Man of the Year? More Like Senate's New Whipping Boy
Even the "Man of the Year" has his moments.
Fed Chairman Ben Bernanke had several Thursday during the Senate Banking Committee's vote to confirm him for a second term. And he will suffer more in the coming weeks as the full Senate continues to wrestle with his nomination.
So move over Timothy Geithner. There’s a new whipping boy for what’s befallen the economy.
“There's all this frustration about the bailout, the money, the Fed being asleep at the switch too long, so it's coming out as Bernanke bashing,” says former White House economist and savings-and-loan regulator Lawrence White of NYU’s Stern School of Business. “The unhappiness is feeding into the populist tradition that bankers and the Fed—the handmaiden of the banks—are up to no good and have to be reigned in.”
Those familiar with the Washington blame game are quick to add that Bernanke certainly deserves some of the blame and criticism—as well as some of the credit.
The biggest, and most oft-cited, criticism is that Bernanke and the Fed played an instrumental role in creating the housing bubble with its low-interest-rate policy.
Another is that—rightly or wrongly—his policies and actions challenged the power of Congress, while serving the agendas of two very different administrations, which simultaneously undercut its independence.
“Congress has allowed the executive office to control an institution that is really controlled by Congress, says Cato Institute scholar and former Fed official Gerald O’Driscoll Jr.. “They have let the executive branch have free reign with the Fed.”
At least until it occurred to them that Bernanke’s liberal interpretation of the central bank’s emergency lending powers during the crisis bordered on the unconstitutional, regardless of who they were supposed to help.
That and the Fed’s contributing role to the crisis has spurred a populist uprising in Congress, turning some longtime Fed supporters into critics—which coincided with the confirmation process. Sen. Richard Shelby (R-Ala.) for instance, voted against Bernanke's confirmation on Thursday.
As recent polls have illustrated, Benanke is unpopular with the voting public—and at best moderately popular on Wall Street—even if he is Time Magazine's Man of the Year.
“With [President] Bush and [Treasury Secretary Henry] Paulson off the scene, Bernanke is pretty much the face of bank bailouts,” says Mark Calabria, a former aide to Sen. Richard Shelby of Alabama, the ranking Republican member of the banking committee, who voted against Bernanke’s nomination.
And now that the fire is out, it is much easier to criticize one of the firemen—something circumstances pretty much prevented when Geithner was up for the Treasury job in January.
Many in Congress still resent Paulson’s hubris is seeking the TARP authority and the policy reversals that followed. Bernanke stuck his head out by running to the Hill for help with Paulson.
“He was in on the sale pitch and that's not the job of the Fed,” says Dean Baker, co-director of the Center for Economic and Policy Research. “In some ways Bernanke was more central to the crisis story than Paulson. It's perfectly reasonable to say, ‘You have a lot to answer for. We really want to scrutinize this.’”
"He put TARP over the edge," adds Calabria. "If it was just Paulson it wouldn't have happened."
What’s more Bernanke is now the man of a different president, one whose policy and personality ratings have declined in recent months. Bernanke has to also answer for that—especially since many say he went beyond being a team player to win Obama’s support for a second term.
Given all that, the timing is bad for Bernanke’s confirmation. Analysts say he'll very likely squeak by with enough votes on the Senate floor, but it won't be pretty.
The state of the economy is neither good nor promising. The crisis is over and the worst of the past largely forgotten. Firemen like Bernanke can put out fires and provide insurance of sorts but they can’t rebuild the house. He can't create jobs, either.
Politics has eclipsed policy and second-guessing first instincts. Oddly enough, Bernanke seems to have more critics today then when he was standing in the fire.
“You think back a year, 15 months ago, there were some really scary times,” says veteran independent banking analyst Bert Ely, who like many is not enthusiastic about either his appreciation or criticism of Bernanke. “The Fed has become more politicized and whoever was chairman would have run into some of this stuff.”
In the midst of the Senate Banking committee’s 16-7 affirmative vote on Bernanke’s re-nomination Thursday—an event that aptly captured the politics and populism of the times—Sen. Bob Corker (R-Tenn.) summed up the Bernanke conundrum perfectly.
“If we were going to basically fire all regulators that made mistakes, we'd have to start with a clean slate, and I don't think there's any regulator that didn't make mistakes leading up to this. Do I think that the experience that Chairman Bernanke has had over the last year and a half makes him by far of the people I know of the most well-equipped person to lead the Fed over the next several years? I do. I don't know of anybody I could think of that would be better after what has occurred. Did he make mistakes? Absolutely.“