Bernanke’s Bid for a Second Term at the Fed Hits Resistance
The Obama administration struggled on Friday to secure confirmation of Ben S. Bernanke to a second term as chairman of the Federal Reserve, underscoring the political upheaval as both parties tried to find their footing amid a powerful wave of populism.
Opposition to Ben Bernanke has emerged from both the left and the right.
Two Democratic senators who are up for re-election this year announced that they would oppose Mr. Bernanke, whose four-year term as head of the central bank expires at the end of this month. Their decisions reflected a surge of opposition among some Democrats and Republicans to Mr. Bernanke, a primary architect of the bailout of the financial system and a contributor to policies that critics contend put the economy at risk in the first place.
With no vote scheduled and Capitol Hill abuzz with the possibility that more senators would use the nomination to show voters they understood the anger about bailouts and economic hardship, the uncertainty about Mr. Bernanke’s fate spread to Wall Street.
It contributed to another day of losses for investors at the end of a three-day slide that drove the markets down almost 5 percent. The Dow ended the week at its lowest close since early November.
By the end of the day, the White House had extracted a statement of support for Mr. Bernanke from the Senate majority leader, Harry Reid of Nevada, who had been noncommittal. Mr. Reid’s statement, issued after the markets closed, was intended to signal that Democrats, backed by some Republicans, could come up with the 60 votes necessary to break a deadlock and reconfirm Mr. Bernanke.
But even then Mr. Reid’s statement was remarkably unenthusiastic. After meeting with Mr. Bernanke on Thursday, Mr. Reid warned: “The American people expect our economic leaders to keep Wall Street honest and level the playing field for middle-class families.”
And in his statement Friday, Mr. Reid said he had decided to support Mr. Bernanke with trepidation and only after he received a commitment that the Fed chairman would take additional steps to increase the flow of credit to middle-class Americans.
While some Republicans were certain to oppose Mr. Bernanke, the minority leadership had its own strategic calculations to make.
Rejecting Mr. Bernanke, a Republican economist who was named chairman by President George W. Bush in 2005 and took over in 2006, could lead Mr. Obama to appoint someone from the ranks of Democratic economists that Republican lawmakers find less appealing. And if markets swooned, Republicans would share in the blame.
But even if the nomination is approved, the spasm of anxiety surrounding it will have highlighted how members of both parties are reassessing their stands on many issues as they try to understand the strain of anger toward the government, Wall Street and other institutions.
In the days since the Democrats lost a crucial Senate seat in Massachusetts, Mr. Obama has struck a tougher tone toward big banks. In the process he signaled a shift away from less aggressive regulatory policies backed by another architect of the bailout, Timothy F. Geithner, the Treasury secretary. On Friday in Ohio, Mr. Obama took a combative approach on health care reform and banking regulation.
But Mr. Obama cannot afford a failed nomination — the Senate has never before rejected a president’s nominee for Fed chairman — and he has publicly and privately backed Mr. Bernanke and Mr. Geithner for their roles in stabilizing the financial system and averting what could have been a wholesale collapse.
Opposition to Mr. Bernanke has emerged from both the left and the right, as anger has mounted over the Fed’s extraordinary interventions in the market in 2008 — which have been lumped together with the huge bailouts of big financial institutions — and over its regulatory failings before the crisis. Mr. Bernanke has also been criticized for backing an easy money policy earlier in the decade that critics say fueled the housing bubble.
“The anger at the Treasury has been spilling over to the Fed,” said Frederic S. Mishkin, a former member of the Fed’s board of governors and a close friend of Mr. Bernanke.
“My view is Chairman Bernanke helped save the world from depression,” said Mr. Mishkin, an economist at Columbia University. “Whether you agree with every policy he’s pursued or some of the ways the bailouts were done, the outcome here, given the severity of the shock, is a good one. But that’s hard to explain to the American public when we’re sitting with 10 percent unemployment.”
The two Democratic senators to come out against Mr. Bernanke on Friday, Barbara Boxer of California and Russell D. Feingold of Wisconsin, called for a chairman more attuned to the suffering of ordinary Americans.
“It is time for Main Street to have a champion at the Fed,” Ms. Boxer said. “Our next Federal Reserve chairman must represent a clean break from the failed policies of the past.”
Mr. Feingold was unsparing in his criticism: “Under the watch of Ben Bernanke, the Federal Reserve permitted grossly irresponsible financial activities that led to the worst financial crisis since the Great Depression.”
By day’s end, other Democratic senators had rallied around Mr. Bernanke. Senator Christopher J. Dodd of Connecticut, the chairman of the Banking Committee, warned that a no vote would “send the worst signal to the markets right now in the country and send us in a tailspin.”
Senator Mary L. Landrieu of Louisiana announced qualified support, saying that “failing to reappoint Mr. Bernanke would only add turmoil to markets that are just beginning to recover.”
The White House chief of staff, Rahm Emanuel, and Secretary Geithner were both making calls to senators on Mr. Bernanke’s behalf, administration officials said.
At least 11 senators have said they would oppose Mr. Bernanke, including four Democrats, Ms. Boxer, Mr. Feingold, Byron L. Dorgan of North Dakota and Jeff Merkley of Oregon; one independent, Bernie Sanders of Vermont; and six Republicans.
“Especially since the election in Massachusetts, Democrats are waking up to the fact that Americans are profoundly disgusted with the behavior on Wall Street that led to the disaster we’re currently in,” Mr. Sanders said. “In the last week the president has decidedly changed his tone on Wall Street — in my view, quite appropriately. He would be well served to have an ally at the Fed who shares those concerns.”
Senate Democratic leaders had contemplated a vote this week on the nomination, but were forced to hold off after encountering opposition at their caucus’s weekly luncheon on Wednesday. The leaders asked for a show of hands and, though aides would not provide a precise count, Mr. Reid was said to be surprised at the number.
And in a sign of such uncertainty, Mr. Reid asked the minority leader, Mitch McConnell of Kentucky, to count the votes on the Republican side. Mr. McConnell has not said how he will vote, but some influential Republican senators, including Judd Gregg of New Hampshire and Lamar Alexander of Tennessee, have said they will back Mr. Bernanke.
If Mr. Bernanke’s term as chairman expires, he would still remain a member of the board of governors, where he holds a separate 14-year appointment that does not expire until 2020. It is also possible he could continue on as chairman pro tempore. The Federal Reserve Act states that the vice chairman — Donald L. Kohn now — acts as chairman in the chairman’s absence, but how an absence is defined is not clear.
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