The Bernanke narrative is based on the incidence of calls and meetings, and not the actual content. But it seems clear that Rubin started a chain reaction on Aug. 8 -- only one day after the Fed's disappointing, hold-the line policy decision that so disappointed financial markets and intensified the credit turmoil.
Essentially, the academic Bernanke became a hands-on market participant through his contacts with Rubin, Paulson, the hedgies and others. He reached out to savvy financial-market players, who put him in touch with the real world. He then embarked on a five-week journey that shook world credit markets out of their financial panic and started the healing process that continues to this day.
Financial confidence has improved, the credit crunch has loosened, and stock markets worldwide have rebounded dramatically, with the Dow hovering near its high of 14,000. This wipes the 2008 recession scenario off the table. For example, the latest jobs report shows 110,000 new payrolls for September, with the prior two months revised up by 118,000.
In the annals of flip-flops, the Bernanke switch is as good as they come. And not only economically, but politically.
Most pundits believe a prolonged economic downturn would doom any Republican in the presidential race against Sen. Hillary Clinton, the most likely Democratic candidate. The pay-to-play Intrade prediction market puts a 60 percent probability on a Democratic presidential win. Compounding this, a Wall Street Journal poll gives Democrats a 25 percentage-point advantage on cutting budget deficits, a 16 point margin on spending control, a 15 point lead on the economy and a 9 point advantage on taxes. On top of that, the poll shows a serious Republican loss of business support.
Undoubtedly, an economic recession on top of all this would be gut-wrenching for the GOP. But Bernanke's major-league monetary makeover, one that re-launched a pro-growth Fed policy to supply ample credit for economic expansion, changes all that.
It would be ironic if Clinton advisor Robert Rubin's phone call to the Fed chief -- a call that triggered a complete monetary about-face -- wound up bolstering the economy and keeping GOP presidential hopes alive.