Will Bernanke get the boot?
Nope. In fact, Treasury Secretary Geithner is the one who should be more worried about losing his job.
Ben Bernanke's reappointment as Federal Reserve chairman is in question as the Senate continues to debate how much blame he bears for the financial crisis and subsequent economic collapse. Though there was little doubt in the Fed leader during the worst of the meltdown, now everyone seems to be asking whether Ben Bernanke will be out of a job soon.
I don't think so. In fact, Treasury Secretary Tim Geithner should be more worried than the Fed chairman about losing his job.
There's no question Bernanke could have done something to prevent the housing bubble by raising interest rates. Such a move also would have discouraged unqualified buyers and the high-risk lending practices that were the main forces behind the financial crisis. But while the housing meltdown is certainly tied to unemployment and the current lack of consumer confidence, it's a bit unfair to blame every one of our current problems on the Fed.
But then again, politics is never about being fair. It's about finding someone to blame for the problems. And, of course, getting re-elected.
Consider the fact that U.S. Representative Ron Paul has been a vocal critic of the Fed for years, and has always pushed for more oversight. Just recently, however, he has gotten his wish of a Government Accounting Office investigation into the Fed and what its does with its money. That's because the American public support this idea, his fellow congressmen want some of the credit.
I'm not saying that the anger is unjustified. Taxpayers have shelled out trillions to prop up Wall Street, while the unemployment rate is 10% and Main Street is still suffering. Badmouthing the Fed is an easy way to make political hay, so Congress is just doing what Congress does best.
This has caused quite a headache for Fed Chairman Ben Bernanke. He has asserted many times in testimony that having an independent Fed is crucial to the value of our currency. Otherwise, the government cannot dictate monetary policy and manipulate the dollar. He has expressed frustration over past failures and vowed to correct Fed policies going forward.
Ultimately, I believe Congress understands Ben Bernanke's difficult situation. Despite some bluster from a few politicians looking to make soundbites, it appears Ben Bernanke has the support to be confirmed for another term. Key Democrats like Chris Dodd and Evan Bayh have said they will approve the Fed chairman again, and I find it hard to believe many of the party's other members will oppose this decision.
Strangely enough, the logic behind Ben Bernanke's arguments will not be what saves him. The fact that the Fed chair has been composed and deferential on Capitol Hill has gone a long way towards boosting his image. He continues to furrow his brow and nod solemnly in understanding when criticized. He expresses regret over the greed of AIG and the way the fallen insurance giant exploited the system. And when someone makes a particularly cutting remark, rather than retaliate he gives an overly cerebral response that makes him look more geeky than flippant.
The result has been pretty high approval ratings and the perception that Ben is a pretty likable guy who's just in a tough spot.
Contrast that to Treasury Secretary Tim Geithner, who recently engaged in some heated finger-pointing with Congress. After being asked for his resignation, Geithner fumed at a Senate panel and said he bears no blame. "What I can't take responsibility is for the legacy of crises you've bequeathed this country," Geithner said to a top Republican on the panel.
Not exactly a good way to make friends. And unfortunately, the public strongly disagrees with the assertion that Geithner's hands are clean.
If you'll recall, the Treasury Secretary orchestrated the AIG debacle as leader of the New York branch of the Fed in 2008 before coming to Washington. While the nation reeled in early 2009, he was slow to unveil his plan for the financial sector after taking the post as Treasury secretary -- adding to the already high level of uncertainty on Wall Street and fueling a steep drop in the markets. We can't lay all of the mess at his doorstep, but some of the blame is clearly his.
In early 2009, I wrote several articles saying that Tim Geithner should just resign if he couldn't come up with a clear plan for the bad assets at U.S. banks. Well eventually (though a bit late), the Treasury Secretary did roll out a plan. But in the months since he has embarrassed the U.S. by blaming China of currency manipulation, shirked responsibility for the disaster at AIG and ultimately failed to take responsibility for his actions. Maybe things would have been better if Geithner had quit back then after all.
So Ben Bernanke shouldn't worry about his job -- Tim Geithner is a much more likely target of this political witch hunt. The crusade against the Fed is just political football fueled by populist anger over the recent Wall Street bailout. Though I expect some changes at the Federal Reserve, no economist worth his salt would ever advocate stripping our central bank of independence and making it a political entity. And though Ben Bernanke has made mistakes, he has owned up to them and should be approved for another term.
Unfortunately for Tim Geithner, there are not a lot of reasons to approve of his performance so far or support him going forward. That makes him the most likely scapegoat. The American people are grabbing their pitchforks and looking for someone to blame, and that means the Treasury Secretary's days could be numbered.
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