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3 Reasons to Fear Bernanke’s Reappointment

Monday, 01/25/2010 - 11:50 am

Wall Street will remain in charge if Bernanke is reappointed, argues L. Randall Wray.
There is a lot of speculationover the reappointment of Ben Bernanke to continue to head the Fed, with the Obama Administration pushing hard. Of course, Wall Street is also calling in its favors. It looks like a done deal. TheAdministration has probably got the 60 votes required in the Senate to remove the hold, and the 51 votes needed for confirmation.
Does it matter? Well, on one level, this is a reward for incompetence —something that is never a good idea. Chairman Bernanke never saw “it” (the great financial crisis) coming, and indeed, actively promoted practices that made the crisis inevitable. However, on that scorehe is not nearly as guilty as his predecessor — Greenspan — who ruled monetary policy from 1987 to 2005. Poor Bernanke was left to clean up the mess, while Greenspan got to retire to great acclaim(that did not last long!). As the crisis unfolded, Bernanke had to learn on the job. While he was supposedly a student of the Great Depression and thus should have known what to do, in truth, he hadalways misunderstood the crisis of the 1930s. Hence, he has taken many half-steps and made many mis-steps over the past three years that made matters worse. Yet, if we look at where the Fed stands now, ithas finally got to the position it should have immediately taken. It has satisfied the liquidity desires of the private financial system by expanding its own balance sheet to $2 trillion, and it ispaying interest on reserves (reducing the “tax” on banks and simplifying interest rate targeting procedure). It took some time, but Bernanke finally figured out how to deal with the crisis. Theliquidity crisis is over (at least for now). Banks are still insolvent-but that is a matter mostly for the FDIC, not for the Fed.
Here are my fears should Bernanke be reappointed.
1. He does not...