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Bernanke: Too big to fail

Bernanke: Too big to fail

Colin Barr 2010年01月27日

????By Colin Barr

????Just a year after he unleashed a flood of dollars in a bid to prevent a second Great Depression, Ben Bernanke's job is on the line. More than a dozen senators have said they will oppose the Fed chairman's reappointment after his first term ends on Jan. 31. The rest of the vote counting is still in question.

????"Bernanke is caught in a crossfire, because bashing Wall Street is awfully popular politically right now," said Desmond Lachman, a resident fellow at the American Enterprise Institute in Washington. "That's the way the winds are blowing this month."

????Yet even Bernanke's most vocal detractors expect him to survive the populist revolt -- largely because of fears that a change will scare the heck out of financial markets.

????"I expect him to get confirmed," said Michael Pento, a critic of the Fed's easy money policies who is senior market strategist at Delta Global Advisors in Huntington Beach, Calif. "Anyone sitting on the fence saw what happened in the market last week and said, I don't think I want to be the one who pulls the rug out from under the economy."

????Stocks dropped 5% in the last three days of last week, their biggest drop since the market rally began last March. (They managed a slight gain Monday as Bernanke's chances brightened a bit.)

????The drop was hardly shocking, given that it came after the blue-chip S&P 500 index had boomed more than 70% off its March low.

????Even so, supporters aren't missing any chances to warn of the risks in opposing Bernanke.

????White House spokesman Robert Gibbs said this weekend that senators should "support some of that stability in our financial system by ensuring the renomination of the Fed chairman."

????It's true that the stock market rally over the past year accompanied a massive improvement in the credit markets that was abetted by Bernanke's policies, including the adoption of near-zero short-term interest rates.

????Bernanke's policies created big interest rate spreads that allowed the big banks to mint profits, a surprise given the panic this time in 2009.

????"A year ago people would have been pleased to know the banking system was doing so well," said John Toohey, vice president for equity investments at USAA Investment Management.

????But those profits also permitted the banks to pay large sums to their employees when much of the rest of the economy remained flat on its back. Lending to small businesses, which are among the major engines of job growth, has been tumbling at most of the biggest institutions, all of which received government help during the meltdown.

????If big bonuses and shrinking loan books don't play well in Congress, more attention is also being paid to Bernanke's role in promoting the policies that led to the inflation of the credit bubble earlier this decade.

????Bernanke was a Fed governor between 2002 and 2005 before taking the chairmanship on Feb. 1, 2006, when Alan Greenspan retired. He briefly served as an economic adviser in the administration of President George W. Bush.

????Some skeptics warned at the time that Greenspan's policy of keeping interest rates low when the economy began recovering risked an orgy of speculative and wasteful lending.

????That boom having now collapsed with disastrous consequences, the skeptical view has become commonplace. But Bernanke insisted in a speech this month that Fed policies weren't to blame.

????That speech was "scary, because it makes you wonder if Bernanke really has learned anything from the crisis," Lachman said.

????Regardless of his past missteps, many investors contend that Bernanke has been at the helm for so long that it simply makes no sense to throw him overboard now, and risk being thrown back onto the shoals of official indecision.

????"What businesses need is for policymakers to slow down, be consistent and allow their plans time to work," said David Kotok, who runs the Cumberland Advisors investment firm in Vineland, N.J. "The economy had a spiked fever and required radical surgery. Do we want to change the surgeon now that the patient is starting to recover?"

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