With everyone expecting the Chairman's reconfirmation process on Thursday to be merely a formality, Senator Bob Corker throws this wrench after he "said he wasn't sure yet whether the chairman had the votes on the Banking committee or in the Senate as a whole." The Hill reports, "I don't know where that sits," Corker told reporters when asked if Bernanke would have the votes to get a second term, adding he wasn't sure whether Bernanke would have the votes in the 23-member Senate Banking Committee, either.With numerous grassroots campaigns coalescing around the public disappointment surrounding Bernanke Wall Street-centric policies, it just may happen that his renomination could prove far more problematic than previously expected.
Corker noted that he leans toward supporting a second term for the Fed chairman, who was nominated in August to a second term by President Barack Obama, but acknowledged gripes toward the Fed chairman on the left and the right.
Democrats, Corker said, had some reservations about Bernanke's role in consumer protection, while Republicans have been uneasy about his role in orchestrating bailouts for the financial sector.
Sen. Richard Shelby (R-Ala.), the top Republican on the Banking committee, would not say how he would vote on Bernanke's nomination, only encouraging reporters to stay tuned for the chairman's hearing this week.
"I used to be a big defender of the Fed," he said, adding he believes the institution has "utterly failed" in its role for regulating financial institutions.
Some other senators have said they would vote against Bernanke.
"I think it makes no sense to reappoint somebody who's an integral part of the problem," Sen. Bernie Sanders (I-Vt.) said during an appearance on the liberal Bill Press Radio Show podcast earlier today. "I certainly will not be voting to reappoint Ben Bernanke."
Zero Hedge once again urges Senators to canvass the list of questions below (as well as here) and demand responses from the most powerful man in America before allowing him to continue his bubble-inflating ways for another 4 years, lest they themselves soon suffer the public's anger for not performing any due diligence on the most important Fed Chairman reconfirmation in American history.
1. The TARP Inspector General recently disclosed that the New York
Federal Reserve did not believe that AIG's credit-default swap (CDS)
counterparties posed a systemic financial risk. In Congressional
testimony and elsewhere, you have stated repeatedly that AIG posed a
systemic risk based partly on its CDS obligations [source:
Bernanke's testimony to the House Financial Services Committee,
3/24/09]. Explain this apparent contradiction. What was your specific
role in the decision to pay AIG's counterparties 100 cents on the
2. On May 5, 2009, in front of the Joint Economic Committee, you said the following about the unemployment rate: "Currently, we don’t think it will get to 10 percent. Our current number is somewhere in the 9s" [source]. In November it hit 10.2%, and many economists predict it will go even higher. This is happening despite enormous fiscal and monetary stimulus that you previously said would help create jobs. What happened after your JEC testimony in May that caused your prediction to miss the mark?
3. It's now widely accepted that loose monetary policy is at least partly to blame for the credit bubble and subsequent crash. You played an important role in that policy. For eight straight meetings of the FOMC, from June 2003 to May 2004, you voted to keep the Fed funds rate at 1%. But transcripts of recently-released FOMC meetings show you wanted the FOMC to consider cutting rates even further. In the August 12, 2003 meeting, with the Fed already at 1%, you said:
Despite the good news, I think it’s premature to conclude that we should not consider further rate cuts, if not at this meeting then at some time in the near future depending on how the data play out. [source: transcript of FOMC meeting on 8/12/03, page 63]
much worse would the bubble and subsequent crash have been if you had
gotten your way? What do your comments in that meeting imply about your
ability to correctly time the reversal of the Fed's current
4. Forecasts are an important part of the Fed's work. Monetary policy by nature depends on forecasts, making predictive ability an essential part of the job description for any Fed chairman. Yet your record of predictions, including the one about unemployment in (2) above, is questionable at best. Some examples [source]:
March 28, 2007: “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”
May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”
Feb. 28, 2008, on the potential for bank failures: “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”
June 9, 2008: “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”
July 16, 2008: Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”
Explain this pattern of terrible predictions and forecasts. What do they imply about your ability to conduct policy going forward? Is there some fatal flaw in your economic models or forecasting tools? Are you just winging it?
5. Derivatives such as credit-default swaps played an important role in the financial crisis, and they are central to the financial reforms currently being contemplated. During the Senate Banking Committee's hearing in November 2005 to confirm you as Alan Greenspan's successor, you had the following exchange with Senator Paul Sarbanes [source]:
SARBANES: Warren Buffett has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system. The Financial Times has said so far, there has been no explosion, but the risks of this fast growing market remain real. How do you respond to these concerns?
BERNANKE: I am more sanguine about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable. They provide methods by which risks can be shared, sliced, and diced, and given to those most willing to bear them. They add, I believe, to the flexibility of the financial system in many different ways. With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.
How did you get it so wrong?
6. An important factor in the financial crisis (and a large part of the ultimate cost to taxpayers) was the implicit government guarantee of the GSEs. In part because of decisions you made, there is now an explicit government guarantee of every large firm on Wall Street. Has moral hazard increased or decreased over the past year?
7. Via the FDIC, the American public now explicitly guarantees the bonds of Wall Street firms where bonuses are surging and individual employees can be paid millions of dollars a year. What is your opinion on the morality of this guarantee?
8. The importance you place on the output gap is well known. You have often cited "excess slack" in the economy to justify loose monetary policy, arguing that a large output gap lowers the risk of inflation. But economists such as Allan Meltzer have noted that there are "lots of examples of countries with underutilized resources and high inflation. Brazil in the 1970s and 1980s" [source]. Moreover, in a new paper dated December 2009 and titled "Has the Recent Real Estate Bubble Biased the Output Gap?", researchers at the Federal Reserve Bank of St. Louis state the following:
Because this (predicted) output gap is so large, several analysts have concluded that monetary policy can remain very accommodative without fear of inflationary repercussions. We argue instead that standard output gap measures may be severely biased by the bubble in real estate prices that, according to many, started around 2002 and burst in 2007.
conclude with a warning that seems directed at you: "We offer a word of
caution to policymakers: Policies based on point estimates of the
output gap may not rest on solid ground."
Please comment on 1) Allan Meltzer's point and 2) the St. Louis Fed's research paper. Why do you continue to put such a high priority on the output gap?
9. In a scenario in which unemployment remains uncomfortably high, but the dollar continues to fall and commodities including oil and gold continue to rise, what would the Fed do? At what point do market signals take priority over hard-to-measure statistics like the output gap?
10. The Fed has a dual mandate: maximum employment and price stability. But unemployment is at its highest level in decades. And in early and mid-2008, with oil at $150 a barrel and prices of basic staples skyrocketing, opinion polls showed that inflation was the public's highest concern, even more so than jobs or the housing market [source]. Why has the Fed failed so badly in its mandate? Is employment an appropriate objective for monetary policy? Should the Fed have a single mandate of price stability?
11. In February 2009, Janet Yellen, president of the San Francisco Fed, said that the Fed needed to fight back against the argument that its liquidity efforts would eventually lead to higher inflation and higher interest rates, calling the notion "ludicrous" [source]. Since then, the dollar has fallen precipitously, oil has almost doubled in price, and gold has surged to all-time highs. Do you share your colleague's view on inflation?
12. What does the surge in gold mean to you? At what price level would it begin to worry you, if it doesn't already? Does gold have any impact on the Fed's policy deliberations?
13. Why does the Fed insist on waiting five years before it releases transcripts of FOMC meetings to the public? Shouldn't someone tasked with evaluating your performance and voting on your reconfirmation have access to transcripts from late 2008 and early 2009?
14. Has the Fed ever had an internal debate about how monetary policy contributes to geopolitical tensions via the rising oil prices caused by a falling dollar?
15. Before the financial crisis there was a widespread sense, especially on Wall Street trading desks, that the stock market was strangely resilient. This encouraged excessive risk-taking in various types of assets. Do you have direct or indirect knowledge of the Federal Reserve or any government entity or proxy ever intervening to support the stock market (or any individual stock) via futures or in any other way? If yes, who decides the timing of such intervention and with what criteria? How is it funded? Which Wall Street firm handles the orders, and who sees them before they are executed?
Questions courtesy of the Cunning Realist