Bernanke sets outs his case for second term as Fed head

Published on Thursday 3 December 2009 20:35

MAKING a case for a second term as head of the US Federal Reserve, Ben Bernanke said yesterday that he has the tools and the political backbone necessary to reel in massive economic support once the recovery is firmly rooted.

While widely credited with helping keep the Great Recession from becoming a second Great Depression, Bernanke faces enormous anger in the US from both Congress and the public for bailing out Wall Street, while ordinary Americans are struggling under the crush of high unemployment, stagnant incomes and rising foreclosures.

If confirmed to a second four-year term, Bernanke vowed to work with Congress to overhaul the nation's financial regulatory structure and to bring about stronger and more effective supervision, he told the Senate banking committee. "It would be a tragedy if, after all the hardships that Americans have endured during the past two years, our nation failed to take the steps necessary to prevent a recurrence of a crisis of the magnitude we have recently confronted," Bernanke told the panel.

Despite the criticism heaped on him about the bailouts, and a move by one senator to block Bernanke's confirmation, it does not appear in doubt.

Panel chairman Christopher Dodd predicted Bernanke would win confirmation. "Under your leadership, the Fed has taken extraordinary actions to right the economy," said Dodd. "These efforts played, in my view, a very significant role in arresting the financial crisis."

Nonetheless, Dodd wants to strip the Fed of some powers, including overseeing banks, as regulators failed to crack down on dubious mortgages and other problems that figured prominently in the financial crisis.

Dodd and others drew a distinction between Bernanke's economic leadership and the operations of the Fed as an institution itself. Efforts have begun at the Fed to tighten oversight of banks and other financial firms. And the central bank is actively engaged in identifying and implementing improvements, Bernanke said.

"A financial crisis of the severity we have experienced must prompt financial institutions and regulators alike to undertake unsparing self-assessment of their past performance," the Fed chief said. Bernanke, 55, has taken heat for failing to detect early signs of the housing collapse. Lax regulatory oversight by the Fed and others was blamed for contributing to the crisis.

"The Fed has done a horrible job as a regulator," said the committee's top Republican, Richard Shelby.

"We didn't do a perfect job by any means," Bernanke acknowledged. But he added: "We didn't do the worst job either."

At the same time, Bernanke argued that the Fed must remain "effective and independent" to make decisions that may be good for the economy, but unpopular with politicians or the public.