You might have heard of Peter Diamond, he recently won the Nobel Prize in Economics and earlier this week withdrew his nomination to the Federal Reserve Board. But maybe you have not heard of Paul Pate.

Mr. Pate, former Republican mayor of Cedar Rapids, Iowa was nominated by President Bush in 2003 to fill a seat on the board of the National Institute of Building Sciences. I remember it well, as I handled that nomination as staff for the Senate Banking Committee.

So what exactly do Mr. Diamond and Mr. Pate have in common? They were both nominated for positions they could not legally hold. I’ve written elsewhere about Mr. Diamond’s situation. Mr. Pate was barred from serving on the NIBS board due to an ownership interest he had in an asphalt company.

Bush’s Office of Presidential Personnel didn’t catch that problem because they, like Obama’s same Office, don’t appear to actually read the statutory qualifications for nominations. I will admit, I didn’t catch this problem either. It was brought to my attention by the staff of former senator Paul Sarbanes (D-MD). When I verified Sarbanes’s objection, we immediately told Mr. Pate and the Bush White House that then Committee Chair Richard Shelby would not move Mr. Pate’s nomination (despite Mr. Pate’s personal friendship with Sen. Grassley (R-IA)).

Both Mr. Diamond and Mr. Pate were, in part, the victim of circumstances beyond their control. They had done nothing wrong. Yet the law was the law. While I don’t equate NIBS with the Fed, that shouldn’t matter. We should respect the law regardless of the viewed relative importance of the position. In fact, I believe the more important the position, the greater need for respecting the law.

Unfortunately there is a lot Mr. Diamond and Mr. Pate do not have in common. Rather than accept his bad luck, Mr. Diamond offers in the New York Times the rant of a spoiled brat. Mr. Pate, in contrast, accepted his bad luck with integrity and grace.

What Do Peter Diamond and Paul Pate Have in Common? is a post from Cato @ Liberty - Cato Institute Blog

A recent Gallup Poll surveyed the public’s impression of how various federal agencies were doing their job.  Of the agencies evaluated, on the bottom was the Federal Reserve Board.  Only 30 percent of the respondents rated the Fed’s performance as either excellent or good.  I can understand now why Chairman Bernanke felt the need to take his act on the road.  Even the IRS managed to get 40 percent of respondents to see its job performance as excellent or good. A majority of the public, 57 percent, sees the Fed’s current performance as either poor or fair.

The result is not just driven by a general public disdain for federal agencies; over a majority of respondents thought such agencies as the Center for Disease Control, NASA and the FBI were doing an excellent or good job.

Nor is the result driven by public ignorance or indifference to the Fed; only a few years ago, back in 2003, 53 percent of Americans said the Federal Reserve was doing an excellent or good job and only 5% called its job performance poor.  But then, the Fed was also giving us negative real interest rates at that time as well.  Perhaps there’s a good reason to insulate the Fed from short-term public and political pressures.  Let’s hope Chairman Bernanke does not read these results as an excuse for repeating the Fed’s 2003 monetary policies.

Gallup Poll: Federal Reserve Makes the IRS Look Good is a post from Cato @ Liberty - Cato Institute Blog

Recent weeks have seen a swirl of speculation over whether President Obama will or will not re-appoint Ben Bernanke to the Chairmanship of the Federal Reserve Board, when his current term as Chair expires in January 2010. Almost all of the debate has centered on his actions as Chairman. This narrow focus misses an important piece: his actions, and words, as a Fed governor during the build-up of the housing bubble.

What should have been Bernanke’s greatest strength as a Fed governor and later chair, his understanding of monetary theory and his knowledge of the Great Depression, has ended up being a weakness. While correct in his analysis of the role of “debt deflation” — where the deflation increases the real burden of debts and correspondingly weakens the balance sheet of both households and businesses — in the deepening of the Great Depression; his obsession with slaying the Great White Whale of Deflation provided intellectual cover for the Fed’s ignoring and contributing to the housing bubble. Like the proverbial general, he was fighting yesterday’s battle, rather than today’s.

While core inflation was moderate and increasing at a decreasing rate between 2001 and 2005, this measure ignores the dramatic up-tick in house prices during those years. First, housing makes up the single largest expense for most households, ignoring housing, especially after one subtracts out energy and food from the definition of inflation, gives a narrow and distorted picture of inflation. Even if one were to focus solely on rents, the 2000s were an era of increasing housing costs.

Separate from the impact of housing prices on inflation is the role which housing plays as the collateral for the primary piece of household debt: a mortgage. Even were the US to suffer a bout of mild deflation and the real burden of their mortgages increased, this would likely have little impact on household balance sheets in an environment of increasing home prices.

Admittedly Bernanke was then only a “governor” and not yet Chair of the Fed, but he was the Fed’s loudest voice when it came to combating deflation and arguing for lower rates. Additionally there have been zero public acknowledgements by either Bernanke or the Fed that its policy earlier this decade contributed to the housing bubble and financial crisis. Without admitting to the occasional mistake, we have no way of judging whether Bernanke has learned from any of his mistakes, and hence less likely to repeat them.

In weighing Bernanke’s record at the Fed, judgement should not solely consider his actions as Chair, but also consider his words and deeds while the housing bubble was inflating. How one responds to a impending disaster is as important as to how one helps to clean up after the disaster has struck.

Bernanke’s Part in the Housing Bubble is a post from Cato @ Liberty - Cato Institute Blog