Working togetherBank of Korea Gov. Lee Ju-yeol has recently been re-reading former U.S. Federal Reserve Chairman Ben Bernanke’s memoir “The Courage to Act.”
The book is an account on how the U.S. central bank fought the biggest postwar economic challenge in 2007-08, and ended up reviving the U.S. economy while Bernanke headed the Federal Open Market Committee from 2006 to 2014.
The book tells of why and how the economist-turned-central banker chose practicality, actuality and action over tradition, theory and principles as the Fed was faced with a number of crises in the aftermath of the Wall Street meltdown. Bernanke resorted to a number of unorthodox actions — zero interest rates and quantitative easing — to save the U.S. and global economy from an economic disaster possibly bigger than the Great Depression.
Bernanke prized cooperation with other agencies, including the government, as much as he did the central bank’s independence. He worked closely with Henry Paulson and Timothy Geithner, the U.S. treasury secretaries, to fight the 2008 financial crisis. He joined the government’s campaign to persuade Congress to allow Wall Street bailouts. “I’ve never been on Wall Street,” he said. “And I care about Wall Street for one reason and one reason only: because what happens on Wall Street matters to Main Street.”
What Lee liked most of all was the part in which Bernanke confessed his hurt pride every time the central bank was pulled into a corporate bailout at the request of Washington officials. Lee is indirectly grumbling about the pressure he is feeling from the Korean government to have the central bank print money to fund restructuring of the troubled shipping and shipbuilding industries.
Lee’s anxieties are understandable. The very idea of the Bank of Korea funding corporate restructuring goes against the bank’s hard-protected legacy, tradition and principles. It may come across as a practical idea, but few can be sure it is the right solution to the problem. The central bank’s authority to print money must be strictly controlled and used only in special and urgent cases. If the central bank is not prudent with the money press, the country’s economy could be wrecked. So how special and urgent is the case with Korea’s shipping and shipbuilding restructuring?
Since he is in the reading mood, Lee should also pick up “Stress Test,” written by Geithner, who also had a ringside seat to the global crisis as treasury secretary from 2009 to 2013. If a little self-indulgent, the book is a rather good account of how Washington sought balance in politics and economics during times of crisis. It makes for a good back-to-back read with Bernanke’s memoir to get a comprehensive look at the mix of policy responses to a financial crisis.
The two were fighting for different goals but were on the same side of a rescue mission. The two communicated endlessly. Geithner and his department discussed with Bernanke and his Fed team all the fiscal policies from stress tests on banks, recapitalization details, financing for purchases of non-performing assets, and the scope and timetable for aid programs. He knew the world was watching the regulators in Washington. “The small group of key policy makers worked together surprisingly well, arguing, agonizing, sometimes agreeing to disagree, but mostly trying to get the right answer and minimize the time wasted on bureaucratic conflict,” he recalled.
Geithner worked rigorously with Bernanke to show that they were united in the fight to rescue an economy against unfathomable and unimaginable danger.
I sincerely hope Lee will end his wasteful wrangling over quantitative easing. We understand his disgruntlement over the domineering ways of the deputy prime minister for the economy, Yoo Il-ho. But enough is enough.
The debate over quantitative easing at least gave traction to corporate restructuring actions. The hawks are theoretically right in claiming that restructuring financing can only be legitimate after an endorsement from the National Assembly, which represents the people. But principles are not always the right tools to fight an emergency. Bernanke, usually a soft-spoken person, persuaded the Federal Open Market Committee to slash interest rates, in a pre-emptive action against a recession in January 2008, by saying he would hang himself if his judgment proved wrong.
At the end of the day, his decisive judgment and extraordinary programs made the rescue mission a success.
JoongAng Ilbo, May 12, Page 30
*The author is an editorial writer for the JoongAng Ilbo.