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Bernanke breaks mold in battling recession

Federal Reserve chairman Ben Bernanke, initially criticized for being too academic and slow to respond to market worries, has presided over some of the most interventionist and controversial Fed actions since the central bank's founding in 1913.

He has also plunged into the public spotlight to an extent that none of his predecessors would have contemplated, in a profound departure from the central bank's tradition as an aloof and secretive temple of economic policy.

Bernanke's approach was endorsed Aug. 25, when President Obama nominated him for a second term as chairman of the Federal Reserve. His first term expires in January.

As Bernanke is named "Person of the Year" by Time magazine and as the Senate is set to vote today on his nomination to a second four-year term, a look at his tenure:

AGGRESSIVE MOVES DURING CREDIT CRISIS

Bernanke inherited a housing market on the brink of collapse when he was appointed by George W. Bush to a four-year term as Fed chairman in February 2006.

After initially playing down concerns about housing and a potential liquidity crisis, Bernanke presided over an aggressive series of interest rate cuts that began in August 2007. Some inflation hawks attacked the rate cuts, intended to counteract the tight credit market and spur growth.

As the credit crisis worsened, Bernanke helped engineer JPMorgan Chase's takeover of Bear Stearns, supported the seizure of Fannie Mae and Freddie Mac and agreed to an $85 billion rescue of American International Group. The Fed introduced a temporary program of low-cost overnight loans to investment banks, a privilege available to commercial banks for years, and adopted sweeping lending rules that Bernanke said were intended to reduce deceptive lending practices. With the support of the Treasury secretary, Henry Paulson, Bernanke argued for expanding the Fed's regulatory powers and warned the turmoil affecting the housing and financial markets would spill deep into 2009.

In September 2008, the Fed poured almost $300 billion into global credit markets and barely put a dent in the level of alarm. The next day, Paulson introduced a $700 billion plan, eventually approved by a reluctant Congress, to allow the government to buy bad mortgage-backed securities.

Meanwhile, the Fed deployed tens of billions of dollars to shore up confidence in money market mutual funds and announced a new program to buy up companies' unsecured debt, putting it closer than ever to the role of direct lender to business.

MORE POWERFUL, PUBLIC FED

So while the Fed has never wielded as much power as it does now, it has also been exposed to more second-guessing and more challenges to its political independence than ever before. As a result, Bernanke has stepped into the public arena like a political candidate on the campaign trail, doing TV interviews, holding what amount to news conferences, and fielding questions from local residents.

Republican lawmakers portray the Fed as the embodiment of heavy-handed big government, and have called for scaling back the central bank's regulatory powers. But liberal Democrats have accused the Federal Reserve of caving in to demands by banks for huge bailouts, for failing to protect consumers against dangerous financial products and for being too secretive about its emergency rescue programs.

FINANCIAL REGULATION OVERHAUL

Bernanke and the central bank are also caught in a political cross-fire over how to overhaul the nation's system of financial regulation.

President Obama has proposed a sweeping plan that would put the Fed in charge of regulating systemic risk, like the buildup of dangerous mortgages during the housing bubble, and allow it to impose tougher regulations over financial institutions deemed too big to fail. At the same time, the Fed would lose its current authority to regulate mortgages and credit cards.

While Bernanke supports the aspects of the plan that would make the Fed more powerful, he is resisting other aspects of Obama's plans. This has put him in the potentially awkward position of alienating the Fed's most important supporter - the president.

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