What took Bernanke so long?

Last week Ben Bernanke announced that he would soon be opening the Federal Reserve’s money window to the tune of $1.2 trillion. The purpose? Approximately $750 billion of the aforementioned sum would go to purchase so-called “toxic assets” – the lousy mortgage loans – which commercial banks and entities like Fanny and Freddie made or sponsored.

Worried about inflation resulting from the Fed’s buyback plan? Don’t be too worried; the second feature of Bernanke’s plan will address your anxieties: Another $300 billion will be used to repurchase long-term Treasury bonds already in the market. The intent of part two is to mitigate the inflationary aspects of part one.

My only question to the Fed chairman is, “What took you so long?”

In one stroke, Bernanke’s plan will begin to deal with the real mess in a real way that eliminates the deceit, pork and infantile political gamesmanship that has characterized Congress’ deeply flawed and demoralizing efforts to fix the Bush-era economic mess that Obama inherited. After all, the root of this crisis isn’t AIG bonuses, or more money for lamplighters in small town Nebraska, or casting Rush Limbaugh as Darth Vader. It is a lack of confidence in the banking system that was triggered by catastrophic failures in widely held subprime loans. These in turn exposed the suicide vests so many financiers and their congressional henchmen had strapped around our waists: securities known as derivatives and insurance policies that were issued to enhance or make further profits from underlying subprime bonds. These are like the mortgage insurance policies that some of you are forced to buy when you borrow money on your home, the only difference being that, statistically speaking, most of you are good risks; but statistically speaking, most of the subprime borrowers weren’t good risks, and thus the insurers had to pay all at once.

Sure, the notion of printing $1.2 trillion bothers me – various commodity prices, including oil, have been moving up lately perhaps signaling that inflation is poised to comeback. And Bernanke’s timing is terrible because he’s so late: Versions of this plan have been widely discussed among knowledgeable business and media circles for the past five months. Had he taken this initiative last November, the market might have spiked 2,000 points.

But compared with Congress, Bernanke’s action is purely professional, eminently respectable, and is likely to have some effect other than filling TV cable shows with new sets of phony heroes and villains. There is little question that congressional action on the so-called stimulus bill has done almost as much to undermine the economy as the bill was designed to fix. Today, our largest foreign creditor (China) publicly questions our creditworthiness while our trading partners now wonder if the country, which rescued them from their self-imposed World War II mess, has the political will to fix itself. Meanwhile, the American people, observing as Congress chokes on its own pork and points fingers, are wondering the same thing. President Obama was asked at his town meeting this week if America would have the same fate as Iceland.

If you have any doubts about this, look at market action. Bernanke’s announcement was instantly applauded by investors and the markets shot up; then the AIG revelations came out, Congress retreated to its silly mean, and our political leadership sullied itself once again with stupid, off-message controversy, distraction, grandstanding and hypocrisy not seen on a scale since … heck, I can’t remember when.

Except for Bernanke’s action, our leaders are distinguishing themselves as very small people. This is ironic because one way in which America has always been lucky has been in leadership – producing the right man (or woman) at the right time to meet the challenges of war or economic catastrophe.

One can only wonder whether our luck still holds.

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