Meet Ben Bernanke, good cop. And his partner Ben Bernanke, bad cop

Reading through Ben Bernanke's speech today about "Financial Regulation and Financial Stability" is enough to give a person whiplash. One second he's calling for actions to crack down on reckless lending. The next he's calling for more reckless lending. He's a good cop/bad cop partnership, all contained in one mild-mannered Fed chairman.

First Bernanke announces that the Fed will issue the final version next week of its new, tougher rules on mortgage lending under the Home Ownership and Equity Protection Act. The preliminary version--which, among other things, bars lenders from "engaging in a pattern or practice of extending credit without considering borrowers' ability to repay the loan"--came out in December. (BAD COP!)

Then he applauds Congressional efforts to regulate Fannie Mae and Freddie Mac more tightly (BAD COP!) and to expand the "products and programs" offered by the Federal Housing Administration (GOOD COP!). After that it's on to explaining the Bear Stearns bailout (GOOD COP!) and announcing that the Fed may extend its emergency Primary Dealer Credit Facility and Term Securities Lending Facility into the new year (GOOD COP!).

Bernanke says the Fed has "redoubled its efforts to strengthen the capital positions, liquidity reserves, and risk-management practices of the institutions for which we have supervisory responsibility." (BAD COP!) He says the Fed needs to be involved in the supervision of investment banks (BAD COP!) but says any such regulation needs to take care not "inhibit efficiency and innovation nor to induce a migration of institutions that are less regulated or beyond our borders." (GOOD COP!)

It keeps on going like that. You could say the man is talking out of two sides of his mouth. But I'll give him the benefit of the doubt and argue that he's walking a tightrope. He's got plans for a tougher regulatory regime aimed at tempering lending binges like the one we've just been through, but he's also still working to keep the aftereffects of that lending binge from ruining us all. He's trying to keep his balance between the two priorities.

Or maybe the better metaphor is that he's handing us a glass of the hair of the dog that bit us before sending us off to an AA meeting.