Bernanke’s Nomination Uncertain
Ben Bernanke’s nomination for a second term as U.S. Federal Reserve chairman, once seen as a sure thing, appeared in jeopardy on Friday after two more Senate Democrats said they would vote against it.“I believe there will be the votes to confirm him. But it’s going to be very close,” a senior Democratic leadership aide said.
With the U.S. job market in disarray and voters angry at Wall Street, members of Congress facing mid-term elections in November have come down hard on the central bank and its leadership.
They say the Fed failed to prevent the worst financial crisis since the Great Depression, and combated the meltdown in a way that favored the financial sector at the expense of ordinary citizens.
Senators Barbara Boxer and Russ Feingold brought the total of known “no” votes among the Democratic majority to four, while many others have said they were still on the fence.
“Our next Federal Reserve chairman must represent a clean break from the failed policies of the past,” Boxer said. “It is time for Main Street to have a champion at the Fed.”
The shift comes rather abruptly, and has added a new element of uncertainty to a stock market that had already been reeling in recent days. The S&P 500 fell into the red for the year on Friday, joining the Dow and Nasdaq indexes.
“The unthinkable has become a very real possibility—risks are rising that the Senate will unseat (him),” said Michael Feroli, economist at JP Morgan.
Chris Krueger of Concept Capital, a private firm that tracks Congress for institutional investors, said he sees a 55 percent chance Bernanke will not be reconfirmed.
In-trade, an online betting platform, now shows just a 68 percent chance the Fed Chairman will be confirmed, down from 95 percent just a few days back.
Several Republicans have already come out against him and some have moved to block his confirmation, forcing Senate leaders to secure a super-majority of 60 votes in the 100-member chamber to move the nomination.
Sen. Bob Corker, R-Tenn., one of four Republicans to side with Bernanke in the Senate Banking Committee, has said that while he wants to support him and is carefully examining Bernanke’s record, he reserves the right to vote against him.
“Senator Corker for voted Chairman Bernanke out of committee, and since that time he has had numerous conversations with Bernanke and Fed officials and has visited the Fed to review the AIG documents,” Corker spokeswoman Laura Herzog told CNBC. “He will make his final decision before the floor vote occurs, but generally feels the same way he did the day of the committee vote.”
U.S. Senate Majority Leader Harry Reid said late Friday that he will vote to confirm Bernanke to a second term.
“While I will vote for his confirmation, my support is not unconditional,” Reid said in a statement. “I know Chairman Bernanke is committed to transparency and accountability, and that is why I will hold him to the highest standards of both.” See the latest tally of anticipated Senate votes at bottom.
Assistant Senate Democratic Leader Richard Durbin is “undecided” on Bernanke, a senior party aide said.
Large U.S. banks, seen as the source of a financial crisis that punished the economy with the deepest recession since the 1930s, have come under pressure from Washington for a quick return to big profits and outsized bonuses after receiving billions of dollars in taxpayer aid.
The unemployment rate currently stands at 10 percent, with more than 15 million Americans out of work.
With mid-term elections in November, many lawmakers are loath to take any stand that appears to benefit Wall Street. That tendency has only been sharpened since this week’s Republican upset for the Massachusetts Senate seat.
Bernanke, who was first named as chairman by former President George W. Bush, was nominated to a second term by President Barack Obama in August.
“Democrats are nervous,” said a senior Republican aide. “But I don’t think Democrats are going to kill the president’s nominee. I think he will be confirmed.”
He said if Democrats are unable to secure the 60 votes needed to clear procedural hurdles they will probably not even bring the nomination up for a vote. A Democratic aide declined to speculate if that would be the case.
The White House said Obama remained confident the Democratic-controlled Senate would muster the votes needed to clear procedural hurdles and confirm Bernanke’s nomination.
“We’re going to work our side pretty hard, and we are working with people in the business community who are going to push pretty hard,” an Obama administration official said.
Wall Street bankers generally have a very favorable view of Bernanke, crediting him with stabilizing the financial system with creative policies like special lending facilities for disrupted credit markets and direct purchases of mortgage and Treasury bonds.
While praised for preventing the recession from turning into another depression, Bernanke’s support of Wall Street bailouts—especially the $182 billion rescue of insurance giant American International Group [AIG 26.50 -1.05 (-3.81%)]—has touched a nerve on Main Street.
It is unclear what would happen if Bernanke, who is also serving a separate, 14-year term on the Fed’s board, is not confirmed by that deadline. The law specifies that the vice chairman of the board, in this case Donald Kohn, would serve in the “absence” of the chairman, but absence is not defined.
Some experts say it is possible the board could name Bernanke to serve as chairman on an acting basis, but Senator Chris Dodd has said Kohn would temporarily take over chairmanship of the board if Bernanke were not confirmed in time.
“Monetary policy in its current construct would be unaffected by a delay in Bernanke’s confirmation unless the delay is seen as either presaging his rejection, or indicating a politicization of the Fed and excessive government involvement,” said Tony Crescenzi, market strategist and portfolio manager at bond fund Pimco.