If we know a man by the enemies he keeps, then who is Ben Bernanke? His foes range across the political spectrum from left to right, and during his confirmation hearings today, few senators offered anything more than a lukewarm endorsement.
Vermont Independent Bernie Sanders has announced he will put a hold on Bernanke's nomination to a second term as chairman of the Federal Reserve, forcing Democratic leaders to round up 60 votes to ensure confirmation. Both Chris Dodd, the Democratic chairman of the Senate Banking Committee, and Richard Shelby, the ranking Republican, offered up laundry lists of criticism and complaints about his tenure. He will probably end up getting confirmed anyway, but he's unlikely to emerge from the Senate hearing room unscarred.
No one managed a more devastating critique than Jim Bunning, R-Ky., who stared Bernanke in the eye and said, "In short, you are the definition of a moral hazard." Ben Bernanke's tenure as Fed chairman, in other words, is a guaranteed get-out-of-jail-free card for reckless financial institutions, no matter how apocalyptic their mistakes.
Fans of Jim Bunning and Bernie Sanders do not often find common ground. Bunning is fond of labeling anything he doesn't like as "socialist." Bernie Sanders is the closest thing the U.S. Senate has to an actual living breathing socialist. The moral of this story is that there is a definite hazard to being the Federal Reserve chairman during a great economic disaster. No matter what happens, some of the blame will stick to you.
And some of it is no doubt deserved. As the inheritor of the Alan Greenspan legacy, Ben Bernanke continued his predecessor's policies, made no moves to clamp down on an out-of-control mortgage lending sector, underestimated the dangers posed to the overall economy by the subprime implosion, and was an integral player in the age of the great Wall Street bailout.
On the flip side, the vast majority of economists believe that once the enormity of the crisis became inescapably manifest, Bernanke moved forcefully and innovatively to flood the financial system with liquidity by any means necessary, and helped prevent, for now, a second Great Depression. That's kind of a big deal. Bernanke's faults and flaws notwithstanding, it is entirely possible that the world is very, very lucky that one of the most acclaimed academic specialists in understanding the first Great Depression was in a position to do something meaningful when all hell broke loose.
But of course no one can prove that Ben Bernanke saved us from the Great Depression. For better or worse, we live in the now, and the now includes 10 percent unemployment while bankers return to their pre-crash plutocrat status quo. People are angry, and politicians are expert at channeling that anger.
All the Senate grandstanding would carry considerably more resonance, however, if the Senate could find the guts to follow through on all of its tough talk and pass financial reform legislation with teeth. Instead of picking on Ben Bernanke, how about some action on regulating derivatives, breaking up too-big-to-fail institutions, and strengthening the power and efficacy of existing regulatory bodies? While the House passes bills, the Senate specializes in squelching or eviscerating them.
Ben Bernanke might be the definition of moral hazard, but the Senate is the definition of government failure.