- Market Commentary -

January 26, 2010 (FinancialWire) (By Philip Holmes) — Should we all rally around Fed Chairman Ben Bernanke as he seeks another term in office? Even New York Times columnist (NYSE: NYT) Paul Krugman, a man who owes his day job at Princeton to Bernanke, can only muster a half-hearted endorsement. Didn’t Ben save the Western world from economic collapse?

In his January 25 column, Krugaman lays out his case for giving Bernanke a second term. He sees that Bernanke has become a symbol for public rage over the bank bailouts and stubbornly high unemployment rates, but says he admires Bernanke, “both as an economist and for his response to the financial crisis.”

Krugman does favor the Fed head’s reappointment, “but only because rejecting him could make the Fed’s policies worse, not better.”

Such faint praise. Like many, Krugman sees Bernanke as being a part of Fed complacency in the years leading up to the crisis. “Worse, after the acute phase of the crisis ended he slipped right back into that mainstream,” says Krugman.

“Once again, the Fed is dangerously complacent — and once again, Mr. Bernanke seems to share that complacency.”

Krugman cites Bernanke’s opposition to the creation of a new consumer financial protection agency as part of that trend. Back to business as usual, folks, no need for anything that radical. No need to take that power away from the Fed, that is.

But, as Paul points out, “During the run-up to the crisis, as financial abuses proliferated, the Fed did nothing. In particular, it ignored warnings about subprime lending.”

Ahh, a key point: The Fed turned a blind eye to obvious problems, like a gargantuan real estate bubble wherein unemployed gardeners in California were getting approved to buy little 2-bedroom shacks…for half a million dollars.

So, why is Krugman nonetheless endorsing Bernanke’s reappointment? Two main things, says Krugman: “any good alternative for the position would face a bruising fight in the Senate. And choosing a bad alternative would have truly dire consequences for the economy.”

Well, OK, we don’t need any more lessons in how dysfunctional and corrupt Congress is. Not after the healthcare reform debacle. But shouldn’t the Democrats at least, you know, “send a message” to disgusted voters?

After all, it’s not like Bernanke is some sacrificial lamb, or a patsy being thrown to the mob.

It’s safe to say that the Feds actions of the past year stabilized the financial system. It’s also safe to say that such measures wouldn’t have been necessary had various watchdogs, notably the Fed, had not been asleep at the switch.

So, getting some new blood at the top isn’t such a bad thing, practically or politically.

Unless, of course, one buys into the “hundred year flood” nonsense. No one could have seen it coming!

For all of those useful idiots, well, see you at the next bubble. It won’t take a century.

[Go to http://www.financialwire.net/?s=philip+holmes to see more commentaries by Philip Holmes.]

The FirstAlert(tm) Economics Calendar lists Weekly Chain Store Sales (8:55 a.m.), S&P Case-Shiller Home Price Index for November (9 a.m.), 2-day FOMC Meeting Begins, Consumer Confidence Index for December (10 a.m.), Treasury auctions 2-year notes (1 p.m.).

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Quote of the Day: “I promise to keep on living as though I expected to live forever. Nobody grows old by merely living a number of years. People grow old by deserting their ideals. Years may wrinkle the skin, but to give up wrinkles the soul.” General Douglas MacArthur

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Today in History: King Edward III of England was declared King of France in 1340. Benjamin Franklin wrote a letter in 1785 to his daughter expressing disappointment over the selection of the eagle as the symbol of the United States; he wanted the turkey. The Rum Rebellion, the only successful (albeit short-lived) armed takeover of the government in Australia, took place in 1808. Michigan was admitted in 1837 as the 26th U.S. state. Glenn H. Curtiss flew the first successful seaplane in 1911. Former Ford Motor Co. executive Henry Leland launched The Lincoln Motor Co. in 1920. The Apollo Theater opened in 1934 in Harlem, New York City. John F. Kennedy in 1961 appointed Janet G. Travell to be his physician, the first time a woman held this appointment. Lotus 1-2-3 was released in 1983.

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