The Last Days of Ben Bernanke
The developments over the last day or so concerning Time magazine's 2009 Person of the Year have been nothing short of breathtaking. Until yesterday, if you had to make a choice as to which key member of President Barack Obama's economic inner circle was most in danger of losing his job, it would certainly have been Treasury Secretary Tim Geithner. Indeed, such was the almost unanimous view of the economic pundits out there; especially following the most recent damaging revelations of Geithner's AIG-related e-mails.
But almost out of nowhere, the danger to the job of Fed Chairman Ben Bernanke has eclipsed that faced right now by Geithner. Though not unanimous, the vote in the Senate's Banking Committee several weeks ago to reconfirm Bernanke was nevertheless by a comfortable margin; more so than I had expected. Following that, there was no serious expectation that the full Senate would not go along, even if on the way to reconfirming the Fed Chairman it had to fend off a promised filibuster effort led by Sen. Bernie Sanders (I-VT.)
But suddenly, serious questions have arisen as to whether Senate leaders can defeat a filibuster; or, for that matter, even find 51 votes in the end to send Bernanke formally back to work. Emboldened by the general disdain in the public for America's financial leadership, some Senators--especially those whose seats are up this fall, and aren't sure they want to be pilloried themselves for having supported Bernanke--are deciding that, at the least, it will be politically expedient to oppose him. So, one by one, the long knives have started to come out on Capitol Hill; all prepared to draw the blood of Time's poster boy.
Just this morning, news reports revealed that Sens. Russ Feingold (D-WI), Byron Dorgan (D-ND) and Barbara Boxer (D-CA) would all vote against Bernanke if a vote does come. (I might have missed one or two more as I write these comments). Senate Leader Harry Reid (D-NV) -- whose own seat is reportedly in danger -- will no longer commit to even a delayed vote one of these days, and has himself been suddenly lukewarm in his own support of Bernanke.
Bernanke is under assault from both ends of the political spectrum. The left hates him because of his often shady role in bailing out Wall Street in the aftermath of the bursting of the credit bubble, while leaving Main Street to eat cake. The right hates him for having a prominent hand -- second only to his predecessor -- in creating those bubbles in the first place through a lax monetary policy.
After the end of the month, Fed Vice-Chairman Donald Kohn will be taking over as chairman of the Fed's Board of Governors by rule; the unconfirmed Bernanke will be "demoted" to just another governor.
An astonishing side bar to all of this is the way in which President Obama himself is seeing his own political capital crash over all of this. Following all of today's defections and the now-certainty that a filibuster effort against Obama could NOT find 60 votes to defeat it, it's time to start writing the epitaph to Bernanke's chairmanship. Yet the president--who STILL seems to think that just his own words and presence can carry the day, as I wrote in "Barack the Magic Loan Officer" last month--hasn't figured that out yet.
Here's a guy who's made a big deal -- and roiled Wall Street -- this week over wanting to rein in the banks via higher taxes and more regulations. Though (as I've quipped before) he has surrounded himself with Goldman Sachs' "B-Team," Obama is frantically trying to shore up his falling popularity by sounding like William Jennings Bryan, even as his administration has acted more like a David Rockefeller.
But THEN what does he do?? He comes out this morning insisting he wants Bernanke -- "the best man" for the job -- confirmed. In so doing he shows 1) his narcissism--again, 2) his utter lack of a political pulse-taking ability on Capitol Hill and 3) his insincerity in all his "populist" rhetoric of mere hours ago.
The political story of the week had been the win by the G.O.P.'s Scott Brown in Massachusettes' special election. It is now the story of the implosion of Ben Bernanke's Chairmanship of the Federal Reserve, and the rapidly-shrinking political clout of the man who re-nominated him. That man, as I write these words, is preparing for a "town hall" meeting in Ohio. Perhaps someone will ask him there to explain the contradictions I have outlined here; or more to the point, why he steadfastly continues to support the second-most destructive policymaker (behind another former Time poster child) in U.S. history.
I will be shocked if next week comes and goes without (most likely) a forced Bernanke withdrawal, rapidly followed--if not accompanied--by a replacement.
I'll have much more to say about this for subscribers shortly, including how we may need to make further changes to our recommendations following those I issued this morning.