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| Bernanke jumps out of political fray |
| Bloomberg / Washington Oct 02, 2008, 00:41 IST |
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Ben S Bernanke jumped into the political fray this week when he urged quick action from Congress to deal with “grave threats” to the financial system. Now he's trying to jump back out.
The Federal Reserve chairman hasn't returned to Capitol Hill after two days of congressional testimony earlier this week. He has made it clear to Treasury officials and lawmakers that he isn't taking part in negotiating details of a $700 billion proposal to rescue the financial system even as the plan runs into a political buzzsaw.
By letting Treasury Secretary Henry Paulson be the point man with Congress, Bernanke may be trying to restore the Fed's position as a neutral party in Washington and preserve the central bank's independence. That's after he put both on the line by endorsing Paulson's plan and using the Fed's balance sheet to rescue creditors of Bear Stearns Cos. and American International Group Inc
“There wasn't any alternative,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. “The Fed and the Treasury had to get together. There could be no divisions.”
Now, Gramley says, Bernanke is “just trying to maintain his neutral stance politically.”
While Bernanke has retreated from the limelight, he is talking to Paulson as many as a dozen times a day and taking calls from members of Congress.
Sticking to Principles: In his conversations with lawmakers, he is avoiding discussion of specific provisions of the Paulson plan and sticking to three principles: the plan has to be enticing enough to attract a large number of banks, it must protect taxpayers and it can't deliver windfalls to executives or institutions.
“I'm not empowered to negotiate for the Treasury,” he told lawmakers at a Sept 24 hearing.
Two days ago, Senate Majority Leader Harry Reid said Paulson and Bernanke were invited to discussions with lawmakers after talks broke down, causing some news organisations to report that both were headed over. In fact, only Paulson went to Capitol Hill.
Bernanke's stance is winning praise from both Democrats and Republicans, even though the plan he supports has drawn little but opposition from lawmakers' constituents.
“Bernanke's been a total straight shooter on this,” Senator Sherrod Brown, an Ohio Democrat who sits on the Banking Committee, said in an interview at the Capitol. “People trust him. He doesn't have the Wall Street bias that Paulson has. And he doesn't have the Bush administration coloring, if you will, that others have.”
‘Stabilising Force’: Senator Bob Corker, a Tennessee Republican on the Banking Committee, said the Fed chairman has been “a very stabilising force.”
“He's playing, I think, an appropriate role,” Corker said in an interview. “He’s there on the other end of the phone in about five minutes.”
When the 54-year-old Fed chairman took office in 2006, he said he wouldn't get involved in such things as federal budget issues, breaking with his predecessor, Alan Greenspan. One of the responsibilities of the chairman is “preserving the independence and non-partisan status” of the Fed, Bernanke told the Banking Committee at the time.
“Bernanke, from the day he took office, decided that he wanted to stay out of issues that didn't involve monetary policy,” said Gramley.
Bernanke Review: Even so, Bernanke is likely to review whatever final plan is presented to the White House, in part because the Fed Board regulates the holding companies of banks.
Bernanke and Paulson have worked closely together, having breakfast several times a month, including yesterday, since Paulson, the former Goldman Sachs Group Inc chairman, joined the Bush administration in 2006.
Treasury signed off on the Fed's decision in March to lend $29 billion to secure Bear Stearns' sale to JPMorgan Chase & Co and last week's $85 billion loan to AIG, which exposed taxpayers to risk. Those moves, along with the Fed and Treasury's decision to let Lehman Brothers Holdings Inc file for bankruptcy, put the central bank in the position of picking winners and losers.
Asked if Bernanke should take a bigger role in the bailout talks, Reid said the Fed chief “has been very helpful.”
Given Bernanke's background as a Great Depression scholar, the former Princeton University economist “comes with a portfolio that is meaningful to these discussions,” Reid told reporters in Washington yesterday. “He's always been available whenever he's been asked to come.”
At the same time, Bernanke and Paulson are getting political lessons of their own, given the backlash over a plan that Americans see as aiding Wall Street and not Main Street.
“There's been some degree of amazement from the White House — and certainly Secretary Paulson and Chairman Bernanke — that people who run for elective office have constituencies that they have to take care of,” Reid said.
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