Financial regulation: Taking it to the Bernanke – Editorial

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.