Senate votes Bernanke to another term

POSTED: Thursday, January 28, 2010 - 6:31pm
UPDATED: Friday, April 13, 2012 - 9:53am

The Senate voted 70-30 to reappoint Ben Bernanke for a second four-year term as chairman of the Federal Reserve.

Earlier, senators voted 77-23 to end debate, clearing the way for a final vote. During more than two hours of debate on the Senate floor, Bernanke backers warned that voting him down risked sparking turmoil in U.S. and foreign markets and thwarting a budding economic recovery. They said the Fed chairman deserved an opportunity to finish what he started.

"To vote against confirmation could unnerve investors and exacerbate economic uncertainty in the marketplace, which is exactly what we do not need at this time," said Sen. Robert Menendez, Democrat of New Jersey. "We need the wisdom of patience," he said. "Let us not judge the man or the work prematurely."

Critics assailed him for his record ahead of the crisis, from bank supervision to mortgage regulation to the financial rescue. "Bernanke fiddled while our markets burned," said Republican Sen. Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee. "I believe that it is the duty of this body to hold accountable those regulators whose poor oversight of our financial institutions and markets helped produce the greatest economic crisis this country has experienced in eighty years."

Republican Sen. Jim Bunning, one of Mr. Bernanke's fiercest critics, said "a vote for Ben Bernanke is a vote for bailouts," and added, "If you want to put an end to bailouts and send a message to Wall Street, this vote is your chance," he said.

Mr. Bernanke was nominated for another term as Fed chairman by President Barack Obama last year. He came to Washington from Princeton University in 2002 to serve as member of the Fed's Board of Governors under the chairmanship of Alan Greenspan, left the Fed briefly to serve as chairman of President George W. Bush's Council of Economic Advisers and succeeded Mr. Greenspan in 2006. As Fed chairman, he presided over the response to what he has termed the worst financial crisis in modern history.

"Had it not been for Ben Bernanke in the chair of the Federal Reserve, I believe we'd be looking at a very different America today.," Sen. Chris Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, said on Senate floor.

While lawmakers considered the nomination in recent weeks, Mr. Bernanke has worked not just to secure his own future but to protect an institution that's under attack. Several senior Democratic and Republican senators want to fundamentally revamp the Fed's structure, stripping its role as a bank supervisor. The debate over Mr. Bernanke's nomination highlighted criticism of the central bank's track record, its transparency and its controversial response to the crisis. "There's a lot of unrest in the country and a lot of people do not believe that the Fed should've been the central intervener" in troubled financial firms, Sen. Shelby said.

The Bernanke debate "puts economic policy squarely in people's minds," said Sen. Jeff Merkley, Democrat of Oregon, who voted against the nomination. "Many of us feel that policy that's been dictated by short-term desires of Wall Street that have not served our nation well have to be looked at."

The reluctance of many senators to support Mr. Bernanke suggests more lawmakers could step up to support other popular provisions that the Fed opposes, such as auditing the central bank's monetary policy or scaling back its authorities. "With the Fed having such a dramatically increased role in the economy of the country, there are going to be further demands for greater transparency," said Sen. John McCain, an Arizona Republican.

No Fed chairman nominee has been rejected by the Senate. Paul Volcker was confirmed for a second term in 1983 by a vote of 84-16, the smallest margin ever. Mr. Bernanke faced even higher opposition in the final vote.

Mr. Bernanke is a controversial figure. He was the main person behind the successful fight, in 2007 and 2008, against what he has described as possibly the worst financial crisis in modern history.

An expert of the 1930s Great Depression, supporters say Mr. Bernanke avoided a similar fate for the U.S. economy with his bold decisions to slash interest rates to near zero, flood the financial system with more than $1 trillion, and rescue big financial firms such as American International Group Inc.

"Ben Bernanke helped avert a global financial crisis. I believe history will prove that is the truth," said Kent Conrad (D., ND). Once history is written, "Bernanke will prove to be one of the heroes of the piece."

Critics, however, say he helped fuel the housing bubble at the root of the financial crisis by endorsing low interest rates in the early 2000s, when he was Fed governor and Mr. Greenspan headed the central bank.

Mr. Bernanke's been at the center of the most controversial moves in the crisis: deciding which firms to save and which to let fail. Each of those steps, from rescuing AIG to allowing Lehman Brothers Holdings Inc. to go down, is being scrutinized by lawmakers.

Critics have assailed the Fed for supporting AIG at taxpayers' expense. The insurer got about $180 billion from the federal government and AIG counterparties, including Goldman Sachs Group Inc. and Societe Generale SA, got $62 billion for tearing up insurance contracts with the embattled insurer.

"The full story of AIG has yet to be told... What is clear, however, is that the Fed knew more about AIG's problems than it has admitted so far," U.S. Senator Richard Shelby (R., Ala), ranking Republican on the Senate Banking Committee, said Thursday.

In a letter sent to Rep. Darrell Issa (R., Calif.) Wednesday, Mr. Bernanke said the health of AIG's major trading partners wasn't a factor in the government's negotiations. The Fed chairman said he supported the Fed's decision but was not a party to the negotiations.

"I was not directly involved in the negotiations with the counterparties," Mr. Bernanke wrote, noting that the counterparty payments helped "remove an enormous obstacle to AIG's financial stability."

Mr. Bernanke's toughest challenge this year will be deciding when to raise interest rates as the economic recovery takes hold. If the Fed moves too soon, it could kill a nascent recovery, hurting an already weak labor market. Moving too late could fuel another asset bubble or bring the high inflation rates seen in the 1970s.

The Federal Reserve policy-making arm Wednesday gave a slightly more upbeat reading of the U.S. economy, but left interest rates near zero to help support what it considers a still soft recovery.

However, in the first sign of dissent in a year, Kansas City Fed President Thomas Hoenig voted against the action, believing the economy was strong enough to remove a pledge to keep rates at a record low for an "extended period," which is seen as around six months. Some observers read Hoenig's dissent as a sign the Fed may be inching closer to hiking rates.