The Senate Should Confirm Bernanke But Make the Fed More Accountable, Too

The President did the right thing in renominating Ben Bernanke to be Fed Chair, but the Senate should couple its vote to confirm him with new legislation requiring the Fed to be far more open about its doings.

If you’d have asked me three months ago whether Bernanke would be confirmed, I’d have said no. Congress (and much of the public) is still furious about the bank bailouts, as well they should be. TARP saved the Wall Street but Wall Street still hasn’t saved Main Street, which was the whole purpose for the bailouts. The only clear outcome of the taxpayers’ $600 billion rescue package is a return to giant salaries and bonuses on the Street.

But Bernanke at least deserves credit for lowering interest rates, swamping the nation with money, and pushing the Fed to become the nation’s banker of last resort. With the big banks sitting it out, the Fed is buying a huge number of mortgage-backed securities (keeping many homeowners afloat, via the intermediaries of Frannie and Freddie); buying securities in which car loans, educational loans, and other consumer loans are bundled; and — importantly — signaling its willingness to do more, if necessary. It’s become the U.S. Bank.

To the extent the U.S. economy is showing signs of “bottoming out” — or, more likely, coming to a slow landing on swampy tarmac rather than crashing — it’s partly due to Bernanke’s U.S. Bank. Congress knows this, or at least knows whatever Bernanke has been doing seems to be working. Hence, the Senate will confirm.

Yet much of what Bernanke has been doing has been cloaked in secrecy. No one knows exactly what the Fed has bought, from whom, and why. The secrecy is unnecessary. If the Fed is going to continue to be the U.S. Bank, it has to be publicly accountable. This is no argument for direct political control of the Fed. It’s an argument for transparency. Congress and the public need to know what the Fed, with the ever-creative Bernanke at its lead, are up to. Never underestimate the power of public knowledge and opinion. Even our least democratic branch — the federal judiciary — is not immune to it. And don’t underestimate the importance to our economy of knowing who and what is getting Fed assistance, and in what form.

So the Senate should confirm Bernanke, but link the confirmation vote to new legislation that makes the Fed more transparent.

About Robert Reich 545 Articles

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

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