Poll Results: Grading Bernanke & Paulson

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Over the past few days I conducted a snap poll on the performance of Messrs Bernanke and Paulson over the past year, i.e. the first year of the credit crisis. The poll was devised in order broadly to gauge readers’ sentiments regarding the gentlemen’s actions during testing times.

In total about 400 people participated in the poll and responded as follows:

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Bernanke’s grades were all over the show, with about 42.4% of the participants rating his performance above average and 57.6% expressing the opinion that he performed in the bottom half of the grading card.

Paulson, however, had the bulk of his grades in the low numbers, with as many as 30.1% of the participants giving him the lowest grade of 1. (Bernanke also had the majority of his grades in the lowest category – 18.0%.)

A particularly succinct comment on the “management” of the credit crisis was received from a reader, Wendy, neatly summarizing the actions (or lack thereof) involved in the whole debacle. As I by and large concur with her thoughts, I have decided to republish her paragraphs below.

“The performance of Bernanke and Paulson over the past year is a different question than their performance over their entire tenure.

“The Fed deserves low pre-crisis marks for not using its regulatory authority to put a stop to egregious lending practices. Treasury (and the SEC, OFHEO and FDIC, which you left out) didn’t use their authority to try to bring state-chartered banks into compliance with national bank standards. They also didn’t make any attempt to force securitizers (banks, the GSEs, the ratings agencies and the investment community) to force mortgage brokers to meet realistic lending and rating standards before the loans were bought, securitized, and sold to investors. They didn’t (and still haven’t) forced banks to put risky SIVs (structured investment vehicles) onto their balance sheets. They allowed (and still allow) banks and investment banks to use internal models to “mark to fantasy” (Level 3) and allow the enormous market for credit default swaps to be unregulated, opaque, and the recordkeeping not current.

“By ignoring the foundations of the crisis, even as the cracks were forming and propagating, the Fed, the Treasury, the SEC, the FDIC, OFHEO and the bond rating companies all deserve an “F.”

“However, since the crisis broke, a year ago, their performance has been much better.

“Bernanke and Paulson have both been very active. Importantly, they have collaborated more than any Fed and Treasury heads that I can remember.

“They have both actively tried to prevent a panic, by jawboning constantly in a clear and balanced way. Without their involvement, the financial structure would have shuddered, and possibly crumbled, several times in the past year.

“I give Bernanke high marks for using unconventional moves, such as lending Treasuries with Level 3 securities as collateral to unregulated investment banks (possibly illegal, but it’s easier to ask for forgiveness than permission). Such moves increase liquidity and keep the financial system from seizing up, without the knock-on effects that the Fed’s previous tool — the Fed funds rate — would have (most notably, by impacting the dollar).

“I give Paulson medium marks for trying his darnest to talk the dollar up, giving the Fed’s medicine of interest rate cuts time to work through the economy. Also, I give Paulson high marks for trying so hard to alleviate the SIV crisis (although it didn’t work).

“However, I downgraded Paulson’s mark because I think his proposal to make the US taxpayer the bagholder for the GSEs is a terrible mistake and a very bad precedent.

“Ultimately, I gave Bernanke a high grade and Paulson an average grade, although these certainly aren’t average times.

“The entire regulatory regime of the US financial community requires the largest overhaul since the Great Depression. Regulations that have been gradually repealed need to be put back into place. However, since so many new financial tools have been developed, the whole system needs to be rethought. This must include the Fed, Treasury, SEC, FDIC, the GSEs, and the governmental housing agencies (GNMA, the FHA). The state regulators must also be involved, since many of the most egregious practices happened on the state level, not regulated by any federal agency.

“To accomplish this while preventing an outright financial crisis is like trying to repair an aircraft that is sporadically losing aileron control while trying to set up final approach in turbulence.

“Not to mention that the US is in the middle of a Presidential election. Whichever side wins, there will be a big change in the cast of characters, especially the Agency heads (Treasury, SEC, FDIC, and FHFA, which is the new agency that will be doing OFHEO’s job to regulate the GSEs) during these unsettled times.”

 

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3 comments to Poll Results: Grading Bernanke & Paulson

  • Poll Results: Grading Bernanke & Paulson…

    Just for a bit of fun …

    Over the past few days I conducted a snap poll on the performance of Messrs Bernanke and Paulson over the past year, i.e. the first year of the credit crisis. The poll was devised in order broadly to gauge readers’ sentimen…

  • Jim Hancock

    Hmmmm …here’s what I think:

    – Grading Bernanke is like judging the clean-up efforts of a construction crew after they burned the house to the ground.

    – Grading Paulson is like grading a communist central planning committee.

    – They are both complete liars (or stupid) …telling us subprime is contained, we care about a strong US$, the US economy is strong, blah, blah, blah. I believe NAR about as mush as these two.

    – They are both guilty of giving taxpayer money to JPM without congress’s approval (this is unconstitutional). And potentially giving it to GSEs with congressional approval.

    – We also know that they are mainly focussed on the market …and hate short sellers. All the stick saves at technically critical points are not coincidence. Their job is to help the economy, not their Wall Street buddies.

    – Finally, we are judging them both in what is maybe the 3rd inning …and we know Paulson won’t even be playing in the 4th. Let’s see if they win the game first…

  • Jim Hancock

    Actually, I think Mish summed it up quite well in a recent post:
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Economic conditions are now deteriorating rapidly. The Fed, Congress, and we the people are all to blame for wanting and believing in the free lunch theory of economic advancement.

    Indeed, much of the so called growth of the last seven years was nothing more that a giant Ponzi scheme with Greenspan, Bernanke, and Paulson acting as the head cheerleaders. All the financial wizardry schemes have now run their course. The payback is deflation, and the payback time is now.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

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