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.