Federal Reserve chief Ben Bernanke made his final planned appearance on Thursday, so now is the perfect time to give him his report card on his tenure — and he’s not being graded on a (yield) curve.
Quantitative easing (QE)
QE 1, the first round of the Fed’s bond-buying binge, was a smash hit, halting the catastrophic fall in the banking industry.
Essentially, QE 1 is in large part the reason the ATMs worked throughout the throes of the volatile days of the financial crisis. But as with any good movie, sometimes its sequels are better left unmade.
Grade: Since Big Ben led the effort for QEs 1 through 4 (presently still in progress but gradually being “tapered”), he gets an A+ for QE 1 and straight D’s on QEs 2 through 4.
TARP
While this was a Treasury initiative designed and led by Hank Paulson, Bernanke was indeed a major player in the Troubled Asset Relief Program. He endorsed it, helped sell it and helped finance it.
As unloved as it was because the Obama administration chose to use it as a scapegoating tool, it was a smashing success.
Grade: Yes, I hate the idea of bailing out the bumbling, over-leveraged bankers and automakers, but how many things does this government actually make money on? The answer is not many, and for that he gets an A.
Interest rates
For decades, this was the bread and butter of central bankers, used as an inflation fighter and an economic stimulant.
And this was where Bernanke began to lose his way.
The purpose of low rates is to allow the consumer to borrow more cheaply. However, this is only relevant in an environment in which banks can and are encouraged to lend.
No risk, no reward for the consumer.
So, with banks not lending, consumers got doubly squeezed. On their savings they earned 0.2 percent interest. And they could not borrow from the credit-tight banks.
Grade: In this subject, Bernanke gets an F.
Employment
Creating the conditions to maximize employment is one of the Fed’s core dual mandates.
Remember, this financial crisis was caused by a credit bubble that was so big when it popped that banks could no longer function, essentially destroying the implicit trust needed in a credit transaction or loan.
Once TARP was paid back, Bernanke’s Fed should have leaned on the banks to lend again at these low rates. As long as they were getting free funding from Ben, he should have forced them to refinance all current mortgages with no missed payments in the last 12 months at bargain rates.
And he should have strong-armed them to lend aggressively to small businesses — the ones that hire people.
Had he demanded a quid pro quo for the near-zero Fed funds rate in the form of lending more to responsible borrowers, there would be no employment problem, and rates would be higher and not punishing savers.
Grade: D.