Free In FED We Trust by David Wessel Page B

have financial crises and bad outcomes in the world economy, policy makers know enough now to short circuit the impact before it becomes anything like the severity of the 1930s. Certainly that’s the hope anyway,” he said.
    In November 2002, the University of Chicago honored Milton Friedman as he turned ninety years old. Bernanke, then in his fourth month as Fed governor, turned to Friedman and Schwartz and said: “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
    A half decade later, faced with the Great Panic of 2008, Bernanke would struggle to keep that promise.
B EYOND “O NE -M AN L EADERSHIP ” — OR N OT
    As for J. Pierpont Morgan, the man who saved the nation in the Panic of 1907, the glory of his triumph would be subsumed in the shifting sentiments of the times. When he died at the end of March 1913, the nation was more relieved than sad.
    “We may look upon Mr. Morgan’s like again — there were great men beforeand after Agamemnon, but we shall not look upon another career like his,” the
New York Times
editorialized on April 1. “The time for that has gone by. Conditions have changed, and Mr. Morgan, the mighty and dominant figure of finance, did more than any other man to change them. …
    “The growth in his time was prodigious, and now Wall Street is beyond the need or the possibility of one-man leadership. There will be co-ordination of effort, the union of resources, but Mr. Morgan will have no successor; there will be no one man to whom all will look for direction.”
    The
New York Times
editorialist, of course, could not have known about Alan Greenspan.

Chapter 3

AGE OF DELUSION
    I n the morning cold of February 6, 2006, President George W. Bush made his way by armored limo to the Federal Reserve’s Beaux Arts building, only the third time on record that any U.S. president had visited the Fed’s headquarters. The official occasion was the public swearing-in of Ben Bernanke as the chairman of the Federal Reserve, but everyone knew Bernanke’s ascension wasn’t the main event. What really was being celebrated was Alan Greenspan’s departure after nearly nineteen years as Fed chairman, the Maestro. To laughter and applause from the invitation-only crowd, Bush said, with substantial accuracy, “Alan Greenspan is perhaps the only central banker ever to achieve … rock-star status.”
    Indeed, Bush gladly would have done what he had four years earlier, and what his father and Bill Clinton had done before him: extend Greenspan’s term as chairman and avoid the search for a successor who would satisfy both financial markets and the president. Bush had plenty of other problems — notably the war in Iraq — and in the years following the September 11 attacks, Greenspan had steered the economy to a place where Bush hardly had to worry about it. But Greenspan was seventy-nine years old, ready to retire and cash in on his celebrity. He rebuffed a quiet White House plea to stay for a while beyond the January 31, 2006, expiration of his term.
    BERNANKE’S DASHBOARD
February 6, 2006
    Dow Jones Industrial Average:         
10,798
Market Cap of Citigroup:
$224.6 billion      
Price of Oil (per barrel):
$65.13
Unemployment Rate:
4.7%
Fed Funds Interest Rate:
4.5%
Financial Stress Indicator:
0.09 pp
    NOTE: The financial stress indicator, given in percentage points (pp), is the gap between the rate banks charge one another for three-month loans and the expected Fed rate. The bigger the gap, the more stress.
    So, in front of a crowd that included Greenspan and his predecessor, Paul Volcker, Bush celebrated Greenspan’s successes. The final report card looked impressive. Unemployment was below 5 percent. Inflation was low. The United States had been in recession for only 16 months in Greenspan’s 211-month tenure. The housing bubble had yet to burst. The very worst of the subprime mortgages were yet to be written.