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Ben Bernanke No Sure Bet In The Senate
Fed Chairman Ben Bernanke may be Time magazine’s Man of the Year – but he hasn’t convinced senators he’s the man for the job.
In the wake of Tuesday’s Massachusetts stunner, Bernanke’s chances of returning for a second term as head of the Fed were thrown into doubt, as a pair of liberal Democratic senators on Friday jumped on the dump-Bernanke bandwagon.
It was no idle threat. Senate Majority Leader Harry Reid (D-Nev.) said he’d call a vote next week but couldn’t say for sure Friday that he has the 60 votes to confirm Bernanke by the time his term expires Jan. 31.
That raised the prospect of a fill-in Fed chief, which would shock a skittish stock market that already dipped 5 percent in three days.
And a Bernanke defeat would be a stunning blow to President Barack Obama, who interrupted his Martha’s Vineyard vacation to re-appoint Bernanke over the summer and now is forced to salvage a nomination that once seemed a shoo-in.
Blame the Scott Brown brushfire. Brown’s upset Senate victory in Massachusetts put the nation’s populist angst on vivid display – the same forces that have led senators, left and right, to target Bernanke for the past few months.
The anti-Bernanke fervor picked up steam this week after Brown’s victory, as senators turned up the volume on their complaints that Bernanke has been too beholden to Wall Street bankers and not attentive enough to the pain for middle-class families.
“It is time for a change – it is time for Main Street to have a champion at the Fed,” Sen. Barbara Boxer (D-Calif.) said Friday in announcing her plan to vote against Bernanke. “Dr. Bernanke played a lead role in crafting the Bush administration’s economic policies, which led to the current economic crisis. Our next Federal Reserve Chairman must represent a clean break from the failed policies of the past.”
On Friday, the White House was moving to firm up Bernanke’s chances. Chief of staff Rahm Emanuel and Treasury Secretary Timothy Geithner were working the Hill by phone to help him.
And Reid, who had withheld his endorsement of Bernanke after meeting him Thursday, signed on Friday, highlighting Bernanke’s role in staving off a worse recession – the work that won him Time’s honor and plaudits from many economists.
In an election year that’s being driven by populist voter rage over the state of the economy, many lawmakers are wary of casting a vote to support one of the chief architects of the U.S. response to the crisis.
But Bernanke’s supporters tout his role in staving off economic Armageddon once the crisis started and injecting more than $1 trillion in new money into the economy to prevent the economy from shutting down in 2009.
“I don’t want to see the Fed destroyed,” said Ernest Patrikis, a partner at the law firm White & Case who spent 30 years as an official at the Federal Reserve Bank of New York. “People are so upset that they’re flailing left and right. We’re killing the dollar and confidence in the United States as a place to invest. There are issues that are so much more important than getting elected.”
At the Federal Reserve, where one source describes the mood as “weary exasperation,” aides scrambled to put together a plan for what happens if Bernanke does not receive a confirmation vote before his term ends.
In the event that Bernanke isn’t confirmed, several sources say, Federal Reserve Board Vice Chairman Donald Kohn likely would be elevated to acting chair of the U.S. central bank. Bernanke would be entitled to stay on the board until his term as a Fed governor expires in 2020, but the sources said Bernanke could instead return to a professorship at Princeton University.
Possible successors to Bernanke include three people currently advising Obama on the economy, former Fed chief Paul Volcker, Larry Summers and Christina Romer.
Kohn was traveling in Europe at the end of the week on Fed business, but strategy on the Bernanke confirmation was being led by former Enron lobbyist Linda Robertson, who is viewed as an effective advocate for the banking chief on Capitol Hill.
On Wall Street, executives predicted a dire market reaction if Bernanke’s confirmation fails. “A decision to kill the Bernanke nomination will cause a large and disturbing upset in global financial markets,” said economist Joseph Brusuelas. “Not just equities, but the dollar and interest rates will be immediately impacted.”
Wall Street lobbyists in Washington said they were quietly making the case for Bernanke on Capitol Hill, but were hamstrung by the politics. Because Bernanke has been criticized as too close to Wall Street, they said, the surest way to seal his fate would be for financial lobbyists to make a full court press to save his nomination.
“Three months ago, we thought this was a slam dunk,” said one financial services executive. “And today people think this may not even be a layup. There’s lots of concern in the markets that the politics of the Senate might derail him.”
And at the White House, staffers strategized over how to finesse the delicate politics of confirming a man who has become increasingly linked with the Wall Street bailout policies of the past year and a half. “[White House Chief of Staff Rahm Emanuel] and the other people are all engaged,” said an administration source.
“As the President has said before, he has a great deal of confidence in what Chairman Bernanke did to bring our economy back from the brink,” said White House spokesman Bill Burton. “And he continues to think that he's the best person for the job, and will be confirmed by the United States Senate.”
In the Senate, though, leadership aides said neither Democratic nor Republican leaders were whipping the vote as of Friday, a testament to how fractured the caucuses of both parties are on the fate of Bernanke. Democratic leadership aides said they did not have the votes to confirm Bernanke without significant support from Republicans.
Bernanke has come under fire from the left for being too close to Wall Street, and from the right for his role in extending government control of the financial markets. And both sides have complained that the Fed’s policy of lowering interest rates to spur the economy was part of the problem that led to the crisis of 2008.
And although most Senate watchers continued to predict that Bernanke will squeak through, speculation turned to what happens if he is rejected – and just who might take over one of the most powerful economic positions on the planet.
All the angst puts a rare spotlight on the otherwise-obscure vice chairman of the Fed, Kohn. Officials said Kohn sees the world largely the same way as Bernanke, and the Fed under his control wouldn’t take radically different steps than it has under Bernanke’s reign. “There’s no daylight that I'm aware of between Kohn and Bernanke,” said one former Fed official. “[Kohn has] spent his entire career at the Fed. He’s a creature of the institution.”
Kohn, a native of Philadelphia, is seen as a vital inside player inside the central bank. “He’s the glue that holds the Fed together,” said Patrikis. “If he were the acting chairman, it would be steady on course.”
Democratic leaders on the Hill have very little time left to gather votes before the Jan. 31 deadline. By Senate procedural rules, Majority Leader Harry Reid (D-Nev.) would need to file cloture – the procedural move to force debate – on the nomination by sometime Tuesday morning to ensure a final vote during the normal workweek,. The move is necessary because several Republicans and Vermont Independent Bernie Sanders plan to filibuster Bernanke nomination.
Late Friday, Reid released a statement offering an endorsement of Bernanke – but did not indicate when he will call a vote. “No one pretends for a minute that our economy is back at full capacity,” Reid said. “But Chairman Bernanke has worked hard to strengthen the economy in recent months . …He also deserves recognition for what didn’t happen: An expert on the Great Depression, Chairman Bernanke helped steer us away from a second one.”
But the Friday announcements by Boxer and Sen. Russell Feingold (D-Wisc.) opposing Bernanke brought the total of publicly declared “no” votes on both sides of the aisle to about a dozen.
And there are even more undecideds.
“I’m cogitating on it,” said Sen. Tom Harkin (D-Iowa). But he’s far from sold on Bernanke. “I just have some uneasy feelings that his mindset is not where we need to be in terms of the Federal Reserve right now.” Harkin said the White House had not reached out to him to support Bernanke.
Dodd, who defended Bernanke against liberal critics during the Democratic caucus lunch Wednesday, told reporters Friday that he doesn’t know where the votes stand but he believes his Democratic colleagues who plan to oppose the Fed chairman are making a mistake.
"If you want to send a worse signal to the markets right now and send us in a tailspin, it would be to reject this nomination. This is not naming someone to be an assistant secretary to something -- this is the most important central banker in the world,” Dodd said.
Sources: Politico, MSNBC, TIME
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