On the March 15 CBS show "60 Minutes", Federal Reserve Chairman Ben Bernanke used a false analogy already popularized by President Obama in his quasi-State of the Union Speech. He likened the financial sector to a house burning down – fair enough, as it is destroying property values, leading to foreclosures, abandonments, stripping (for copper wire and anything else recoverable) and certainly a devastation of value. The problem with this analogy was just where this building was situated, and its relationship to "other houses" (e.g., the rest of the economy).

Mr. Bernanke asked what people should do if an irresponsible smoker let his bed catch fire so that the house burned down. Should the neighbor say, "it’s his fault, let the house burn"? That would threaten the whole neighborhood with fire, Mr. Bernanke explained. The implication, he spelled out, was that economic recovery required a strong banking and financial system. And this is just what he said: The economy cannot recover without yet more credit and debt. And that in turn requires trillions and trillions of dollars given by "the neighbors" to the bad irresponsible man who burned down his own house. This is where the analogy goes seriously off track.

But watching "60 Minutes," my wife said to me, "That’s just what Mr. Obama said the other night. What do they do – have a meeting and agree on what metaphor to popularize?" They seem to have an image that will lock Americans into supporting a policy even though they don’t like it and many feel like letting the financial house (A.I.G., Citibank, and Bank of America/Countrywide) burn down.

What’s false about this analogy? For starters, banking houses are not in the same neighborhood where most people live. They’re the castle on the hill, lording it over the town below. They can burn down and leave the hilltop revert "back to nature" rather than having the whole down gaze up at a temple of money that keeps them in debt.
More to the point is the false analogy with U.S. policy. In effect, the Treasury and Fed are not "putting out a fire." They’re taking over houses that have not burned down, throwing out their homeowners and occupants, and turning the property over to the culprits who "burned down their own house." The government is not playing the role of fireman. "Putting out the fire" would be writing off the debts of the economy – the debts that are "burning it down."

To Mr. Bernanke the "solution" to the debt problem is to get the banks lending again. He’s spreading the debt-fire. The government is to lend the "threatened neighbors" enough money so that credit customers of the financial "house on the hill" can to pay it the stipulated interest charges they owe. It is not burning down at all; the neighborhood’s money (in this case, tax money) is being burned up.
Mr. Bernanke explained to the Sunday evening audience that his policy aimed at helping the economy return to "normalcy." Fully in line with what Mr. Paulson was saying last summer, "normalcy" is defined as a new exponential growth in the volume of debt. He talked about "sustainable" recovery. But "the magic of compound interest" is not sustainable. It’s all a false metaphor.