President Obama can’t credibly rail against Wall Street fat cats while fighting for their chief enabler.
Here’s all you need to know right now to decipher the confusing messages from the White House and the Democratic leadership:
Ignore the faux populist rhetoric and keep your eyes on the contentious U.S. Senate vote on confirmation of Ben Bernanke to a second term as chair of the Federal Reserve.
If Obama and Democrats want to show they now “get it” on why people are so angry over the mishandling of the bailout and the economy, they should dump Bernanke without delay.
But the White House and Democratic leadership, including senators Harry Reid and Chris Dodd, continue to strongly support Bernanke. Other Democratic senators, like Russ Feingold, Bernie Sanders and Barbara Boxer, as well as Republicans such as senators Richard Shelby and John McCain, oppose him.
The prime reason Bernanke deserves to be dumped is that he is not a reformer or strong regulator during a time of reform and increased regulation. The crisis hasn’t caused him to reconsider. Bernanke even opposes a key plank in President Obama’s reform proposal – the Consumer Financial Protection Agency.
He may nod reassuringly in the direction of Main Street but he’s an insider of the Wall Street elite whose prevailing philosophy is a combination of “What’s good for Wall Street is good for the U.S.A” and “There’s a sucker born every minute.”
Some observers credit Bernanke with keeping the country from slipping into another Great Depression.
The country managed to avoid an economic fiasco on the scale of the depression. But why should Bernanke get the credit?
Everything the Fed does is cloaked in a secrecy and doublespeak that mocks the president’s promise of the most transparent administration in history.
What we know for sure about the Fed’s response is that it shoveled cash and cheap credit in the direction of its favored Wall Street targets. Bernanke and the Fed have resisted disclosure of any facts and figures about what they did. When the details do emerge, they smell fishy.
What Reuters found was that the Fed, under Bernanke’s direction, along with the SEC, wanted to protect the details of the AIG bailout with a level of secrecy usually reserved for matters of national security. In the emails, Bernanke’s staff ridicules the clamor for more public disclosure about the bailout.
At issue are payments the Fed made to firms that carried insurance with AIG on bed bets those firms had made on investments. Those firms, called counterparties, included the likes of Goldman Sachs. The Fed paid off AIG's counterparties 100 cents on the dollar on their bad bets: extremely unusual with companies in such deep distress relying on the kindness of taxpayers not to take some losses.
Just what do Bernanke and the Fed have to hide? Whose interests are being protected? We need to get to the bottom of those questions, not reward those keeping us from the answers to them.
Even if Bernanke did get credit for his role in the bailout, that wouldn’t be enough reason to confirm him for another term. He missed the housing bubble before the meltdown and has shown no indication he would recognize another bubble when it occurs. He has also misread the impact of the economic stimulus.
In addition, the Fed under Bernanke's watch failed at on one of its cores missions – reducing unemployment. Bernanke is more afraid of increasing inflation than he is of increasing unemployment. It’s time for the Fed to shed its cloak of secrecy and elitism and push for an economy that benefits everybody, not just Wall Street. That transformation will be challenging; Bernanke has shown he’s not the kind of leader for these times.
Obama’s treasury secretary, Tim Geithner, is trying out the old scare tactics, threatening that the markets will fall if Bernanke loses his job. But these are the same kinds of scare tactics that a previous administration used on Congress to forestall debate in its haste to push a poorly considered bailout scheme. We may have expected such tactics from the Bush Administration, but President Obama set higher standards for his administration. Now is the time for him to live up to them.