Inside Ben Bernanke's Brain
Is Ben Bernanke more aggressive than Greenspan by nature? Does inflation still worry him? In Wednesday’s Face 2 Face go inside Ben's brain with someone who knows Bernanke well.
The traders chat with Dwight Jaffee, the Willis Booth Professor of Banking and Finance at the Haas School of Business at Berkeley. Dr. Jaffee and Chairman Bernanke were colleagues at Princeton and former squash partners.
Was he much for conversation on the squash courts?
“Walking to the squash courts he certainly was,” answered Jaffee. “He and I share a fundamental interest in monetary policy and financial markets so we would certainly discuss these issues.”
How is Mr. Bernanke as a competitor?
“He hit them straight and hard.”
Is that a parallel between his athleticism and his monetary policy?
“Could be,” replies Jaffee. “Although turning to the subprime mortgage issues – there are really issues at two different levels that he has to deal with.
"The first level is the systemic... the possibility of a liquidity crisis hitting the financial markets," explains Jaffee. "There I think when he sees the problem he solves it directly and fully and that’s what we saw Wednesday."
Jaffed adds, “There is a second level which we still have to see. It’s subtle and there we will see more of his finesse… It concerns how you deal with this large number of borrowers who are in serious straights. These problems get complicated…. There’s no way that they’re going to pay off these loans. Their income isn’t high enough… they’re going to default.”
He also adds ”There’s another tier of borrowers for whom mortgage payments have just jumped up.. if you could roll those back and give those people sensible payments.. that would benefit everybody. That’s the next big step that Bernanke has to deal with.”
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Trader disclosure: On Sept. 19, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (SWY); Najarian Is Short (ETFC); Najarian Owns (GS) Options; Finerman's Firm Owns (BWS), (COP), (GCO), (NMX), (LTD); Finerman's Firm Owns S&P 500 Puts And Calls; Finerman's Firm Owns Russell 2000 Puts