Questions for Bernanke (Simon Johnson)

There is somewhat suddenly some opposition to Ben Bernanke’s reconfirmation as Fed chair, as reported at the New York Times, Roll Call, and elsewhere, with Barbara Boxer, Russ Feingold, and Bernie Sanders coming out against reconfirmation. On the economics blogs there’s some turmoil regarding Bernanke, too, with Calculated Risk saying “we can do better,” Brad DeLong saying “Don’t Block Ben!” and Paul Krugman saying he’s torn.

One comment I liked was from Yves Smith at Naked Capitalism, who took issue with the Times article’s references to “populist anger” (Krugman, in his blog, also connected Bernanke’s changing fortunes with the Mass. special election):

The real issue is that the Fed did a horrid job in the run-up to the crisis (although not Chairman at the time, Fed records show that Bernanke was a major architect of the super-low interest rates earlier in this decade that super-charged the credit bubbles, and has long been manifestly uninterested in regulation). So the issue is competence. The public’s anger is warranted, and reflects lack of sufficient action on real, festering problems.

Here’s an interesting piece by Simon Johnson at HuffPo:

Ben Bernanke’s reconfirmation as chair of the Federal Reserve is in disarray. With President Obama having launched, on Thursday morning, a major new initiative to rein in the power of—and danger posed by—our leading banks, key Senators rightly begin to wonder: Where does Ben Bernanke stand on the central issue of the day?

There are three specific questions that Bernanke must answer, in some convincing detail, if he is to shore up his weakening cause in the Senate.

1. Does he support the President’s proposed emphasis on limiting the scope and scale of big banks?
2. With regard to the key detail, is it his view that the size of big banks can be capped “as is” or—more reasonably—should we require these banks to contract or divest so as to return to the profile of system risk that prevailed say 15 or 20 years ago?
3. If Congress cannot act in the short-term, because of opposition from Republicans and some Democrats, does he see the Fed’s role as taking the initiative in this arena—or will he wait passively for the legislature to act?

As running hard against the “too big to fail” banks is now a major theme of 2010 and beyond for the Democrats, how can any Democratic Senators feel comfortable voting for Ben Bernanke unless they know exactly what his position is on all of these points?

And given what we know about Bernanke’s record and positions relative to these questions, absent new information it is not a surprise to see his support dwindling.

I can’t remember whether I posted this piece by David Leonhardt from earlier this month, which counts against Ben, as does the article we ran back in July by Jerry Friedman, Bernanke’s Bad Teachers. It will be interesting to see what happens.