Reform: Four Reasons Why Democrats Should Oppose the Bernanke Reappointment

In a letter to Senate colleagues, Vermont Sen. Bernie Sanders offers four reasons why Democrats should oppose the reappointment of Ben Bernanke as chairman of the Federal Reserve:

Dear Democratic Colleague:

The American people today are suffering through the worst economy since the Great Depression with 17.3 percent of the American workforce either unemployed or underemployed. Millions more have lost their homes, their savings, their health care and their pensions. At a time like this let me provide four reasons why Ben Bernanke should not be confirmed as chairman of the Fed.

1) Not only was Mr. Bernanke first nominated to the Fed by President George W. Bush, but he served in the Bush administration as chairman of the Council of Economic Advisors. Let us never forget that the Bush years, even before the collapse of Wall Street, were an economic disaster for the average American. Mr. Bernanke, who was recently endorsed for reappointment by Alan Greenspan, played a major role in the deregulatory efforts that enabled major financial institutions to engage in reckless and illegal behavior. The American people gave us the responsibility to bring about change, not the maintenance of the status quo. Why, at this difficult moment in American history, should we reappoint Wall Street's candidate as chairman of the Fed?

2) One of the main functions of the Fed is to maintain the safety and soundness of our financial system. No one can deny that Mr. Bernanke, as chairman of the Fed, was asleep at the wheel while Wall Street became the largest gambling casino in the history of the world and hurtled into insolvency - at enormous cost to our country. Not since the Great Depression has our financial system been as unsafe, unsound and unstable than under Ben Bernanke's tenure as chairman of the Fed. Why should Mr. Bernanke be rewarded with reappointment after he failed so terribly to do his job?

3) As part of the bailout, the Fed lent out trillions of dollars in virtually zero-interest loans to large financial institutions. Mr. Bernanke has consistently refused to provide the transparency needed so that the American people can learn which banks received those loans and the terms that were provided to them. In addition, the Fed continues to keep secret a number of documents related to its role in the AIG bailout. Why should this type of secrecy be tolerated?

4) The Fed, today, has the tools to significantly improve our economy and a mandate to conduct monetary policy in support of full employment. It has the authority to protect consumers by lowering the outrageously high interest rates that millions are paying. It has the authority to provide low-interest loans to credit-worthy small and medium size business that are in desperate need of that capital which will enable them to create the new jobs our economy needs. It has the authority to require bailed out banks to modify home loans to allow homeowners to stay in their homes. It has the authority to begin breaking up those huge financial institutions that, in a number of cases, are even bigger today than they were when we bailed them out because they were "too big to fail."

Instead of confirming one of the key architects of George Bush's economic agenda, a new nominee could transform the Fed into a central bank committed to the needs of the middle class of this country rather than powerful Wall Street executives responsible for the worst economic crisis since the Great Depression.

Sen Sanders might have added a fifth point, that Bernanke apparently doesn't get the extent of the unemployment problem; the Fed's chair appears to value low inflation over jobs creation. Here's Paul Krugman: "The economy may not have collapsed, but it’s in terrible shape, with job-seekers outnumbering job openings six to one. Nor does Mr. Bernanke expect any quick improvement: last month, while predicting that unemployment will fall, he conceded that the rate of decline will be 'slower than we would like.' So what does he propose doing to create jobs?

"Nothing. Mr. Bernanke has offered no hint that he feels the need to adopt policies that might bring unemployment down faster. Instead, he has responded to suggestions for further Fed action with boilerplate about 'the anchoring of inflation expectations.' It’s harsh but true to say that he’s acting as if it’s Mission Accomplished now that the big banks have been rescued."

Krugman concludes with a half-hearted endorsement of Bernanke's reappointment, while most of his argument leads in the opposite direction. With the White House out twisting the arms of reluctant senators -- why is it that it's only when Wall Street wants something that this administration gets aggressive? -- Bernanke will probably be reappointed. Once again, as November 2010 grows ever closer, it appears that the Democrats are prepared to carry the water for the Wall Street kleptocrats.

See, The Bernanke Conundrum by Paul Krugman (New York Times 2010-01-24)
Follow up: Blocking Bernanke is Smart Economics, Smart Politics for Dems by John Nichols (The Nation 2010-01-26)