29 Apr 2015

Bernanke the Consultant

Conspiracy, Federal Reserve 23 Comments

Reuters explains Ben Bernanke’s new gig:

Former Federal Reserve chairman Ben Bernanke is joining bond giant Pimco as a senior adviser, as the firm seeks to bolster its star power following the departure of co-founder Bill Gross.

The move may be questioned by some competitors who had criticized the Fed during Bernanke’s reign for being too close to Pimco, whose full name is Pacific Investment Management Co. The critics suggested that could have potentially given the Newport Beach, California-based firm an advantage in interpreting monetary policy.

In an interview, Bernanke, who only last week announced he’d signed on to consult for the hedge fund Citadel, said he will restrict his Wall Street advisory roles to just the two firms. He also works at the Brookings Institution.

“The Fed does not regulate Pimco or its parent or any other firm that is affiliated with it,” Bernanke said. The same situation obtains with Citadel, he said. “So there is no contact.”

Now there is some concern over hanky panky:

In late 2008, the Fed hired Pimco, along with three other big Wall Street firms, to implement enormous purchases of agency mortgage-backed securities to keep interest rates low and spur the U.S. economy. Pimco also managed the commercial-paper assets for the Fed during that period.

“If they were employed to do that kind of thing, that was in their professional capacity,” Bernanke said. “I had nothing to do with selecting them or I had no involvement with them myself.”

When asked if he has advised Pimco to prepare for an expected interest rate hike this year, Bernanke said: “No, I haven’t given them any advice on that. I will be speaking broadly about the economy and markets.”

All told, Bernanke said: “From my perspective, they are a firm that the way they operate is by taking a macro view — they try and decide how they see the economy evolving both in the United States and abroad and they base their investment strategies on that macro view. That’s something where I believe I can be helpful, thinking about where the economy is going.”

That sounds entirely plausible. Just look at Bernanke’s resume when it comes to forecasting movements in the macroeconomy:

23 Responses to “Bernanke the Consultant”

  1. Keshav Srinivasan says:

    Bob, I think you’re conflating is and ought here. You may believe that Ben Bernanke’s macroeconomic analysis shouldn’t be trusted, but I think the people at PIMCO likely have a much more positive opinion of him. So I think it is plausible that they’d hire him even if he refused to share any inside information on the Fed’s monetary policy decisions.

    • skylien says:

      Just because you join/consult hedge funds like Citadel or Pimco after you leave the Fed doesn’t mean that while in office at the Fed he didn’t fight those evil fat cats tooth and nail to actually help the little guy out there… And now they hired him because he said sorry, and also he promised to be better at forecasting the economy (or admitted to them in private, that he just lied at that time), however he won’t tell them any confidential information from the Fed from the past nor would he use any relations he still might have. Right, theoretically this is possible.

      But on the other hand, if that was the logic to follow, why even bother with separating state powers? Just because they are not separated doesn’t mean automatically they have to be abused, right? Theoretically this is possible at least.

      • Keshav Srinivasan says:

        “Just because you join/consult hedge funds like Citadel or Pimco after you leave the Fed doesn’t mean that while in office at the Fed he didn’t fight those evil fat cats tooth and nail to actually help the little guy out there”. Well, as Bernanke said that Fed wasn’t even involved in regulating those companies, so there ms no conflict of interest there.

        “And now they hired him because he said sorry, and also he promised to be better at forecasting the economy (or admitted to them in private, that he just lied at that time), however he won’t tell them any confidential information from the Fed from the past nor would he use any relations he still might have. Right, theoretically this is possible.” To be clear, I’m not saying that it’s impossible that Bernanke is unethIcally sharing inside information with Pimco. I’m just disputing Bob’s suggestion that it’s implausible that Pimco would hire him just for macroeconomic analysis, given his track record. I think it is plausible, because his career is viewed in a very different light by a lot of people.

        “But on the other hand, if that was the logic to follow, why even bother with separating state powers?” All I’m saying is that in this case, there is insufficient evidence to suspect Bernanke of engaging in unethical activity. That’s not to say that no politicians ever abuse their power.

        • skylien says:

          “All I’m saying is that in this case, there is insufficient evidence to suspect Bernanke of engaging in unethical activity. That’s not to say that no politicians ever abuse their power.”

          All I am saying is that, you won’t ever find out if he did, or does. And things like seperation of powers is put into place so that you don’t have to rely on trust…

          I find it amazing how suspicious people are of big business people to abuse every opportunity out there, but at the same time so trusting if it is about politicians..

  2. skylien says:

    “But I’m just a soul whose intentions are good. Oh Lord, please don’t let me be misunderstood.”

  3. guest says:

    Regarding Pimco, does anyone remember this?:

    Bill Gross Tweets: “Without Central Bank Check Writing, We Only Have Ourselves To Sell To” Sends Yields Soaring
    http://www.zerohedge.com/news/2013-08-16/bill-gross-tweets-without-central-bank-check-writing-we-only-have-ourselves-sell-sen

    Ha, ha, ha!

  4. Ben J says:

    Bob Murphy criticising other people’s ability to predict the macroeconomy? Talk about pot calling the kettle black!

    • skylien says:

      With one little difference. Bob doesn’t argue he or someone else should have the state granted monopoly power to control the money supply and change it based on his or her macroeconomic forecasts..

    • Bob Murphy says:

      Hey Ben J check this one. Yeah I got CPI inflation wrong, but I’m fine criticizing Bernanke.

    • skylien says:

      And if we disregard my point above. Why the heck is Pimco asking for advice from Bernanke for a ton of money, if Bob can do it just as well? (And Bob might be giving his advice even for free if you can believe this blog…)

      What could be the difference in their knowledge, if forecasting abilities are the same, that Bernanke is hired and not Bob?

      Bob you should try apply at Pimco and Citadel.

      • Keshav Srinivasan says:

        skylien, I think Pimco would be much more likely to hire, say, Krugman, than Bob. That’s not a knock on Bob, it’s just because rightly or wrongly, Austrian economists are viewed as fringe figures.

        • skylien says:

          Keshav,

          Bernanke has no good track record of forecasting. And that isn’t any wonder anyway, because forecasting needs investment skills. If Bernanke really could forecast the macrióeconomy well he could make a ton of money by investing accordingly. However we all know how good economists are with investing..

          • Keshav Srinivasan says:

            But that’s an argument for why his macroeconomic analysis should not be trusted, not an argument that his macroeconomic analysis *isn’t* trusted.

          • Keshav Srinivasan says:

            But that’s an argument for why his macroeconomic analysis should not be trusted, not an argument that his macroeconomic analysis *isn’t* trusted.

          • Keshav Srinivasan says:

            Sorry for the double post.

            • skylien says:

              Keshav,

              They even basically admit it that he got hired only because he was Fed Chairman (just as they also hired Greenspan before him):

              “Obviously his experience within central banking is important at the moment, given where we may be in terms of the U.S. economic cycle, but we’re looking for and excited about his ability to make broad-based contributions to our strategy.”

              I mean it can’t be really much more obvious. I can’t tell what is or is not legal that he might “advice” as former central bank chair. All I know is that it definitely has nothing to do with his actual skills in financial forecasting or whatever related.

              http://www.bloomberg.com/news/articles/2015-04-29/bernanke-joins-pimco-second-consulting-job-in-two-weeks

      • Anonymous says:

        Don’t think the world’s largest bond mutual fund would have faired well taking Bob’s advice.

        • Major.Freedom says:

          Is that because Bernanke’s track record is the standard?

          Bernanke is wrong about everything, and Bob makes one wrong prediction about the size of the CPI over a 3 year period…

          Nice.

          • Anonymous says:

            Inflation and the direction of interest rates is what Bob has gotten consistently wrong. You try making money trading bonds getting these two things wrong.

    • Yancey Ward says:

      Then you should support Murphy in his quest to replace Yellen.

  5. Zack says:

    Speaking of this Bernanke fellow, apparently interest rates in the mid-2000’s were perfectly in line with the Taylor Rule after all….if you just double the coefficient for the output gap and substitute Core PCE for the GDP deflator.

    http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/28-taylor-rule-monetary-policy

  6. skylien says:

    Bernanke and the WSJ infighting:

    http://www.zerohedge.com/news/2015-05-03/wsj-slams-bernankes-rambling-blog-post-stop-blaming-everyone-your-mistakes

    I really liked that one:
    “We learned in school something isn’t a theory if it can’t be tested. Mr. Bernanke’s theory of post-crisis monetary policy is that if it’s working, then do more of it. And if it’s not working, then do more of it too. This isn’t data-driven monetary policy.”
    -> It is funny how it always goes back to the question of method..

    • skylien says:

      What I like about this so much is that it shows that you don’t need to be brainwashed by Mises and Hayek to see that what Bernanke was doing (and now Yellen does) as Fed Chair has nothing to do with what proves right through empirical data. He does what his armchair reasoning tells him is right, that is all!

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