Main Street has developed a strong resentment for Wall Street. And finally, through the Senate, Main Street has a chance to stick it to the man in charge of keeping Wall Street from failing.
The reconfirmation of Federal Reserve Board Chairman Ben Bernanke, whose first four-year term expires Sunday, is in jeopardy. Though politicians might take potshots at the man who served as chairman during one of the worst economic recessions in the last few decades, it is in the country’s best interest to keep Bernanke at the helm of the Federal Reserve. His leadership is the best course to a consistent stabilization of the economy.
If at least 41 senators band together to block the confirmation vote, the country will suffer from change at the helm of the Federal Reserve, the independent government agency that is charged with maximizing employment and the value of the dollar.
Leading the charge against Bernanke has been Sen. Bernie Sanders (I-Vt), who has long criticized the chairman for ignoring warning signs of the downfall.
But while Obama entered the White House on a platform of change, there’s no reason to force a change in monetary policy. Unemployment has stabilized at about 10 percent nationally since the summer. The gross domestic product has also gone up for the second straight quarter. Economists agree that the healing process has begun. Changing the chairman could jeopardize the economy’s slow rebound.
In 2007, as lenders began to fail, Bernanke cut interest rates so borrowers could have an easier time paying back loans. A year later, he let investment bank Lehman Brothers fail because the law prevented the Fed from investing capital in a private company, especially a bank it did not have regulatory control over.
His most-criticized decision, however, was loaning more than $180 billion to insurance giant American International Group. Main Street clamored that AIG had taken terrible risks. Despite understanding this, Bernanke reasoned that AIG’s demise would have caused irreparable distress.
In the second week of October 2008, when the meltdown reached its lowest point, Bernanke cut interest rates to almost nothing. He then used emergency powers to support various loans that doubled the Fed’s expenses to $1.7 trillion.
According to TIME Magazine, the Fed’s stimulus — which was akin to printing more money — led to 3.3 million household loans, 100 million credit cards and 480,000 small-business loans. Of those, 80 percent have already been repaid.
A former professor of economics at Princeton, Bernanke’s speciality is the Great Depression. He identified the two mistakes that made the economic decline of the 1930s so severe: regulators let banks fail and also allowed money supply to decline. Come 2008, Bernanke did the opposite.
Those far removed from the Federal Reserve say Bernanke is out of touch with Main Street — but the fact is his boyhood home was foreclosed in midst of the current turmoil. He worked at a fast-food restaurant while growing up, and his family owned a pharmacy in the heart of small-town Dillon, S.C.
Nonetheless, the Obama administration must push Bernanke to support more consumer protection reforms in exchange for its support of his desire for new power to monitor “systemic risk,” as he calls it.
With Congress, Bernanke will have to continue to appease legislators’ demands for more transparency from the Fed. Already he has held more interviews and spoken more clearly than most of his predecessors, but he must be willing to accept their grievances in order to keep them from reducing the Federal Reserve’s regulatory power. He and Congress must work together to create a new set of laws that limit banks’ abilities to make poor bets and grow too large.
Bernanke mentioned an analogy in an interview with 60 Minutes that describes the situation best. A bad neighbor smoking a cigarette that sets his house on fire has made a mistake by himself. But if you don’t call the fire department, you put your house and all the other houses in the neighborhood at risk. One little spark can travel a great distance in perfect conditions. It’s best then, Bernanke argues, to put out the fire first and impose sanctions and introduce new codes and regulations later.
The fire’s out, but the smoke still hasn’t cleared in the economy. Replacing the firefighter in charge mid-operation creates great risk in maintaining safety throughout the rescue process.
When the economy is fully stable, Bernanke will raise interest rates and further stabilize banks. It may take until 2012 to get the unemployment rate back to 7 percent, but Main Street will benefit most from trusting Bernanke’s bold plan to return us to a state of economic security.
Paresh Dave is a freshman majoring in print journalism.