Bailout Payback

Some of the banks that received bail-out money last year are paying funds back and the U.S. government is receiving a profit. (An article on this from the NYT is here.) At the time of the bailout, it was said the government could end up getting much of the money back. This is a good sign that the claim may be true. As the article notes, though, not all banks and other institutions may be able to repay the funds and the government could experience a loss overall.

So, does this indicate the bailout was successful? Unfortunately, we can never know what would have happened absent the government's actions. The return to the government is good, but less than private investors would have made because the government paid above market price for some of the assets. Of course, the purpose of the bail out was to help the balance sheets of banks look better. If the system would have gone under without the bailout, then any profit has to be a plus; if the system would not have gone under, then it should have been left to private investors. Again, a problem with economic as a science is that the controlled experiments rarely happen. We can bail out the banks and see what happens or we can not bail out the banks and see what happens, but we cannot do both.

Bernanke Chosen for Second Term as Fed Chairman

President Obama has nominated Ben Bernanke for another term as chair of the Fed. (For a news article on this, see here.) Bernanke likely will face some sharp questioning in his confirmation hearings because of his role in the financial bail outs. Likely, he will face criticism from both the left and the right. But I think he is a good choice for a couple of reasons. First, his knowledge of the Great Depression has proven valuable in the ways he handled the Fed's reaction this time. Second, his focus has been on the task at hand rather than his own ego. Third, he is respected by other central bankers and many within the Fed. Fourth, he has to better than Larry Summers, who apparently was on a short list for the job. (Janet Yellen would have been better, but Bernanke is better yet).
I have some reservations though. I fear that his actions may impinge long term on the Fed's independence. I also am leery of adding more regulatory power to the Fed because that may make it more difficult to remain independent.
Senators tend to be great Monday-morning quarterbacks, so I expect the fact that Bernanke made some mistakes will be emphasized in the hearings. Hopefully, it will just be a lot of huffing and puffing, and Bernanke will be confirmed.

In Fed We Trust

I read recently a new book on the Federal Reserve and its handling of the recent financial and economic crisis. The author, David Wessel, is economics editor of the Wall Street Journal. The book is In Fed We Trust: Ben Bernanke's War on the Great Panic. It is the best book I have read relating to the crisis. While it's focus is narrow, it is thorough and the economics in it are good. So many of the books that have come out focus on greed and are sensationalistic. This book is not sensationalistic, but is a sensational read. I highly recommend it.