January 25, 2010
Ben Bernanke’s four-year term as chairman of the Federal Reserve ends on January 31. There is presently no vote scheduled to confirm President Obama’s nomination of Bernanke to that post because four Senators (Bernie Sanders, D-Vt.; Jim Bunning, R-Ky.; Jim DeMint, R-S.C. and David Vitter, R-La.) have placed holds on Bernanke’s nomination. In order for the Senate to proceed to a vote on the nomination, 60 votes will be required. At this point, there is a serious question as to whether the pro-Bernanke faction can produce those 60 votes. A number of commentators have described last week’s win by Scott Brown as a “chill factor” for those Senators considering whether to vote for confirmation. Ryan Grim of The Huffington Post put it this way:
Opposition to the reconfirmation of Federal Reserve Chairman Ben Bernanke is growing in the Senate in the wake of a Republican Scott Brown’s victory, fueled by populist rage, in the Massachusetts Senate race.
James Pethokoukis of Reuters explained the situation in these terms:
Liberals in Congress want him gone. Then again, they want pretty much the whole Obama economic team gone. But Geithner and Summers aren’t up for a Senate vote. Bernanke is. And if Dems start bailing, don’t expect Republicans to save him. No politician in America gains anything by voting for Bernanke. A “no” vote is a free vote. Wall Street still loves him, though. Geithner, too.
At The Hill, Tony Romm reported:
Bernanke has taken heat as Wall Street’s profits have soared while unemployment has become stuck in double digits, and the wave of economic populism soaring through Washington in the wake of a stunning Democratic loss in the Massachusetts Senate races comes at a bad time for his confirmation.
If Bernanke is not confirmed, he will continue to sit on the Federal Reserve Board of Governors because each Fed Governor is appointed to a 14-year term. Donald Kohn, the vice chairman, would serve as the interim chairman until Bernanke’s successor is nominated and confirmed.
The forces pushing for Bernanke’s confirmation have now resorted to scare tactics, warning that dire consequences will result from a failure to re-confirm Bernanke. Senator “Countrywide Chris” Dodd warned that if Bernanke is not confirmed, the economy will go into a “tailspin”. An Associated Press report, written by Jennine Aversa and carried by The Washington Post, warned that a failure to confirm Bernanke could raise the risk of a double-dip recession. At The Atlantic, Megan McArdle exploited widespread concern over already-depleted retirement savings:
Spiking his nomination may have grim effects on 401(k)s throughout the land.
Not to be outdone, Judge Richard Posner issued this warning from his perch at The Atlantic:
If he is not confirmed, the independence of the Fed will take a terrible hit, because the next nominee will have to make outright promises to Congress of bank bashing, and of keeping interest rates way down regardless of inflation risk, in order to be confirmed.
I guess that these people forgot to mention that if Bernanke is not confirmed:
A plague of locusts shall be visited upon us,
The earth will be struck by a Texas-sized asteroid,
An incurable venereal disease will be spread via toilet seats,
The Internet will vanish, and . . .
Osama bin Laden will become the next Justice of the United States Supreme Court.
At the Think Progress website, Matthew Yglesias pondered the issue:
What happens if Ben Bernanke isn’t reconfirmed? Well, some folks seem to think it will send markets into a tailspin. But it’s worth emphasizing that in literal terms almost nothing will happen.
Beyond that, as Sudeep Reddy and Damian Paletta explained in The Wall Street Journal:
The Federal Open Market Committee — which consists of the presidentially appointed Fed governors in Washington and the presidents of the regional Fed banks — meets Jan. 26-27 and traditionally elects a chairman and vice chairman at its first meeting of the year. The committee, which makes monetary policy decisions, is set to elect Mr. Bernanke as its chairman at that meeting, a move that doesn’t require approval of the White House or the Senate.
Min Zeng of The Wall Street Journal filled us in as to what else we can expect from the FOMC this week:
Next week, the two-day FOMC meeting will end Wednesday afternoon with a statement on an interest-rate decision and policymakers’ latest outlook on the economy and inflation.
The FOMC is widely expected by market participants to keep its main policy rate — the fed-funds target rate — at ultra-low levels near zero as recent data haven’t demonstrated a persistent and strong economic recovery, with a jobless rate still hovering around the highest level in more than two decades.
Fed policymakers are also likely to stick to their plan to end the $1.25 trillion mortgage-backed securities purchases program at the end of March. The central bank should also reiterate its plan to let some emergency lending programs expire Feb. 1.
The Fed could soon hike the rate it charges on emergency loans, known as the discount rate, but that would largely be symbolic now that banks have been borrowing less and less from it as financial markets stabilized.
Meanwhile, the battle against the Bernanke confirmation continues. Mike Shedlock (a/k/a Mish) has urged his readers to contact the “undecided” Senators and voice opposition to Bernanke. Mish has also provided the names and contact information for those Senators, as well as the names of those Senators who are currently on record as either supporting or opposing Bernanke.
I’d like to see Bernanke lose, regardless of the consequences. The rationale for this opinion was superbly articulated by Senator Jim Bunning during the confirmation hearing on December 3. If you’re not familiar with it — give it a read. Here is Senator Bunning’s conclusion to those remarks, delivered directly to Bernanke:
From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed’s failures, and there is no better time than now.
Amen.
Building A Consensus For Survival
March 29, 2010
In my last posting, I focused on the fantastic discourse in favor of financial reform presented by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, in a speech before the U.S. Chamber of Commerce. In addition to Hoenig’s speech, last week brought us a number of excellent arguments for the cause that is so bitterly opposed by Wall Street lobbyists. On the same day that Thomas Hoenig delivered his great speech to the U.S. Chamber of Commerce, Deputy Treasury Secretary Neal Wolin also addressed that institution to argue in favor of financial reform. I enjoyed the fact that he rubbed this in their faces:
Wolin’s presentation was yet another signal from the Treasury Department that inspired economist Simon Johnson to begin feeling optimistic about the possibility that some meaningful degree of financial reform might actually take place:
Yep. That was our old pal and former New York Fed President, “Turbo” Tim Geithner, making the case for financial reform before the American Enterprise Institute. (You remember them — the outfit that fired David Frum for speaking out against Fox News and the rest of the “conservative entertainment industry”.) Treasury Secretary Geithner made his pitch for reform by reminding his conservative audience that longstanding advocates of the “efficient market hypothesis” had come on board in favor of financial reform:
No wonder Simon Johnson is feeling so upbeat! The administration is actually making a serious attempt at doing what needs to be done to get this accomplished.
Meanwhile, The New York Times had run a superb article by David Leonhardt just as Geithner was about to address the AEI. Leonhardt’s essay, “Heading Off the Next Financial Crisis” is a thorough analysis, providing historical background and covering every angle on what needs to be done to clean up the mess that got us where we are today — and to prevent it from happening again. Here are some snippets from the first page that had me hooked right away:
Congratulations to David Leonhardt for putting that great piece together. As more commentators continue to advance such astute, sensible appeals to plug the leaks in our sinking financial system, there is a greater likelihood that our lawmakers will realize that the economic risk of doing nothing far exceeds the amounts of money in those envelopes from the lobbyists.