That's Entertainment

To the best of my knowledge, Helicopter Ben Bernanke's appearance on 60 Minutes last night was a first for a sitting Fed Chairman. It's clear why he chose to do the interview: by making the Fed Chair appear accessible to the American people, he hoped to shore up confidence in the face of the current economic situation. Unfortunately, a Fed Chairman simply isn't going to be able to educate the average American in a (relatively) brief interview.

Especially this one, who's hardly up to the task.

Bernanke must have had some control over the questions asked, as most of them were softballs. On the ones that could have been pressed into a challenge, the interviewer failed to follow up where he could have. For example:

"When does this end?" (Referring to the current recession.)

"It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis ... until we get that stabilized and working normally, we're not gonna see recovery. But we do have a plan ..."

Follow-up opportunity: "Outstanding, Mr. Chairman! What is the plan?"

But that question never came. Of course, there is no cohesive plan at this juncture; Mr. Bernanke and Treasury Secretary Tim Geithner are following the same haphazard, "we'll figure out what to do when the next flashpoint fires up" approach taken by Bernanke and Geithner's predecessor, Hank Paulson. Geithner has been mum about Treasury's plans, in spite of President Obama's promise during his first press briefing that a "detailed" plan would be forthcoming the next day - much to the market's frustration.

So if the recovery depends on the plan to stabilize the financial system, there's no recovery on the horizon. They're just hoping it turns around at some point.

Bernanke finished that answer by saying, "... we'll see the recession coming to an end probably this year. We'll see recovery beginning next year." In answer to the follow-up question, whether we'd see the recession end this year (which would seem academic given his first answer), Bernanke replied, "In the sense that this decline will begin to moderate and we'll begin to see leveling off. We won't be back to full employment. But we will see, I hope, the end of these declines that have been so strong in the last couple of quarters."

Note the key phrase, "I hope." But two points are in order: first, the end of a recession does not come when the sharp declines ease. It comes when the economy stops declining, period. It does not come with leveling off, especially when the level we've hit is a very low one. It begins with reaching a point where year-over-year declines in key indicators turn into year-over-year gains, or at least reach the zero point. We haven't even hit bottom yet, and we're a long way from zero.

The second point is that this Fed Chairman famously said, just about a year ago, that the subprime contagion could be contained, and was unlikely to spill over into the broader economy. Here we are, a year later, in the deepest recession since the end of World War II. Should the American public actually trust Ben Bernanke's prognosticating skills? I think not.

The 60 Minutes crew should have put up footage of Bernanke making that claim last year, to show just how reliable his forecasts are. Heck, even Jon Stewart would have done that. Maybe Bernanke should go on The Daily Show. He probably doesn't have the cojones.

Most of the rest of his responses came back to the "if we fix the financial system, everything else will fall into place" pattern. And that should scare us, given that there is no plan to fix that system. True, by going massively into debt, we're running up long rates, which steepens the yield curve, which is a good recipe for banking profits - maybe sufficient to offset continued asset devaluations, which will only be exacerbated by higher yields. But I hardly think that's the master plan to salvage the banking system.

Regarding the decision not to save Lehman Brothers, Bernanke said it wasn't a mistake, because "we didn't have the option, we didn't have the tools. All the Federal Reserve can do is make loans against collateral."

Really? Then how did the Fed save Bear Stearns? AIG? Merrill? True, it did make loans in those instances. But it also brokered deals with acquirers. Barclay's wanted to acquire Lehman, but the Fed said "Let it fail." The Fed set up a fund to hold Bear's riskiest assets so that JPMorgan Chase wouldn't have to. And it has created vehicles to buy up mortgage-backed and asset-backed securities, in an effort to create liquidity in those lending markets. So it would seem the Fed has whatever powers it wants to have.

As for the AIG bailout, now that it's been revealed that AIG paid billions to other banks - including foreign banks - out of the taxpayers' largess, and plans to pay millions in bonuses to the very derivatives desks that buried AIG eyeballs-deep in the credit default swap swamp that it couldn't ultimately get itself out of, everyone is angry, from you and me to President Obama. What's Bernanke's take?

"Of all the events and all of the things we've done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG." (emphasis added)

Me too, Ben, me too. So tell me, why are you still Fed Chairman? You presided over the AIG bailout, without asking where the money would go. You, Ben. So if you're looking for the object of your anger, look no further than the bathroom mirror. (Oh yeah, you did have help from your cracker-jack New York Fed Bank President - what was his name again?)

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A quick note on the billions AIG paid to other banks. That seems to have made Congress and the administration quite angry. But let's think about it: AIG was bailed out because it had its tentacles deep in the international financial community, and the fear at the time was that if AIG failed, it would take down the global financial system with it.

So, if AIG subsequently paid its counterparties what they were due ... isn't that what we hoped to accomplish by bailing it out to begin with? So why the sudden hue and cry over AIG making good on its obligations? What did we want them to do with the money, enter into new deals?

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On a related note, a couple more quick anecdotes. Hank Paulson's whiz-kid Neal Kashkarian, who was hired to oversee the TARP and who remains in place under Paulson's successor, Mr. Geithner, was testifying before Congress last week. He was being grilled by Rep. Dennis Kucinich about B of A and Citigroup having made loans - with TARP money - to a Chinese construction concern and the government of Dubai.

Kucinich asked Kashkarian whether the Treasury believed that it was more stimulative to the US economy to make those loans than to make loans to US businesses and consumers. Kashkarian stammered his way around the politically sensitive question. But I'd have taken a different approach. This would have been my answer:

"You'd better believe it is. What the banks need to do now is make profitable loans, not loans they're just going to lose money on. And let's face it, a construction loan in the US would be a likely money-loser right now. Construction spending year-over-year in this country is at a record low pace of -9.1%. And it's not just residential construction that's driving it down anymore; the pace of non-residential spending - which was the only salvation for total spending last year - has fallen out of bed since September.

China, on the other hand, still has cash to spend on infrastructure projects (which it has decided is a better investment these days than US Treasuries, which I'll get to momentarily). China's economy is still growing, though at a slower pace than last year, but is still expected to grow at a better than 8% clip this year, which will account for more than a quarter of global economic growth. So where better to make a profitable construction loan than in China?

As for Dubai, that country still has a significant amount of petro-dollars, though it too has seen slowing growth. Still, if nobody - including China - wants to loan money to the US government anymore, why should our own banks? Again, a loan to the Dubai government is likely a more profitable loan - and arguably a less risky one - than to the US. As for lending to consumers, please - US consumers don't even want to borrow right now. And making loans to them at a time when they're increasingly facing difficulty just meeting their monthly obligations, when unemployment is rising toward double-digits, is a bad decision for any bank.

So yeah, Congressman, I'd say making a loan that will actually MAKE MONEY for a US bank, enabling it to save jobs and provide the taxpayers a return on their largess, and contribute to positive income that can be taxed, is infinitely more stimulative than continuing to make bad loans here at home, which is precisely what got us into this predicament in the first place."

But they didn't ask me.

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A final brief note on a somewhat related topic. The Employee Free Choice Act - the much-feared union bill - is being debated among lawmakers. Some see it as the worst possible legislation given the economic situation:

"In a time when we have an economy that's already struggling, we can't put more burdensome regulations on employers." - Sen. John Thune, S.D.

The bill's supporters pooh-pooh that risk:

"In 1935, we passed the Wagner Act that promoted unionization and allowed unions to flourish, and at the time we were at around 20% unemployment? So tell me again why we can't do this in a recession?" - Sen. Tom Harkin, IA

I'll tell you why, Tom. In 1935, we were about four years into the Depression. Then we passed the Wagner Act. And the Depression lasted another 6 years, until World War II began, AFTER which the economy began to recover. So if you want this downturn to last a decade, then yeah, this is a fine time to pass the bill. Otherwise, how about you turn your attention to something else - like that study that's earmarked in the omnibus bill, the one that will try to determine why pig poop stinks in your home state?