A baseball term? Bernanke in a baseball uniform? Not exactly the image most of us have of our Federal Reserve Chairman. A few months ago, I criticized Chairman Ben Bernanke for announcing that rates would stay low to 2013. I felt at the time that it took the “fear of loss” – a sales technique for using urgency to guide a buyer to act now rather than later – out of the equation, thereby hampering my ability to compel would-be buyers to act now rather than wait. I called it “Bernanke’s Big Blunder”. While I still question his decision to do that, it’s becoming clear and evident the Fed Chairman knows what he’s doing. He’s orchestrated an amazing shift in Fed policy to greater transparency, so the markets become less volatile; he’s overseen the saving of a financial system on the brink of collapse and it appears he maybe in office long enough to witness an economic recovery few thought would happen.
But perhaps the most fascinating aspect of Bernanke’s efforts has been his profitability. While not the home run of saving the financial system or even the triple of guiding an economy on the mend, it’s none the less, very impressive. A number of months back, as the banks paid back their bail out money, the Federal Reserve humbly, quietly, reported that the return on that investment was extremely lucrative for the U.S. Taxpayer. Fortune Magazine reported in July 2011, that the TARP and the Bail Out payback yielded a return to U.S. Taxpayers of $100B in 2010 and was on pace to return another $40-100B profit in 2011. All of this payout goes directly into the U.S. Treasury. It really does take money to make money. So when the Fed, in an effort to stabilize interest rates and force them lower, chose to begin Quantitative Easing I and II, by purchasing U.S. mortgages and mortgage backed securities (MBS), the critics came out of the woodwork. Inflation! they screamed. Growing government! they protested. The Fed is printing money like Monopoly they decried. But today over my morning coffee, I read in the back of the LA Times Business section, that because the Fed bought those mortgages – the action of which can be directly credited with salvaging whatever was left of our real estate market – they (we) get the interest on those mortgages and that interest has returned a whopping $77B in profit for 2011.
Bernanke has long been criticized as an academic, not a businessman, but I am here to say that if he is not viewed by his contemporary’s as a genius businessman, surely history will do so for them. Yes, it takes money to make money and Bernanke had the money, and he’s making us money. Now if he can just get the banks to ease up and lend to small businesses…
There’s a term in baseball called “hitting for the cycle”. It’s where a player singles, doubles, triples and homers in a single game. It’s one of the rarest accomplishments in baseball. The player that accomplishes this has to have the power to hit a home run; both speed and power to leg-out a triple, the ability to make contact to get a single and the vision to stretch a single into a double. In other words, they have to be Willie Mays. And on that rare day, sometimes it all comes together. Using that analogy as a backdrop, I’d like to suggest that Bernanke’s move towards Fed transparency is like a single; as I said earlier, his saving of our financial system clearly a homerun and the overseeing of an economy on the mend a triple. So while making a $80B-$100B profit annually for the U.S. Taxpayer is not in his charter, it’s an excellent windfall for the American Taxpayer and a solid double. It’s rare, it’s amazing, it’s exciting and frankly it’s incredibly impressive. That is what Bernanke has done my friends; he’s hit for the cycle.