Bernanke's Encore Performance
It appears that Federal Reserve Chairman, Ben Bernanke, will get a second chance. In a senate hearing yesterday, he admitted having made errors. He also articulated his confidence in his ability to lead the fractured U.S financial system to a better future. Mr. Chairman spoke about direction of the Fed as an institution perhaps more than his own plight, and made clear his plans for the next four years.
The Fed has been under fire for its exorbitant emergency bailouts and deflated interest rates over the last year. Bernanke reflected âwe should have required banks to hold more capital, more liquidityâ and said that the Fed was âslow on some aspects of consumer protection.â These mistakes have affected all Americans, from top to bottom, farmer to lawyer. Several Senators echoed their distrust in the Fedâs ability to pull us out of a crisis they inadvertently put us in.
Even if Bernanke is reconfirmed, which is likely, the Fed has steep challenges ahead.Â In 2010, he will have to make some grave decisions regarding interest rates and lending.Â While the Fed tells banks to be cautious about loans, small business owners and advocates complain about their inability to get bank loans. Mr. Bernanke walks a fine line between making loans to credit-worthy borrowers and doling out bad loans. The Fed is expected to keep interest rates low for an âextended periodâ due to high unemployment.
Those who wish to oust Bernanke claim that his actions prior to the financial meltdown warrant a new Chairman. They assert that Bernanke was more than complicit in Greenspanâs monetary policy, but was the âintellectual architectâ of the lax monetary policy that led to financial panic. He incorrectly predicted a deflation, ignored the asset bubbles in housing and commodities and dismissed concerns about a weak dollar. Instead of manning up and accepting responsibility, he continues to blame the credit crunch on the âglobal savings glutâ which he also helped orchestrate. Critics claim we need a hard-money chairman with the cojones to burst unhealthy bubbles without creating new ones.
Funny enough, the Fedâs former Chairman was there in more than spirit. During a speech from Senator Jim Bunning, a Kentucky Republican, berating the Fed for its inabilities, the Senator said âNow I want to read a quote to you, Mr. Greenspâ¦â While everyone in the room, including Bernanke, chortled, the senator corrected himself: âMr. Bernanke. Thatâs a Freudian slip, believe me.â