January 29, 2010
Senate, Weakly, Backs New Term for Bernanke
By SEWELL CHAN
New York Times
WASHINGTON — The Senate gave Ben S. Bernanke a second four-year term as the head of the Federal Reserve on Thursday after critics excoriated the central bank’s conduct in the years leading up to the financial crisis.
The 70-to-30 vote was the weakest endorsement ever extended to a chairman in the Fed’s 96-year history.
The confirmation was a victory for President Obama, who had called Mr. Bernanke an architect of the recovery, but also signaled the extent to which the Fed, once little known to the public, has become the object of outrage over high unemployment and bank bailouts.
In several hours of debate, senators said that the Fed had abetted, then ignored, the housing and credit bubbles and allowed banks to keep dangerously low capital reserves and to make reckless lending decisions that ruined consumers. Some even blamed Mr. Bernanke for the falling dollar and questioned his commitment to free enterprise.
In contrast, Mr. Bernanke’s supporters were muted. They reiterated that the Fed had made mistakes but said that Mr. Bernanke had helped save the economy from a far worse recession.
After a week in which top White House officials and Mr. Bernanke met with Democratic leaders in the Senate to secure support, the Senate first voted 77 to 23 to end debate, with more than the 60 votes needed to overcome the threat of a filibuster.
On a second vote, to confirm, the 30 dissents came from 18 Republicans, 11 Democrats and one independent, Bernard Sanders of Vermont.
On Thursday evening, Mr. Obama congratulated Mr. Bernanke in a statement. “As the nation continues to face the consequences of the worst recession in a generation, Ben Bernanke has provided wisdom and steady leadership in the midst of the financial and economic crisis,” he said.
While an arm-twisting campaign by the administration limited the opposition, the outcry against the Fed will most likely continue rippling through economic policy generally, and Mr. Bernanke’s leadership of the Fed in particular. The effects could be felt first in the debate over how to reform financial regulations. The Obama administration has proposed consolidating risk regulation under the Fed, while some in Congress want to strip away its oversight authority.
“The institutional prestige of the Fed, even apart from this vote, had taken a hit, and it started back around the disaster of September 2008,” said Stephen H. Axilrod, who worked at the Fed for 34 years and wrote a history of its monetary policies. “I don’t think it has recovered. This is a low point in the Fed’s recent history, that’s for sure.”
The vote also made clear Congress’s insistence on transparency from a historically secretive institution that has made extraordinary interventions in the market since 2008.
“The Fed is going to have to work hard, for a long period, to regain the public confidence of the sort it enjoyed during the halcyon days when everything was going so swimmingly,” said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley.
Senators from opposite ends of the spectrum formed unlikely alliances. After Mr. Sanders, who calls himself a socialist, finished denouncing Mr. Bernanke, Jeff Sessions, a conservative Republican from Alabama, rose to do the same.
Another Alabaman, Richard C. Shelby, the top Republican on the banking committee, which approved the nomination last month by a 16-to-7 vote, laid out a bill of particulars, saying Mr. Bernanke’s handling of the financial crisis did not make up for his failings before that time.
“Considerable economic devastation occurred as a result of Chairman Bernanke’s loose monetary policy and weak regulatory oversight,” Mr. Shelby said. “If we don’t hold Chairman Bernanke accountable, what precedent are we setting for future regulators?”
To an extent, the rhetoric against Mr. Bernanke reflected a spilling-over of frustration at two of his collaborators: the former Treasury secretary, Henry M. Paulson Jr., and the current one, Timothy F. Geithner.
And looming over it all was the role of Mr. Bernanke’s predecessor, Alan Greenspan, whose once-sterling reputation has been diminished as his decisions to keep interest rates low after the 2001 recession have been brought into question.
Mr. Bernanke, 56, was a member of the Fed’s board for part of that period, from 2002 to 2005, when President George W. Bush named him to lead his Council of Economic Advisers. He rejoined the Fed, as chairman, in 2006, and Mr. Obama renominated him last year. Mr. Bernanke is a Republican economist and an authority on the Depression.
“I knew that he would continue the legacy of Alan Greenspan, and I was right,” said Senator Jim Bunning, Republican of Kentucky, who was the lone vote against Mr. Bernanke in 2005.
Mr. Bunning cited a half-dozen statements from 2007 to 2009 in which Mr. Bernanke expressed optimism about the housing market, bank capital ratios, the capitalization of Fannie Mae and Freddie Mac and the unemployment rate. Saying that Mr. Bernanke had been repeatedly wrong, he declared, “We shouldn’t be paying the Fed chairman to learn on the job.”
Senator Sheldon Whitehouse, Democrat of Rhode Island, echoed that, saying Mr. Bernanke had shown “a troubling pattern of false confidence.” Senator Jeff Merkley, Democrat of Oregon, went further, saying the Fed had “helped set the fire that destroyed our economy.”
While less passionate, supporters of Mr. Bernanke said he had acted deftly and decisively, at least since the collapse of Lehman Brothers in September 2008.
“He basically allowed the Fed to become the lender of the nation,” said Senator Judd Gregg, Republican of New Hampshire. “Nobody had ever done that. The way he did it was extraordinary in its creativity, and the results were that the country’s financial system did not collapse.”
The last time any nominee for chairman faced such opposition was 1983, when the Senate confirmed Paul A. Volcker to a second term on an 84-to-16 vote. Mr. Volcker, too, had served under presidents of opposing parties and had navigated the Fed through a difficult recession.
But while Mr. Volcker sharply raised interest rates to tame runaway inflation — actions that were initially unpopular but were later praised — Mr. Bernanke faces a different challenge. The Fed has held short-term interest rates near zero since December 2008, a policy reaffirmed on Wednesday. And while analysts expect rates to start rising later this year, the scale and timing of that rise will be a challenge. So, too, will be the unwinding of the Fed’s emergency lending programs and its purchase of $1.25 trillion in mortgage-backed securities.
Many politicians will not want the Fed to put the brakes on recovery by raising rates. Indeed, the Senate majority leader, Harry Reid of Nevada, offered only a lukewarm endorsement last week after telling Mr. Bernanke that the Fed must do more to ease lending to households and small businesses. While the Fed says Mr. Bernanke gave Mr. Reid no specific commitments, the central bank will continue to face close scrutiny.
“Their independence from political pressures has been tarnished,” Mr. Axilrod said. “And if the market believes the Fed will not control inflation, there will be more inflation.”
Barclay Walsh contributed research.
January 29, 2010
Health Bill Stalled, Obama Juggles an Altered Agenda
By CARL HULSE and SHERYL GAY STOLBERG
New York Times
WASHINGTON — The White House on Thursday signaled the outlines of its strategy for breaking the partisan logjam holding up President Obama’s agenda, saying Democrats would move quickly to underline their commitment to fixing the broken economy and to build an election-year case against Republicans if they do not cooperate.
With Mr. Obama’s health care overhaul stalled on Capitol Hill, Rahm Emanuel, the White House chief of staff, said in an interview that Democrats would try to act first on job creation, reducing the deficit and imposing tighter regulation on banks before returning to the health measure, the president’s top priority from last year.
But Mr. Obama quickly got a taste of how difficult it would be to bring the opposition party on board.
One day after the president upbraided Congress in his State of the Union address for excessive partisanship, Senate Republicans voted en masse against a plan to require that new spending not add to the deficit (it passed anyway as all 60 members of the Democratic caucus hung together). And some Republicans peremptorily dismissed Mr. Obama’s main job-creating proposal, expressing no interest in using $30 billion in bank bailout money for business tax credits.
“I think there is a right way and a wrong way to do it, and that is not the right way,” said Senator John Cornyn, the Texas Republican heading the effort to elect more Republicans to the Senate.
On Friday, Mr. Obama will travel to Baltimore to announce specifics of his jobs plan, including a proposed $5,000 tax credit for small businesses for each new employee they hire in 2010. While there, he will address House Republicans at a retreat they are holding.
The instant Republican resistance to the jobs plan — coupled with a vote this week to kill a deficit-reduction panel that had been initiated with high bipartisan hopes — illustrated the chasm between the two parties and the difficulties Mr. Obama faces if he is serious about trying to work with an energized opposition.
Increasingly confident of their prospects after the Massachusetts Senate victory, Republicans are disinclined to give ground in policy debates and appear willing to stick with their near-unanimous opposition to major initiatives unless Democrats offer significant concessions.
“House Republicans will seize the opportunity in respectful terms, but candid and frank terms, and make it clear to the president that we have better solutions,” said Representative Mike Pence of Indiana, the chairman of the House Republican Conference.
The administration showed no signs of capitulating either, with officials saying the White House will pursue a strategy of trying to shame Republicans whenever they stand in lock-step against Mr. Obama. In an interview Thursday, Mr. Emanuel warned that Republicans would suffer politically for their opposition to the pay-as-you-go plan.
“One party was for fiscal discipline, the other party wasn’t,” he said, previewing a message that Democrats could use in this year’s midterm elections.
Officials said they were pressing ahead with one of the more controversial items Mr. Obama laid out Wednesday night: repealing the policy barring gay men and lesbians from serving openly in the military.
Senior Pentagon officials said Defense Secretary Robert M. Gates and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, had been in close discussions with Mr. Obama on the issue and would present the Pentagon’s initial plans for carrying out the new policy at a hearing before the Senate Armed Services Committee on Tuesday.
Changing the policy requires an act of Congress, and the officials signaled that Mr. Gates would go slowly, and that repeal of the ban was not imminent. And it could be a hard sell for the president, even among Democrats; Representative Ike Skelton of Missouri, chairman of the House Armed Services Committee, on Thursday restated his opposition to repealing the ban.
Mr. Emanuel, the chief of staff, said he hoped Congressional Democrats would take up the jobs bill next week. Then, in his view, Congress would move to the president’s plan to impose a fee on banks to help offset losses to the Troubled Asset Relief Program, the fund used to bail out banks and automakers.
Lawmakers would next deal with a financial regulatory overhaul, and then pick up where they left off on health care. “All these things start and lead to one place: J-O-B-S,” Mr. Emanuel said.
The execution, of course, will be much easier said than done. Democrats are about to lose their 60-vote supermajority in the Senate, after the recent Republican victory by Scott Brown in a special election to fill the seat held by the late Edward M. Kennedy of Massachusetts. In the Senate, Republicans have come under intense pressure from their colleagues to stay in the fold.
Even some of Mr. Obama’s allies said that given united Republican opposition, the goal of more cooperation might be out of reach. “In order to dance, you need a dance partner and there ain’t no partner out there,” Senator Bernard Sanders, a Vermont independent, noted.
A vote this week on a proposal to create a bipartisan commission to recommend ways to attack rising federal deficits was seen as illustrative of the Republican strategy to thwart Democrats. Though the idea attracted 53 votes — 36 Democrats, one independent and 16 Republicans — it failed because it did not cross the 60-vote threshold.
At least six Republicans who had previously supported the plan voted against it, as did others who have backed the idea in concept. Some of those who voted against the plan suggested they did so because they did not want to give Democrats political cover by joining with them in a deficit reduction effort.
“It was stacked,” Senator John McCain, Republican of Arizona, told reporters in explaining his rationale for switching from a supporter to an opponent of the commission.
Some leading Republicans say they believe there is still an opportunity for the administration, Congressional Democrats and Republicans to find ways to work together. But they say it would require a concerted outreach effort and the White House abandoning the idea of wooing a few individual Republican senators.
“I am astonished that the White House’s idea of working in a bipartisan way is this shooting gallery method, going around and seeing if you can pick off one or two or three,” said Senator Lamar Alexander of Tennessee, a member of the Republican leadership.
Other Republicans say Mr. Obama should convene a summit of Congressional Republican leaders.
“If the president reaches out to the Republican leadership in a genuine way, the spotlight shifts from his overreaching to whether we can meet him in the middle,” said Senator Lindsey Graham, Republican of South Carolina.
Congressional Democrats say they are pessimistic about cooperation. Using their power of 60 for one of the final times, Democrats did secure approval of the antideficit legislation Thursday on a straight 60-40 party-line vote but interpreted the united Republican opposition as a sign that Republicans were not moved by the president’s appeal.
Elisabeth Bumiller contributed reporting.
