"Failing up" is a familiar phrase in Washington, which applies to people who arrive at positions of authority on the strength of their connections, charm or luck, rather than actual talent. Franklin Raines, the ex-chairman of the US mortgage giant Fannie Mae, was the archetypal upwardly bound failure, until his luck ran out with the collapse of the housing bubble he did so much to inflate. But what of Ben Bernanke, the chairman of the US Federal Reserve, which presided over Washington's rescue of Fannie Mae, along with billions of dollars in similar bail-outs?
Though he is likely to be reappointed as the world's most powerful central banker when his four-year term expires in January, Mr Bernanke is taking no chances. He spent much of last week stumping about the country as if he were running for mayor, appearing on talk shows, giving interviews to top financial journalists, and fielding questions at town-hall style meetings. Mr Bernanke says he only wants to demystify an institution as complicated in policy making as the Vatican is in choosing popes. And if Timothy Geithner, the Treasury secretary, gets his way, the Fed may soon rival the Holy See for absolute authority.
But can the global economy survive another four years of Mr Bernanke as Fed head? Not only did the monetarist chairman fail to anticipate the credit crunch, but he was late to realise its seriousness after the crisis broke. An academic by training, he has come down on the wrong side of pretty much every major challenge since he was made a Fed governor seven years ago. In 2005, with US housing prices at dizzying levels and the national savings rates lingering in negative territory, he hailed record US indebtedness as a tonic for a global economy burdened by the artificially high savings rates in developing countries such as China.
In fact, it was Chinese capital enabling the low US interest rates that fed the housing bubble before it burst spectacularly two years ago. American consumerism was not the answer to the problem. It was the problem. As Fed chairman, Mr Bernanke grasped the market's invisible hand with relish, opposing calls for hedge-fund regulation as a shackle on free enterprise and declaring bankers, not regulators, were the best judges of unacceptable risk.
Throughout 2007 he was seemingly in denial about the implications of tumbling housing sales, meteoric foreclosures rates, and the growing toxicity of mortgage-backed securities. It was not until August 2007 that he acknowledged the US economy was in the grips of a liquidity crisis. Notoriously and inexplicably, he and the then-Treasury secretary, Henry Paulson, bailed out the insurance giant AIG and the investment bank Bear Stearns, lousy as they were with incendiary paper such as collateralised debt obligations, only to allow the far less corrupted Lehman Brothers to fail, with devastating effects on global capital markets.
One would think Mr Bernanke has enough on his mind trying to figure out how to unload some US$1.5 trillion (Dh5.51tn) of mortgage-backed securities and $300 billion in treasury bills the Fed has accumulated since the crisis struck. Such intervention may be remembered as the chairman's boldest and most effective move to avert a second Great Depression, assuming the economy has indeed levelled out and the markets remain liquid enough for him to unwind those positions gradually.
Instead, Mr Bernanke has endorsed Mr Geithner's proposal to greatly increase the Fed's regulatory powers. The plan, part of a sweeping financial reform package, would allow the Fed to pre-emptively act against what it regards as undue risk. It would, for example, require banks with significantly high gearing ratios to increase their capital reserves or reduce their debt loads altogether. The fear of such Fed intrusions, it is presumed, would compel bank chiefs to manage their portfolios more conservatively and prompt some of the larger banks to reduce in size.
The Geithner plan faces stiff opposition in Congress, where a growing number of legislators think the Fed is already too powerful. More than 250 politicians have called on the Government Accountability Office, the investigative arm of Congress, to audit the Fed's decisions on monetary policy. (The Fed regards this as a threat to its independence, though it is subject to Congressional oversight.) A disciple of Milton Friedman, Mr Bernanke has come a long way since his days as an anti-Keynesian. In 1999, at the peak of the dotcom boom, he co-authored a paper that argued the Fed should confine itself to fighting inflation while leaving speculators to their fate. But that was before exotic debt instruments turned credit markets into swamplands of unplumbed risk.
Perhaps Mr Bernanke has learned the lessons of the Great Recession and deserves a second term, though not as the chairman of a super-regulator tasked with policing obliquely traded, highly geared paper. Better for Washington to outlaw those ugly little concoctions altogether. email@example.com