The Atlantic Magazine's Disgraceful Bernanke/Fed Propaganda (And Why You Shouldn't Buy It)
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As Winston Churchill pointed out, history is written by the victors. The big end of finance, having won decisively in the global financial crisis, is in the process of rewriting history to suit its liking. The cover story in the current Atlantic by Roger Lowenstein on Ben Bernanke, titled simply, “ The Hero,” is a classic example of this type of revisionist history.
I don’t know what has happened to Lowenstein. His book on the collapse of hedge fund Long Term Capital Management, When Genius Failed, is a terrific piece of reporting. People I know who were on the inside of the LTCM rescue negotiations give his account high marks. But he has increasingly fallen into the role of scrivener for powerful interests, when his previous standards of writing and his knowledge of the finance beat says he must, on some level, know what he is doing.
The Fed couldn’t have gotten better PR if it had paid for it. Lowenstein’s account has just enough muted criticism of Bernanke (he was slow to see the severity of the crisis, his critics on the left may have a point in saying he hasn’t been aggressive enough in trying to reflate the economy) to mask its hagiography.
And this sort of spin-meistering is effective. Not only did people at the Atlantic economy conference, which coincided with the release of the piece, take up the “Bernanke did a great job in the crisis” mantra (they seemed to appreciate a piece that reinforced inside-the-Beltway conventional wisdom) but the cover, with a beatific picture of Bernanke and “THE HERO” blazed across his chest, will be seen by lots of people walking by newsstands and have an impact well beyond those who read the piece. As further proof of its faux-objectivity, the title inside the magazine is “The Villain,” to highlight the way (as Lowenstein positions the piece) Bernanke is being unfairly pilloried.
I’ll turn to the major arguments shortly, but one of the things that was particularly annoying was the way it repeatedly gilded a rotting cabbage. These are devices that most readers would miss, by virtue of not reading carefully enough to recognize their construction, or not knowing the terrain well enough to discern how Lowenstein skews his account. Here are a few of numerous examples:
Lowenstein offers a key parenthetical, in discussing quantitative easing:
…we have no way of knowing whether the economy’s improvement would have been less robust, and how much so, without Bernanke’s efforts
This is a twofer: it paints a tepid, technical recovery as “robust” and gives Bernanke meaningful credit for it.
Lowenstein mentions the nervous collapse of Montagu Norman, the governor of the Bank of England during the Great Depression, as proof of how tough it is to be a central banker during a crisis. Um, Montagu had a long history of mental instability and had had a breakdown in 1912. His psychological fragility is described at length in Liaquat Ahamed’s book Lords of Finance.
Lowenstein depicts Bernanke as an apt student of economic history, when his account shows the Fed chair is either intellectually dishonest or has issues with reading comprehension:
As we began to discuss his policies, the Fed chief urged me to pick up a copy of Lombard Street, a seminal book on central banking written by Walter Bagehot, the 19th-century British essayist. “It’s beautiful,” Bernanke said of the book—obviously appreciating that Bagehot had urged central bankers to take vigorous action to forestall panics.
Huh? Most people who know anything of Bagehot can recite his famous Bagehot rule: Lend freely, against good collateral, at penalty rates. You can cherry pick Bagehot to emphasize the “lend freely” bit, and one can argue that a central bank has the power to make any collateral into “good seeming” collateral by dint of throwing enough money at it. But the message of this paragraph is that Bernanke is a faithful student of well-established principles of central banking. In fact, Bernanke has thrown central ingredients of the formula out the window: the rescue is to be only of solvent but illiquid institutions, and then it has to be sufficiently painful as to deter them from coming back any time soon.