First, he admitted that we verged on a second Great Depression. I think he knew that we were actually in one, a garden-variety version, but we won’t know that until his memoirs are published. But, he told Scott Pelley, he had a plan and it would work and the nation’s economy would be stabilized by year’s end. It was his clear, simple, no-gobbledygook sentences, spoken calmly and confidently at the camera, that saved the day. Such plainspokenness shocked those of us used to the deliberately opaque statements of Greenspan, a smart tactic for the former chief because it made his tenure so inscrutable, a horrid tactic for the country because Greenspan could and did get away with anything, including helping to create the housing and stock-market bubbles.
Bernanke then proceeded to eviscerate the laissez-faire economics of the previous administration and its endless faith in the markets that produced the fiasco that was Lehman Brothers. At the same time, he made it clear to Obama that the new president was using the wrong road map when castigating Wall Street, because Wall Street leads directly to Main Street. For emphasis, he made it personal: “I came from Main Street. That’s my background. I’ve never been on Wall Street, and I care about Wall Street for one reason and one reason only—because what happens on Wall Street matters to Main Street,” something he said he knew because his father couldn’t get credit for his small business in Dillon, South Carolina, without the help of the big bankers whom Obama was castigating.
In the interview, he gave a stern warning to the hedge-fund managers and other investors who were driving down financial stocks, and everything else along with them, telling Americans that our large national banks, including Citigroup, Wells Fargo, and Bank of America, all of which seemed to be slated for nationalization, “are not going to fail.” He said he was working on a stress test that would make it clear to the public that it would be safe to invest in banks again, and that we’d see the results soon enough.
Finally, he gave us hope. He said he saw “green shoots” of recovery, a phrase that has taken hold in the mainstream and created a sense of optimism about the economy’s emerging from dormancy.
The performance, and Bernanke’s impressive follow-through, marked a turning point. Banks have easily been able to raise the $74 billion that Bernanke and Treasury Secretary Geithner required them to raise in the now incredibly successful stress-test exercise. Mortgage rates have come down dramatically, helping vanquish the housing gluts in Florida, Arizona, and California. In California, which accounts for a huge portion of the housing calamity, we’ve seen two straight months of housing-price appreciation and dramatic increases in turnover, as foreclosed homes get sold by the hundreds of thousands and banks’ balance sheets improve dramatically. Bernanke’s seemingly Panglossian attempt to call a bottom in the U.S. economy by the end of the year is now held to be pretty conventional wisdom, the real explanation why the stock market’s been red-hot.
The moment of crisis has passed, the parallels to the Great Depression are gone, all because Bernanke learned the lessons of history and refused to let it repeat itself. Bernanke once seemed Lilliputian compared to Greenspan. Now their statures have been reversed.