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Hugh Hewitt Book Club

Dr. Ben Bernanke On The Courage To Act

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The Audio:

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The transcript:

HH: As promised, special couple of hours coming up here on the Hugh Hewitt Show. Dr. Ben Bernanke served as chairman of the Federal Reserve from 2006-2014. He was named Time Magazine’s person of the year in 2009, formerly a professor at Princeton and Stanford. He is the author of a brand new book, The Courage To Act: A Memoir Of Crisis And Its Aftermath, which believe it or not, is actually a page-turner. Dr. Bernanke, welcome to the Hugh Hewitt Show. And I don’t think I’ve ever read a book by an economist before that was as riveting. In fact, I may have never read a book by an economist before.

BB: Well, it’s about a pretty interesting and exciting time.

HH: It sure is. In fact, I think writing this, I don’t know, did you have Post-Traumatic Stress episodes as you wrote this thing?

BB: Yeah, you know, I did. Part of what I was doing there was just wanting to go back and think it through again, and think about our decisions. And there was some pretty scary moments there.

HH: Now what I found remarkable about The Courage To Act overall is the candor. And I’ll tell you, my guest host yesterday when I was not on the show was former Congressman John Campbell, a very good friend of mine, used to be chairman of the subcommittee on markets, and would have breakfast with you occasionally. He always said you were one of the most interesting and easy guys to talk to, but not a lot of people ever interact with you, Dr. Bernanke. Are you finding as you’re interviewed that people don’t know how to talk to you?

BB: Well, I mean, I’m doing, you know, when you’re the chairman of the Fed, you have to be careful what you say. You know, I found that out early on in my tenure when I divulged something accidentally to Maria Bartiromo. She went on the air, and I was in big trouble. So after that, I tried to be very careful.

HH: That’s one of the things I want to cover with you, because that tension between disclosure and candor, and at the same time keeping the markets calm, is present at every page of The Courage To Act. But let me begin by asking, you know, you’ve got so many names in this book – Abercrombie, Helicopter Ben, Dr. Data, the Buddha of Central Banking, Man of the Year, or the guy who Paul Giamatti played. I mean, which one do you go by mostly? Dr. Bernanke…

BB: I go by Ben. You go by Ben.

HH: You go by Ben. Which one, Abercrombie is actually my favorite, though. You’re going ot have to explain to the audience where Abercrombie comes from in Dylan, South Carolina.

BB: Sure, I grew up in a small town in South Carolina, Dylan, and you know, when I went to college, my parents said I’m going to have to do some work to earn tuition, so I went to work on a construction site not too far from my home. And I was a manual laborer for $1.75 an hour. And you know, the guys on the site there, they had a little trouble with Bernanke, so I became Abercrombie.

HH: Abercrombie – I love that. I also have two odd things in common with you. One, I’m a Stratomatic nerd in junior high. So I played hundreds, if not thousands of hours of Strat, and my favorite outfielder was Bobby Tolan. I drafted him first from the Cincinnati Reds in 1970. Did you have a go-to guy when you were doing your draft?

BB: Well, you know what I did, so they had an old-timers…so in case your readers don’t know, Stratomatic is a baseball game that used dice and cards to represent real players and real games. And they provided different teams, you know, and I did play some of the current teams. I was a big fan of Sandy Koufax and Don Drysdale, but they also had old-timers teams, so you could play the 1927 Yankees against the 1961 Yankees, or whatever. And it was great, because I got to learn about some of the old time players that way.

HH: Oh, I only played the 1970-’71 thing with Rob Guarnieri for like a million hours. But did you have someone that you played it with over and over again?

BB: Yeah, I had a friend in Dylan. His name was Nathan, and we used to stay up all night, you know, in the summer playing all night. And we invented our own game, which was a little bit more sophisticated version of Stratomatic as well.

HH: And the mystery, the book you referenced, that novel, I read it as well. It’s really kind of remarkable. Then you go on to Harvard, and you go to Winthrop House. And I’m a Winthropian, and I spent a lot of time in the Winthrop House grill between 1975 and 1978. But what year did you graduate?

BB: I graduated in ’75. I might have served you a hamburger. I don’t know.

HH: Yeah, I was a freshman in ’74-’75. I didn’t get to the grill until ’75-’76.

BB: Oh, okay.

HH: So we missed by one year. But in any event, you are unusual. I mean, it’s a very American story. Your grandparents are both Holocaust survivors on one side, and emigres on the other that got out before the Holocaust came. Your dad is a pharmacist. You know, the story of how they get to South Carolina, and here you end up as being the financial guru of the world. That part of the book, the first 50 pages, is just extraordinary for Americans to read.

BB: Well, you know, there’s a lot of random luck and lots of luck, I guess. I was not going to go to, you know, leave Dylan at all. I was going to go to college nearby, and through the advice of a friend, I ended up going to Harvard, and that kind of opened up the world a bit, and you know, I expected to be an academic all my life. In 2002, I was appointed to the board of governors in Washington by President Bush, and I told Princeton I’d be back in two years. Three years later, I was the chairman of the Fed, and then things started really to go to hell.

HH: It’s from Harvard to MIT to Stanford to Princeton to Washington, D.C. And I think you still live down there, and a baseball nut the whole way. I am curious if you ever had any interest in political theory, people like the framers and Lincoln and Churchill or Plutarch or any of that? Or was it always economics?

BB: Oh, yeah. No, yeah, I was very interested in that, yeah. And being interested in history, one of the benefits of that is you can sort of think about the political context as well. So yeah, so I’ve always been interested in that.

HH: Now I’m going to come back to, in The courage To Act, the particulars of the crisis. But I want to start, actually, the interview on Page 398 when you say, The crisis of ’07-’09 was best understood as a descendant of the classic financial panics of the 19th and 20th Centuries.” And I’ve always thought that, but do you believe the political class has anything to do with responsibility for those sorts of panics?

BB: Yeah, sure. So first of all, every panic needs a trigger. And the trigger in this case was the housing bubble and the sub-prime mortgages and all that associated stuff. And you know, that was partly a political issue. I talk in the book about the popularity of sub-prime mortgages before the crisis began, because they were going to provide, you know, more people the opportunity to become homeowners. So at the Fed, and other regulators, you know, we, I came into this very late, personally. So but the Fed made the distinction between illegal or predatory lending versus sub-prime lending, which was the latter was a good thing. And unfortunately, many of those loans weren’t very good loans. And the other way in which the political class is involved is that there was, I think, deregulation that wasn’t very thoughtful, and in particular, the regulatory system we had, which was put together in the 30s, really got outmoded. And we didn’t have a regulatory system that was prepared to deal with the way our financial system had evolved over the decades. So there were some important deficiencies in terms of the underlying structure of the system.

HH: Well, my question goes to really culpability, because everyone is culpable, that means no one is. It’s sort of like a recusal thing. But if you, if I lined up just on one page, PNB, Paribas, Bear-Stearns, AIG, WaMu, IndyMac, Countrywide, and that’s truncating it quite a lot, takeover of Fannie and Freddie, multiple bailouts of AIG, the runs on the money markets, the TARP, the stabilization of Citi and Bank of America, I mean, this was one crisis after another. No one saw it coming. So is anyone really at fault for it?

BB: Well, yeah, sure. And in fact, it was a very complicated thing, which is part of the reason why we never anticipated the full extent of it. And unfortunately, I mean, for fortunately or unfortunately, you can’t really say that this person or that person was the main cause. It was one of these, you know, it was one of these things where a perfect storm of lots of different problems, and they came together and led to this terrible crisis. But you know, there’s blame to be had in the political system, blame in the regulators, including the Fed, blame in the private sector. So nobody really looks all that good in this particular story.

HH: Now you are a historian of the Great Depression.

BB: Right.

HH: And when they look back, and there are some people who made some pretty bone-headed moves at the beginning of the Great Depression, some of them by FDR, whom you speak of highly of at other places. When they look back at the Great Recession, what’s going to be the biggest success story of Ben Bernanke, and what’s going to be the biggest bone-head move, because every baseball player hits, you know, if they’re really good, they hit .300. So if you’re batting way above the baseball average, you’re doing well, Ben Bernanke.

BB: Yeah, well, when the crisis, when the panic hit its peak in the fall of 2008, you know, before Lehman, there had been a lot of commentary that you know, we should just let Lehman fail, and that it was not going to do any damage, it was just Wall Street, didn’t affect the economy. And I knew that was wrong. I knew that was wrong based on my whole research career and based on my historical work. So I was right in predicting that this would be very serious for the economy. But I was wrong in not even being pessimistic enough, because after the panic accelerated in September-October of 2008, the economy fell off a cliff. I mean, it absolutely collapsed in the last quarter of 2008 and the first quarter of 2009. And I think the success was, I mean, the failure was that all this happened, and that we had the deep recession. The success was, of course, that the Great Depression lasted, you know, from 1929 until 1941 when the War ended it. In this case, you know, in our case, the Great Recession bottomed out in the middle of 2009. And unemployment hit 10% in 2009, and how, you know, six years later, unemployment’s 5%. So the recovery, while not spectacular, has certainly been steady and has brought us back relatively quickly to a more normal economy.

HH: Hold it right there. I’ll be right back with Dr. Ben Bernanke, The Courage To Act in bookstores everywhere, stay tuned.

— – — –

HH: Here’s the tension. I was teaching a class to undergraduates today, Dr. Bernanke, about free speech and the 1st Amendment. And the Fed exists in this strange world where you try and communicate with people, but not too much. And it’s in a language that a few people understand, but not completely. And it’s sort of antithetical, but at the same time, necessary. Have you been thinking about how, you know, you talk at the end of the book about increasing the transparency, and certainly, you did. I mean, two 60 Minutes interviews, you know, the John Cassidy interview with the New Yorker. But is the Fed even close to being transparent with the public?

BB: Yeah, I think it’s getting there. I mean, in terms, one of the things I wanted to do when I became chairman, you know, I was following Alan Greenspan, who once said if you understood what I said, I must have misspoke. And so he was quite sphinxlike, you know, and I wanted to bring more openness and more natural language in the way we spoke. But I found out that completely natural language just doesn’t quite work, because the markets are so intently focused on every decision and every action that the Fed takes, that they’re going to overreact. You know, if you use a verb a different way the second time, they’re going to say oh, my gosh, they’re going to do this, that or the other thing, and you’re going to create unnecessary volatility. So you have to become somewhat constrained in the way you speak, particularly if you’re the chairman. So, but that being said, I mean, I think the Fed overall has become very transparent. You know, we have press conferences after four meetings a year. And in fact, some people complain that right now, you know, there are 19 people who sit around the table when the Federal Open Market Committee makes monetary policy decisions. And they all go out and give speeches and express their own views. And some people complain there’s too much communication. So you know, I certainly think the public understands what the Fed is thinking about and debating, and even if the chair has to be kind of careful of exactly how he or she puts the phrase.

HH: Yeah, I think I’m putting more of the pressure on the chair than on the other board governors or bank regional presidents. You talked to 60 Minutes twice. You talked to John Cassidy. Is this the first time you’ve done a conservative talk show, Dr. Bernanke?

BB: Well, this is the first, you know, with the book here, I, you know, after the time I was out, from the time I went out of the office until a couple of weeks ago, I was pretty much quiet as far as media were concerned. But with the book, I’ve been talking to a lot of different folks. And yeah, I think probably it is true that this is the first conservative talk show I’ve spoken to, but I used to listen to them. You know, I was a Republican. I was appointed by President Bush.

HH: I know, well, I’m going to the theory of who the Fed chairman should talk to, because while you talked to John Cassidy of the New Yorker and Scott Pelley, Jim Lehrer, you met with those soldiers. If you’re not talking to Oprah and Rush, you’re not actually talking to America. And so I posed to my students today, I asked them how many of you would know Ben Bernanke if you bumped into them, and of course, a couple do. They’re, by the way, archconservatives, and want me to ask you conspiracy theory questions, and I will, eventually, just to satiate them. But the fact of the matter is if the Fed doesn’t communicate with Main Street, how can they hope to protect it?

BB: Well, it’s a totally fair point. And I mean, and you know, everything proceeds from step by step, right? So 60 Minutes, which is a pretty mainstream program, which I did twice, and I did PBS, and I taught a class at a university college nearby that was put online. Yeah, step by step. Oprah, you know, was maybe a step too far, but I did do Colbert last week.

HH: Oh, now see, well, now, you’re selling books. Of course, you’ve got to do Colbert last week. How’d that go, by the way?

BB: That was great.

HH: It’s the only time I’ve ever been nervous in my life is when I did his old show.

BB: Yeah, no, it was fun. I enjoyed it.

HH: Well, now going back to the point, though, about how the Fed communicates, if there’s a scarcity of words, people tend to overvalue every word, especially at the high end of the market, and to overreact. And I know you had this triple A, five tool coms director, but did you think about the advantages of just coming out and answering question after question, sort of like Chris Christie after Bridgegate?

BB: Well, I did that in two contexts. Well, more than two, really, but the primary contexts were when I did, I did 80 Congressional testimonies, most of them three or four hours long. So I was there and open to answer those questions from the people’s representatives. And then I was the first person to introduce the press conferences, where we took, you know, obviously questions from representatives of the press. Now could we have done more? I’m not, I don’t think I disagree with you at all. I think this is an important direction for the Fed to go. And starting from where we were when I became chairman to where we ended up, I think you have to admit we made a lot of progress.

HH: Yes, you did.

BB: And I certainly agree more could be done.

HH: I applaud it, actually. And what I think my conclusion at the end is, is that people will look back at the crisis and see that you set a standard for getting more and more transparent, and the next Fed chairman will do it more, and the next Fed chairman will do it more, until they’re just another actor, because one of the, see if you agree with me on this. The crisis was so profound, it shook everyone who had assets to their core. It made them very insecure. People without assets, maybe not, but people with assets, very, very insecure, and that the hostility in American politics today, and the tendency to conspiracy theories and to anti-elitism has a lot to do with that sudden, terrible shock, and to that trauma following the trauma of 9/11. What do you think, Dr. Bernanke?

BB: No, I totally agree. So 9/11 was, you know, was the first shock, and then the financial crisis was a different kind of shock, but also a terrible shock. And you know, people were scared and uncertain, and trying to figure out whose fault it was. And part of what I was trying to do, I mean, I was trying to explain what the Fed was doing so people wouldn’t be mystified. But I was also trying to be reassuring where I could. But you know, I mean, we were extremely busy trying to deal with the mechanics of what was happening, and you know, that limited the amount of time and energy I could put into the communication. But again, I’m totally in favor. When I was, you know, when I was an academic, before I even went to the Fed the first time, I was critical of the Fed for its opacity. And I was advocating something called inflation targeting, which is the monetary approach the Fed now uses. And the reason I liked it was because it involved a lot more transparency and explanation than the existing methods did. And so I was always in favor of that. And you know, I agree that where the Fed still has the most ground to make up is dealing with explaining to ordinary people what’s happening and what the Fed is doing.

HH: You make great strides here. By the way, as we go to break, one guy who also told me he wished he’d spent more time, or had more time to communicate, was Donald Rumsfeld. He did this about four years ago when his memoir came out. He said he just never had the time to communicate with the American people, and I’ve been thinking about that ever since. It may be the most important thing that office holders don’t have time for.

— – — –

HH: I recommend it to all my students, and when I go back to the law school, I’ll tell my law students if they want to understand what just happened in the last five to seven years, they’ve got to read The Courage To Act, and it’s a page-turner. It’s beautifully written, Dr., well done. I was, ironically, flying to Law Vegas for the Democratic debate, and in the seat in front of me was Andrea Mitchell. And as we got off the plane, we were chatting. I’ve done Meet the Press with Andrea before. I said I didn’t realize, and I had your book with me, I didn’t realize until I was halfway through this book that you and Anna Bernanke were the first ladies of global finance. Nor did I realize the pressure under which your husbands lived. And I guess you and Alan Greenspan, and now Chairman Yellen, really can’t afford to show any kind of pressure, can you?

BB: Well, it’s important to be calm and to maintain confidence, and to be deliberate. You know, I’m actually a more interesting person than I think I appeared to be when I was the chairman, because you know, I could be more spontaneous now. But it’s very important to maintain that calm, and to try to avoid giving out confusing signals or signaling uncertainty more than necessary. So yes, that’s part of the job.

HH: Now Anna Bernanke, your wife, has started the Chance Project, and I want people to know about this, because I think she and Andrea Mitchell and Mr. Yellen, whoever he might be, I don’t know if the chairman is married.

BB: He’s a Nobel Prize-winning economist, by the way. George Akerlof is Mr. Yellen.

HH: That helps. Okay, Mr. Yellen. They have really hard jobs. And I just thought you paid her and your children appropriate due throughout The Courage To Act. But it must have been, did you sleep some nights? Or were there some nights you just never slept?

BB: Well, there were certainly nights, you know, with some of these terrible weekends when we were trying to prevent some, another mammoth firm from collapsing, that we stayed up all night and were taking conference calls at 2:00 in the morning and 4:00 in the morning and 6:00 in the morning. But you know, you can’t do that for eight years. And you know, when I could, I always tried to make a point of conserving my energy and taking a little time, or I like to go to baseball games, and I went to a few of them. And I would often get interrupted in the middle. But I would still try to go when I could.

HH: It’s too, it’s very, very sad that you had the National League and not the Indians, Dr. Bernanke. I’m sorry about that.

BB: Yeah.

HH: Here is a testament to how well The Courage To Act is written. I like Tim Geithner now. That’s how well this book is written. I’m a conservative Republican, but he comes across in this book, and I think it delivers this message. And tell me if you intended to or not. There aren’t any sinister people here. Everyone’s, they might make mistakes, but everyone is trying to avoid the collapse of the international economy.

BB: Yeah, no, that was right. And again, there were mistakes of omission more than commission, I think, but in any case, yeah, obviously, we all were, and the administration and Congress as well.

HH: Now you write nice things about Barney Frank, another Winthrop House man, I might add, and Chris Dodd, about whom there’s quite a mixed legacy. At the end of this, though, there is a not so oblique criticism of Dodd-Frank as being really absurd in what it asks people to do. I think it has to have 243 new regulations, you write on Page 462, 67 one-time studies, 22 new periodic reports. It really isn’t a very good plan, is it?

BB: Well, it’s got some elements that I believe were very important in conjunction with the Basel Capital Rules. And I think the two most, well, several things.

HH: You just lost the Steelers fans.

BB: One is the big increase in the amount of capital that banks have to hold, and the other is the liquidation authority that gives the Fed and the FDIC some ability to wind down firms And that’s making progress, I think, on that. There’s certainly lots and lots of rules and things there that not all of them meet the cost-benefit test, and over time, I’m sure they’ll be looked at. But there were some big components I found important.

HH: Before we go back to that, you just, the whole city of Pittsburgh went dark when you brought up the Basel III thing. You’ve got to explain to people what that is, because it was the hardest part of the book for me, is getting the liquidation aspects. I took Ec-10, and that was about it. So let’s assume a basic knowledge, but that’s it.

BB: Well, I apologize to Pittsburgh.

HH: Don’t.

BB: So bank capital, bank capital is really important. So banks can borrow, or they can have equity capital. The more equity capital they have, the more than can lose and still be able to function and lend and do what they’re supposed to do. So there’s an international agreement that is forged in the city of Basel, Switzerland, and where all the major countries of the world try to decide how much capital they’re going to require their banks to hold. And one of the outcomes of the crisis was after the crisis, that the United States pressed for a lot more capital, and other countries agreed. And your big banks now have just a lot more equity capital, a lot more shareholder equity than they did before, and that means that they can take a much bigger hit and still not fail or collapse.

HH: A much-needed…

BB: So I think it makes them a lot stronger.

HH: Much-needed improvement. I’ll be right back with Dr. Ben Bernanke. His brand new book is The Courage To Act: A Memoir Of Crisis And Its Aftermath. Stay tuned, America.

— – — – –

HH: And I’ll get into some specifics of the financial crisis, but I’m still staying kind of meta in the first hour. Dr. Bernanke, Page 214. You praised your general counsel. As a lawyer myself, and the firm of Arent Fox is my law firm. I’m a partner in Arent Fox. Maybe you know some Arent Fox partners. And having been a general counsel of two federal agencies, the NEH and the OPM, and having been a White House assistant counsel, I’m very glad you had good lawyers. But, you write, “I’d always thought of lawyers as tied up in formalism. But Scott impressed me,” as though he were a set of one, “deeply knowledgeable and concerned about both the underlying logic of the law and the policies the law was intended to implement. And I am curious at the end of this when you invoke Section 13.3 over and over again, which is in essence do what you want, guys, and see if the Congress burps, if the rule of law isn’t perhaps lower on your priority list than it should be?

BB: Well, obviously, you know, we were trying to figure out whatever we could to save the system and prevent the economy from going down. But you know, we always made sure that everything passed legal muster. And you know, we had a court case on AIG, which is a long story, but they objected, the judge objected to the one thing that we did. But I would think that everything we did was, you know, passed muster, and you know, and we couldn’t do some things that would have probably helped, because we didn’t have the authority to do it.

HH: You know, on Page 222, you say about the Bear workout, Bear Stearns workout, “We had gone to the edge of our lawful and implied powers.” And the implied part is what scares people about the Fed. Now I do, I sort of joke around with my students. They’re not really conspiracy theorists, but you know how much of the fever swamp thinks the Federal Reserve…all I have to do is say Bilderberger, and you know, the phones will light up with the people on the fringe of left and right. And you talk about Ron Paul and Bernie Sanders in the same breath as perhaps having an extreme…is it this view, though, of the law that you guys acted on the implied powers of 13.3 that gives them some traction?

BB: Well, I think those conspiracy theories have been there a long time, and they’ll probably continue for a long time. So the problem was that you know, we needed to prevent the system from collapsing. We found ways to do it that were legal and were within our powers. By the way, those particular powers, the ones involved in helping individual firms, those have been eliminated. So Dodd-Frank eliminated those powers, so the Fed can never again make a loan to an individual firm. It can only make loans to a broad set of firms or markets. So…

HH: Yeah, I don’t like that. I think, I actually thought you folks were judicious in your use of 13.3, and I’m sorry, I actually didn’t know it was gone until I read your book.

BB: Well, not the whole thing, but that part.

HH: And do you regret, do you regret its passing?

BB: Well, it was replaced by this liquidation authority, which gives a more Congressionally-approved and systematic way to wind down firms, and I think that’s a decent trade.

HH: You do? See, when I was done reading The Courage To Act, I thought I’d rather much have the board of governors of the Federal Reserve than the Democratic majorities of 2007-08 making policy. And that’s not a partisan statement. It just has to do with skill sets, right? I mean, some of these people were asking you, not Barney, he’s a smart guy, but some of these people are just not that smart – left, right, center, you just tell me. They’re just not, they don’t understand this stuff.

BB: Well, they’re not economists, but even the liquidation authority in Dodd-Frank, that’s run by the Fed and the FDIC, it’s not run by Congress in practice.

HH: And so you don’t think this ability of the Fed and allied authorities to intervene in panics is less than it was before this bill passed?

BB: Well, it is, and there was a tradeoff made, and it has to do exactly with what you were saying before, that people notwithstanding that what we did was effective, there were people who worried that it was arbitrary, and wanted to have a sharper set of rules. So that’s the tradeoff, and I’m okay with that. I think that it is important to have the flexibility to do what’s necessary to prevent the system from collapsing if that ever happens again, but I do think that some of the powers that were added, the liquidation authority in particular, are important improvements. So there is a bit of a tradeoff there.

HH: Dr. Bernanke, when you talk about Congressmen Ron Paul, and you do so respectfully, and Senator Bernie Sanders, and you do so respectfully, they both embody populism, and of a different variant, but they’re both populists. And for a long time, populism has been at war with federal banks since Alexander Hamilton and Jefferson, basically. How do you ever disarm the people who believe it’s a sinister operation? And you know, every day, I could do all day long phone calls from people who want to tell me that actually, I’m now a tool of the Federal Reserve and I must have been paid by you to do this? How do you disarm that?

BB: I don’t have any secret formula. I mean, it’s been an issue for several hundred years, as you point out, that populists of both left and right don’t trust in general, they don’t trust finance. They don’t trust technocratic institutions. And the Fed is both. So that’s just an unfortunate situation. I think all that the Fed can do, and this goes back to what you were saying before, is about talking to the people broadly. All the Fed can do is be open and explain what it’s doing, and make sure that there’s plenty of access to everything the Fed does so that at least among people who are open to argument, open to explanation, that they’ll see that none of this has any basis.

HH: Yeah, I wish you had been in the practice already of doing talk radio during your chairmanship. I with Chairman Yellen would come on talk radio. And I don’t think, if you did it enough, I just don’t think people would react, overreact to statements. But when there’s a scarcity of words, there is an overreact. I’ll be right back with Dr. Ben Bernanke.

— – – — –

HH: Coming back next hour, Dr. Ben Bernanke is going to stay with me. His brand new memoir, The Courage To Act, in bookstores everywhere and airports everywhere. And people were looking at me funny as I flew from Denver to L.A. to D.C. to Vegas to Denver to Houston to Denver in the last seven days, because I’ve been reading this one book sort of obsessively. And I have one big question that John Campbell has never agreed with me on, Dr. Bernanke. The Fed chose never to unleash the kraken. Neither did the Congress. And that’s the $7 trillion dollars in retirement assets that Americans have. Why in the world can’t Americans use their retirement assets to pay off their house rather than forfeit them or pay tax penalties on that? Why, does that make any sense?

BB: Well, whether it makes sense or not, let me just first say that the Fed has absolutely nothing to do with that. That is a Congressional set of rules or, and possibly the IRS and the Treasury involved as well. This is not, the Fed is not involved in anything like any of those decisions.

HH: Oh, I get that.

BB: Now…

HH: But what about the liquidity…

BB: The purpose of it, go ahead.

HH: Yeah, the liquidity that’s locked up there, it doesn’t seem to me that the Congress, I know you didn’t advocate for it, it’s not your job to. But now that you’re out, should they unleash that liquidity into this marketplace, somehow?

BB: Well, the argument against it is that you want people to put the money away and not to, you know, not to, and make sure you have it there when the time comes to retire. If it’s too easy to take it out, people will take it out and they’ll buy a boat or whatever, you know, and then the time comes and they won’t have an adequate retirement fund. So it’s a little bit like a Christmas club where you put money away every week at the store, and at the end of the year, you have enough money to buy whatever you need to buy. So that’s the reason for it. Now I think, you know, you can, there are, in fact, some exceptions, I think, perhaps for houses. And there were some temporary exemptions during the crisis also.

HH: Yeah, it was during the crisis when Hank Paulson…

BB: But you have to strike the balancing act.

HH: Yeah, Hank Paulson was running around trying to get people to save their houses, and banks to help people save their houses, and they never did. It wasn’t you. It was the Treasury. It was George W. Bush. And it was President Obama. They never did the obvious thing, which was let people use their retirement assets to save their houses. We’ll talk more about that in hour number two, and about moral hazard, which is he just, Dr. Bernanke just brought it up and I’m actually going to use the long segment at the start of the second hour to get someone to finally explain moral hazard to all of us. Don’t go anywhere, America, Dr. Ben Bernanke continues on the Hugh Hewitt Show.

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HH: You’ll remember everything whether with a gun wrench or a post-traumatic stress disorder for some of you who were bankers at that time, and maybe you lost a lot of money. And I’m not indifferent to people who were holding Bear Stearns at $60 and ended up getting $2 dollars a share. It’s all detailed in this book. But let’s talk, Dr. Bernanke, about the central concept – moral hazard. And you explain it a few times in The Courage To Act, and I remember it, you know, vaguely from Ec-10, which is the introduction to economics course at Harvard, which that was the first and last economics course I took at Harvard. Explain it to the audience and how it informs the decision making of the Fed, and most regulators.

BB: Well, the moral hazard comes from the insurance idea. So if you insure your house, or you insure your car, and you know you’ll get paid off if there’s some problem, then you might be a little bit less careful. That’s what moral hazard is, that you won’t take sufficient care to make sure that you don’t have a loss. And in the context of financial markets, if a big financial firm knows that it’ll get bailed out if it gets into trouble, then it doesn’t have as much incentive to be careful. It’ll take more risks and gamble to make a lot of money, and tails, I win and head, you lose. So that’s what moral hazard is. So if you’re too aggressive in protecting the markets or protecting firms, then you are essentially saying well go ahead and take a lot of extra risk, and we’ll be here in case it fails. And that’s, obviously, you don’t want to be in that situation. So moral hazard is an issue that we always have to think about when we’re dealing with financial firms.

HH: So The Courage To Act is really a series of case studies on when moral hazard held you back and when it didn’t. That’s how I viewed it at the end, is that it’s almost the difference between Bear Stearns and Lehman Brothers, the difference between AIG I, II, and III, or Wachovia or WaMu or all these different interventions. Now, people have got a series of precedents, and when they want to argue the refs, when they want to get out there and kick dirt on the umpire, they’re going to point to different things that happened on the Bernanke watch. Do you think that moral hazard increased significantly or decreased significantly during your tenure?

BB: Well, it increased because of the actions we took, but on the other hand, part of the goals of the reforms, financial reforms and the capital reforms, was to address that problem. So the analogy I gave, this is the analogy I gave on 60 Minutes, was you know, if you have a smoker who smokes in bed, and sets the house on fire, you know, the non-moral hazard thing to do is let the house burn down. But unfortunately, maybe the house is part of an apartment complex or something, and maybe the whole town is going to burn down. So what you should do in that case is put out the fire first, and then, you know, take appropriate action to make sure it doesn’t happen again. So it’s the same thing here. You know, we could have avoided moral hazard by letting Bear Stearns fails, letting Lehman fail, letting AIG fail, but we would have killed the economy, and that’s way too much cost to bear to just teach a few firms a lesson. So the right thing to do was what we did, which is prevent them from failing, but then come back and make sure they didn’t benefit from it by, you know, for example, you mentioned Bear Stearns. So they got, instead of $150 dollars or whatever, they got $2 dollars a share, and then ultimately $10. And then after the fact, we put in safeguards like more capital and other restrictions so that they would not be able to take the kinds of risks that the moral hazard would otherwise prompt them to take.

HH: Now at your last meeting at Jackson Hole, you said you’d stared into the abyss. And Congressman Campbell is my guest host, and you know John.

BB: Yeah.

HH: He said he voted for TARP, and it was the best vote he took, even though the most controversial vote he took. And he voted for it the first time and the second time. Crazy people didn’t vote for it the first time. But my question is what is the abyss? Did the American people ever understand what the abyss was?

BB: Well, the abyss would have been a far deeper and more persistent recession than the one we had. And the one we had was bad enough. And I thought that was a very high probability in September, October of 2008. As it was, we stabilized the system. We got it, you know, we ended the panic by early 2009. The economy began to turn up in 2009. And we started seeing stabilization and recovery. So that might not have happened. We might have had a much worse, and we might still be in the depths of high unemployment. So yeah, I think it was really an unknowable situation, because it was the worst financial crisis, I think, in American history, and it’s hard to know exactly how deep and how long it would have been. But I think it would have been much worse than we actually saw.

HH: Now Dr. Bernanke, on the last Wednesday of his presidency, George W. Bush had a half dozen talk show hosts, and I was among them, into the Oval Office to talk about, we can’t say, it was off the record, but to give the new guy some breathing room and to give him a chance. And he talked about the fall that he’d just been through, and how every Sunday afternoon, Ben Bernanke and Hank Paulson would show up in the office and asked him to do something that ran completely contrary to his deeply-held views on free enterprise. And I think you refer to this, not to that particular sentiment, but generally throughout The Courage To Act, that sometimes, you’ve got to go outside your deeply-held views in order to save the system. How often can you do that, though, without compromising the system itself?

BB: Well, let me first say that President Bush was a standup guy, and he obviously was very uncomfortable with some of the things that happened, but he trusted me and Paulson, and he said you guys know what’s the right thing to do, and I will support you. So that was very important. And we had the support of the President that allowed us to you know, proceed and do what we had to do. You can’t be doing it all the time, of course, and that’s why you know, we had to, and I say we, broadly speaking, the Congress, the administration, everyone, we had to address the weaknesses and the problems that were you know, that led to the crisis in the first place, and hope that we’ve done enough and will do more to make sure we’re not in this situation again. That’s the only way you can do it.

HH: Now what’s interesting in the book, when you get through the blow by blow, which is fascinating, you take, you pause for a moment and you reflect on the political system, and you say it seemed to me that the crisis had helped radicalize large parts of the Republican Party. You add, “I didn’t leave the Republican Party. I felt that the party left me.” And I’m guessing this book went to print before Bernie Sanders became big, because you took some shots at Bernie as well. But I’m curious if you think there’s an interaction, well, you have to. You’re an economist. Every economist I know believes everything’s interconnected. The IRS goes after and is involved in a political scandal. The VA fails, and the Fed is not fully transparent as it explains what it goes around, some people saying it’s picking winners and losers. I don’t believe that. You’re doing the best you can. But do you think this is a perfect storm for credibility of government from which we’re not going to recover?

BB: Well, I don’t know about a perfect storm, but it’s certainly been, government’s reputation has taken a big hit. You know, I think ironically, I think the government did an okay job in addressing the crisis, but it didn’t do an okay job in letting it happen in the first place. So yeah, I think that’s right. But you know, again, I think that the Fed has become much more transparent, and the extreme views about conspiracy theories and the like are just wrong. And we need to work to restore that trust. I’m not saying that we deserve the trust without working for it, but that’s something the Fed has to do, and other agencies have to do.

HH: Do you think people understand now TITF as opposed to TBTF? The latter is too big to fail, and people hate that idea, but too interconnected to fail, they might understand. Do you think they’re beginning to get that?

BB: Well, I think that’s a pretty subtle idea. I mean, basically the point is that you know, we need to do a lot more work to get to the point where you know, even a big firm, so you know, Lehman Brothers was a catastrophe, but Lehman Brothers was only a third the size of J.P. Morgan, right? So you could break J.P. Morgan up in three pieces, and you’d have three Lehmans. So having, you know, size is not the only issue. It’s also the role they play in the markets. And it’s really important to get to the point where a firm could fail and would fail. And gain, that’s one of the goals of the liquidation authority that the FDIC has taken the lead on.

HH: And a quick minute to the break. Do you believe any of the European crises that have followed since you left government, Greece, Spain, Ireland, now Great Britain threatening to leave, the Brexit, that they would have in them the sort of trigger that BNP did back in the day when it started?

BB: It’s looking less likely, because they’ve recovered partway now, and you know, the situation is just not as fragile as it was, so no, I don’t think so.

HH: All right, when we come back from break, we’ll talk about, of course, the great deficit and what happens when the inflation target is actually achieved, whether it’s 2% or 2 1/2% or 3%, what’s going to happen to the national debt and the leverage, and what’s going to come, when the bill comes due, what’s going to happen with Dr. Ben Bernanke. His brand new book, The Courage To Act: A Memoir Of A Crisis And Its Aftermath linked at Hughhewitt.com, available everywhere.
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HH: Now today, President Obama announced he’s keeping troops in Afghanistan past the end of his presidency. So we’re right on, some wars go on forever, and you wonder, the financial crisis is contained within the beginning and the end of the Afghanistan War, so it really wasn’t as long in running, but I’m curious, Dr. Bernanke, foreign affairs almost doesn’t enter into your memoir at all. It’s fascinating to me that the war, there’s a reference here and there to the politics of it, but you’re disconnected from it in a certain extent.

BB: Well, we had a lot of foreign activity in the sense that we were dealing with other countries in the crisis, but no, we weren’t engaged in any way with the wars in Iraq and Afghanistan, no.

HH: So, but I mean, if another event like 9/11 had happened in the middle of the financial crisis, would you have had the tools to the task? You did after 9/11. Your predecessor, Alan Greenspan and his team coped with that very well. But would you, if they occurred at the same time, I’m kind of looking, this is a stress test. You said the beginning of the end was when the stress test was passed in The Courage To Act. What’s the stress test for the country? Can we handle any more of these things, or actually, at the same time?

BB: Well, I hope we don’t have either. In terms of the Fed, 9/11 was a particular set of challenges in just getting the physical infrastructure of the financial sector working again. Roger Ferguson, as I talked about in the book, did a great job making sure you know, that the plumbing started working again so they could open up the Stock Market…

HH: Yeah.

BB: …and keep the system running. It was a very different kind of problem than, obviously, than the financial crash. But both were, you know, very serious, and I hope we never would have two things like that at the same time.

HH: Did you ever, in those, obviously the FOMC, the Federal Open Market Committee meetings, of which you chaired 64, you attended 86. I loved that baseball card your staff gave to you. Did you ever sit around and talk about contingency planning against the day when the black swans, there’s not one of them, but a flock of them come home?

BB: Well, the FOMC, the Federal Open Market Committee, meets eight times a year, and it’s mostly focused on the economy and monetary policy decisions. But they were, there was a lot of discussion of infrastructure questions. So for example, after 9/11, the Fed was very much involved in developing redundancy both in the Fed and also in the financial system, so if there was another attack of some kind that you could go to the second computer, you know, the second location, and keep the system running. So those kinds of things were certainly part of the Fed’s planning. The Fed has a lot, does a lot of work in the sort of operational aspects of the financial system, and so security was certainly part of it. We were also involved in cyberwarfare. Some of the banks were under cyberattack, and the Fed cooperates with the NSA and other agencies to try to solve those problems. So the Fed is engaged in all these different things.

HH: And do you think we’re, let me pose it a different way. In August of 1914, everything was connected, and so that one treaty led to another treaty. And in 2007…and we had World War I. In 2007, I think you write at one place, when AAA securities that contained sub-prime mortgages began to go bad, then we had the financial equivalent of the start of World War I. It all fell, the dominos fell. Have we delinked things enough that not everything has to go to hell when one thing goes to hell?

BB: Well, the trick, from the financial point of view, is to make institutions financially stronger, to make the markets stronger. So again, by making sure that banks have more equity investments, equity capital, they have more loss-absorbing ability. That’s going to help. Tougher oversight is going to help. Banks have to hold more cash, so if there’s a run, they can pay out to their creditors. There’s been a lot of improvements in the derivatives market so that people can understand better what’s happening and it won’t be so opaque. So there’s lots of small things, but yeah, the system is stronger. It’s a lot stronger. If we’d been hit with sub-prime, if the system had looked like it does today in 2007, it would not have been nearly as severe a problem. So I think we are better, but it’s also a situation where you know, you always have to be vigilant, because you never know where the next problem is going to come from, same as in national defense.

HH: On Tuesday night, on Wednesday night, if people had had Glass-Steagall on their Bingo card, they would have won, right? Glass-Steagall came up again and again. On Page 439 of our book, you say it would not have prevented Wachovia or Washington Mutual from making bad loans, that Glass-Steagall is not an answer to all that ails us. Why do people think it is? What is the fallacy?

BB: I don’t know. I’m not sure, I don’t quite understand that. So just for your readers in Pittsburgh, listeners, Glass-Steagall says that you can’t have a commercial bank which makes loans join together with an investment bank which underwrites securities and operates in the markets. That was a law that was passed in the 30s, and was repealed before the crisis. And I guess folks think that that’s somehow a symbol of the deregulation, or it’s the symbol of the greater complexity of the financial firms, you know, in the recent years. But as I say in the book, you know, a lot of the firms that ran into trouble would have run into trouble anyway with Glass-Steagall, because Lehman Brothers was an investment bank, and Bear Stearns was an investment bank, and AIG was an insurance company, and Wachovia was a commercial bank. None of them had, none of them would have been in violation of Glass-Steagall. So you know, it wouldn’t have made much difference, and in fact, it would have prevented some of the things that you know, where, for example, J.P. Morgan saved Bear Stearns by buying it. It wouldn’t have been allowed to do that if Glass-Steagall had been in place. So you know, I think there were some mistakes made in deregulation, but, or also the fact that the regulatory system wasn’t really up to date. But Glass-Steagall is an odd thing to focus all this attention on, I think.

HH: You also write on Page 440, “We don’t have a very good understanding of the economic benefits of size in banking.” That was a great, what I call, admission against interest, because I’m a lawyer, actually. We all call it that. And it’s a great admission, actually, that everybody who’s against big might be wrong. They might be right, but you’re saying they might be wrong.

BB: No, that’s right, and I mean, I’m sure that big banks can do some things that small banks can’t do. I don’t think a small bank can you know, provide all the global needs for a multinational corporation for all of its bond issuances and derivatives transactions. So you need big banks, you certainly need big banks. How big they need to be to do those things is another question. And so part of the idea is to make it more expensive to be a big bank, and so if it doesn’t really pay off economically, then that gives them some incentive to slim down. And we’ve seen some of that already.

HH: I’ll be right back. Dr. Ben Bernanke’s new book is The Courage To Act: A Memoir Of The Crisis And Its Aftermath. Don’t go anywhere, America, except over to Hughhewitt.com where the book is linked.

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HH: I’m joined by Dr. Ben Bernanke for three more segments. His brand new memoir, The Courage To Act: A Memoir Of Crisis And Its Aftermath is really a beautifully written bit of economic history and policy making, and memoir with a little bit of baseball thrown in. Bill James sends him a note at some point that it’s statistically impossible to continue to have this many crises. Isn’t that what it said, Dr. Bernanke?

BB: Well, it basically said that everybody who says things can’t get any worse eventually have to be right. So that’s basically what he told me.

HH: All right, you also write about the Groundhog Day economy, and how everything kept happening again and again. But in the movie, Groundhog Day, eventually you have to change in order to get, Bill Murray has to change his conduct to get something different. We’re on QE3, actually QE4, but it’s not called QE4. Is the Fed changing what it’s been doing? Or is it stuck now at 0% interest rates forever?

BB: Well, you know, the Groundhog Day problem was that the economy would begin to move, and then it would slow down again and need some additional help. But you know, if you look at the progress, we’ve made a lot of progress. You know, we’ve come from, not all we would like, but from 10% unemployment to 5%, and I make the comparison in the book between the U.S. and Europe. The United States now has total output, total GDP, about 10% above the highest level before the crisis, where Europe is not even back to the level before the crisis. So we have had the strongest recovery, and the Fed has helped that happen.

HH: But when interest rates rise, and this is what one of my students asked. We’re leveraged. We’re really highly leveraged, and he brought up the New York Times assessment of the Fed’s balance sheet being much higher now than it was ten years ago. And I don’t know if that matters, but I know that we’ve got a $20 trillion dollar deficit, that when interest rates go up, the budget deficit is going to explode. What’s the consequence of that going to be?

BB: Well, it’s not going to explode in the near term unless interest rates go way, way up, which I don’t think there’s any chance it’s going to happen. The Congressional Budget Office does these projections, and they’ve figured out where the deficits are going to be under the assumption that interest rates rise. And there are certainly deficit problems further out, but over the next five or six years, you know, even with interest rates rising, they don’t find the deficits to be that large, relatively speaking, of course.

HH: But I’m talking to 22 year olds…

BB: Yeah.

HH: And at 59, I can be much more sanguine about it, and perhaps you’re a year or two older than me. You can be much more sanguine about it, although I think you graduated early. So the question is what should they be worried about? They’ve got 50, 60, 70 years of living. I told them they had eight panics ahead of them. Am I wrong?

BB: I hope you’re, I think you’re wrong, but I don’t know for sure, of course. But I think that, you know, a lot depends on how quickly the economy grows. You know, if the economy grows fast enough, that’ll help a lot. The other thing is that looking out ten, fifteen years where the CBO starts to see important deficit problems, the biggest single component of that is health care costs. And health care costs recently have not grown so quickly, fortunately. We don’t entirely know why. But a lot depends on that. If health care costs are controlled, then it won’t be as big a problem. If they continue to grow like they did in the 60s, 70s, 80s and 90s, then there’s going to be an issue of either having to do some serious cuts or raise taxes.

HH: But do they actually have a Social Security system that they can depend upon? Do they have a Medicaid and a Medicare system? You’re an economist. You look at this from 30,000 feet.

BB: Yeah.

HH: This is all kind of built of straw, isn’t it?

BB: Well, again, it depends, you know, there’s a bit of a, you know, you pay your parents and your children pay you thing. You know, so it requires the economy to keep growing, which it has in the past. I think of those two things you mentioned, I think that the Social Security system is closer to being solvent, given where the projected benefits are, although we are an aging society. The Medicare and Medicaid is a bigger issue, and that’s where the big deficits come from, because you know, because of the health care cost problem and the fact that as we get older, we need more health care. So that, in some sense, it’s really the fiscal issue. Can we control the costs of…the federal government pays about half of all health care costs in the country, so that’s a big part of getting control of that situation.

HH: A minute to the break, Dr. Does the partisanship, Obamacare passed without a Republican vote. The stimulus passed with three Republican votes in the House and none in the Senate. The Dodd-Frank was a massively partisan exercise. And you write in your book about partisanship. Is this suggesting to you we’re not going to fix these problems?

BB: Well, in the near term, I don’t think so. I am frustrated. I was frustrated in Washington by the lack of cooperation across the aisle. I was frustrated by hearing one thing in the Congressman’s office and another thing in the Congressional public testimony. And I don’t think that Congress is getting things done right now. I won’t put blame one side or the other, but it’s clear that we have a very polarized political system, and it’s hard to tackle important problems, which obviously we have. So yeah, I think I agree with what you’re saying.

HH: I’ll be right back. Two more segments with Dr. Ben Bernanke.

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HH: Dr. Bernanke, you denounced in the book debt ceiling kabuki, and we’re about to go through another episode of debt ceiling kabuki. But one Congressman told me the Iran deal is so important that we ought to attach a repudiation of it to the debt ceiling and say you know, we’d rather default than let the Iran deal go ahead. What do you make of that kind of reasoning, if, in fact, the Iran deal is in the eye of the political actor, you know, elected to represent their district, a death sentence for Israel or the nuclearization of the Middle East? What do you think of that answer?

BB: Well, I think that, I don’t think people really understand what the debt ceiling is about. I mean, I think that a lot of people think that the debt ceiling is about stopping government from spending more. And that’s not what it’s about. It’s about the government has already spent, has already spent on a whole bunch of programs, and it’s already spent on the military, everything else. And the question is will the government pay its bill, or will it default on its bills? And I don’t think anybody really wants to default on their bills. I mean, that’s just not the way you should do business. And you know, defaulting on the bills and not paying interest on the national debt, the crisis of 2007-2009 would look like a walk in the park if the government actually defaulted on the U.S. Treasuries for, you know, any period of time more than a couple of days, even then. So you know, you just don’t want to be playing around with that, and I think you should be fighting out these issues on the floor or in any context. They’re obviously very serious issues, but you know, I think you ought to pay the bills. That’s what I, why I don’t think that the debt ceiling is the right vehicle for this kind of thing.

HH: So even if you can transport it back to the 30s and you’re opposing the German reoccupation of the Rhineland or something that turns out to be historically significant in a catastrophic way, you don’t use the debt limit?

BB: Well, I don’t know, but again, I think this is, it’s really, I don’t think people appreciate how serious that this matter is, and I don’t think you should use the debt limit. No, I think you should fight it out in the public square.

HH: Okay.

BB: …and not blackmail the economy, basically.

HH: Okay, now let’s turn to the other side. That’s what some of the conservatives threatened to do. Let’s turn to the left’s rhetoric, the 99%, the occupy movement. In fact, it came up at the debate on Tuesday night. The former Secretary of State Clinton referred to the shadow banking system in the debate. Now I had read The Courage To Act, Page 137. You define it as non-bank lenders like mortgage companies and consumer finance companies, as well as companies operating in the securities market such as investment banks. It’s not new, but she made it sound ominous. It’s not ominous, is it, Dr. Bernanke?

BB: Well, it’s not new. No, obviously not, and it’s very important. The shadow banking system, which is non-banks that provide credit is, I don’t know, roughly half of all the credit comes through those institutions. The only thing I would say is that we have to be careful. We’ve regulated the banks very toughly, and so some of this activity is going to slide over into shadow banks, and we’ve got to make sure that they’re playing fair as well. So you have to pay attention to the shadow banks, but I’m not, I certainly don’t, wouldn’t advocate shutting them down. I think they play an important role in our economy.

HH: The new agency that was burst out of Dodd-Frank, and I always get the initials wrong, the Consumer Protection Bureau. It’s got another initial in there.

BB: Financial.

HH: Yeah, it’s unregulated. And I mean, Elizabeth Warren was not confirmed, and there’s politics around there. But it essentially has vast powers over shadow banking. Is that good for the free market and free enterprise?

BB: Well, the leader was Richard Cordray. I believe he was confirmed, right?

HH: Right, eventually, not Elizabeth Warren, but Cordray was, yeah.

BB: Yeah, well, no, I think obviously, I think that there should be oversight. What they do, I think, I really haven’t followed everything they’ve done. I think they’ve been fairly judicious in how they’ve used their authorities. But yeah, and Congress has, obviously, the responsibility to oversee what they’re doing. And if they’re unhappy with it, they should be willing to act.

HH: But mine’s more generic. The idea that there’s a class of regulators with the ability to follow this rapidly-evolving set of financial instruments around the globe, doesn’t that presume a knowledge that just doesn’t exist? Even in the best technocratic minds, it can’t possibly follow the complexities of these instruments, can it?

BB: Well, I mean, the Consumer Protection Bureau is not about necessarily regulating all aspects of those companies. They’re just trying to, their mission is to protect consumers and to make sure that they get, you know, the recent thing they did was they provided new disclosures for mortgages, for example, so people understand exactly what kind of mortgage they’re getting. And I think we can agree that it’s important for consumers to understand what they’re getting.

HH: But can we pause there? You and both have…you and I have both done mortgages and refinances. Maybe you haven’t done a refinance, but I know you have a mortgage.

BB: Yeah, I have. Sure.

HH: And you know that we never read that stuff. Nobody reads that stuff. But my friends in the mortgage banking industry tell me that the new regulations have killed lending in a lot of places, that there are, and you write about how the housing cycle has not recovered the way that it should, and we’re overregulating lending to death now. Isn’t that the problem, that we’ve turned it into a bureaucratic state when you can’t have the animal spirits that you need, as you refer to often, with so many regulators?

BB: Well, there’s, there’s always this balance. You know, you have regulatory objectives. One of them is to make sure that consumers have all the information they need to make good choices. And then on the other hand, you don’t want to kill small banks. You don’t want to kill lending. That requires, you know, a balanced approach, basically, and that requires oversight. That requires judicious regulation. You certainly don’t want to argue for no regulation, so you’ve got to find what the happy medium is, basically.

HH: Well, we had the great moderation that you describe, but I’ve never seen a great moderation in regulatory affairs. I’ve seen it in markets, but I’ve never seen, every agency I’ve ever studied, with the exception of perhaps the Federal Reserve, always overregulates. Am I wrong?

BB: Well, it’s a tendency, and again, I think the Fed got criticized, you know, for, the argument was the Fed went too easy on some institutions. The Fed was trying to get the right balance between allowing credit to flow and making sure that it was done safely. And sometimes, that balance gets tipped one way or the other. I don’t have a simple answer for you. I do think that you have to regulate the financial system, and that Congress ultimately has the responsibility to oversee that process. And you’ve also, of course, the people who run those agencies are appointed by the President and confirmed by the Senate. So there is a legislative and oversight process. You know, obviously, their concern about overregulation is real…

HH: Yeah.

BB: And you’ve got to try to address that. I agree with that.

HH: One more segment with Dr. Ben Bernanke. Don’t go anywhere, America, except to Hughhewitt.com. Pick up a copy of The Courage To Act.

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HH: Thanks…to Dr. Ben Bernanke for spending two hours with me talking about his brand new book, The Courage To Act: A Memoir Of A Crisis And Its Aftermath. Dr. Bernanke, you wrote on Page 421, “A new era of monetary policy activism has arrived.” And that’s clearly the truth. But you also write about Milton Friedman and his analysis with his colleague of the Great Depression. Do you think he would approve of this new era of monetary policy activism?

BB: Well, I think he would. Now maybe not in all details, but I think he would, broadly. So first of all, when I attended Milton’s 90th birthday party, I told him, you know, the Fed contributed to the Great Depression, but thanks to you, we won’t do it again. And his lesson was, you know, the Fed let the money supply collapse in the 1930s, and that was a big reason for the Depression. And so in the spirit of Milton Friedman, we made sure the money supply kept growing, and that deflation was avoided. So I think he would be consistent with that. He also, by the way, he also wrote in 2000, he also recommended quantitative easing to the Japanese. So he had some of these things in his mind. So you know, I was good friends with Milton. I have, I think he would have been open to it.

HH: All right. Then the most difficult question of all, who’s the best baseball player ever?

BB: The best baseball player ever was clearly Babe Ruth, because he was a great pitcher as well as the best hitter in history.

HH: Okay, and the best pitcher? I hope you get this one right. He’s a Cleveland Indian.

BB: Oh, Lefty Grove, you say?

HH: No, it was Rapid Robert, Bob Feller.

BB: Bob Feller?

HH: Come on, Dr. Bernanke, yes, it’s Rapid…

BB: He’s not, he’s a great pitcher, yeah, a great pitcher, but I don’t know if he would be the greatest ever, but…

HH: And are you an optimist about the Nationals next year?

BB: Well listen, that’s the nice thing about baseball, right? There’s always a next year.

HH: Yeah.

BB: Yeah. But it was so disappointing this year.

HH: It’s a nice thing about, it’s a nice thing about radio. There’s always a next day, too. Come back again, Dr. Bernanke. Do you wish you’d done talk radio when you were the chairman now?

BB: Yeah, it was great. Thanks so much for having me.

HH: Thank you for being here. Don’t go anywhere, America, except back here tomorrow.

End of interview.

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