Breaking news: Ben Bernanke and Alan Greenspan aren’t the same person!

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The indispensable Greg Ip, in today’s W$J, tries to explain what makes the Bernanke approach different from the Greenspan one:

The Fed historically has had two major economic duties. Maintaining financial stability is one. Controlling inflation while preventing recession is the other.

To Mr. Greenspan, market confidence and the economy’s growth prospects were so intertwined as to make the Fed’s two duties almost inseparable. He cut rates after the 1987 stock-market crash and the near-collapse of hedge fund Long-Term Capital Management in 1998 to prevent investor reluctance to take risks from undermining the nation’s economic growth.

By contrast, Mr. Bernanke distinguishes between the central bank’s two functions. So, on Aug. 17, the Fed cut the interest rate and lengthened the term on loans to banks from its little-used discount window in hopes banks would use the window — or at least the knowledge it was available — to lend to solid borrowers having trouble getting credit amidst the market turmoil. The action was aimed at restoring the normal functioning of disrupted credit markets, not primarily at boosting growth.

The Fed, meanwhile, hasn’t cut the far more economically important federal-funds rate, charged on loans between banks, which is the benchmark for all short-term U.S. borrowing costs.

This is that thin line I’ve been writing about. Bernanke doesn’t want a financial collapse on his watch, but he also doesn’t want to stand in the way of a long-needed repricing of risk. I’ve long thought that the people who call Bernanke Helicopter Ben were missing the point, and that he was likely to be more conservative about printing money in times of trouble than Greenspan was. Now we seem to be getting evidence of this, although Wall Street keeps getting its hopes up every time a member of Congress announces that Bernanke told him he’s prepared to do his job, if necessary.

Update: Yves Smith has a very different take. (He thinks Bernanke is pandering to Capitol Hill, and Ip is pandering to Bernanke.)