We know you hate Ben Bernanke. You loathe his policy, his recent actions at the Federal Reserve, and most of all, his beard. You think he's out of touch, out of line, and possibly even stupid.
That's the only possible conclusion, given that anti-Bernanke screeds have become go-to content in the financial press. At our own website, "we" raged against "Helicopter Ben" here, here, here, here, here, here, here, here, here, and here.
That's a truckload of rage, and many of these articles are among the most recommended on Fool.com. Not only is Ben ruining our financial systems, it's claimed, but we also saw one independent blog that compared him to Zimbabwean dictator Robert Mugabe.
That may have crossed a line. Lots of lines, actually.
There are two irresponsible assumptions in the criticism here. The first is that Bernanke is not independent -- that he's pressured by political or Wall Street forces to go after the easy short-term fix.
The second is the casual assumption that had Bernanke just allowed everything to go to pot and then recover on its own, everything would be puppies and kittens today. That line of thinking goes something like this: Though the economy would have "slowed" and the effects of a Bear Stearns (NYSE: BSC ) collapse would have "rippled" (a verb implying very small waves) throughout the economy, the economy would have recovered, and investor confidence would have returned.
Sure, that scenario could have occurred, but no financial commentator can know that for sure, despite the urge among many -- including our colleagues -- to claim they have a clear view into an alternative reality. It's simply a counterfactual. And while counterfactuals can be fun and helpful to analysis, they cannot under any circumstances be assumed to be fact.
Just the facts, ma'am
What is fact, though, is that people are imperfect ... and we make irrational decisions. It's been that way since Adam and Eve inhabited the Garden of Eden. What's more, we don't learn very well. We're also, according to a fabulous book by Jason Zweig called Your Money & Your Brain, predisposed to being to greedy, lazy, and valuing the quick buck more than the 50-year fortune.
While these conditions create opportunity for smart investors in the market, they also sow the seeds of disaster every seven years or so. This is why Bernanke's recent actions, though less than optimal in a world of rational actors, are excusable and perhaps even the right course.
As Charles Royce said in a recent Legg Mason report, "It's important to remember, especially during times like the present, that so much of what goes on in the markets is perception-driven, so it's critical that the Fed has taken definitive action to preserve liquidity and spread the perception that the system is sound, which I believe it is."
Our financial system is not without major problems, many of which were, in our opinion, caused or exacerbated by the very same offices and governors at the Federal Reserve. We'd be better off if people had acted responsibly over the past few years and not created this subprime crisis. But we can't go back in time and have Countrywide Financial (NYSE: CFC ) and Washington Mutual (NYSE: WM ) unlend loans, Pulte Homes (NYSE: PHM ) and Toll Brothers (NYSE: TOL ) unbuild homes, and Merrill Lynch (NYSE: MER ) and Citigroup (NYSE: C ) unbuy derivative securities. We also won't be able to prevent greed and stupidity wreaking havoc again in seven years or so, given that those two conditions are constants throughout history.
But if our financial system is going to solve its current set of problems, it needs time. The benefit of time only comes with liquidity.
If, in the words of Fed governor Kevin Warsh, "liquidity is confidence," what we have today is the least confident market in a generation. We don't necessarily think the market has it right. So when it does act irrationally -- as any dispassionate analysis would show that it does -- sometimes it is not a bad thing if those whose mandate is to provide the nation's financial system with safety and flexibility are able to wield a billy club or, alternatively, lend a helping hand.
"Pragmatic" is not a four-letter word
Rest assured that history will judge Ben Bernanke and his policies with the benefit of 20/20 hindsight. If you want to judge him today, at least try to do so with an open mind and some reasonable perspective.
After all, though his critics may ultimately prove to be correct, most can claim neither the classic economic training nor the access to the reams of data that Mr. Bernanke can muster to inform his opinions.
For the opposing viewpoint: