The splash page for Ben Bernanke’s new book, The Courage to Act, unmistakably parallels a wonderful scene from the movie A Few Good Men. On the splash page, Mr. Bernanke tells potential readers the book will be a defense of the choices he made when he praises the staff at the Federal Reserve for the actions they took:
When the economic well-being of their nation demanded a strong and creative response, my colleagues at the Federal Reserve, policymakers and staff alike, mustered the moral courage to do what was necessary, often in the face of bitter criticism and condemnation.
In the movie, Colonel Nathan R. Jessep also defends his actions and the actions of his troops from what he perceives to be bitter criticism and condemnation. As Colonel Jessep said while being questioned in a military trial over the actions he ordered that violated the very principles that he swore to protect:
Jessep: I’ll answer the question. You want answers?
Lieutenant Kaffee: I think I’m entitled to them.
Jessep: You want answers?!
Lieutenant Kaffee: I want the truth!
Jessep: You can’t handle the truth!
Son, we live in a world that has walls, and those walls have to be guarded by men with guns. Who’s gonna do it? You? You, Lieutenant Weinberg? I have a greater responsibility than you can possibly fathom. You weep for Santiago, and you curse the Marines. You have that luxury. You have the luxury of not knowing what I know — that Santiago’s death, while tragic, probably saved lives; and my existence, while grotesque and incomprehensible to you, saves lives.
You don’t want the truth because deep down in places you don’t talk about at parties, you want me on that wall — you need me on that wall.
We use words like “honor,” “code,” “loyalty.” We use these words as the backbone of a life spent defending something. You use them as a punch line.
I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide and then questions the manner in which I provide it.
I would rather that you just said “thank you” and went on your way. Otherwise, I suggest you pick up a weapon and stand the post. Either way, I don’t give a DAMN what you think you’re entitled to!
Lieutenant Kaffee: Did you order the “code red?”
Jessep: I did the job I was —
Lieutenant Kaffee: — Did you order the “code red?!”
Jessep: You’re god damn right I did!!!
In the preface to Transparency Games, I describe Mr. Bernanke’s testimony before Congress as he joined Treasury Secretary Paulson asking that the banking system be put on explicit taxpayer backed life support. Mr. Bernanke’s testimony and look conveyed his fear.
Responding to his fear, Congress agreed to explicit taxpayer backed life support. This changed the course of the financial crisis. What changed was regulators were no longer forced by opacity to adopt the Japanese Model and protect Wall Street and the bankers’ bonuses at all cost. Instead, with the explicit taxpayer support, regulators were duty bound to implement the Swedish Model, restore transparency and protect Main Street. Of course, protecting the real economy would have meant the banks take losses and bankers face the potential of several years before they could earn a bonus again.
Later in the book, I discuss the most likely reason why, every day during the rest of his term as chairman of the Federal Reserve, Mr. Bernanke continued to pursue the Japanese Model despite what he calls “bitter criticism and condemnation”. The reason was fear. Specifically, his fear the financial markets couldn’t handle the truth.
Of course, financial markets can handle the truth. The global financial system is built on the philosophy of disclosure and the principal of caveat emptor.
At the time of Mr. Bernanke’s testimony, market participants already knew the banks were insolvent. What market participants did not know was how insolvent and what each bank’s exact losses might be. Market participants also did not know which of the banks had a viable franchise after recognizing its losses and which should be closed.
The source of the “bitter criticism and condemnation” were the market participants outside of the bankers. These participants knew that what was good for the bankers was bad for them and the real economy.
Just like Colonel Jessep, Mr. Bernanke in his book will try to make the case for why we want people like him on the walls defending transparent capital markets that are the source of our economic well-being.
Just like Colonel Jessep, Mr. Bernanke in his book will ask who are we to question how he restored record high prices for stocks, bonds and real estate.
Just like Colonel Jessep, everyone knows why Mr. Bernanke’s and the Fed’s actions were wrong. Everyone knows with explicit taxpayer backed life support the choice that should have been made was to save Main Street and transparent capital markets. Instead, Mr. Bernanke ordered code red and chose to save the banks. With his choice, he ushered in an era of opaque capital markets that benefit Wall Street at the expense of Main Street.