Business Times - 27 Aug 2009
Bernanke: the easy choice?
By LEON HADAR
PRESIDENT Barack Obama ended speculation that he might appoint a new head of the United States central bank when he announced that he would be nominating Federal Reserve Board chairman Ben Bernanke for a second term.
Mr Bernanke, whose first term will expire next Jan 31, is a Republican who was first nominated by former President George W Bush in 2005 to replace Alan Greenspan. While Mr Bernanke will still have to be confirmed by the Senate for a second term, it is a done deal and he is expected to sail through the process on Capitol Hill.
In fact, Senator Christopher Dodd, the Senate Banking Committee chairman, has already released a statement saying, despite serious differences he had with the Fed chairman in the past, Mr Bernanke was the 'right person' for this job right now.
Mr Bernanke has become a convenient target for the Republican and Democratic lawmakers who have been exploiting rising populist anti-Wall Street sentiment in the aftermath of the collapse of leading US financial institutions and the response by Washington to the crisis in which Mr Bernanke has played a key role.
His critics have blamed him for failing to see the risk created by the housing and credit bubble, and for failing to take steps to prevent the financial crisis and the ensuing economic crisis.
Those who were opposed to his renomination for a second term have also argued that, both as former economic adviser at the Bush White House and as a Fed governor, Mr Bernanke supported the kind of free-market policies, including the deregulation of the financial markets, that have been regarded by many economists as the main cause of the current crisis.
And his detractors have noted that he was the prime mover behind the bailouts of AIG and Bear Stearns that ended up spreading panic at considerable cost to American taxpayers.
Finally, the same critics also disapprove of various proposals to expand the power of the Fed to police the conduct of banks and other financial institutions.
But Mr Bernanke does have many champions on Wall Street as well as among professional economists who believe that the former economics professor, who had studied the history of the Great Depression of the 1930s, succeeded in averting a financial meltdown that would have devastated the American and global economy.
Reflecting the enthusiastic response to the news about the renomination of Mr Bernanke, US stock markets traded in positive territory following the announcement.
There has been some concern in Washington and on Wall Street that Mr Obama had to make his decision earlier than expected in order to calm fears in the financial markets of a vacuum at the all-powerful Fed.
Indeed, the recognition that Wall Street has developed a sense of respect for Mr Bernanke and that the financial system was still frail may have led Mr Obama and his advisers to conclude that making a change in the Fed could unnerve investors and upset the revitalisation of financial institutions.
Moreover, President Obama was probably impressed by the way that Mr Bernanke succeeded in leading the Fed in the last 18 months and playing a central role in containing the greatest economic crisis since the Great Depression by, among various things, cutting interest rates to zero and creating new lending programmes.
And notwithstanding Mr Bernanke's long-time association with the free-market school of economics, the Fed chairman has campaigned on Capitol Hill and elsewhere in support of the White House's economic stimulus package and has refrained from criticising the administration's huge spending programmes.
There is no doubt that Mr Obama would probably need Mr Bernanke's continued support in the upcoming battles over his economic policies on Capitol Hill.
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