Most Senators “Have Fingers in the Wind” on Bernanke

This came via e-mail from a legitimate source:

As a former staffer for one of these Senators [on the Banking Committee], I’ll just point out the obvious: most of them have their fingers in the wind right now. they’re leaning to confirm BB, because they don’t want to be out on a limb, and there’s a lot of talk coming from Wall Street that continuity is absolutely necessary to maintain investor confidence, and that BB is critical in this regard. On the other hand, they recognize that the Fed is very unpopular.

If they see signs of strong sentiment against the Fed, they may vote against him, but this is all about politics right now.

As an aside, the Fed is kind of asking for this by pushing so hard to be the central regulator. As a rule, central banks get to be independent, opaque, and imperious towards the people; primary regulators do not.
Surprised that all the genius economists at the Fed aren’t recognizing this basic dynamic.

Notice several key messages:

1. As with the TARP, the threat is that if action is not taken, the markets will go to hell. With the TARP, the markets went to hell after its passage anyhow. If the markets are significantly misvalued as some feel (Roubini, John Hussman, to name a few), they will correct. If confirming or not confirming Bernanke is part of this dynamic, all it will affect is the timing, not the outcome.

2. This notion of Bernanke being “critical” further suggests that Wall Street believes or knows he has and will manipulate markets on their behalf. Of course, Bernanke did so in an explicit way with the $1 trillion Treasury/Agency market intervention that started in March and is tailing off now. And of course, there has been the raft of special facilities, but those are supposedly being wound down now. Has there been even more, as some have charged, than what has been made public?

3. As an aside, this also confirms that at least some of the media is being spun successfully, as our post on Bloomberg’s unduly reports on Bernanke shows. That story said the confirmation is a done deal; this and other reports say there is a real possibility he could be nixed.

4. Most important, this says your action can make a difference. The big issue here is not the financial markets but the real economy. Bernanke was unwilling to intervene in markets, namely the subprime/housing bubble when it would have hurt Wall Street and saved us this mess. He (and Paulson and Geithner) falsely sold the bailouts on the idea that they would get lending going and trickle down the little guy. But that was false, unemployment is rising, the banks are not lending. Bernanke not only has no plan B, and more important, he has NO INTEREST in a plan B, such as really cleaning up the banks, which would be painful short term but would set the foundation for a recovery. We are now on our way to Japan style malaise.

PLEASE call or e-mail your Senator if you haven not done so, particularly if he is on the Banking Committee.

See here for contact info. Thanks!

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  1. Yves Smith Post author

    Yes there is, indirectly:

    This is reflected in a Gallup Poll this summer which found that only 30% of the American public thought the Fed was doing a good or excellent job. The same poll showed that 40% of those polled thought the IRS was doing good work.

    1. Doug Terpstra

      Below the IRS? That’s quite an achievement.

      If the rabble protests are loud enough, the puppeteers may consent to a replacement, but the fascist system itself must collapse or be taken out before real change can occur. What did you call it, a paradigm breakdown? I love it. Maybe in 2012.

    2. andrew

      I spoke to soon. I got an email from Ramussen:

      Coming Soon:

      Noon Eastern: Just 21% Favor Bernanke’s
      Reappointment As Fed Chairman

  2. Not Hank Paulson

    I’m really surprised that no one quipped Bernanke is being sold to the Senate as “too big to fail.” Very consistent theme.

  3. MyLessThanPrimeBeef

    Not that I am pro-Fed, but if we are going to have the Fed (until Ron Paul completes his quest, that is), why don’t we adopt that very successful tenure system we use for the Supreme Court justices – make it 9 co-Fed chairmen/chairwomen and good for lifetime, with its books subject to Congressional audits? While we are at it, make it the fourth branch of the government – that’s a sure way to guarantee its independence, through non-encroachement, checks and balances, by putting its existence into the Constitution, except audits, of course – a perhaps a compromise is to have them done by a committee of neutral comrades.

    This would be an improvement over, per the Consitution, giving the Congress the sole power to coin money, by establishing a fourth branch whose members would be Supreme Court justices like in that, with lifetime appointment, they will be less prone to be swayed by politics. That’s the ideal anyway.

  4. Ed

    It would be nice to have a system where the governing party had a clear policy, even if it was bailouts and cheap credit for everyone, announced it and stuck to it, and the opposition opposed it and then instituted an alternative policy if they ever became the government. Then we would get some accountability.

  5. AnonymousMonetarist

    ‘If they can get you asking the wrong questions, they don’t have to worry about the answers.’
    – Thomas Pynchon

    Oh let’s vote George Bush out for Barry Dunham ( personal note : I am a fierce social liberal and fiscal conservative) because that will bring about change! Although will admit that it is refreshing to have folks in charge of government agencies that haven’t spent their entire adult life fighting against the very rules that they are appointed to supervise, what conclusion should the rational mind draw from an ubiquitous bankster-friendly policy flowing from the opposite side of the political spectrum?

    So gosh let’s circulate a petition to throw out Timmy G and BSB. For what? The same policies spewed forth by a different glamor girl?

    Toss BSB out and we’ll hear the pablum narrative of ‘turning a page’ and we’ll be asked to give the new Chairman time to implement policies, even if controversial, so that price levels are supported and the stability of the system is maintained.

    1. Naive_person

      I must agree. In the present political environment, apart from dumb luck, would any replacement for Bernanke actually be any better? The best idea I have heard so far is Ron Paul’s: deal with the source of the problem and abolish the Fed.

    2. Yves Smith Post author


      No, the effect of a turndown is to signal that someone who was not an architect of the policies that failed needs to come in. There is a good reason CEOs who perform badly are fired or forced out. Most people are constitutionally incapable of admitting serious error and changing course. And even if they do, when they are in leadership positions, their credibility is undermined by admitting serious error, which crimps their effectiveness in implementing a course change.

      Even within the stable of orthodox types, Yellen or Hoenig would be an improvement over Ben. And an action like this should force the officialdom to broaden the net of candidates.

      Moreover, it sends a signal that pandering to Wall Street is no longer acceptable, it comes at a cost, that other interests need to be weighed as well.

      The biggest impact would be that this would be a seen as a highly visible repudiation of BushObama economic policies (they are one in the same, Obama just has better PR and throws the odd bone to the peasants). It would put to the fore that toadying to Wall Street has a cost. It would put Obama on notice, big time, re Geither and Summers.

  6. cougar_w

    Having your finger to the wind does not constitute leadership.

    Certainly no more than having your finger up your aye-double-ess.

    They are just ducking for cover. The game is up, everyone is trying to survive. You’ll not get any leadership from Congress for another generation, or three, or until after the revolution.


  7. Doug Terpstra

    Indeed. We can scream and holler all we want, but If Wall $treet wants BB, he’ll be confirmed in the end, or an equally compliant replacement. The bailouts, which all peasants knew were a raw deal for the unwashed, are a clear example of citizen impotence under fascism. Public opposition to bailouts was around 2 to 1 against —similarly with NAFTA/SHAFTA, public health insurance, banking regulation, war and so on, but under a kleptocracy ruled by extortion and bribery, the game is fixed. Sure, there may be token vote victories staged by committees along the way for theater, and to protect VIP asses, but the squeaker votes with poison provisions will sustain the corrupt status quo in the end. Only overwhelming force or apocalyptic collapse can effect meaningful change.

    Despairingly cynical, I know, but after Obama’s wholesale betrayals (or well-intended impotence), it’s foolish to draw any other conclusion: Obama is Reagan 2.0. I’m supporting Ives ‘paradigm breakdown’ in 2012.

    1. Yves Smith Post author

      That is simply not true. There was a Wall Street effort to gut the Paul/Grayson bill, the Watt amendment, and it was successfully opposed via an Internet-orchestrated pushback.

      Wall Street does not always get what it wants, period.

      You choose to cede what little power you have, you become part of the problem.

      And you are reading this incorrectly. Fed chairmen are normally shoe-ins, no one pays attention. The fact that many of the Senate Banking Committee members are being cautious is a sign that they see some risk. This vote is getting some attention, which makes them nervous.

      And the consequences of a Bernanke turn-down would go far beyond who his replacement is. This would be a highly visible repudiation of Obama’s economic policies (remember, he is now Obama’s nominee). If Bernanke, who has been perceived to be the safest of the major economic policy actors, gets turned down), that puts enormous pressure on Obama re Geithner and Summers.

      1. vvvviking

        I agree, Yves, a defeatist attitude is for losers. The People are making far more inroads against Fascism this year than they ever have.

        As the 2010 elections approach, the influence of the People will be stronger than ever.

      2. Doug Terpstra

        Thanks. You are right about defeatism, of course, just venting from the latest on the tar pit of Afghanistan, rolling bailouts, the healthcare farce, etc. Ultimately I am still hopeful about change, just on a different horizon. I do believe a significant breakdown is necessary to bring great change opportunity but agree we can’t quit in the meantime.

        I hope you are right also about the Paul/Grayson bill eventually surviving the Senate. That will be a major coup.

        There has been a disturbing pattern in partial victories for the people scuttled by last minute (bipartisan) machinations. This time Barney Frank’s duplicity was a shocker though he lost; Dodd was another in lying about the bonus provision and maybe that’s why he’s evincing a deathbed conversion. The taint of money in politics seems insurmountable absent some kind of earthquake, but maybe collectively we can make that happen.

      3. bob

        I agree with the sentiment, I have called my senators.

        But, this is the senate. They do not change things, their job is to keep the status quo.

        The Tarp vote last fall will and should come to the forefront next year before 2/3 of the senate is up for re-election. The problem there is that there were a good group of senators who voted against the TARP bill. The correlation between those who voted against TARP and who is up for re-election next year is almost perfect.

        These people are the professional rank of CYA artist.

        In practice the senate is bizarro word, everything in reverse. The senators who were paid the most by the banks were also the ones who were given a pass to vote against TARP, all that money spent on a senator that will be voted out is bad preservation of capital.

        In that process the banks were using the stick part of the carrot and stick approach. They were bullying all of the senators with threats of bank-rolling the competition far into the future.

        Interesting theater, and its forcing more of the lobby to show themselves, but I am really not sure it will amount to much.

        Just to be clear, of course he should go.

  8. woody

    I rather suspect that the only kind of “paradigm breakdown” you’re gonna see in 2012 is the same sort that installed the busheviks in 2000….with the same results…

  9. Bill

    I emailed my Senator on the Committee, Mark Warner, then read that he will vote for BB.

    Just like the TARP, emails and calls running 300 to 1 against it according to one Rep, then he went on to say, “But I feel confident we can pass it by the weekend” or something similar.

    I’ve made it clear to both Warner and Webb, both of VA, that they will not get my vote next time, if they continue to support these measures. Webb has already lost it; let’s see what Warner does.

    Personally, I think a satanic bargain has been struck, according to which, Wall St will make sure retail investors and 401k holders will recoup most of their savings (already done in for some people), and in return the banks will be left alone to reap wild profits in – ahem – their own ways, for as long as they like.

    Call me crazy……….

  10. EmilianoZ

    “and there’s a lot of talk coming from Wall Street that continuity is absolutely necessary to maintain investor confidence, and that BB is critical in this regard”

    They’ll never stop their blackmail. Let’s call their bluff for once.

    The purpose of regulation is restructure the system so that we can never be blackmailed again.

  11. John Emerson

    “Surprised that all the genius economists at the Fed aren’t recognizing this basic dynamic.”

    Economists wish that there were no politics and that they could make all decisions themselves without interference from ignorant citizens. They leave politics out of their models entirely because they believe that politics is really unimportant (superstructural or epiphenomenal).

    They also believe that politics can only cause harm to the economy; the perfect economy would be without politics.

    These two points of view are mutually contradictory, since if politics were superstructural it couldn’t do any harm. But it helps us understand why economists (Brad Delong!) are completely tone deaf to politics.

    Krugman seems to be a rare exception, and I don’t know why. His political writing hasn’t done him any good in the profession, even with economists who more or less agree with him. It’s like he’s moved into a whorehouse.

  12. jdmckay

    Thanks for the Brodrick (Red Hot Energy and Gold) link. From his Taleb quote:

    I am not blaming Bernanke (he doesn’t even know he doesn’t understand how things work or that the tools he uses are not empirical);

    Oh c’mon… Ben’s a doctorate in his craft, has executed a massive shift in (too much to list) tilting US (and world) econ to edge of tipping point, and he doesn’t blame Ben?

    Talk about CYA’ing one’s craft… Geezus.

    it is the Senators appointing him who are totally irresponsible —

    irresponsible and ignorant and generally, entirely corrupted. Let’s see, now biggest political contributors to W’s K-Street congress who executed this heist were: let’s see… uhmmm (scratches head), uhhh… OMFG… BANKERS & WS INVESTMENT HOUSES!!!

    Ok, so these guys (bankers) wrote their own legislation which Gramm/K-Street (literally) transcribed ver batem into law. 10 years of this shit…

    Ok, now… did big Ben hang out w/any of this crew? Did he seek their counsel? Did he stake out his independent view? No you say???

    Me thinks Taleb’s an ass hole. Just like rest of his crew, the only vision he has is through his rear view mirror, w/built in insulation from shockwaves from his own Karma.

  13. burnside

    And who might the candidates in succession be? Will we exchange the Shah for a shiny new Ayatollah?

  14. q

    the fed buying treasuries/agencies/mbs was for wall street?

    no, it was to support the housing market; ie to provide credit for people who want to buy houses and for people who want to roll over or refinance their homes. without it, that market would have collapsed further than it did.

    wall street has been divesting itself of mortgages since 2007 and is not interested in moving into that market at this point.

    paulson tried to kill off FNF — that may have been for wall street — but at this point FNF and FHA are still alive and kicking.

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