Fourth senator joins move to block Bernanke
Bunning to Bernanke: You are ‘the definition of moral hazard’
Update: A fourth senator has joined three other senators in placing a hold on the Fed Chairman’s nomination. Louisiana Republican David Vitter will also move to keep the chairman’s nomination from coming to the floor.
“Over the past year or so, the Fed has doled out several trillion dollars to any number of troubled institutions through a series of programs that were supposed to turn our economy around,” Vitter said in a statement. “These programs have worsened our economic crisis by making ‘too big to fail’ a permanent government policy and created further debt that will now be the burden of our children and grandchildren. His endorsement of these unsound fiscal policies gives me great pause.”
A bipartisan effort to block the confirmation of Ben Bernanke to a second term as chairman of the Federal Reserve means the White House will face tougher obstacles reappointing the man it says is the right person to lead the country’s central bank.
Since last year’s financial collapse, Bernanke has been severely criticized by some as playing an instrumental role in allowing the creation of the asset bubbles that caused investment banks Bear Stearns and Lehman Brothers to disappear, and forced a $700-billion bank bailout on taxpayers.
On Wednesday evening, Sen. Bernie Sanders (I-VT), an independent democratic socialist who caucuses with the Democrats, declared that he would place a hold on Bernanke’s confirmation.
“The American people overwhelmingly voted last year for a change in our national priorities to put the interests of ordinary people ahead of the greed of Wall Street and the wealthy few,” Sanders said. “What the American people did not bargain for was another four years for one of the key architects of the Bush economy.”
And today The Hill reported that Sen. Jim Bunning (R-KY) also placed a hold on the confirmation. The hold prevents Bernanke’s nomination from going to a vote on the floor unless a 60-vote margin overrides it.
Reuters reported Thursday that Sen. Jim DeMint (R-SC) has joined Sanders and Bunning in opposing the nomination.
The Financial Times reports that “most Hill-watchers think that in the end — after a lot of griping about the Fed — there will easily be the 60 votes required to overcome the hold and reconfirm Bernanke on a bipartisan basis.”
Sen. Chris Dodd (D-CT), who chairs the Senate Banking Committee, gave Bernanke his support during the hearing.
But, as David Dayen — the FireDogLake blogger who first reported that Bunning would join the hold — stated on his blog, this does not mean that the senators’ holds will have no effect.
“At the very least, this delay and the publicity surrounding bipartisan opposition to Bernanke would bring attention to the issue of the Federal Reserve and the desire for transparency, like the movement to audit the Fed,” Dayen writes.
Bernanke faced a tough hearing in front of the Senate Banking Committee Thursday, where he defended his record as Fed chairman and argued against greater congressional oversight of the quasi-independent central bank.
“You are the definition of moral hazard,” Bunning said to Bernanke, in a pre-prepared statementposted by the Huffington Post. (“Moral hazard is the term used to describe banks taking unnecessary risks because they believe they will be bailed out by the government if anything goes wrong.) “Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses.
“Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives.”
“There were mistakes made all around,” Bernanke said when asked if he would change what the Fed had done.
For bank regulations, he said, “We should have done more. We should have required more capital, more liquidity. We should have required tougher risk management controls.”
“I did not anticipate a crisis of this magnitude and severity,” Bernanke told the panel. “But given that it happened, many of the banks… were not adequately prepared in terms of their reserves, in terms of their liquidity. That is a mistake we won’t make again.”
Bernanke warned senators about placing too much political oversight on the Fed, particularly on its role in setting monetary policy.
“Monetary policy, by its very nature, has to look ahead over a longer period of time,” he said.
“There is a very, very strong finding… which shows that countries that have independent central banks, that make monetary policy without political intervention, have lower inflation, lower interest rates and better performance than those in which the central bank is subject to considerable political control.”
Bernanke also heard praise from the committee chairman, Senator Chris Dodd.
“Under your leadership, Mr. Chairman, the Federal Reserve has taken extraordinary actions to right the economy,” Dodd said in his opening statement.