Business Times - 08 Dec 2009
Irate Americans want Bernanke out
With unemployment at 10%, the US is searching for a scapegoat to blame
By LEON HADAR
THAT the American economy seems to be in the midst of a very bumpy recovery was made clear last week with reports indicating that while new claims for jobless benefits fell for a fifth straight week, retail sales and activity in the service sector, however, were also down last month.
With unemployment at 10 per cent, job creation continued to be the focus in Washington, and President Barack Obama, who hosted a White House forum on that issue last week, told reporters that he 'was not interested in taking a wait-and-see approach when it comes to creating jobs'.
Unfortunately this has turned the same institution that had been lionised during the economic-boom years - the US Federal Reserve - to being depicted in Washington and around the country as the chief villain for America's economic woes.
Poor, poor Ben Bernanke. While his predecessor Alan Greenspan was treated during his many visits to Capitol Hill as a celebrity, a cross between Albert Einstein and Mick Jagger, many of the same US lawmakers - libertarians on the political right, populists on the political left, and even many centrists - are now depicting Mr Bernanke as a bad piece of work.
Mr Bernanke, who appeared before the US Senate Banking Committee last week, seeking to win confirmation for a second four-year term as Fed chairman, was scolded by a group of senators for what they perceived to be as his multiple failures before and after the financial markets crashed.
Hence, Jim Bunning, a Republican Senator from Kentucky (the only senator to vote against Mr Bernanke's confirmation four years ago), accused the Fed chairman of handing out 'cheap money to 'his' masters on Wall Street'; referred to the respected former Princeton economics professor as 'the definition of moral hazard'; and suggesting flatly that it was either 'incompetence or a desire to secretly funnel more money to a few select firms' that led Mr Bernanke to back then-New York Fed President Timothy Geithner when he went easy on some Wall Street institutions during the government's massive bailout last fall. 'The AIG bailout alone is reason enough to send you back to Princeton,' Mr Bunning told Mr Bernanke. Ouch!
Mr Bernanke begged to differ, expressing a view that is shared by most mainstream American economists as well as by US Senate Banking Committee chairman, Democratic Senator Christopher Dodd of Connecticut. 'Taken together, the Federal Reserve's actions have contributed substantially to the significant improvement in financial conditions and to what now appear to be the beginnings of a turnaround in both the US and foreign economies,' Mr Bernanke told the lawmakers.
Regarding AIG, this is what Mr Bernanke had to say: 'We absolutely believed that AIG's failure would be an enormous systemic risk and would have imposed enormous damage, not just on the financial system - and this - this is the key point - on the entire US economy and on every American.'
But the committee's top Republican, Richard Shelby of Alabama, capturing the sentiment on Capitol Hill, insisted that the Fed has done a horrible job as a regulator. 'Not everything that went wrong can be blamed on the system, because the system also depends on the people who run it,' Mr Shelby said. 'It's those individuals who need to be accountable for their actions or their failure to act.'
And, indeed, this push for making the Fed more accountable was highlighted when Senator Bernie Sanders, a self-described democratic socialist and an Independent from Vermont announced that he would put a formal hold on Mr Bernanke's nomination.
In a Senate address, Mr Sanders stated: 'We need a new Fed. We need a new Wall Street. And we surely need a new chairman of the Fed. My hope is that President Obama will give us a new nominee, and not Mr Bernanke.'
At the same time at the House of Representatives, libertarian Representative Ron Paul, a Republican from Texas, supported by a number of Republicans and liberal Democrats, has made Mr Bernanke's alleged failures the main argument for a bill to subject the Fed to intrusive congressional auditing.
Even Mr Bernanke's defenders in the Senate and elsewhere are aware that there has been a rising uneasiness about the role of the Fed among many economically distressed Americans who are wondering why he bailed out the failed Wall Street financial behemoths and lent so much interest-free money to the big banks.
Mr Bernanke acknowledged during his testimony that there were areas where the Fed should have done more, especially in consumer protection and bank regulation. Moreover, Mr Bernanke was one of those at the central bank who arguably failed to read signs of an emerging bubble in real estate that was fuelled by the Fed policies.
But as his defenders see it, Mr Bernanke, a student of the Great Depression, succeeded in preventing a total global economy meltdown by acting decisively to pump liquidity into the US economy and preventing another Great Depression.
The attempt to broaden oversight of the Fed in the name of transparency, as proposed by Mr Paul and Mr Sanders would not only strip the Fed of some of its regulatory power.
As Mr Bernanke pointed out during his testimony, such a move could harm the agency's independence and make it much less immune to political pressure and create the impression in the markets that Mr Bernanke is nothing more than a monetary tool of the politicians on Capitol Hill.
Critics of the central bank counter that the American taxpayers and their representatives in Washington have a reason to be angry since their own money was used by the Fed to fix a financial catastrophe that was not of their making. These critics argue that it therefore makes a lot of sense for Congress to have access to independent and objective analysis to assess the performance of the central bank and its chairman before and after the financial crisis before it decides whether to re-confirm him.
Moreover, Congressional oversight would help counter the political pressure that the White House exerts on the Fed.
In any case, no one expects Mr Paul's bill to win Congressional approval, and by putting on 'hold' Mr Bernanke's re-nomination, Mr Sanders is only forcing the Senate to come up with 60 votes to proceed to a vote. And there is little doubt that more than 60 Senators are going to vote in support for a second-term for the Fed chairman. But Americans, who are clearly in a bad mood these days, still seem to be searching for a scapegoat to blame for their continuing economic misery.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.