Bernanke in the Crosshairs

Posted Dec. 20, 2009, at 5:42 p.m.

The same week Federal Reserve Chairman Ben Bernanke was named Time magazine’s Person of the Year, he faced vocal opposition to his nomination for a second term at the Fed. Given the anger surrounding the continued weak state of the economy and multibillion-dollar bank bailouts, it is understandable that Mr. Bernanke would be in the crosshairs. But does he deserve such strong criticism? Or the distinction of being the most important person in 2009?

The answer depends on perspective as much as politics. As Joshua Zumbrun of Forbes points out, criticizing Mr. Bernanke gives politicians cover. Taking heat for approving the Wall Street bailout? Blame Mr. Bernanke for allowing it to happen. Worse, while lawmakers dithered, the Fed kept the housing market afloat, made credit more available to businesses and kept money flowing internationally. Some of these steps — in hindsight — may have gone too far, but if the Federal Reserve hadn’t stepped in, Congress would have been forced to.

“For all their griping about his performance, they know Bernanke took the hit for them. A new term is — at least in part — the Senate’s way of saying thanks for doing the dirty work,” Mr. Zumbrun wrote Thursday.

In other words, opposing Mr. Bernanke is more about political theater than economic policy on Capitol Hill.

The Senate Banking Committee voted 16-7 to recommend Mr. Bernanke for a second term. Democrats and Republicans were among the seven who voted against another term, and even some senators who supported him Thursday said they ultimately may oppose him when the full Senate takes up his nomination.

This is in stark contrast to 2006, when only one senator — Republican Jim Bunning of Kentucky — voted against Mr. Bernanke’s appointment to the Federal Reserve.

Edwin Dean, an economist who worked for the Bureau of Labor Statistics and now writes a monthly column for the Bangor Daily News, says the Time distinction and a second term are well-deserved.

Although Mr. Dean criticizes the Fed chairman for not recognizing the signs of looming financial disaster earlier — he had plenty of company in that regard — he gives him credit for taking the right steps when action was needed to stem the financial crisis.

“Following the collapse of Lehman Bros. in September 2008, we needed a Fed chair who would think out of the box, and who would do bold and unprecedented things. He had to prevent a looming financial collapse at a time when all the traditional Fed tools combined could not have prevented this,” Mr. Dean said.

At the same time, it is impossible to know what would have happened if Mr. Bernanke had not taken these steps. Would the U.S. economy have continued to free-fall? Would hundreds of banks have gone out of business? Would the stock market have plunged further, eroding even more savings and investments?

Fortunately, we didn’t find out.

Like other Federal Reserve chairmen, Mr. Bernanke has made mistakes. He also has taken unprecedented bold steps when needed. So criticism — but not at the volume heard in the Senate — is warranted, but so are accolades.

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