually and thinking about what went wrong, how did the big banks get into the kinds of mess that he talked about very nicely in that PBS special with Jim Lehrer?

But what should we do differently? How should the Fed and other government agencies prevent that from happening again? We really heard basically nothing new substantive on those key points.

SIEGEL: Just one last question. Is the role of Fed chairman, is it as important as we often say it is? Does that person make a huge difference?

Prof. JOHNSON: Yes, that person does make a huge difference. And that person, you know, has a great responsibility. It's a very difficult job, no question about it. And that person, you know, deserves and gets a lot of respect in our society. But we also shouldn't be too differential. We also should be pushing hard and asking: How did we get into this mess and how do we prevent it from happening again if we follow these kinds of policies?

SIEGEL: Simon Johnson, thank you very much for talking with us once again.

Prof. JOHNSON: Thank you.

SIEGEL: Professor Simon Johnson, who is also, by the way, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund. Transcript provided by NPR, Copyright NPR.

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