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February 25th, 2009 (Modified on March 6th, 2009)

(Update1): Bernanke Responds to Santelli’s Statement (bumped)

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By now nearly the whole country is familiar with Rick Santelli and his passionate broadcast last week from the floor of the Chicago stock exchange. During his testimony today in front of a Senate committee, Federal Reserve Chairman Ben Bernanke was asked to respond to Mr. Santelli.

Senator Evan Bayh asked for Mr. Bernanke’s reaction to Santelli’s claim that President Obama’s housing plan essentially rewards homeowners for bad behavior.

“I fully understand the sentiment,” said Mr. Bernanke. “A lot of this goes against American values of self reliance and responsibility.”

He further explained himself with this analogy: if your neighbor is smoking in bed and his house catches on fire, you can punish him by not calling the fire department. Yet, the fire spreads and destroys your property and other houses on the street as well.

Bernanke continued his defense of President Obama’s program saying it will function as a two-legged approach. While the U.S. must take action now to keep the problem from spreading, the government must commit to new reform and regulation to ensure this problem never happens again.

Click here to view the Chairman’s entire response.

There’s something “off” about Bernanke’s analogy. While we can understand his point, it doesn’t seem to fully encapsulate the problem accurately. Would this be a better analogy? Your neighbor’s house catches fire, and the fire company forces you to throw your own belongs over the fire to suffocate the flames.

If you’re not buying our analogy either, perhaps check out this one from SliderOnTheBlack.com (recommended by one of our readers Jay)

Do you buy Bernanke’s analogy?

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12 Responses to “(Update1): Bernanke Responds to Santelli’s Statement (bumped)”

  1. Wendy Says: February 24th, 2009 at 5:24 pm

    Hi Tim–great work! We miss you!

  2. William Says: February 24th, 2009 at 6:06 pm

    I do not accept that analogy. Yes, the neighbor called the Fire Department to put out the fire. But the audacious and irresponsible owner of the burnt house turned around and demanded that his neighbors give him money to repair his house. That seems a closer analogy to our current condition.

    The problem with Bernanke’s analogy is that he ended the story prematurely. Unfortunately for us, it actually unfolded further than where he ended it. He withheld the most important sequence of events in the story, which occured after the neighbors called the Fire Department. The fire had spread throughout the whole neighborhood during which most homes were damaged. Look at home prices and the financial and banking systems. As we are being pulled through the wringer, the government wants us to bail out those who started the fire.

  3. jay Says: February 24th, 2009 at 6:25 pm

    The most interesting parable I found

    http://www.sliderontheblack.com/fed-bernanke-paulson/bernankes-bs-smoking-parable-response-to-rick-santelli/

    It’s sending the fire department to put out the fire, but then raising your property taxes to pay for rebuilding and remodeling your neighbor’s burned out house …then giving him a stimulus check so he can buy more cigarette’s… and then offering him a “success fee” of $1000 per year, for the next five years… if he doesn’t do it again.

  4. Adam J Says: February 24th, 2009 at 7:45 pm

    Can someone tell me when Bernanke has been right about anything? Remember in 2005 there was no housing bubble and prices were supported by fundamentals? lol…..then remember this was just a subprime problem? haha……that it would not spread to the rest of the economy? lol. he is a Moron.

  5. Tim Manni Says: February 25th, 2009 at 9:39 am

    Hey Wendy, good to hear from you! Glad you found the blog. Hope to hear from you again soon. Tell everyone I said hello.

    -Tim

  6. Tim Manni Says: February 25th, 2009 at 9:49 am

    William: Thanks for your comment. An issue I have with your explanation is that I don’t believe homeowners ever demanded that their fellow Americans pay for them — it’s just been the repetitive strategy of the government. I also believe Bernanke’s main argument did point out that the fire would spread throughout the street, damaging other homes — taking his neighbors’ property values down with his own.

    Yet, your main point remains true: “the government wants us to bail out those who started the fire.”

    Thanks again,
    Tim

  7. Tim Manni Says: February 25th, 2009 at 9:54 am

    Jay: Thanks for sending that more accurate analogy. I like that one — maybe I’ll include it in the post.

  8. Tim Manni Says: February 25th, 2009 at 9:59 am

    Adam J,

    It certainly would be accurate to say that you’re not alone in your opinions. There’s a couple lists floating around of the ‘25 people most responsible for the economic crisis’ — Ben’s a member of each list I’ve seen.

    Thanks for commenting,
    Tim

  9. Paul Havemann Says: February 25th, 2009 at 10:30 am

    The folks at CNBC also take issue with Bernanke’s analogy:

    I take issue with that analogy and so does a viewer, Kevin in Wilmington, Mass., who sent us this e-mail:

    “My neighbor was smoking in bed, his house did burn down, and half of my house was destroyed with it. The Fire Department hit the snooze button on the fire alarm several times, showed up late (house was fully engulfed and ready to collapse) and, had a squirt gun to fight the fire.”

    Thanks, Kevin. I am in total agreement, and would go even further: Now they are going to waste precious and expensive water (taxpayer money) by pouring it all over the embers.

  10. Steve Says: February 25th, 2009 at 12:23 pm

    Another difference is that I am free to call the fire department to help my neighbor. I am not obligated by the government to do so.

  11. William Says: February 25th, 2009 at 5:10 pm

    Tim,
    I agree. I take that back. Most defaulting homeowners are not demanding government bailout. Bernanke however is the Fire Chief who upon responding to the fire, is now demanding the neighboring homeowners to put up money to help rebuild the home of the irresponsible homeowner who started the fire. Of all the gall!! He is out of order.

  12. Tim Manni Says: February 26th, 2009 at 9:13 am

    I can agree with that analogy. Unfortunately Bernanke is not alone — he’s got the White House and the FDIC by his side.
    Good to hear from you again.

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