The Money Man

By Hirsh, Michael | Newsweek, October 27, 2008 | Go to article overview

The Money Man


Hirsh, Michael, Newsweek


Byline: Michael Hirsh

Meet Ben Bernanke, Depression scholar, unlikely superman.

As a schoolboy in the mid-1960s, Ben Bernanke followed the usual rites of passage in tiny Dillon, S.C. He waited tables at South of the Border--a roadside attraction on Interstate 95--and played sax in a high-school garage band ("We murdered 'Light My Fire,' his fellow band member Johnny Braddy recalls). Inevitably, young Ben and his friends found themselves gathering in the afternoon around the comic-book rack at the Jay Bee Drug Store, which was run by his father and uncle and where he worked after school. "He was very efficient," recalls his Uncle Mort Bernanke, but "he loved to be in that comic-book section." Asked now what superhero he most identified with as a kid, Bernanke laughs and allows that he was partial to the stalwarts of the DC Comics group, especially Superman and Batman.

Bernanke, instead, grew up to become Finance Man. Well, OK, a guy in tights with an "F" stamped on his chest is not the image that immediately comes to mind when sitting across from Ben Bernanke. Short, white-bearded and placid, the 54-year-old Federal Reserve chairman seems the unlikeliest of heroes. But in recent weeks, Bernanke has been trying, in effect, to save the world. He has super-empowered the Fed, expanding its lending authority in unprecedented ways, while fighting off a global financial panic that feels to him alarmingly like the one that led to the Great Depression, his life's focus as a scholar. In the past year, Bernanke has more than doubled the Fed's balance sheet--the amount it can spend--to $1.77 trillion, and flung open new lending windows to commercial businesses and governments across the world.

For Bernanke, this is a personal mission as much as it is professional. Mild-mannered though he is, the Fed chief has always had a grand passion for big causes--one reason why, as a newly minted Ph.D. out of MIT, he picked one of the hardest of all problems in economics: what caused the Depression? The main reason, Bernanke ultimately concluded in a study that is often cited by economists, was that in the critical 31/2 years between the 1929 stock-market crash and FDR's New Deal in March 1933, the Hoover administration and the Fed allowed at least a third of the nation's banks to go under. Had that not happened--along with the Fed's disastrous decision then to keep interest rates high--the Great Depression might have remained a not-so-terrible recession, he argued. Today Bernanke is testing out his theory in the most dramatic way, with the entire globe serving as his laboratory. He's determined to be proved right. "It's just in his blood. He has an absolute commitment to not let the financial markets collapse," says Mark Gertler, a longtime academic colleague and friend at New York University.

Like one of his Depression-engendered superheroes, Bernanke looks and acts meek until he goes into action. In one typical span of days recently, he spent a weekend mediating between Citicorp and Wells Fargo to buy ailing Wachovia, laid plans on Monday for a revolutionary new commercial-paper instrument and the next day coordinated a global interest-rate cut. So fast did Bernanke move that at one point early in the rescue effort, House Financial Services chairman Barney Frank, an irrepressible wit, told him: "People are referring to you as The Loan Arranger, with your faithful companion Hank." (As in Paulson, the Treasury secretary.) The crack did not go over well with the self-effacing Bernanke, says Frank. "I could feel him grimace over the phone. He was afraid he was getting too much criticism for doing all these loans."

While many economists on both the left and right are now Bernanke fans, some think he's fallen far short of superhero status as Fed chairman. The criticism of Bernanke goes like this. First, he may be working fast now, but he was late to perceive the dimensions of the crisis; Bernanke, like his predecessor Alan Greenspan, mistakenly thought the mortgage mania would collapse in a contained way like the dotcom bubble of the late '90s. …

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