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Bernanke likely to serve second term

OAK BLUFFS, Mass. — Federal Reserve Chairman Ben Bernanke, widely credited with taking aggressive action to avert an economic catastrophe after the financial meltdown last fall, will be nominated by President Barack Obama for a second term, The Associated Press learned Monday night.
Ben Bernanke
Federal Reserve Chairman Ben Bernanke

OAK BLUFFS, Mass. — Federal Reserve Chairman Ben Bernanke, widely credited with taking aggressive action to avert an economic catastrophe after the financial meltdown last fall, will be nominated by President Barack Obama for a second term, The Associated Press learned Monday night.

Obama plans to make the announcement today during a break from his vacation on Martha’s Vineyard. A senior administration official discussed the nomination on the condition of anonymity.

In remarks prepared for the announcement, Obama praised Bernanke for leading the country through the meltdown and, with his expertise on the Great Depression, helping to prevent a crisis rivaling that of the 1930s.

“Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and outside-the-box thinking that has helped put the brakes on our economic free-fall,” Obama said in prepared marks obtained by the AP.

In sticking with Bernanke, Obama is looking to reassure the financial sector as well as foreign central banks that his administration has no plans to change course on its largely well-received approach to rescuing the industry from its meltdown or its management of overall monetary policy.

Bernanke has won admiration from Democrats and Republicans on Capitol Hill even as some lawmakers have urged him to retain the Fed’s independence and warned him not to become too cozy with the administration. Any move to replace Bernanke could have been perceived as injecting politics into the Fed, especially if Obama had turned to Lawrence Summers, his top economic adviser, as Bernanke’s replacement.

Bernanke, at a Fed conference in Jackson Hole, Wyo., last week, was sanguine about the global economy, saying it was “beginning to emerge” from the recession and that the worst had been avoided.

For Obama, there was little political downside in choosing to nominate Bernanke to a second term. The move displays bipartisanship and a steady, unchanging hand on the economic rudder. With his hands full attempting a health care overhaul, changing the head of the central bank would have been a distraction Obama could little afford.

“The actions we have taken to stabilize our financial system, repair our credit markets, restructure auto industry and help the overall economy recover have all been steps of necessity, not choice,” Obama said in prepared remarks for the announcement. “They have faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, all of these steps have brought our economy back from the brink. They are steps that are working.”

Bernanke, 55, was appointed Fed chairman by President George W. Bush and sworn in Feb. 1, 2006. He had been a chairman of the President’s Council of Economic Advisers and a member of the Board of Governors of the Federal Reserve System during the Bush administration.

Bernanke earned a bachelor’s degree in economics in 1975 from Harvard University and a doctorate in economics in 1979 from The Massachusetts Institute of Technology. He joined Princeton University as an economics professor in 1985 and was chairman of Princeton’s Economics Department from 1996-2002.

As the markets collapsed last year, Bernanke appeared almost as battered as the banks Washington was desperately trying to save with huge injections of cash.

While Capitol Hill, Wall Street and some inside the White House credit Bernanke for the unconventional thinking that defined his response to the financial crisis last fall, few said so back then. For months, the Fed chief came under intense criticism as he worked with the Treasury Department to bail out banks and pump trillions into the financial system to try to ease credit clogs.

Even before the crisis intensified last fall, the Fed took the historic step of letting investment firms draw low-cost emergency loans from the central bank — a privilege long allowed only for commercial banks. After a run on Bear Stearns pushed it to the edge of bankruptcy, the Fed and the Treasury nudged what was the nation’s fifth-largest investment bank into a takeover by JPMorgan Chase&Co.

As the markets recovered — more slowly than the White House had anticipated — so too did Bernanke’s reputation. But his lack of intervention for Lehman Brothers had some economists frustrated.

Brad DeLong, a Treasury Department official under President Bill Clinton, said Monday night he couldn’t think of anyone better for the appointment even though he was surprised.

“He has made only one big mistake: buckling under to pressure from all those yelling at him for enabling moral hazard and not finding a way to takeover Lehman Brothers, and he is not going to make the same mistake again,” said DeLong, a professor at the University of California at Berkeley.

Another term for Bernanke was hardly a given. Obama has built a team of economic advisers with high profiles and strong personalities, including Summers and Christina Romer, a top Obama economic adviser. Others mentioned included Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Roger Ferguson, the former No. 2 Fed official.

In the end, Obama’s team decided that Bernanke — like the banks he tried to save — was too big to fail.