Bernanke: Too Important to Leave

It's a terrible problem. It's a problem called a too-big-to-fail problem. These companies have turned out to be too big to allow to collapse because, again, if they collapse the -- when the elephant falls down, all the grass gets crushed as well.
-- Ben Bernanke, July 26, 2009

NEW YORK (TheStreet) -- As the debate over Federal Reserve Chairman Ben Bernanke's future enters into full swing, we find one of those typical ironies frequently encountered in the financial markets. After 20 months of recession, including nearly a year of crisis, the Fed chairman is in the same position of many of the financial institutions he helped to save: He is too big to fail, or, in this case, "too important to leave." Ben Bernanke's transition from theoretician to business economist has been a trial by fire, but for all of the tumult there is an upside.

Unless the president reappoints Bernanke, the Fed chairman's term will expire on Jan. 31, 2010. The debate has begun as to whether a reappointment has been earned. Since there will be a congressional confirmation of a new Fed chief if Bernanke is not reappointed, the president will need to select a replacement within the next couple of months if he doesn't reappoint Bernanke.

When former Chairman Alan Greenspan voluntarily retired in January 2006, the search for his successor had already been under way since the previous August, and Bernanke was nominated in late October. Keep in mind that that was the lead time for a scheduled departure during a period of economic stability.

During the first 2 1/2 years of Chairman Bernanke's tenure I was an ardent critic. The fact that Ben Bernanke assumed the chairmanship as a housing bubble was peaking was not his fault. It was his fault, however, that he didn't recognize the seriousness of the threat. If you search the news from 2005 and 2006, you'll find that the question "Are we in a housing bubble?" was asked daily. There were more than enough warning signals. One of the clearest was that adjustable-rate mortgage (ARMs) increased to 35% of mortgage applications, indicating that buyers were stretching to pay record prices. In order to keep sales momentum, credit quality had to deteriorate.