There is a curious disparity in the reports on Bernanke’s odds of reconfirmation as Fed chairman. Now on the one hand, incumbents generally have an upper hand. But incumbents seldom preside over massive disasters that started on their watch and remain sufficiently unobservant as to be unable to connect the dots that they might have had something to do with the mess.
The object lesson tonight is the contrast between Bloomberg and Huffington Post coverage on the Senate Banking Committee vote on Bernanke this Thursday. Bloomberg has already declared a winner: “Bernanke Has Support of Majority of Senators on Banking Panel.” But the data in the story is less definitive:
Eight Democrats and four Republicans, among the 23 lawmakers on the panel overseeing the central bank, made their views known in interviews, comments to reporters or written statements. Some said they will support Bernanke, while others said they’re leaning in his favor.
Yves here. Note the disparity between the headline, which says the Fed chair has the support of a majority, and the second paragraph tally, which says he has a bare majority of supporters and those inclined toward him but not decided.
And take note of this remark:
Alabama Senator Richard Shelby, the panel’s top Republican, declined to comment except to say, “You’ll be there Thursday.”
By contrast, the Huffington Post framed the story around what my DC experts tell me is Bernanke’s big point of vulnerability: his lack of interest in the welfare of ordinary Americans. Their title: “Fed Needs To ‘Start Giving A Red Hot Damn About The American Public,’ Says Sen. Whitehouse.”
Recall that the Fed has a dual mandate, combatting inflation and promoting full employment, along with its original charter of assuring the safety and soundness of banks. Those duties are not fully consistent, but Bernanke clearly sees the world from the big end of town perspective. The Fed took even less interest in the problems posed by subprime than the bank-friendly Office of the Controller of the Currency, even though it was required to do so under the Home Owners Equity Protection Act.
And HuffPo makes it sound as if the confirmation is not a given:
Two days before Ben Bernanke’s confirmation hearing, most Democrats on the Senate Banking Committee are withholding judgment, waiting to hear directly from the chairman of the Federal Reserve.
Given the depth of the ongoing economic crisis, the hearing promises to be a lively one, as senators plan to take out their constituents’ anger on the monetary policy chief. Bernanke will likely have a difficult time explaining why the Fed wants to keep bank lending to a minimum while the lack of bank lending is exacerbating the unemployment crisis.
HuffPo also differs in its reading of how keen particular Senators are. For instance, while HuffPo pointed out, as Bloomberg did, that Dodd is leaning towards Bernanke, it added (as Bloomberg did not) that Dodd made a point of saying his stance was not a foregone conclusion.
And Shelby?
The committee’s top-ranking Republican, Richard Shelby (R-Ala.), wasn’t excited about voting for Bernanke. “I used to be a big defender of the Fed, but I think the Fed has utterly failed as a regulator,” he said. Asked if he’d support him, he said, “We’ll see.”
So if you are as unhappy as I am about Bernanke, be sure to call or e-mail your Senator, particularly if one of them is on the Senate Banking Committee. You can find a list of names (with state and party noted) with links to their contact info here.
Separate but related, this week’s offering at Big Think is a series of interviews with David Wessel of the Wall Street Journal. This clip is “In Fed We Trusted”:
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Bernanke will likely have a difficult time explaining why the Fed wants to keep bank lending to a minimum while the lack of bank lending is exacerbating the unemployment crisis.
I sure hope someone demands to know how he squares this with the propaganda blitz that the reason for the bailouts, for why the taxpayers allegedly had to be looted to such extremes, was to “get the banks lending again”.
The Big Lie.
He was nobody before he came to the Fed and has no career connections to Wall Street (unlike Timmy, whose corner office at Vampire Squid is waiting for him). He’s eminently replaceable, making him a logical symbolic sacrifice to public anger.
Well, perhaps one should also keep in mind that is is pretty difficult for a bank -any bank- to strenghten its balance sheet and resume lending at the same time. But I understand that nearly all new U.S. mortgages are now being lent by the U.S. Government, and I expect that the same will happen for other forms of lending, for instance to small business. (Although we should give due credit to Goldman Sachs invaluable $ 500 million donation!) The net effect, in a few years time, might be that the commercial banking system has become largely irrelevant, and that all financial transactions are done by the First, Second, Last and in fact Only Bank of the United States. Whether it could also be named “United Socialist States” is a matter of personal taste.
I read HuffPo sometimes, but find them increasingly distasteful in that they utterly fail to vet people who are permitted to write articles for the site. There are some incredible charlatans writing there, and they have a serious bias in their reporting. Increasingly, I rank them with FoxNews (or CNBC) as a source of reliable information.
Bernanke is likely to get reappointed. On the one hand, he would be an easy head to throw to the disaffected; on the other hand, it would require the Senate to actually act and stick out its own neck by voicing an opinion. If the kind of response against that was sent to Congress regarding the first bailout was ignored, I seriously doubt that anything that the people might say would weigh with the Senate in Bernanke’s case.
Yves, You should adopt the ancient Chinese philosophy of Enlightened Self Interest.
You are a blogger of these events. If Bernanke were replaced with someone who had a clue what was going on we would lose an “asset” that we have become dependent upon.We would have nothing to gripe about. We would lose readers. No more trips to D.C. We would have to go back to work!!
I say keep Bernanke around. Long live the blogs
HuffPo wants Elizabeth Warren as a replacement for Tim Geithner. ‘Nuff said?
“what my DC experts tell me is Bernanke’s big point of vulnerability: his lack of interest in the welfare of ordinary Americans”
That sums up the problem. Interest in the welfare of ordinary Americans should be so far down the job spec of a Fed chairman as to be almost irrelevant, and unless politicos are very wise, their opinion of what the Fed chairman’s strengths and weaknesses are should be regarded with suspicion. The key function of a monetary authority is price stability, with any influence over real variables being temporary and probably not the most efficient tool for that purpose, and the function is technical. In my opinion, Ben Bernanke WAS a product of too much concern for the short-term welfare of ordinary Americans, as filtered through the political process – his famous speech of 21 November 2002, which essentially promised to respond to an economic downturn with a warm monetary warm shower directed by politicians, marked him, unwittingly or otherwise, as the main contender for the job as Chairman.
Only when the US realises that it needs another Volcker or Wim Duisenberg figure (“I hear but I do not listen”) will it have started to address its economic problems.
“The key function of a monetary authority is price stability”
Then your beef is with congress, as the laws they’ve passed explicitly give the Fed a mandate to balance inflation with other factors like unemployment.
“Interest in the welfare of ordinary Americans should be so far down the job spec of a Fed chairman as to be almost irrelevant”
So you’re saying that price stability is of no interest to ordinary Americans? That’s news to me.
“Ben Bernanke WAS a product of too much concern for the short-term welfare of ordinary Americans”
Yves said “welfare”, not “short-term welfare”. I’m sure you’ll agree there can be a big difference.
Populist sentiments turn the “elites” so ugly. They grab torches and pitchforks before thinking things through.
What I mean is that economic thought has led to the conclusion that monetary policy is the only method of controlling inflation in the medium and long run, whereas its influence on real economic activity is blunt and limited to the short term, and can do no more than smooth real output fluctuations, so that Bernanke can best serve the welfare of ordinary Americans by prioritising the inflation objective whatever his personal motive for doing so. And experience has taught that if politicians control monetary policy, they are tempted to abuse its short-term influence, so that the welfare of ordinary Americans is enhanced by limiting politicians’ control of the Fed, hence Bernanke is doing ordinary Americans a disservice if he does not act independently. There is nothing in the Fed’s mandate that would make it unreasonable for a Fed chairman to argue, as ECB governors do, that price stability is the best contribution that the central bank can make to maximising economic efficiency and hence to minimising unemployment.
In that case I basically agree with you, assuming that by price stability you mean asset prices as well as CPI.
But if elected politicos can’t be trusted with monetary policy, and Alan and Ben have shown that appointees can’t either, who should manage it? Suggestions welcome, as I have no idea.
P.S. The only way I can see inflation being desirable is if the debt burden is so high that it’s the only way to get the economy going. Not saying we’re clearly there or anything, but jumping out of the plane without a parachute might make sense if the plane is about to explode.
“And experience has taught that if politicians control monetary policy, they are tempted to abuse its short-term influence, so that the welfare of ordinary Americans is enhanced by limiting politicians’ control of the Fed, hence Bernanke is doing ordinary Americans a disservice if he does not act independently.”
I buy this bid for “independece of the political process” in theory, but in the recent past the problem seems to be more that the Fed is too much a friend of the financial sector, and people in the financial sector too interested in their own short term interests.
This seems a sure recipe for kleptocracy. Somehow the good of the national economy and the long term interests of the nation (and even of the financial sector) have to be balanced against the activities of little petty criminals in the financial sector. History teaches us this as well.
Congress *should* be able to figure out how to do this, and it *is* an inconvenient fact that the Fed serves the US at their pleasure. What powers the political process grants, the political process can correct, alter or revoke entirely.
Maybe turning Bernanke out is a way to *start* putting government appointees on notice. I think some people have forgotten how things really work around here.
Something needs to be done about this unemployment crisis. People can’t spend money if they don’t earn it.
First, I should say I don’t know how this vote will turn out. Basically, voting against Bernanke is a fairly easy vote for Republicans. They don’t have anything invested in him. He did the bank bailout for them and has become a target of populist anger. He did what they wanted and can now be safely thrown to the curb. Dodd has problems with his re-election efforts in Connecticut. So he is making some populist noises. But the likelihood is that he will cave because that is what he and Democrats always do. The rest of the Democrats are corporatist weasels and will support Bernanke because he is Obama’s choice.