Federal Reserve Chairman Ben S. Bernanke’s confirmation to a second term is in jeopardy due to growing opposition from Senate Democrats, who have been battered by public anger about the economy and the surprising loss of a Massachusetts Senate seat to the GOP this week.
At least four Senate Democrats have said they will oppose President Obama’s decision to renominate the Fed chairman. Critics of Bernanke, who was named to his first term by former President George W. Bush, are pressing the case that he was an architect of policies that helped drag the U.S. into a period of recession and high unemployment. His term expires Jan. 31.
“It is time for a change,” Sen. Barbara Boxer (D-Calif.) said Friday, hours after Sen. Russell D. Feingold (D-Wis.) announced his opposition to Bernanke. “It is time for Main Street to have a champion at the Fed. . . . Our next Federal Reserve chairman must represent a clean break from the failed policies of the past.”
Bernanke received an important boost late Friday, when Senate Majority Leader Harry Reid (D-Nev.) endorsed his renomination. But several other Democrats remained noncommittal. Strictly speaking, Bernanke needs only 51 votes to be confirmed, but will likely require 60 votes to overcome a procedural hurdle.
Amid uncertainty about Bernanke’s fate, the Dow Jones Industrial Average dropped 217 points, or 2.1%, on Friday, after falling a day earlier on Obama’s announcement that he would pursue strict new banking regulations.
The White House still predicts that Bernanke will be confirmed. But the rebellion in party ranks underscores how deeply Democrats feel that they need to do more to convince voters that they will fight for them against powerful institutions.
Other signs of Democratic efforts to speak to the public’s economic anxieties include new opposition by some lawmakers to the Troubled Asset Relief Program (TARP), the $700-billion bank-bailout fund. When Senate Republicans this week introduced an amendment to abolish the fund, 13 Democrats voted with them.
The Senate must approve an increase in the federal debt ceiling, but Democratic leaders are having trouble rounding up enough votes in the face of voter anger about federal spending.
At the White House, Obama has proposed slapping new taxes and rules on big financial institutions. When he traveled to Ohio on Friday, he launched a sharp new broadside against big banks.
“I just want to have some rules in place so when these guys make dumb decisions you don’t end up having to foot the bill,” Obama said at an event in Elyria, Ohio. “I don’t mind having that fight.”
Some Democrats are worried that their party will overreact to the Massachusetts defeat. Sen. Evan Bayh (D-Ind.), who supports Bernanke, said that a Senate vote blocking his confirmation would rattle markets and destabilize the economy at a time when consumers need reassurance.
“When I saw a few coming in with pitchforks and torches, I thought we might have a problem,” Bayh said, joking about the mood of a party caucus where they were plotting postelection strategy. “We ought not to scapegoat Ben Bernanke.”
Chris Krueger, a political strategist with Concept Capital, an institutional brokerage firm with a Washington-based research team, said in a research note Friday that there was a 55% chance Bernanke would not be reconfirmed.
“Bernanke is really looking like he’s going to be the fall guy for Massachusetts, which is incredibly unfortunate and unwarranted,” Krueger said.
Asked about the Bernanke nomination Friday, White House Deputy Press Secretary Bill Burton said that Obama had “a great deal of confidence in what Chairman Bernanke did to bring our economy back from the brink.”
Obama “continues to think he is the best person for the job and will be confirmed by the United States Senate,” Burton said.
Bernanke has met with at least 40 senators, as well as many members of the House, over the last year to counter criticisms of the Fed’s performance before the recession and in the financial bailout. And the professorial chairman also has taken his case directly to the public, defending the central bank and his record in a nationally televised interview and at a town-hall-style forum.
Bernanke has broad support on Wall Street, as well as among academic economists. What many investors fear most is the uncertainty that would be created by a withdrawal or rejection of Bernanke’s nomination. In a week of chaos in Washington politics and Obama’s proposed new restrictions on banks, word of Bernanke’s dwindling support appeared to weigh on the markets Friday.
“This is just adding one more brick in the wall of uncertainty,” said Chris Rupkey, financial economist at Bank of Tokyo-Mitsubishi in New York. Although Rupkey expects Bernanke to be confirmed, he said that the Obama administration “seems to be losing confidence of investors.”
Rupkey added: “If you punish Wall Street and that hurts the stock market, that comes right back and hurts Main Street.”
Before Boxer and Feingold’s announcements, Bernanke already faced opposition from Sens. Jeff Merkley (D-Ore.) and Bernie Sanders (I-Vt.). Still others said they needed more information before committing to support him. Sen. Byron L. Dorgan (D-N.D.) said that he would vote against Bernanke’s nomination unless the Fed provided additional information about loans the central bank made to major investment banks starting in early 2008. Boxer and Feingold face reelection this year, as do Reid and Bayh.
According to a Merkley aide, at least half a dozen other Democrats have serious reservations about voting for Bernanke. Sanders said Friday that momentum was building against the nomination largely because of the Massachusetts Senate race.
“The election in Massachusetts I think is a driving force behind many people saying we need to change direction in our economic policies and at the Fed,” Sanders said. “What Massachusetts I think showed . . . is the American people are furious.”
Republican support for Bernanke is also in question. When the Senate Banking Committee voted on his nomination, only four of the 10 Republicans supported the Fed chairman.
Another wild card is concern about the Fed’s role in the controversial bailout of insurance giant American International Group. Many lawmakers have been upset that firms such as Goldman Sachs received billions of dollars that they were owed by AIG after the bailout rather than being forced to take less money. A House committee and the special inspector general for the Troubled Asset Relief Program are looking into the AIG bailout.
This month, the House Oversight and Government Reform Committee released e-mails between the general counsel of the Federal Reserve Bank of New York and AIG in which the company was asked to withhold details about the payments to banks from regulatory filings during the financial crisis in the fall of 2008.
Lawmakers have been frustrated by the difficulty in obtaining information from the Fed. This week, Bernanke said that he welcomed an audit of the AIG bailout by the Government Accountability Office and offered to “make available to the GAO all records and personnel necessary to conduct this review.” The move was seen as an attempt to satisfy critics of the bailout and the Fed’s transparency.
“The chairman of the Fed said he supports transparency,” Dorgan said on the Senate floor Thursday. “If that is the case, show us a little transparency.”
Don Lee in the Washington bureau contributed to this report.