Failing a cable-newsworthy scandal, Ben Bernanke will be confirmed. But, the story won't stop there.
Ben Bernanke has made enemies on the right and the left. The actions of the Federal Reserve on his watch have almost made the black-helicopter conspiracy crowd seem mainstream. Ironically, what he has going for him is the weak economy.
Markets hate uncertainty, particularly regarding the world’s most important central bank. So the Senate will be afraid to unhorse a Fed chairman after only one term, particularly amid a still-fragile economy, a fluid policy environment and the uncertain prospect of who might be Bernanke’s replacement. Failing a cable-newsworthy scandal, he’ll be confirmed.
The story won’t stop there.
In what is so far the most definitive history we have of the fall 2008 panic, David Wessel’s “In Fed We Trust” raises the question of whether its healthy for a democracy if the central bank, on its own, can make available virtually unlimited money.
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That’s part of an argument as old as the republic, but it had been moved to the margins after the Federal Reserve’s creation in 1913 as an entity independent from politics. The Fed even survived its catastrophic blunders in the Great Depression, when it tightened money as the economy was facing deflation. Bernanke’s emergency triage has brought it center stage.
Bernanke, a student of the Depression, was determined not to repeat the 1930s’ mistake. During the frantic improvising of the panic, he and his partners then — Treasury Secretary Henry Paulson and Timothy Geithner, president of the New York Fed and current chief T-man — made mistakes (Lehman Brothers and, to my mind, Washington Mutual). But they also ultimately prevented a worldwide financial collapse.
Bernanke was most critical here, committing the Fed to massive monetary expansion to reassure markets and prevent deflation.
But like other things in our national life (think: Iraq), it’s the details that trickle out in the weeks and months after the crisis that raise questions. The biggie of the moment is AIG. As the insurance giant was bailed out with taxpayer money, regulators rolled over and allowed the big bank counterparties to recover 100-cents-on-the-dollar for their risky bets. Worse, especially for Geithner, is that the New York Fed worked to keep this secret.
But Bernanke was first among equals in the bailout. His hands aren’t clean on AIG, either. The Fed has steadfastly refused to disclose to the public which institutions or even individuals benefited from trillions in secret lending facilities made available during the panic. Ultimately, these are checks written on the living standards of future generations.
This is another irony for a man who wanted to make the Fed more transparent. It is a problem that won’t go away if he wins a second term.
Bernanke’s other woes: He presides over a tenuous consensus on the central bank’s policymaking Federal Open Market Committee. This leaves him unwilling to push for more stimulus to create jobs, constrained about discussing the relative risks of high deficits and the trade-offs between the two. Also, he has inherited a regulatory system with no credibility and allowed a return to business as usual at the big banks, no matter how much average American’s are suffering or how dangerous Wall Street’s bets remain.
Thus, in the publics mind, he’s in the rogues gallery of President Obamas economic liabilities, which includes Larry Summers as well as Geithner. Men out of touch, except with the big financial titans.
Bernanke’s might not be the biggest second term at risk here.
You may reach Jon Talton at email@example.com