Mr. Bernanke deserves a second term as Fed chairman

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Friday, December 4, 2009

FACING a Senate confirmation vote on a second four-year term as chairman of the Federal Reserve, Ben S. Bernanke finds himself under attack from both ends of the political spectrum. Libertarian Rep. Ron Paul (R-Tex.), abetted by a number of liberal Democrats, has made Mr. Bernanke's alleged failures a principal argument for his bill to subject the Fed to intrusive congressional auditing. Sen. Bernard Sanders (I-Vt.), a self-described democratic socialist, has announced that he will put a "hold" on Mr. Bernanke's renomination, forcing the Senate to come up with 60 votes to proceed to a vote. The wrong-headedness of this left-right pincer emphasizes the moderate wisdom of President Obama's decision to offer Mr. Bernanke another term.

His first-term performance has not been flawless. As a Fed official under the previous chairman, Alan Greenspan, Mr. Bernanke was one of those who arguably failed to read signs of an emerging Fed-fueled bubble in real estate. During his own tenure, the Fed failed to impose sufficient regulatory control over subprime lending -- a mistake from which Mr. Bernanke says he has learned. Yet when the global economy faced a meltdown in the fall of 2008, Mr. Bernanke acted creatively and decisively to pump liquidity into the U.S. economy, thus staving off a repeat of the Great Depression. He has faced understandable second-guessing over the fact that the rescue of American International Group resulted in a bailout for the insurance giant's Wall Street counterparties. But his critics rarely pause to consider that Mr. Bernanke acted under tremendous pressure at a time when his information was necessarily imperfect and all the alternatives were undesirable.

Worse, many on Capitol Hill seem to want to use the current economic crisis to launch a populist assault on the Fed. There may be reasonable arguments for shifting the Fed's regulatory functions to other bodies, if the result is both better financial oversight and a clearer focus at the Fed on its core function of setting monetary policy. But, to the extent that Congress is attempting to submit the Fed to a politicized caricature of "transparency," through the Paul bill or other measures, Mr. Bernanke is absolutely right to use his nomination hearings as an opportunity to push back -- hard. His job won't be worth having if markets regard the Fed as the monetary tool of elected officials.

Though the U.S. economy shows signs of healing, challenges remain, not the least of which will be unwinding the massive expansion of the Fed's balance sheet that Mr. Bernanke, of necessity, engineered. His critics have yet to identify a better candidate to handle this crucial next phase of the recovery. Appointed by a Republican president and reappointed by a Democratic one, Mr. Bernanke embodies a rare instance of bipartisanship in today's Washington. Maybe that's a reason that the extremes want to defeat him. It's certainly a reason to hope they fail.


© 2009 The Washington Post Company

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