Interpreting Middle East Economic News and Analyzing Market Trends

National Bank of Abu Dhabi pays top dollar to hear Bernanke’s misguided views on the economy

 Why is anyone still listening to Bernanke?

Ben Bernanke along with other high-flying central bankers and politicians were stars in Abu Dhabi recently as they spoke at the annual Global Financial Markets Forum (GFMF).  The two-day event was hosted by the National Bank of Abu Dhabi (NBAD). Other stars included; Jean-Claude Trichet, the former president of the European Central Bank; Lawrence Summers, the former US treasury secretary; and James Baker, the former US secretary of state.  There was some controversy over the $250,000 fee NBAD paid to Bernanke since it was more than his annual salary at the Fed.  The real question that should be asked is why would anyone pay to hear from someone who has been wrong on so many counts?

Former Federal Reserve Chairman Ben Bernanke said the U.S. central bank could have done more to fight the country’s financial crisis and that he struggled to find the right way to communicate with markets.

“We could have done some things on the margin to mitigate somewhat the crisis,” Bernanke, 60, said on Tuesday in his first public speaking engagement since he stepped down in January after eight years heading the Fed.

“Although we have been very aggressive, I think on the monetary policy front we could have been even more aggressive.”

Bernanke said he could now speak more freely about the crisis than he could while at the Fed – “I can say whatever I want” – and in remarks to over 1,000 bankers and financial professionals in the capital of the United Arab Emirates, he made clear that he had regrets.

The United States became “overconfident“, he said of the period before the September 2008 collapse of U.S. investment bank Lehman Brothers. That triggered a crash from which parts of the world, including the U.S. economy, have not fully recovered.

“This is going to sound very obvious but the first thing we learned is that the U.S. is not invulnerable to financial crises,” Bernanke said.

As the Fed provided tens of billions of dollars of emergency aid to the U.S. financial system, Bernanke said he felt the central bank was in a “terrible” political situation because it could be accused of bailing out institutions unfairly.

He also said he found it hard to find the right way to communicate with investors when every word was closely scrutinized.

“That was actually very hard for me to get adjusted to that situation where your words have such effect. I came from the academic background and I was used to making hypothetical examples and … I learned I can’t do that because the markets do not understand hypotheticals.”

Read the full story from Reuters.

 

So according to Bernanke, the real reason for the financial crisis was “overconfidence” and not lax credit standards among a half dozen other reasons.

“Dr Bernanke and Mr Trichet oversaw the world’s largest economies during very turbulent times and will be able to offer insightful and valuable analysis of the state of the economy” at the forum, Alex Thursby, the National Bank of Abu Dhabi’s chief executive, said yesterday. “We are confident that 2014 GFMF speakers and panelists will offer insightful and critical analysis of political and policy impacts on global markets.”

Read the full Story from The National.

 

How can we expect any insight or critical analysis from someone who didn’t see the financial crisis coming?  In March 2007, Bernanke had this to say: “The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”  He not only did not see the housing crisis, he did not see the coming recession or the mess the subprime crisis would create, because in his words in 2007, the US has never see a decline in house prices on a national level.  So I guess this means that if something hasn’t happened before, it will not happen.  Watch the video above for more of Ben’s hilarious mishaps.  There is also a good write up on Bernanke and the financial crisis from The New Yorker.

 

This year’s Global Financial Markets Forum was like the previous ones.  It’s a feel-good event for all the bankers in the region to gather and pat themselves on the back for another job well-done… Until the next crisis hits.  When it does hit, I wonder which bank will be the one to pay Ben top dollar to help them steer clear of the crisis?