David Einhorn: Bernanke answers 'frightening' during dinner chat

“It was sort of frightening because the answers were not better than I thought they would be," Mr. Einhorn said.

May 6, 2014 @ 1:58 pm

David Einhorn, manager of Greenlight Capital Inc., said he found a recent dinner conversation with former Federal Reserve chairman Ben S. Bernanke scary.

“I got to ask him all these questions that had been on my mind for a long time,” Mr. Einhorn said in an interview referring to a March 26 dinner with Mr. Bernanke. “It was sort of frightening because the answers were not better than I thought they would be.”

Mr. Einhorn, 45, has been critical of Mr. Bernanke's willingness to leave interest rates near zero for more than five years. The hedge fund manager, whose firm oversees $10 billion, has said the benefits of low rates diminish over time until they are more harmful than helpful, and that the Fed's stimulus has led to income inequality. Mr. Bernanke, a former Princeton University economics professor, stepped down this year after eight years helming the U.S. central bank.

In describing the dinner conversation at New York's Le Bernardin, Mr. Einhorn criticized Mr. Bernanke for saying he was 100% certain there would be no hyperinflation and that it generally occurs after a war.

“Not that I think there will be hyperinflation, but how do you get to 100% certainty about anything?” Mr. Einhorn said. “Why can't you be 99% certain?”

Mr. Bernanke responded, “You are wrong” to a question about the diminishing returns of having interest rates at zero, according to the hedge fund manager. The ex-Fed chief's explanation, Mr. Einhorn said, was that raising interest rates to benefit savers wouldn't be the right move for the economy because it would require borrowers to pay more for capital.

A message left for Mr. Bernanke at the Brookings Institution wasn't immediately returned.

Mr. Einhorn said he was keeping an “open mind” about the new Fed Chairman Janet Yellen. “I would love to see if she had a better reason for rates to remain at zero at this stage of the economy,” he said.

(Bloomberg News)

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