[Opinion] Bernanke vs. Greenspan

Both current Chairman of the Board of Governors of the Federal Reserve System Ben Bernanke and former Chairman Alan Greenspan are from rich Jewish families who play the saxophone as a hobby. But their work styles are contrasting. Greenspan, who has rich experience on Wall Street, used to catch minimal shifts in the market by talking with his acquaintances working as financial CEOs, and took bold preemptive measures based on the signs that his senses caught. On the contrary Bernanke, who was formerly a professor at Stanford University and Princeton University, emphasizes predictable fiscal policies backed by statistical data. Greenspan enjoyed using vague words, but Bernanke’s language is simple and clear.

They also have different views about the central bank. When Greenspan was tested with a black Monday that broke out three months into his term on which the Dow Jones index nosedived by 22%, he boldly injected money into the market, saying that “The Fed is the supplier of liquidity in the economic-financial system.” When the stock market or the immovable assets market showed the slightest signs of a market contraction, he did not hesitate to intervene in them. He especially responded more sensitively to the market overheating than to market contractions, and this earned him the appraisal that he was loyal to the role as the “lender of last resort.”

On the other hand, Bernanke’s view is that the basic role of the central bank is ‘guarding the value of the currency and stabilizing prices.’ To the U.S. subprime mortgage crisis, he responded with market-correcting measures rather than market-stabilizing ones. The nuance here is that the financial institutions which managed assets in a risky manner for high returns should be responsible for the consequences, and that the practice of relying on the Federal Reserve too frequently should be changed. This interpretation was also supported by Bernanke’s choice last month of a lowered rediscount rate to the much stronger measure of a lowered interest rate.

The difference between the two, of course, is only minimal, not fundamental. This is why many predict the possibility of the interest rate being lowered at the Federal Open Market Committee scheduled on September 18. But people ordinarily have tendency to notice more differences than common points, and hence the popularity of Greenspan on Wall Street and of Bernanke in the academic world. The subprime mortgage crisis is the first trial for Bernanke, who spent a year and a half in his current position. The international financial market is keeping a keen eye on whether the market will be corrected via Bernanke’s way or whether it will move toward a greater crisis.

Editorial Writer Heo Seung-ho, tigera@donga.com