As Prepared for Delivery
Capitol Visitor Center, Washington, D.C.
We are one of 17 groups, drawn from across the political spectrum, that have urged the Senate Finance Committee to investigate Ben Bernanke before they vote on his nomination. A copy of our letter submitted to Chairman Chris Dodd is available on our web site, at ourfuture.org. The House of Representatives has now passed legislation requiring an audit of the Federal Reserve. Ben Bernanke opposes that audit. We urge the Senate Committee to put off voting on Bernanke’s nomination until that audit is done.
Click here to watch C-Span video of the news conference featuring Robert Borosage; Sen. Bernie Sanders, I-Vt.; and William Black, associate professor of Economics and Law at the University of Missouri–Kansas City.
Demanding an investigation of the Fed and a probe of Bernanke’s views is simple common sense.
Bernanke was head of the Federal Reserve when it contributed directly to the worst financial calamity since the Great Depression. And he got it wrong. He failed to recognize an $8 trillion housing bubble. He failed to use the Fed’s extensive regulatory powers to curb speculation. He opposed regulation of derivatives, arguing that credit default swaps and the like were only used by sophisticated investors who knew the risks. When the housing bubble burst, he failed to understand its seriousness. He was wrong about the strength of the banks, wrong about the effects of the crisis and slow to see the economy was imploding.
The Federal Reserve is mandated to preserve maximum employment and price stability. We have just experienced the biggest spike in unemployment since World War II. The Federal Reserve, and Bernanke, contributed directly to that calamity.
Alan Greenspan, former head of the Federal Reserve, went to the Congress to admit that his world view was wrong. It is vital that the Senate probe Ben Bernanke. Why was he so wrong? What in his world view was mistaken? What has he learned from those mistakes? This is not “Monday morning quarterbacking” as some would call it. It is utterly essential if the Senate is to have any sense of whether to trust Bernanke with leadership of the Federal Reserve going forward.
Once the banking system was in free fall, Bernanke acted boldly and in conjunction with Treasury Secretaries Hank Paulson and Tim Geithner. He transferred hundreds of billions of dollars to private banks, brokerages and insurance companies in exchange for dubious collateral. He transferred hundreds of billions to foreign banks and foreign central banks.
This may have been heroic, as Time Magazine suggests in naming him “Man of the Year,” which is something like celebrating an arsonist for his heroism in putting out the fire that he helped to start.
But whether heroic or not, Bernanke’s actions in response to the calamity were not normal monetary policy. The Federal Reserve has literally picked winners and losers, among industries and among companies. Why? What were its criteria? What were the conditions? What was the price of the collateral?
None of this is known. Bernanke says that to audit his actions would constitute a “takeover of monetary policy.” With all due respect, this is disingenuous, if not dishonest.
The emergency measures that hurled hundreds of billions to private financial institutions are a far remove from determining what interest rates are. These measures may have been necessary, but they cannot be secret. They particularly can’t be secret when a large portion of the Fed’s expertise in this area resides in the NY Federal Reserve Bank which is dominated by Wall Street bankers. As former Fed Chair Paul Volker says, to intervene in particularly sectors of the market is not the proper role of the central bank. “It could only be justified in extreme emergency.” The calamity may have justified action; but it cannot justify keeping that action secret.
Whether Senators celebrate Bernanke’s performance as head of the Federal Reserve or not, it is simply inconceivable in a constitutional Republic that a central bank could, without a vote of Congress, decide to commit trillions of dollars to private financial institutions and block any independent audit of its measures. Congress has, in the words of Martin Mayer, not merely the right, but the obligation to audit the Federal Reserve. And it is simply irresponsible to vote on his nomination with investigating what he did with the emergency powers that he asserted.