The Oregonian: Financial Regulation: Taking it to the Bernanke

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Financial Regulation: Taking it to the Bernanke

By David Sarasohn, The Oregonian

Sen. Jeff Merkley would not disagree that Federal Reserve chairman Ben Bernanke has done a solid job in the past year steering the American economy away from complete collapse.

But there is, the Oregon Democrat insists, a small complication.

"He helped set the house on fire," says Merkley about Bernanke. "It burned down, and he turned out to be pretty good with a fire hose.

"There's nothing to indicate that he's the key to rebuilding the house now."

This is a key distinction, because President Barack Obama has renominated Bernanke not as fire chief but to another term as head of the Fed -- or, as the job used to be called when Alan Greenspan had it, All-Knowing Oracle of the Economy. Bernanke was first named to the position by former President George W. Bush, and his term runs out Sunday. Tuesday evening, the Senate scheduled a cloture vote for Thursday, meaning that the administration and the Democratic and Republican Senate leadership think they have the votes.

Still, some senators both on the left and (mostly) on the right are taking exception to the idea, and Merkley asks why the Senate would want to confirm the Bernanke who sat mostly quietly on the Fed board for the first seven years he was on it.

"He was Greenspan in philosophy," objects Merkley. "He felt the banks could regulate themselves. I thought we'd learned that lesson from the savings and loan crisis." (The savings and loan crisis of the late '80s and early '90s cost the country about $300 billion, which these days looks like a bargain.)

"He was in a perfect position to say these tricks and traps are not OK," says the senator. "We didn't hear anything from him. We need someone to take on these issues when it's not easy."

As Merkley points out, during seven years when Bernanke was on the Fed board, he had nothing to say about the housing price bubble, the subprime mortgages that drove it, or the derivatives that almost brought everything down around them.

It's the contention of the Obama administration -- and a lot of other people, including some critical of the administration from both sides -- that not keeping Bernanke at the head of the Fed would unsettle the markets. Still, if he's going to remain on top of the economy, it seems worth it to remind him about the mistakes made before, and why he should try to avoid them again.

It's also worth wondering about the contradictions between Bernanke's positions and what the administration says it wants. The administration wants a new Consumer Financial Protection Agency; Bernanke wants to keep that power with the Federal Reserve, although it didn't do it very well, and may even run counter to the Fed's other responsibilities -- not that it's done them very well.

Last July, as Bernanke testified before the Senate banking committee, Merkley asked him if he didn't think there was a conflict between the Fed's oversight of banks -- guarding their profitability -- and protecting the people borrowing from banks.

"He said no," recalls Merkley, "and I said that response, to me, is frightening."

Earlier this week, Merkley sent out a Dear Colleagues letter to his fellow senators, explaining his opposition, as he's also done in the Democratic caucus.

"This nomination, in fact, presents an opportunity for us to turn the corner from bailing out Wall Street to rebuilding Main Street," he wrote. "The goal should not be the short-term profits of Wall Street, but the construction of an economic house dedicated to the financial success of America's families."

Most of the declared opponents to Bernanke's reconfirmation are conservative Republicans. Merkley is one of about a half dozen Democrats objecting, and Tuesday he was joined by Tom Harkin of Iowa, chairman of the health and education committee.

The question is how it all fits into the overall financial regulation policy, or if the Obama administration has one. Reportedly, Senate banking chairman Chris Dodd of Connecticut and ranking committee Republican Richard Shelby of Alabama have reached an agreement -- but according to Merkley, nobody else on the committee has seen it.

It's considered a violation of free speech -- not to mention senatorial courtesy -- to shout "Fire!" in a crowded Senate.

But could someone talk about fire prevention?

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