Business

Fed chief Bernanke faces critics in bid for second term

WASHINGTON - Former Fed chief Alan Greenspan was a rock star.

Now his successor, Dillon native Ben Bernanke, is just trying to keep his job.

U.S. Sen. Jim DeMint, a first-term Greenville Republican, is doing his best to prevent Bernanke from gaining a second term as chairman of the Federal Reserve, the country's central bank.

"We can't overlook the fact that he has presided over one of the biggest economic catastrophes that we've had as a country," DeMint said at a Dec. 17 meeting of the Senate Banking Committee.

U.S. Sen. Lindsey Graham, a Seneca Republican, thinks that's a harsh verdict. He plans to vote to confirm Bernanke - if DeMint and at least two other senators, Kentucky Republican Jim Bunning and Vermont independent Bernie Sanders, release their holds on his nomination.

"I remember what it was like in September 2008 when the stock market went down a thousand points and we had one failure after another of major financial institutions," Graham told McClatchy.

"Bernanke and some others came up with a game plan to save us from another Great Depression," Graham said. "I think he's been a pretty steady hand at the tiller."

DeMint and Graham also split on the $700 billion financial bailout bill pushed by President George W. Bush, which the Senate passed Oct. 1, 2008, by a 74-25 vote, with DeMint opposing it and Graham in support.

One of DeMint's main criticisms of Bernanke is that he and then-Treasury Secretary Henry Paulson told Congress the bailout funds would be used to buy undervalued mortgage-backed securities from banks, but they've received the money while keeping most of the bad loans and investments on their books.

Those toxic assets have continued to act as a drag on banks, restricting their willingness to provide new loans and to extend credit to businesses, which is slowing the broader economic recovery.

Bernanke and his aides declined to speak with McClatchy about the stalled Senate confirmation vote.

At his Dec. 3 confirmation hearing before the Senate Banking Committee, Bernanke acknowledged that he "did not anticipate a crisis of this magnitude."

Assessing his response to the crisis, Bernanke said: "We didn't do a perfect job by any means. ... We didn't do the worst job."

House Budget Committee Chairman John Spratt, a York Democrat, won't get to vote on Bernanke because only the Senate holds confirmation votes on presidential nominees.

Spratt, though, has more expertise on fiscal matters than most lawmakers. Before joining Congress a quarter-century ago and ascending to his current top budget post, he ran his family's bank in Fort Mill and was a Pentagon financial analyst.

Bernanke, Paulson and others made "lots of tactical errors" in the early weeks of the economic crisis in autumn 2008, Spratt said, among them allowing the Lehman Brothers investment bank to fail and requiring the breakup of insurance giant AIG as a condition for getting $85 billion in bailout aid.

Spratt, who knows Bernanke and has held several private meetings with him over the past year, said the Fed chief has learned from his mistakes.

"Like a lot of thoughtful economists and financial types, he didn't completely see what was coming," Spratt said. "But I don't think he failed the course completely, even if he did make some tactical mistakes. He's learned a great deal, and I think he's extremely capable at what he does."

DeMint, though, lamented that he's unable to cut any slack for Bernanke, who spent most of his childhood in Dillon and was the 1971 valedictorian at Dillon High School.

"He's from my home state of South Carolina, and I like him personally," DeMint said. "There is no reason for me to oppose his nomination except the failure to achieve the goals at the Federal Reserve and his own personal goals for his time in office."

Noting that Bush, a Republican, nominated Bernanke to his first term as Fed chief, DeMint said he was among the 99 senators who voted to confirm the former Princeton University economist in early 2006.

"This is not a partisan move," DeMint said of his hold on Bernanke's nomination.

Time magazine named Bernanke Person of the Year on Dec. 16, one day before the Senate banking panel voted 16-7 to recommend his confirmation to the full Senate.

Twelve Democrats and four Republicans on the committee voted for Bernanke. Six Republicans and one Democrat - Sen. Jeff Merkley of Oregon - voted against him.

It's uncertain when the full Senate will take up Bernanke's nomination.

DeMint and Sanders vow to block a Senate vote on Bernanke until it considers their bill to require a comprehensive audit of the Federal Reserve by the Government Accountability Office, the investigative arm of Congress.

"Before Ben Bernanke became the Fed chairman in 2006, he headed the Council of Economic Advisers for President Bush - one of the most right-wing presidents in American history," Sanders, a self-described "democratic socialist" who's among the most liberal lawmakers, wrote in a Dec. 8 column. "He also sat on the Fed board of governors from 2002 to 2005."

"Perhaps more than anyone else, Bernanke was in a position to diagnose the impending economic disaster and take steps to stop it," Sanders wrote. "Tragically, not only did he fail to prevent the economic collapse that we have experienced, he did not even warn the American people that it was coming until it was too late."

Bunning has also placed a hold on Bernanke's nomination. At the Senate banking panel's Dec. 3 confirmation hearing, the Kentucky Republican gloated that he was the only senator who voted against Bernanke for his first term.

"I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right," Bunning told Bernanke. "But I did not know how right I would be and could not imagine how wrong you would be in the following four years."

Greenspan was the first Fed chief to become a celebrity. During his tenure, from 1987 to 2006, he was nominated for the post by four presidents - Republicans Ronald Reagan, George H.W. Bush and George W. Bush, and Democrat Bill Clinton.

Greenspan was portrayed as a near-genius for much of his record-long run at the Fed's helm. But his star has dimmed since the economic joy ride he helped take the country on led to a crash that propelled the nation into a deep recession.

DeMint blames the "loose monetary policy" - including low interest rates - set by Greenspan and Bernanke for helping to create the housing bubble by encouraging real estate speculation and prompting bad loans to unqualified buyers.

"Our wealth, our prosperity as a nation, our savings - everything rides on what they do at the Federal Reserve," DeMint said. "Yet we have very little idea about what they're doing. ... How can we sit here and wave this nomination by when it is such an important responsibility for us to protect this country?"

Senate Banking Committee Chairman Christopher Dodd said he'll vote to confirm Bernanke to a second term.

But the Connecticut Democrat is pushing legislation that would strip the Federal Reserve of much of its power and increase congressional oversight.

The House on Dec. 11 passed a sweeping regulatory overhaul that would create a federal agency to monitor the financial services industry and intervene if necessary to prevent a crisis.

In Spratt's view, Bernanke shouldn't take the fall for a broad systemic financial collapse last year that virtually all lawmakers, senior federal officials and regulators failed to foresee.

"There were isolated cases where prudent regulators said this is a problem that needs to be addressed," Spratt said. "But they weren't heeded. I don't think our regulatory system proved equal to the challenge."

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