Fed chairman Bernanke confirmed for second term
WASHINGTON
The Senate confirmed Bernanke for a new four-year term by a
70-30 vote, a seemingly solid majority but 14 votes worse than the
closest previous vote for a Fed chairman.
The battle over Bernanke's confirmation has been a test of
central bank independence, a crucial element if the Fed is to carry
out unpopular but economically essential policies. Its decisions on
interest rates can have immense consequences, from the success or
failure of the largest companies to the typical home-buyer's
ability to get an affordable loan to the price of cereal at the
grocery or gas at the corner station.
Created by Congress in 1913 after a series of bank panics, the
Federal Reserve is an independent agency, supposedly outside
politics, but its chairman is typically assailed by lawmakers and
others when the economy falls and jobless ranks lengthen.
"Bernanke fiddled while our markets burned," huffed Richard
Shelby, of Alabama, the top Republican on the Senate Banking
Committee, during Thursday's debate. "Ben Bernanke's Federal
Reserve played a key role in setting the stage for the financial
crisis."
Shelby and other opponents blame Bernanke for failing to spot
problems leading up to the crisis, for lax bank regulation and for
not cracking down on dubious home mortgage practices. All those
missteps contributed to the recession, they contend.
Supporters see it far differently, crediting him with preventing
the Great Recession from turning into the second Great Depression.
"The chairmanship of Ben Bernanke has in no small measure made
it possible for this nation to avoid a catastrophe," said Senate
Banking Committee Sen. Christopher Dodd, D-Conn.
Supporter Chuck Schumer, D-N-Y., worried that the bitter fight
over the nomination would send "the message that the Federal
Reserve and its monetary policy decisions are under the thumb of
Congress. Businesses will be faced with the prospect that the Fed
might not be able to do what's necessary for the economy because of
pressure from Congress."
The vote on his confirmation came at nearly the last possible
moment -- Bernanke's current term expires Sunday.
The confirmation vote was preceded by a critical preliminary
ballot to block a filibuster by opponents. He needed 60 votes
rather than a simple majority and got 77, to 23 against. The
closest previous final confirmation vote for a Fed chairman was
84-16 for Paul Volcker's second term in 1983 following another
severe recession.
In the final vote, 11 Democrats and an independent joined 18
Republicans against Bernanke. They included senators facing
potentially difficult re-elections this year, such as Democrats
Arlen Specter of Pennsylvania and Barbara Boxer of California.
Seven Democrats stuck with their party's majority on the vote to
overcome the filibuster, but then switched to vote against
confirmation. Both party leaders -- Democrat Harry Reid of Nevada
and Republican Mitch McConnell of Kentucky -- voted to confirm. John
McCain, the 2008 Republican presidential candidate, voted against
him.
After Thursday's vote, Treasury Secretary Timothy Geithner said,
"The Senate did the right thing. Chairman Bernanke will continue
to play a vitally important role in guiding the nation's economy."
First appointed by President George W. Bush and then
re-nominated by President Barack Obama, Bernanke found himself
without a broad partisan constituency in the Senate.
"Although the Fed can print money, it can't print political
capital," said Karen Shaw Petrou, managing partner at Federal
Financial Analytics, a consulting firm that advises financial
institutions.
Bernanke's role in bailing out Wall Street has angered many
Americans, who are still struggling under double-digit
unemployment, stagnant paychecks, cracked nest eggs and record home
foreclosures. In an election year in which the economy's health is
still precarious, senators were hearing those complaints loud and
clear.
"A vote for Ben Bernanke is a vote for bailouts," said Sen.
Jim Bunning, R-Ky., a longtime critic.
Bernanke has especially upset lawmakers with his support of a
$182 billion rescue of insurance giant American International Group
Inc. Hefty bonuses to AIG executives and billions in payments to
AIG's Wall Street partners added to the outrage. Criticism mounted
as unemployment rocketed to 10 percent.
Bernanke advocates argue that the Fed chairman is being blamed
for the failure of institutions over which the Fed had no
authority. What's more, they say the countermeasures he took to
intervene were exactly what Congress created the agency to do.
"Much of the anger directed at the Fed and the uncertainty
regarding Bernanke's reconfirmation is terribly unfortunate -- both
because of the impact it might have on the central bank going
forward, and also because much of the scorn is undeserved," said
John Dearie, a former officer of the New York Fed now serving as
executive vice president of the Financial Services Forum, an
industry group.
The Federal Reserve acts as the "lender of last resort" to
banks when they can't get money elsewhere. That's important for the
nation's financial and economic stability.
Bernanke's confirmation comes as Congress is writing an overhaul
of financial regulations aimed at avoiding another financial
crisis. The chairman has had to defend the Fed against efforts to
diminish its authority.
A House bill would remove its power to oversee consumer
protections and would subject it to a sweeping congressional audit.
A Senate bill seeks to create a separate consumer entity as well,
and would create a single banking regulator that would also strip
the Fed of its supervision of bank holding companies.
Bernanke has admitted making mistakes -- including
underestimating the threat of a booming housing market that
eventually went bust and the resulting fallout to the economy. But
he insist he has the tools, the know-how and the political backbone
to safely steer the recovery from the worst recession since the
1930s. The biggest challenge facing Bernanke this year: deciding
when and how to reverse course and boost interest rates to sop up
the unprecedented money pumped out during the crisis. That's
important to prevent an outbreak of inflation.
A scholar of the Great Depression, Bernanke, 56, spent most of
his professional career in academia, including 17 years teaching
economics at Princeton. He came to Washington to take a job at the
Federal Reserve, working with then-Chairman Alan Greenspan. Bush
selected him to be his top economist. After that, he was sent to
run the Fed starting in 2006.