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The Senate Finance Committee overwhelmingly voted to approve Ben Bernanke as Federal Reserve Board Chairman for another four-year term. Yet while some commentators point out that Bernanke is at least incompetent, some believe he consistently favors Wall Street over Main Street as part of a larger strategy ultimately to launch a broad attack on Medicare, Medicaid, and Social Security. In any case, while the hope for full economic recovery has Fed-subsidized stock markets booming, and although a full-scale economic collapse may have been avoided for now, there is compelling reason to believe that a longer, deeper recession is on the way.
Meanwhile, the Obama administration’s recklessly excessive spending on war combined with Bernanke’s policies at the Fed are ensuring that the federal government’s response to a deeper crisis will be even more inadequate than what it has done thus far. There are deeper reasons for these crises, and, ultimately, democratization of the Fed—which, as the only government agency that does not submit its budgets to Congress, now answers only to banks, William Greider, “Dismantling the Temple: How to Fix the Federal Reserve,” TheNation.com (August 3/10, 2009)—is part of the solution. But in the meantime Bernanke should be denied a second term as Fed chief, and a full Senate debate on his reappointment would provide a good opportunity to raise and publicize the broader issues that need to be addressed.
After the initial mixed reception of the $700-billion TARP by the Congress, the Fed and Treasury have colluded to circumvent Congress with a proliferation of additional, almost unimaginably costly schemes, that have committed some $12 trillion thus far to support financial firms and credit markets in an effort to revive “securitization,” the financial “innovation” that precipitated the current crisis.
The trillions of dollars Bernanke has thrown at the financial sector to underpin the credit markets have produced euphoria on Wall Street, but they threaten to bankrupt the federal government, ruin the dollar and leave us without the resources needed for real economic renewal.
The various Treasury and Fed schemes for “unfreezing” the credit markets are likely to fail for many reasons, but essentially because a crisis brought on by an excess of leverage cannot be resolved by more of the same. However, the schemes are in the process of achieving the biggest transfer of wealth in the history of the Republic, and perhaps the world, to the already richest 1% from the rest of us, without stimulating or rebuilding the real economy. If allowed to continue, they threaten to leave in their wake a deeper and renewed recession, or worse: an economy devastated beyond repair and a bankrupt government with a ruined currency, posing the real prospect of even broader unemployment and, ultimately, civil chaos as even more widespread poverty and hunger proliferate out of control.
At best, Bernanke’s policies at the Fed have shown incompetence. But they may have been a conscious attempt to maintain the profits of Wall Street firms at the expense of the taxpaying middle class. Intentionally or not, they are likely to serve as the opening salvo in a campaign to subject the American people to the same sort of neoliberal “structural adjustment” policies—the dismantling of social welfare programs in the name of “fiscal responsibility”—that have been so disastrous, and have caused such widespread suffering and pain, in the Third World. Wall Street has already suggested the U.S. Government’s triple-AAA credit rating may be threatened—not, supposedly, by the trillions it spends on cruel and disastrous wars that benefit only the masters of war and their armaments industries, but by expenditures on Medicare and Medicaid [1]. While the Fed engages in various under-the-radar strategies to recapitalize the banking system, Bernanke and Obama have repeatedly committed the federal government to slashing long-term deficits. The administration’s commitment to “fiscal restraint” has already been used as an argument to undermine real healthcare reform. The outcome of the Fed’s policies to subsidize Wall Street profits will ultimately be an attack on Medicare, Medicaid, and Social Security in the name of “fiscal responsibility.” The American people should be alerted to these prospects by a full investigation of the Fed’s actions and policies under Ben Bernanke and a full debate on the wisdom of treating us to more of the same for another four years.
A Washington Post article, “Fed’s approach to regulation left banks exposed to crisis,” reporting on several cases of the Federal Reserve’s failures as a bank regulator, also shows why Fed chief Ben Bernanke does not deserve reappointment. As the Post reports, Bernanke in a speech at the Federal Reserve Bank of Chicago in May 2007 declared:
“Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market,” Bernanke said. “The troubled lenders, for the most part, have not been institutions with federally insured deposits.”
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.
Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.
The subprime market, which had shown signs of distress since the end of 2006, officially sank in July, 2007, with the failure of two Bear Stearns hedge funds, just two months after Bernanke’s remarks. But “he had given evidence earlier of being wildly out of touch,” as when in March he estimated subprime losses at $50 to $100 billion, at a time when no private sector analyst pegged the damage as anything less than $150 billion. See "WaPo Shreds Fed’s Pre-Crisis Performance as Regulator."
The fact that a piece openly critical of the Fed’s performance, and one that puts Bernanke in the spotlight, is running while his confirmation is still in play, appears to confirm the observation made by Politico last week, that the enthusiasm for him is waning. That does not mean he will not be confirmed in the end, but it suggests his confirmation is not a done deal.
The article focuses on how:
The Post article is accessible to non-experts while presenting many key financial and regulatory details. And, as pointed out at Naked Capitalism.com, it has some wonderfully revealing tidbits, including this one:
In fall 2006, the Fed conducted a broad review of the nation’s largest banks. The result was a picture of an industry in good health. The report, called “Large Financial Institutions’ Perspectives on Risk,” found “no substantial issues of supervisory concern for these large financial institutions” and that “asset quality ... remains strong,” according to a summary by the Government Accountability Office. The Fed declined to release the internal report.
The full article is here.
Contact your Senators now, and tell them Ben Bernanke does not deserve a second term as Fed chief. Under his leadership, the Fed has massively favored the financial sector over the real economy. Rather than accepting the recommendation of the Finance Committee without debate, the Senate should not only probe Bernanke's record as Fed chief, but it should also consider alternative candidates. James K. Galbraith and Joseph Stiglitz, two eminent and eminently sensible economists, unlike Bernanke, have shown a clear understanding of what is wrong with the economy and financial system and what it will take to fix them, including the break-up of financial behemoths and restoration of employment to our jobless millions. Either of them is infinitely better qualified than Bernanke to serve as Fed chief, and considering their viewpoints would provide invaluable perspective in the debate.
[1] The Financial Times of January 11, 2008, in an article authored by Francesco Guerrera, Aline van Duyn and Daniel Pimlott, reported that “The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending,” Moody's said. “The warning over the future of the triple--A rating-granted to US government debt since it was first assessed in 1917--reflects growing concerns over the country's ability to retain its financial and economic supremacy.” “In its annual report on the US, Moody's signalled increased concern that rapid rises in Medicare and Medicaid … would 'cause major fiscal pressures' in years to come.” See further, Richard Thames, “Here Come the 'Bankrupted Social Security' Scamsters, Again,” CounterPunch, October 13/14, 2007.
Robert Roth, a retired public interest lawyer, received his J.D. from Yale Law School in 1971, and has worked in financial fraud and consumer protection for the Attorneys General of New York (1981-1991) and Oregon (1993-2007). He may be reached at robert.roth99@gmail.com.
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