Did Ben Bernanke's Torah lessons help to save the world?

November 24, 2016 23:21

Book tours bring all kinds of people to Britain but few can be considered more important than Ben Bernanke the former chairman of America's central bank, the Federal Reserve.

When the world of finance came as close to collapse as at any point in modern times, on September 16 2008, it was Bernanke who joined President George W Bush and Vice-President Dick Cheney in the Roosevelt Room adjacent to the Oval Office and made the case for the US government to bail-out the global insurance giant AIG (founded by veteran financier Hank Greenberg). AIG had more than $1 trillion of assets making it 50 per cent larger than Lehman, operated in 130 countries, and had more than 74 million individual and corporate customers.

Most importantly of all, at the time, it was the main insurer of the sub-prime mortgage securities that had brought Lehman crashing down and were threatening the whole stability of the financial system. Technically, the Fed, a banking regulator, had no jurisdiction over an insurance company. Bernanke had carefully studied a Great Depression era amendment to the Federal Reserve Act that authorised the central bank to step in if the US economy was in critical danger. It required the chairman of the Fed to have ''The Courage to Act'', which is the title of Bernanke's 609-page, just released memoir.

Bernanke convinced Bush of the need to make a $75 billion loan to AIG in exchange for an 80 per cent shareholding in the insurer and the global financial system stepped back from the brink.

Bernanke's knowledge of how to act, as he richly acknowledges in his memoir, is largely attributable to Jewish intellectual underpinnings, and his personal experiences as a practising Jew brought up in a small town in America's Deep South. Like many in the US's economic establishment, Bernanke, after undergraduate training at Harvard, moved a short distance along the Charles River to the Massachusetts Institute of Technology to pursue his graduate work in economics. He was following the same route as two illustrious Jewish Nobel prize winners Paul Samuelson (best known for his best-selling economics textbook) and Robert Solow. Samuelson had found Harvard an unwelcoming place for a Jewish academic who wanted to take economics in a fresh mathematics-based direction.

MIT, with its clinical engineering and scientific focus, proved a much friendlier environment for Jews and for bringing mathematical discipline to what had previously been regarded as more of a humanities subject. At MIT, Bernanke was to meet one of the world's most respected economists Stan Fischer, who went on to serve as chief economist at the International Monetary Fund and governor of the Bank of Israel and who is now back in Washington as deputy chairman of the Federal Reserve.

Fischer introduced Bernanke to the work of Chicago-based economists Milton Friedman and Anna Schwartz and their classic work, A Monetary History of the United States 1867-1960. Until then, Bernanke, like most economists, regarded Harvard economist John Kenneth Galbraith's The Great Crash of 1929 as the authoritative work on the events of the 1930s and how speculation and greed on Wall Street caused the US to sink into depression. Friedman, using mathematics and history, presented a different version of events.

In his view, history showed that it was the contraction of the money supply - the amount of money circulating in the economy - which caused the mass unemployment and hardship of America's Great Depression. It was a thesis Bernanke developed further in his own PhD, which delved into the Great Depression. When the crisis hit in 2008, he was the right man in the right place. He recognised both the need to rescue the financial system and the need to print money.

His early flirtation with what has come to be known as quantitative easing earned him the unfriendly sobriquet of ''Helicopter Ben'' with his critics arguing that turning on the dollar printing presses had as much chance of success as dropping dollar bills over major US cities from a helicopter.

Bernanke and his intellectual predecessors Fischer, Friedman et al had the final say. Those countries that were early adopters of QE - the US and the UK - emerged from the 2007-09 Great Financial Crisis far quicker that the eurozone countries, Germany included, which were very late adopters.

The most heart-warming sections of Bernanke's memoir are about being brought up as the grandson of a kosher butcher and baal koreh in the small town of Dillon in North Carolina and how he was capable of leading shul services at the age of 11. In the south, the Jews, who first arrived in the region in the 17th century found general acceptance in the large evangelical Christian culture and it was the black population that felt the full force of discrimination.

When he wasn't learning Torah at his grandfather's knee, Bernanke was getting his first economics lessons from his grandmother Masia. When he asked his grandparents why his fellow pupils went to school in worn-out shoes or bare feet, he was told their fathers had lost their jobs when the shoe factories closed.

''Why did the factories close,'' the young Ben asked. ''Because nobody had the money to buy shoes,'' came back the reply.

As a small boy, Bernanke says he saw the paradox on which much of his career of understanding why deep economic depressions occur was based.

Ben Bernanke is not a name that will be much heard of in the local pub or in the Shabbat Kiddush in shul halls. But this modest, morally certain main, with his deep understanding of Judaism, is one of the heroes of our time.

November 24, 2016 23:21

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