With the nearing departure of Federal Reserve Board Chairman Ben Bernanke, many journalists are taking a look at his tenure, which saw its fair share of market turmoil and unprecedented actions.
Writing for the Los Angeles Times, Don Lee called his legacy “bittersweet”:
As Ben S. Bernanke walks away from the Federal Reserve‘s marble headquarters on the Mall after presiding over his last policy meeting Wednesday, he will leave behind a bittersweet legacy.
On one hand, his unprecedented efforts to drive down interest rates and stimulate the economy are widely credited by his peers with saving the nation from a second Depression, strengthening the economic recovery and leaving the nation’s financial condition poised to take off this year.
Yet those same policies have added momentum to one of the greatest surges in economic inequality in U.S. history, helping the wealthiest Americans add to their enormous riches while the incomes of almost everyone else stagnated.
By driving interest rates down to historic lows, the Fed chairman helped fuel a huge surge in the stock market, where the wealthiest 1% of Americans have been far better positioned to take advantage of gains than their less affluent fellow citizens.
The Wall Street Journal’s E.S. Browning wrote a commentary saying even some of Bernanke’s detractors have been won over by his management:
But many professional investors are acknowledging, sometimes grudgingly, that Mr. Bernanke has gone a long way toward achieving the main goal he set in 2008: He has stabilized markets and restored a large measure of investor and public confidence. Many thought it impossible that he would accomplish what he did.
“Back then during the real trauma in the fourth quarter of 2008 and first quarter of 2009, people were trading on fear. Now it is a much more normalized trading pattern. There is certainly still some fear out there and there are questions about valuation, but it is much more normalized,” says Andy Brooks, another market veteran. He heads stock trading at Baltimore asset-management firm T. Rowe Price, which oversees about $650 billion.
In a 2008 speech to the Economic Club of New York, Mr. Bernanke described his goal this way: “As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets. The crisis will end when comprehensive responses by political and financial leaders restore that trust, bringing investors back into the market…”
The strides since then are remarkable. The Dow Jones Industrial Average has more than doubled from its 2009 low. The Nasdaq Composite Index has tripled. With new worries spreading about China and other developing markets amid fears that U.S. stocks are overdue for a pullback, the Dow suffered its worst weekly decline last week since 2011.
And yet many investors hesitate to sell, for fear of missing future gains. That is a huge change from just a few years ago, when they were afraid to buy. Despite last week’s angst, the Dow is just 4% below the record it set on Dec. 31.
The Augusta Chronicle business editor Tim Rausch reported that Bernanke does have some detractors:
One of Bernanke’s former colleagues is not so gushing. Allen Berger was a senior economist at the Federal Reserve until 2008, when he became a professor at the University of South Carolina.
Berger said Bernanke was a good chairman, but dismisses the hype surrounding his saving of the world’s financial system.
“During the financial crisis, he did not give a public appearance of confidence. He told the public the banks were failing. And he backed the TARP program and other bailouts,” Berger said. “He ended up bailing out shareholders when I would have preferred an orderly liquidation like the FDIC does now.”
Bailouts encourage shareholders to take excessive risks, Berger argued.
Bernanke is often seen as a knight in shining armor. “So far, he’s doing well with it, but we’ll see how history treats him down the road,” said Jean Helwege, another member of the finance faculty at USC who also worked in the Federal Reserve System. “He has a decent amount of integrity and tries very hard to do a good job, but I also think there’s an element of him patting himself on the back and his buddies patting him on the back.”
Helwege said that Bernanke was chairman before the crisis and didn’t do anything when it became apparent that the housing market was dragging down the economy and lenders were going bankrupt.
While historians will sort through Bernanke’s legacy in the coming years, he won’t be around to preside over one of the biggest unknowns – what will happen as the Federal Reserve pairs back its bond-buying program. The economic stimulus was definitely needed and Bernanke deservedly get much of the credit for pulling the U.S. economy out of a recession. But how investors will react to the easing and new leadership will likely have a lasting effect on how Bernanke’s story is written in the history books.
