It’s the Fed, stupid: Bernanke pushes write-downs

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The winning slogan of the Clinton campaign ‘War Room’ in 1992 was ‘It’s the economy, stupid.’ This election will likely turn on economic issues as well, but the most important and influential policymaker will not be on the ballot. To tweak the old slogan, ‘It’s the Fed, stupid.’

The Federal Reserve, under Ben S. Bernanke (pictured), continues to take unprecedented and unusual actions to fight the housing/mortgage/credit crisis. Tonight Bernanke endorsed the idea of major government intervention in the housing market, appearing to put further distance between himself and the take-it-easy Bush administration.

From the L.A.Times tonight: ‘In a speech in New York, the central bank chairman reiterated his controversial call for lenders and mortgage service companies to consider cutting the principal of some customers’ loans to prevent foreclosure.

More: ‘’When the source of the problem is a decline of the value of the home well below the mortgage’s principal balance, the best solution may be a write-down, perhaps combined with a government-orchestrated refinancing, Bernanke told a Columbia Business School audience.’

Beyond a furious binge of rate-cutting, the Bernanke bailout already consists of numerous moves both creative and controversial, among them lending to barely regulated investment banks and the 11th-hour guarantee of Bear Stearns Cos.’ debt. The Bear Stearns bailout, arrived at in a flurry of secret meetings, was, as they say these days, a game-changer. It put the Fed squarely into the political debate and opened the door to more guarantees. While it drew praise in some quarters for ‘snuffing the Bear Stearns panic,’ the Fed was effectively making a wider promise of government aid that only Congress can keep. Sen. Hillary Clinton has cited it as justification for broader aid to taxpayers: ‘When the federal government, through the Fed and the Treasury, gave $30 billion in a bailout to Bear Stearns I didn’t hear anybody jump up and say, ‘That’s not going according to the market, that’s rewarding irresponsible behavior.’ ‘

At the moment, Bernanke -- not the Bush White House, not the Democratic Congress -- is setting the political and policy agenda on economic issues. The media love the noise from the campaign and the infighting in Congress (dueling sound bites!), but Bernanke is the bigger story. Whether you think he’s right or wrong is interesting, but I hate to tell you: He’s not listening, and he doesn’t have to.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Bloomberg News