Making a case for a second term as head of the Federal Reserve, Ben Bernanke said Thursday that he has the tools and the political backbone necessary to reel in massive economic support once the recovery is firmly rooted.
While widely credited with helping keep the Great Recession from becoming a second Great Depression, Bernanke faces enormous anger from both Congress and the public for bailing out Wall Street, while ordinary Americans are struggling under the crush of high unemployment, stagnant incomes and rising foreclosures.
If confirmed to a second, four-year term, Bernanke vowed to work with Congress to overhaul the nation's financial regulatory structure and to bring about stronger and more effective supervision, he told the Senate Banking Committee.
"It would be a tragedy if - after all the hardships that Americans have endured during the past two years - our nation failed to take the steps necessary to prevent a recurrence of a crisis of the magnitude we have recently confronted," Bernanke told the panel.
Despite all the criticism heaped on him about the bailouts and a move by one senator to block Bernanke's confirmation, it doesn't appear in doubt at this point.
Sen. Christopher Dodd, D-Conn., chairman of the panel, predicted Bernanke would win confirmation. "Under your leadership, the Fed has taken extraordinary actions to right the economy," said Dodd. "These efforts played, in my view, a very significant role in arresting the financial crisis."
Nonetheless, Dodd wants to strip the Fed of some of its powers, including overseeing banks, because regulators failed to crack down on dubious mortgages and other problems that figured prominently in the financial crisis.
Dodd and others drew a distinction between Bernanke's economic leadership and the operations of the Fed as an institution itself.
Efforts already have begun at the Fed to tighten oversight of banks and other financial firms. And the central bank is actively engaged in identifying and implementing improvements, Bernanke said.
"A financial crisis of the severity we have experienced must prompt financial institutions and regulators alike to undertake unsparing self-assessment of their past performance," the Fed chief said.
Bernanke, 55, has several ties to South Carolina, including graduating from Dillon High School.
He has taken heat for failing to detect early signs of the housing collapse. Lax regulatory oversight by the Fed and others was blamed for contributing to the crisis.
"The Fed has done a horrible job as a regulator," said the committee's top Republican, Sen. Richard Shelby of Alabama.
"We didn't do a perfect job by any means," Bernanke acknowledged. But he added: "We didn't do the worst job" either.
At the same time, Bernanke argued that the Fed must remain "effective and independent" to make decisions that may be good for the economy but unpopular with politicians or the public. That was directed at a provision - passed by a House committee Wednesday - that would subject the notoriously secretive Fed to congressional audits. Bernanke fears that could interfere with crucial decisions about interest rates.
Bernanke said the Fed stands ready - when the time is right - to reverse course and start boosting interest rates to prevent inflation from flaring up. As part of that process, the Fed would need to soak up an unprecedented amount of money - trillions of dollars - it poured into the economy during the crisis.
"We are confident that we have the necessary tools to do so," Bernanke said. He didn't say when the Fed would start raising rates, although private economists think that will happen late next year.
The central bank's forceful and aggressive actions prevented the devastating crisis from getting even worse, Bernanke said.
WHAT BERNANKE DID
Drawing on lessons learned as a scholar of the Great Depression, Bernanke rolled out a slew of bold and unprecedented programs to help ease credit clogs and spur lending:
- He coordinated emergency relief actions with central banks overseas.
- He slashed a key lending rate to a record low near zero.
- Those steps - along with a $787 billion stimulus package - eventually helped pull the country out of recession.
- The economy has now entered a fragile recovery.