The former chairman of the Federal Reserve who arguably saved the U.S. economy from another Great Depression is now a civilian, serving as a senior advisor to two big financial firms – PIMCO and Citadel – writing a blog and making appearances at corporate events.
At LPL’s national conference held in Boston this week, Ben Bernanke sat on stage for an interview with the firm’s chief investment officer, Burt White. He told a few funny stories – stories I’ve heard he’s told before – and answered questions about the economy and, of course, Fed policy. And in the course of an hour or so he revealed some things that may surprise you.
BEFORE THE FED
A desire for public service
The 9/11 attack on New York’s World Trade Center inspired Bernanke, then the chairman of Princeton’s economics department, to join the Fed. He wanted to get involved in public service and says, he asked himself: What is good about economics? His answer: to help people live better lives.
Political experience: Two terms on a local school board
A few months later Bernanke was called to the White House for an interview with President George W. Bush, who asked him whether he had any political experience. “Two terms on the Montgomery Township Board of Education” in New Jersey, Bernanke answered. That was enough for Bush, who nominated Bernanke to be a member of the Federal Reserve Board. Once confirmed, Bernanke told his dean at Princeton that he’d be back in two years. “I was an academic lifer.”
Bernanke stayed on as a governor on the Fed board until Bush appointed him chairman of the Council of Economic Advisers, which was apparently a tryout for his role as chairman of the Federal Reserve. About six months later, Bush nominated him to chair the Federal Reserve Board.
AT THE FED
Mistakes Were Made
Although Bernanke is given a lot of credit for preventing the Great Recession of 2007-2009 from turning into the Great Depression, which he studied as an academic, he didn’t recognize the dangers early on.
On March 28, 2007 he testified before the Joint Economic Committee in Congress that despite turmoil in the subprime mortgage market, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
By that time the mortgage giant Freddie Mac was no longer buying the most risky subprime loans, subprime mortgage lender New Century Financial was on the verge of bankruptcy and mortgage foreclosures were rising rapidly.
“Not my best call,” Bernanke told the LPL audience. “We didn’t understand that financial institutions around the world were much more exposed to losses than we and they thought.”
Dealing With Congress
Bernanke says he testified 79 times before Congress during his eight years as Fed chairman. That’s almost 10 times a year. Given that Congress is in session an average 145 days a year, that’s testifying about every 15 days on average.