Who is Ben Bernanke?
Ben Bernanke was chairman of the board of governors of the United States Federal Reserve from 2006 to 2020. Bernanke assumed the leadership of Alan Greenspan on February 1, 2006, ending his 18 years of leadership at the Fed. A former Fed governor, Bernanke was chairman of the President’s Council of Economic Advisers before being appointed successor to Greenspan in late 2005.
Understanding Ben Bernanke
Born Ben Shalom Bernanke on December 13, 1953, he is the son of a pharmacist and a teacher and was raised in South Carolina. A high-performing student, Bernanke obtained his summa cum laude undergraduate degree from Harvard University and then pursued his doctorate. at MIT in 1979. He taught economics at Stanford and then at Princeton University, where he headed the department until 2002, when he left his academic work for the public service. He officially left his post at Princeton in 2005.
Ben Bernanke’s professional life
Bernanke was first appointed Fed Chair by President George W. Bush in 2005. He had been appointed to President Bush’s Council of Economic Advisers earlier that year, which was widely viewed as a test of success to Greenspan as President. In 2020, President Barack Obama appointed him for a second term as president. He was succeeded by Janet Yellen as chairman in 2020. Prior to his two terms as chairman of the Federal Reserve, Bernanke was a member of the Board of Governors of the Federal Reserve from 2002 to 2005.
Bernanke’s role during the credit crunch
Ben Bernanke helped stimulate the American economy after the 2008 banking crisis which plunged the economy into a downward spiral. He took an aggressive and experimental approach to restore confidence in the financial system.
One of the multiple strategies that the Fed has applied to curb the global crisis has been to implement a low rate policy to stabilize the economy. Under the tutelage of Bernanke, the Fed lowered benchmark interest rates near zero. By reducing the federal funds rate, banks lend money at lower cost and, in turn, can offer low interest rates on loans to consumers and businesses.
As conditions worsened, Bernanke proposed a quantitative easing program. The quantitative easing program involved the unconventional purchase of treasury bond and mortgage-backed securities (MBS) in order to increase the money supply in the economy. By buying these securities on a large scale, the Fed increased their demand, which caused prices to rise. Since bond prices and interest rates are inversely linked, interest rates have fallen in response to rising prices. Lower interest rates have lowered the costs of financing business investment, thereby improving the financial condition of a business. By strengthening the operations and activities of businesses, businesses have been able to create more jobs, which has helped reduce the unemployment rate.
Ben Bernanke also helped curb the effects of rapidly deteriorating economic conditions by bailouting a number of large troubled financial institutions. While the Fed endorsed the decision to let Lehman Brothers fail, it bailed out companies, such as AIG Insurance, because of the higher risk posed by bailed out companies. In the case of AIG, Bernanke believed that the huge responsibility of the company was only isolated in its financial products which involved hundreds of billions of dollars of speculation in derivatives. In the event that the company loses its speculative position in these derivatives, it would not have sufficient funds to reimburse or cover its losses. For companies like Merrill Lynch and Bear Stearns, the Federal Reserve urged Bank of America and JPMorgan to buy and take over the two companies by guaranteeing bad debts of troubled banks.
In his 2020 book, The courage to act, Bernanke wrote about his tenure as chairman of the Federal Reserve and explained how the global economy was on the verge of collapse in 2008, saying he would have done so if the Federal Reserve and d ‘other agencies had not taken extreme measures. President Barack Obama also said that Bernanke’s actions prevented the financial crisis from becoming as severe as it could have been. However, Bernanke has also been criticized for not doing enough to predict the financial crisis.
Ben Bernanke’s legacy
Although Bernanke’s actions are indelible to the recovery of the global economy, he has been criticized for the approaches he has taken to achieve this recovery. Economists have criticized the fact that it has injected hundreds of billions of dollars into the economy through the bond purchase program, which has potentially increased debt for individuals and businesses and led to the inflation. In addition to these economists, lawmakers also criticized his extreme measures and opposed his reappointment as chairman of the Federal Reserve in 2020. However, President Barack Obama renewed him for a second term.
Since April 2020, Ben Bernanke is currently an economist at the Brookings Institution, a public non-profit organization based in Washington, DC, where he provides advice on fiscal and monetary policies. He is also a senior advisor for Pimco and Citadel.