Bernanke, Greenspan ... A Style Guide
Friday, August 24, 2007PAUL KANGAS: Alan Greenspan's handling of financial markets earned him the nickname "the maestro." Now, Fed watchers are evaluating Chairman Ben Bernanke's handling of his first financial crisis and they're learning that this central bank chairman has a very different style when it comes to managing a market meltdown. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: When key financial markets began seizing up, Ben Bernanke acted, in part, by issuing a statement through the Fed's policy-making committee. Economist Adam Posen says that was a subtle but important signal.
ADAM POSEN, SENIOR FELLOW, PETERSON INSTITUTE FOR INT'L ECONOMICS: This is the system. This isn't just one person's whim. This isn't even one person's brilliant assessment, which sometimes is useful. This is a whole set of the leadership of the Federal Reserve banks in this country and the members of the board of governors agreeing on a common course of action. That means we're more accountable.
GERSH: When he ran the Fed, Alan Greenspan operated in a collegial manner, but from outside, the central bank was seen as a cult of personality, important messages conveyed through a powerful chairman's colorful metaphors. In 1998, Greenspan signaled a rate cut by warning the United States could not remain an island of prosperity in a sea of trouble. Posen says the Federal Reserve under Bernanke is more precise in how it speaks to the world.
POSEN: Every statement is made about either the economic outlook or the financial system. It's not metaphors. It's not talking about issues that are not directly in the Fed's remit. It's really staying very focused on the Fed's goals.
GERSH: One of those goals is managing market meltdowns. But Fed historian Alan Meltzer says it's still not clear how the central bank decides who should sink and who should be bailed out.
ALLAN MELTZER, PROFESSOR, CARNEGIE MELLON UNIVERSITY: The one thing that the Fed has never done and should do is in its 90-some-odd year history, it has never said publicly what its strategy is in a crisis.
GERSH: Fed governors might disagree. Many have warned about market risks and in any case, each crisis is a unique event. Still Meltzer says, the Fed's sometimes yes, sometimes no attitude towards bailouts creates uncertainty that should be resolved.
MELTZER: So, if they say, we will lend against good collateral to anybody who has it, that tells them -- you want to protect yourself? Hold good collateral.
GERSH: But this Fed has been more focused. JPMorgan Chase chief economist Bruce Kasman says Bernanke has stressed the Fed's main concern is the broader economic impact caused by market disruptions.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN CHASE: I think that Chairman Bernanke is much more sensitive, partly out of the history of the last 10 to 15 years of making sure that he doesn't give the impression that the Fed is out there to insure against losses or against financial market volatility.
GERSH: We may learn more about Ben Bernanke's crisis management style as soon as next week. The chairman is scheduled to speak on Friday on housing and monetary policy. If he wants to send a message, that's the time to do it. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
