Taking a cue from Dr. Selgin who made a convincing case on this blog regarding the entertainment value of the first installment of Chairman Bernanke's GW lectures; and after spending an hour and a half of my free time while recently working in the Caribbean listening to Peter Schiff's critique of the same lectures in an event on Reason TV, I felt the need to watch one of them in its entirety. What a maddening experience indeed. These two gentlemen picked apart the Chairman's indoctrination with their usual skill and grace, especially with regard to creation of bubbles and discretionary monetary policy. As I am wont to do, my focus was on the Fed's bailout policy and I happened to catch the third installment of the Bernanke series which involved a discourse on the AIG bailout (about the 45:50 mark):
It's an oldie but a goodie for our Federal Reserve chairman. In one of his recent lectures at George Washington University (GWU), Ben S. Bernanke made the self-congratulatory assertion that the "forceful policy response" led by the Federal Reserve in 2008 helped avoid a more serious economic downturn.
This rhetoric is nothing new. Mr. Bernanke has made similar remarks in the past. As he confided in one interview, "I was not going to be the Federal Reserve chairman who presided over the second Great Depression." It is clear that like Treasury Secretary Timothy F. Geithner, who recently trumpeted the fourth anniversary of his role in the Bear Stearns bailout, Mr. Bernanke is aggressively using the GWU lectures to shape his legacy before he steps down.
During the chairman's one-hour-plus lecture, he dedicated five full minutes (and four PowerPoint slides) to a case study on AIG. In the classic dour assessments reminiscent of 2008, Mr. Bernanke used Chicken Little hyperbole, noting that the "failure of AIG, in our estimation, would have been basically the end." The chairman did not elaborate for the benefit of the students in attendance what he meant by "the end" or the precise connection between the failure of AIG and the end of financial life as we know it, but it certainly made for a dramatic moment during the lecture.
Interestingly enough, one of the GWU students pressed the chairman for more details on the decision-making process underlying interventions like what occurred with AIG. The student, identified by Mr. Bernanke as "Max," boldly questioned the chairman's methods: "Where do you draw the line between bailing out a bank and allowing it to fail? Is it arbitrary or is there some sort of methodology?" Mr. Bernanke meandered a bit in responding to Max and eventually admitted that the process was somewhere in between arbitrary and a set methodology, noting that it was a "case-by-case process" and "somewhat ad hoc."
For the full article, please see today's Washington Times.