The Bernanke Reappointment: Failure Is Clearly An Option

President Obama:   Mr. Bernanke, you failed to raise alarms of a housing bubble; your agency failed to perform three of its four major duties; those failures have resulted in massive amounts of hardships for your countrymen, but I have great confidence in your abilities and want you to stay on for another four years as head of the Federal Reserve Board.

If coaching a college football team is on one end of the job expectations spectrum, surely the elected or appointed job positions in Washington, D.C. are on the other.  As much as we decry the acute attention and pressure placed on the former by well heeled alumni, we could certainly use a few more likewise ardent supporters in Congress and the White House who show up every week expecting their team to win or, at least, to make a good effort.  Exactly what game has the President been watching the last few years?

In its own words the Federal Reserve Board's duties are summarized as

• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

If President Obama has meaningful cause to retain Ben Bernanke as the Chairman of the Federal Reserve Board, then, he needs to reveal it to the Senate before they do their Constitutional duty in this appointment process.  Thus far, the President's only justification for renewing his appointment has consisted of his personal confidence in Mr. Bernanke 's ability and noting that he performed well in the heat of the banking credit crisis.  Apparently, the President hasn't had much experience conducting job performance reviews.

For all of the 'in touch' rhetoric which comes out of the Democratic Party, its titular leader seems indifferent to the vast number of Americans who have been truly economically devastated by the irresponsible, and what should be criminalized, behavior of the financial professionals in this country.  It was the responsibility of the Federal Reserve Board to keep tabs on economic indicators and assess their impact on our nation's welfare. One of those indicators, most certainly, would have been home sales.  The abnormal rise in home sales not justified by any rise in population or per-capita prosperity should surely have given pause to any economist, let alone those who are charged with monitoring the banking and economic sectors.

Any early examination of an inordinate rise in home sales in 2003 could have revealed its causation and the very risky and ill practices composing it.  Likely there were many other indicators amid all of the financial and economic statistics which are compiled by and reported to the Fed regularly.  It is unfathomable that there was no one of good conscience at the Fed shouting loud and long about abnormal and suspicious growth in the housing sector and questioning the underlying soundness of it.  The Fed should have been lobbying Congress hard for legislation which would plug the hole in the type of mortgage lending which is the root of our economic debacle.

It is true that Mr. Bernanke did not come onto the Board until late 2005 ¹ and become Chairman in early 2006, facts which might cause many to lay the full brunt of their wrath upon Alan Greenspan, his predecessor.  Yet, Mr. Bernanke, at least in theory, should have been well qualified for the position, able to immediately take the helm of an agency charged with tremendously important regulatory duties.  He should have been very knowledgeable of all aspects of the nation's economic system and of all the factors which could have even contributed minor tremors to the country's financial stability, let alone those that could bring the whole banking system to a stand still, cause unprecedented home foreclosures, and give us the country's most severe recession.

I ridicule the 'right' for its ridicule of the 'intelligentsia', but in this instance, we need to accept that Mr. Bernanke, and perhaps his predecessor, lack the spirit and assertiveness required to police the nation's banking system.  It could well be that the functions of monetary policy and that of regulating and monitoring financial institutions, and too, observing economic indicators for warning signs, should be placed in separate hands.  Let the big headed economists dicker over the minutia of monetary theories to determine where to set the Fed's interest rates, but put a football coach in to run the Fed's regulatory team.  There, we need a more 'get the job done' mentality.

-RLee

Notes:
1] An update: I've since learned that Ben Bernanke was on the Federal Reserve Board from 2002 until 2005, then did a short stint as Chairman of President Bush's Council of Economic Advisors, before becoming Chairman of the FRB on February 1, 2006.  This only furthers the argument against his reappointment.