Correction to This Article
In some versions of this article, dropped text led to a fragmented sentence at the beginning of the second paragraph. The full paragraph should have read: "Once viewed as the rock at the center of the government's response to the financial crisis, Bernanke has become a target for mounting anti-Wall Street fervor with two Democratic senators registering their opposition Friday and other support softening." This version of the article has the complete text.
Populist backlash puts Federal Reserve Chairman Ben Bernanke under siege

By Neil Irwin and Lori Montgomery
Washington Post Staff Writers
Saturday, January 23, 2010; A01

The populist brushfire that has burned through Democratic fortunes this week threatened Friday to claim Federal Reserve Chairman Ben S. Bernanke, imperiling his nomination for a second term and sending an unsettled stock market tumbling for the third straight day.

Once viewed as the rock at the center of the government's response to the financial crisis, Bernanke has become a target for mounting anti-Wall Street fervor with two Democratic senators registering their opposition Friday and other support softening.

Top Senate Democrats scrambled for votes to confirm Bernanke less than a week after he seemed certain to earn a second term when his first expires Jan. 31. Although Democrats and Republicans alike mostly praise Bernanke for aggressive steps to combat the recession, he is increasingly blamed for failing to rein in Wall Street excesses that led to the crisis and tarred by his role as engineer of the profoundly unpopular bailout for financial firms.

Just days after the Republicans' stunning upset victory in the Massachusetts Senate election, Sens. Barbara Boxer (D-Calif.) and Russell Feingold (D-Wis.) said Friday that they would vote against Bernanke, following the lead of Sen. Byron L. Dorgan (D-N.D.) a day earlier. Many senators who had been viewed by Senate leaders as safe votes for Bernanke said they were undecided.

With Bernanke's fate uncertain, the stock market fell 2.2 percent, as measured by the Standard & Poor's 500-stock index. The Dow Jones industrial average closed at 10,172.98, after losing 552.45 points, or 5.2 percent, since Wednesday. Both indexes fell about 4 percent for the week.

But late Friday, senior Senate aides predicted that they would still assemble the 60 votes needed to reappoint Bernanke, adding that Senate leaders hope to bring his nomination to a vote by the end of next week.

Majority Leader Harry M. Reid (D-Nev.) issued a statement announcing his support for Bernanke. Reid tempered his enthusiasm, however, by insisting that Bernanke "redouble his efforts" to ensure companies and individuals across the economy have access to credit. "He has assured me he will soon outline plans for making that happen," Reid said, "and I eagerly await them."

Other Democrats also rushed to Bernanke's defense, including a White House spokesman and Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), who said that voting down Bernanke could send a bad signal to financial markets and prompt an economic "tailspin."

Paul Volcker, former Federal Reserve chairman and an Obama adviser, said he was concerned that the Fed could be left in a vacuum. "Bernanke has been through a fire, and given the experience he has had, he's a lot more experienced and more qualified than he was four years ago," he said in an interview. If Bernanke were rejected, Volcker added, "I don't think that would be received well at home or abroad."

Anxiety began to build around the fate of Bernanke's reappointment within hours after Republicans seized a crucial 41st Senate seat, throwing President Obama's health-care bill and the entire Democratic agenda into chaos.

On Wednesday, when Senate Democrats met for their weekly luncheon, finger-pointing over the loss in Massachusetts quickly turned to Bernanke, with several liberal senators angrily denouncing the Fed chairman and arguing that he should be held accountable for Obama administration policies that have focused on propping up Wall Street while ignoring ordinary Americans.

"Massachusetts was kind of a wake-up call to many Democrats," said Sen. Bernard Sanders (I-Vt.), a long-standing and vocal Bernanke critic. "People are disgusted and furious with Wall Street and with the state of the economy, and a number of Democrats have been scratching their heads, saying 'why do we want to reappoint a guy who was a member of the Bush administration?' "

Senate Democratic leaders quickly realized that the populist backlash was not confined to the fringes of their caucus. As they made calls throughout the day Thursday to gauge support for Bernanke, they found a surprisingly large number of Democrats undecided.

"They weren't saying how they would vote for him. Anyone who expected automatic 'yes' votes would have been surprised," a senior Democratic aide said. "You kept going down the line, and that sentiment was just repeated."

On Friday, Reid called Senate Minority Leader Mitch McConnell (R-Ky.) to ask for help. It was unclear Friday how many Republicans would back Bernanke.

Some Republicans, emboldened by their victory in Massachusetts, see more reason to oppose the Obama administration across the board. Still, several influential Republicans have endorsed Bernanke, noting that other potential Obama nominees for the job, such as White House economic advisers Larry Summers or Christina Romer, or San Francisco Fed president Janet Yellen, would probably draw even stronger Republican objections than Bernanke.

"A large number of people on our side of the aisle see him as someone who has done a very good job" said Sen. Judd Gregg (R-N.H.). "Having someone who actually believes in markets and capitalism as head of the Fed is pretty consistent with Republican values. And let's be honest: We'd be cutting off our nose to spite our face to ask them to send somebody else up."

If Bernanke is not confirmed by Jan. 31, the Fed board of governors would probably name Vice Chairman Donald L. Kohn to be acting chairman, Fed watchers say, though Bernanke could continue to serve as a Fed governor until that term expires in 2020.

The Federal Reserve Act is unclear on whether Bernanke could be named interim chairman, a position that has been occupied twice before in similar circumstances (by Marriner Eccles in 1948 and Alan Greenspan in 1996). But the Fed would likely put Kohn in the role to avoid alienating senators.

Kohn and Bernanke have a close working relationship, and Bernanke would remain in the room for major decisions, so there is little reason to think the shift would cause any significant change in the Fed's policymaking.

If Bernanke were rejected outright, Kohn, a 40-year veteran of the Fed system, would act as chairman until a replacement could be appointed and confirmed. But Obama and the Congress would need to move quickly on a new nominee; Kohn's term as vice chairman ends June 23.

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