In Defense of Bernanke's Big Bucks

So people are mad at former Federal Reserve Chair Ben Bernanke because he finally caved to the temptation of Wall Street’s immeasurable riches.

I say immeasurable because in Bernanke’s case neither he nor his new employer, hedge fund giant Citadel, will say how much he is being paid to serve as an “outside senior advisor.” Suffice to say it’s probably a lot more than you and I make.

But you know what, if anyone deserves the big pay day after sacrificing a significant chunk of prime earnings years to public service, it’s Bernanke.

Economists, of whom I know a few, made a decision early in their careers. They either go into academia and write and lecture and make a decent living. Or they go directly to Wall Street and make a killing.

Bernanke chose the former, spending the first three decades of his career in academia and ending that chapter as a distinguished professor and dean at Princeton University. From there he was plucked out of relative obscurity by Republican President George W. Bush and appointed to the White House’s Council of Economic Advisors.

In 2006 Bush named him Fed chief and two years later the economy blew up.

Yielding to Bernanke

I won’t ignore the fact that Bernanke’s critics say he and his Fed colleagues should have seen the housing crisis coming -- from a mile off. I don’t entirely disagree with them. But I’ll leave that argument for the historians.

The reality is that for the better part of two years -- from about mid-2008 just after the collapse of Bear Stearns and just ahead of the collapse of Lehman Brothers through mid-2010 after the worst of the Great Recession was over -- Bernanke was steering economic policy in the U.S.

Not only was he dealing with an economic crisis the likes of which the U.S. hadn’t seen since the 1930s, he was doing it amid a transition from one presidential administration to another -- two administrations, it should be noted, pretty much diametrically opposed to one another in ideology.

Sure there were Hank Paulson and later Timothy Geithner, Treasury Secretaries respectively for the successive White House administrations during the crisis, but both clearly yielded to Bernanke’s decisions.

Bernanke convinced the outgoing (ostensibly) fiscally conservative Bush administration, as well as the incoming Obama administration, to bail out the biggest U.S. banks, a move that would prove highly controversial but probably fended off a much larger crisis. (Besides, all the banks paid the money back once they got back on their feet and started printing money again.)

During the darkest days of the crisis he initiated unprecedented and untested emergency lending facilities in an effort to pump cash into credit markets that had all but seized up after Bear Stearns and Lehman couldn’t pay their debts.

Then he lowered short-term interest rates to a weird near-zero range that few people outside the elevated and pin heady world of central bankers understood. And he kept those rates there despite relentless criticism that such a policy left unchecked would inevitably lead to runaway inflation.

Meanwhile, he initiated something called quantitative easing, three separate programs in which over the course of five years the Fed bought trillions of dollars of U.S.-issued debt, also in an effort to pump liquidity into stagnant financial markets.

Throughout this process of trial and error, Bernanke explained his actions and motives in semi-monthly press conferences, a move once-unthinkable to a U.S. Fed chair, not least Bernanke’s often gleefully cryptic predecessor Alan Greenspan.

He Earned It

In short, the guy worked really, really hard for a number of years during which the stakes couldn’t possibly have been higher. And, since he wasn’t a politician seeking re-election, he presumably had no ulterior or otherwise self-seeking motive other than preventing another Great Depression.

In 2008, as the world’s economy was going to hell in a hand basket, Bernanke made $199,700 a year, the salary set per U.S. law. That same year, then Bank of America CEO Ken Lewis made $9 million, a sharp decline from the $20 million he pulled down in 2007. And Lewis at the time was ranked 85th on Forbes’ list of the highest paid U.S. CEOs.

The so-called revolving door that connects powerful Washington figures who amass great influence as public servants to the gold-plated corridors of Wall Street is a fact of life. Closing that door entirely is as likely as removing the influence of money altogether from the political process.

And besides, if the door closed entirely it would keep out countless highly-qualified people who might simply avoid public service in any form, as many already do.

Whatever coin Bernanke is now banking, he made it the old fashioned way (to quote an old Wall Street ad): he earned it.