What Happens If Bernanke Is Not Reconfirmed By January 31?
With Bernanke's reconfirmation getting dangerously close to not being reality by the January 31 deadline, courtesy of a few non-Wall Street captured politicians in the Senate who are doing all they can to delay the process, a key question asked today is what will happen to the Fed Chairmanship position on February 1. The WSJ Blog provides some perspective on why this could be a destabilizing event to the tranquility that has gripped all trading desks, where conviction that the guy who is allegedly gobbling up futures without respite, may soon became scarce.
Senate Banking Committee Chairman Chris Dodd said Monday that Ben Bernanke cannot remain as chairman of the Federal Reserve if the Senate does not confirm him by Jan. 31 when his four-year term expires. In an interview on CNBC, Dodd said Fed Vice Chairman Donald Kohn would take over as chairman. Sen. Judd Gregg (R., N.H.) made the same point. The comments generated some confusion on Wall Street, but the situation isn't clear-cut.
This much is clear: A Fed chairman cannot automatically stay in his position after his four-year term as chairman expires. Members of the Fed board, in contrast, can remain in office as governors until their expired term has been filled. The Federal Reserve Act says that the Fed vice chairman acts as chair in the "absence" of the chairman. But "absence" is not defined.
The expiration of a chairman's tenure pre-reconfirmation is not a new thing, and has in fact happened on two prior occasions:
In 1948, Marriner Eccles served as chairman pro tempore from Feb. 3 until April 15, when Thomas McCabe was sworn in as chairman. And in 1996, Alan Greenspan served as chairman pro tempore from March 3 to June 20, when he was confirmed by the Senate for a third term as chairman.
The fact that at least four Senators have discovered their patriotic conscience and realize that more so than anyone, it is precisely Ben Bernanke who is responsible for the current financial fiasco, and are willing to prevent his reconfirmation using all legal channels, should force the Fed to actively consider what Plan B would and should be. Ironically, a nation without a Central Bank head would be the best thing that could happen to this country, which is why we are ultimately skeptical that the power interests of the landed Wall Street oligarchy would ever allow the possible pro tempore option, let alone his removal.
The Fed and Sen. Dodd hope the confirmation vote will come soon after the Senate reconvenes Jan. 19. But at least four senators have placed holds on the nomination, forcing Senate Majority Leader Harry Reid to schedule a floor debate about Bernanke, invoke cloture on the nomination and prepare for an up-or-down vote. At the moment Bernanke seems to have the 60 votes he'd need to be confirmed. But if the Senate delays a full vote past Jan. 31, the Fed's Board could be forced to make a decision to avert worry on Wall Street.