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Grading Bernanke's Fed

Morgan Housel
June 15, 2013

Washington Post columnist Neil Irwin stopped by to discuss his book, The Alchemists: Three Central Bankers and a World on Fire. It's a great read on the history of central banks, including how they responded to the financial crisis and the challenges they face in the future.

Popular opinion generally has plenty to say about the current chairman of the Federal Reserve, but hindsight is keen and often vindicates -- or vilifies -- key players after the fact. In this video segment, Irwin is hesitant to qualify Ben Bernanke's legacy just yet. A full transcript follows the video.

Morgan Housel: You write in the book about how hated Paul Volcker was back in the '70s, when he was raising interest rates to slay inflation, which almost purposely sent the economy back into recession. You had all these homebuilders were sending him two-by-fours in the mail. You had auto dealers sending him keys to unsold cars in the mail. He was really hated at the time.

In hindsight now ,we look back at him, I think broadly, as saving the economy -- one of the better Fed chairmen.

Then on the opposite spectrum you have [Alan] Greenspan, who, back in the '90s and early 2000s, people loved him more than anyone. He was responsible for the boom, and they loved him. They stopped him on the streets to thank him, and now we look back at him as one of the people responsible for the crash.

My question is, how do you think history will judge Bernanke's actions in 2008?

Neil Irwin: The things you just described have made me modest in my ability to predict and know what the ultimate historical legacy of Ben Bernanke will be.

Look, I think fundamentally Ben Bernanke has done a marvelous job the last five years. Yes, they missed a lot of stuff heading into the crisis. They didn't see beyond the horizon of how bad it could be. Yes, they shouldn't have let Lehman Brothers fail. That set the stage for all that followed.

But in their speed, their creativity, and his willingness to analyze the world as it is and find ways to use his limited tools to try and keep the economy afloat, I think he has a lot to be proud of.

But, again, for exactly the reasons you're describing, I think his ultimate legacy is something that can't be written for quite a few years to come. If his successor can get through these next few years and do an exit that's as skillful as the entry into all this easy money and bailouts and all the stuff they did, then I think we can say Ben Bernanke is a great historical figure.

Until then, he's a guy who made some hard decisions in a hard time and looks so far, so good, but I think we have to reserve judgment until we know more, and that'll be a few years.

Housel: On that same point, Ben Bernanke is probably the most criticized person in America for the past five years. That may be a stretch, but pretty close.

On a personal level, how does he take that? Does he ever doubt himself? Is he pretty stubborn in his views that he knows he's right, or does he take criticism pretty seriously?

Irwin: I think he takes certain criticism pretty seriously