Ben Bernanke – The Courage to Cash In

 

Ben “I Didn’t See It Coming” Bernanke Hired by Big Hedge Fund

Ben Bernanke is not only blogging now and thereby making an unwelcome contribution to lowering the citizenry’s aggregate economic intelligence, he has also decided to once again follow in the footsteps of his predecessor, “Maestro” Alan Greenspan, by joining a hedge fund. Bernanke is calling in some markers and is about to cash in by becoming an advisor to the Citadel Group, the world’s most highly leveraged large hedge fund and HFT shop.

 

 

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In an initial reaction our colleague Ramsey Su noted that Bernanke also has a book coming out soon, which is entitled “The Courage to Act”. According to Ramsey it would be more appropriate to re-title it “I Did Not See it Coming”. Needless to say, we would definitely agree with this title modification.

 

It seems rather obvious that Citadel isn’t hiring Bernanke for his prescience and forecasting prowess. To see why we are saying this, consider this collection of the former Fed chief’s economic forecasting gems:

 

Back when he was Fed chairman, Ben Bernanke frequently tried his hand at economic forecasting. This didn’t work out very well.

 

Frankly, we can also not imagine that they are hiring him for his grasp of economic theory, although he once used to be a very prolific and often cited producer of papers for academic economic journals. None of them revealed any particularly revolutionary insights – on the contrary, his writings with respect to the two fields for which he is most famous for, namely his analysis of the Great Depression and his critique of the post-bubble activities of the Bank of Japan, basically consist of standard monetarist/Keynesian mumbo-jumbo (we once looked at one of the latter papers, and it was brimming over with terms like “consumption” and “aggregate demand” – “production” wasn’t even mentioned once).

 

As far as Bernanke’s policy recommendations and conclusions go, he seems to be coming down on the side of “print as much money as possible and run a huge budget deficit when a central bank policy induced bubble bursts”. Not exactly terribly original.

 

So what exactly is Bernanke hired for? Considering that he can’t predict his way out of a paper bag and his knowledge of economics doesn’t deviate one inch from the mainstream consensus, it seems a fair question. After all, he is presumably going to earn big bucks now. This regulatory capture/revolving door phenomenon is well established of course. Wall Street firms are quite frequently hiring their former regulators once they retire from their jobs in the bureaucracy.

 

On the one hand, this ensures that said regulators are not too harsh on those they are supposed to oversee while they are in office, as the eventual reward of a plum and highly paid job is always dangling before their mind’s eye. On the other hand, a well-connected former bureaucrat undoubtedly comes in handy at times.

 

Bernanke may be unable to make a single correct economic forecast, but he certainly does know the central bank’s inner workings and knows how his former colleagues at the Fed think. Presumably Citadel is expecting to get some insights on the likely future course of monetary policy, and hoping to get a leg up on its competitors that way.

 

 

Conclusion

 

Naturally, there is nothing wrong in principle with Ben Bernanke finally getting a real job in the private sector. However, the fact that he is joining a large Wall Street firm once again highlights how US corporatism/crony socialism works.

 

The advantage Citadel’s managers are getting from hiring a former high-ranking monetary bureaucrat has nothing to do with free markets and providing better services to their fellow men. It only makes sense because the current economic system is light years away from anything resembling free market capitalism. It is no surprise that having access to the former chief central planner in such a system looks like a good investment to Citadel.

 

bernankeBen Bernanke, sporting a big self-satisfied grin. Who wouldn’t?

Photo credit: AP

 

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