Too Big to Fail [50]
Ben Shalom Bernanke was born in 1953 and grew up in Dillon, South Carolina, a small town permeated by the stench of tobacco warehouses. As an eleven-year-old, he traveled to Washington to compete in the national spelling championship in 1965, falling in the second round when he misspelled “Edelweiss.” From that day forward he would wonder what might have been had the movie The Sound of Music, which featured a well-known song with that word for a title, only made its way to tiny Dillon.
The Bernankes were observant Jews in a conservative Christian evangelical town just emerging from the segregation era. His grandfather Jonas Bernanke, an Austrian immigrant who moved to Dillon in the early 1940s, owned the local drugstore, which Ben’s father helped him run; his mother was a teacher. As a young man, Ben waited tables six days a week at South of Border, a tourist stop off Interstate 95.
In high school, Bernanke taught himself calculus because his school did not offer a class in the subject. As a junior, he achieved a near-perfect score on the SATs (1590), and the following year he was offered a National Merit Scholarship to Harvard. Graduating with a degree in economics summa cum laude, he was accepted to the prestigious graduate program in economics at the Massachusetts Institute of Technology. There he wrote a dense dissertation about the business cycle, dedicating it to his parents and to his wife, Anna Friedmann, a Wellesley College student whom he married the weekend after she graduated in 1978.
The young couple moved to California, where Bernanke taught at Stan-ford’s business school and his wife entered the university’s master’s program in Spanish. Six years later, Bernanke was granted a tenured position in the economics department at Princeton. He was thirty-one and a rising star, admired for “econometrics” research that used statistical techniques and computer models to analyze economic problems.
Bernanke also demonstrated political skills as his intellectual reputation grew. As chairman of the Princeton economics department, he proved effective at mediating disputes and handling big egos. He also created a series of new programs and recruited promising young economists such as Paul Krugman (who happened to be his ideological opposite). Six years later Bernanke was recruited to succeed Greenspan.
Up until early August 2007, Bernanke had been enjoying his tenure at the Fed, so much so that he and Anna had planned to take a vacation that month and drive to Charlotte, North Carolina, and then on to Myrtle Beach, South Carolina, to spend time with friends and family. Before heading south, he had to see to one final business matter: the Federal Open Market Committee, the Fed’s powerful policy-making panel, which among its other responsibilities sets interest rates, was scheduled to meet on August 7. On that day, Bernanke and his colleagues acknowledged for the first time in recent memory the presence of “downside risks to growth,” but decided nonetheless to keep the Fed’s benchmark interest rate unchanged at 5.25 percent for the ninth consecutive meeting. Rather than try to boost economic activity by lowering rates, the committee decided to stand pat. “The committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected,” the Fed announced in a subsequent statement.
That, however, was not what Wall Street wanted to hear, for concerns about the sputtering economy had investors clamoring for a rate cut. Four days earlier financial commentator Jim Cramer had exploded on an afternoon segment of CNBC, declaring that the Fed was “asleep” for not taking aggressive action. “They’re nuts! They know nothing!” he bellowed.
What the Fed’s policy makers recognized