July 26 (Bloomberg) -- Economists Nouriel Roubini and Anna Schwartz squared off on the op-ed page of the New York Times today over whether Ben S. Bernanke should be reappointed to a second term as chairman of the Federal Reserve.

Roubini, the New York University professor who predicted the credit crisis, said Bernanke deserves another term for averting a “near depression.” Schwartz, co-author with Milton Friedman of a history of U.S. monetary policy, wrote that the Fed chairman should be replaced because of policy missteps and a failure to clearly articulate the central bank’s goals.

The 55-year-old chairman, whose term expires in January, defended the Fed’s unprecedented actions to restore financial stability in testimony last week before Congress and said the economy is showing “tentative signs of stabilization.” Bernanke has cut the benchmark lending rate almost to zero and flooded the economy with cash to counter the deepest recession since World War II.

“The Fed’s creative and aggressive actions have significantly reduced the risks of a near depression,” Roubini wrote in his opinion piece. “For this reason alone Mr. Bernanke deserves to be reappointed so that he can manage the Fed’s exit from its most radical economic intervention since its creation in 1913.”

He praised Bernanke for policies that were “not in the traditional toolbox of monetary policy,” including extending credit to investment banks, supporting the commercial paper market, participating in the rescues of Bear Stearns Cos. and American International Group Inc. and committing to the purchase of $1.7 trillion of Treasury bonds, agency debt and mortgage- backed securities.

‘Many Caveats’

Roubini said his endorsement of Bernanke “comes with many caveats.” He faulted Bernanke for failing to predict the severity of the housing recession and the subprime lending crisis and for saying the collapse of the residential real estate market wouldn’t lead to a recession.

Schwartz, 93, a research associate at the National Bureau of Economic Research and Friedman’s co-author on “A Monetary History of the United States, 1867-1960,” blamed the Fed under Bernanke for failing to warn investors of the dangers of investing in securities backed by pools of mortgages.

“Partly as a result of the Fed’s silence, investors who loaded up their balance sheets with these securities were ignorant of the great risks of trying to sell assets that are difficult to price,” she wrote.

She also said the Fed didn’t live up to its own rhetoric about the importance of transparency and “failed to articulate its own goals,” adding to volatility in financial markets.

Lehman Collapse

In particular, she said Bernanke failed to explain why the Fed supported the rescue of Bear Stearns and not Lehman Brothers Holdings Inc., whose bankruptcy in September 2008 added to the severity of the credit crisis.

When credit markets seized up last year, Schwartz said, the Fed “persisted in believing that the market needed more liquidity” when “the real problem was that because of the mysterious new instruments that investors had acquired, no one knew which firms were solvent of what assets were worth.”

To contact the reporter on this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

Last Updated: July 26, 2009 11:37 EDT