How ironic that President Obama’s jobs summit should be scheduled on the same date (Thursday, December 3) that the Senate Banking Committee has scheduled the reconfirmation hearing of Federal Reserve Chairman, Ben Bernanke.
Bernanke’s lapses include missing the $8 trillion housing bubble, failing to see how growing unsecured loans could jeopardize financial markets, and not understanding how the incentives of regulators and credit-rating agencies made them less — not more — likely to blow the whistle. Dean Baker of CEPR wants Bernanke fired.
If Bernanke isn’t fired for those lapses, he should at least be asked some hard questions in the hearing. Fortunately, some have been provided for us by a cunning realist in New York City.
• What was the relation between the Fed’s loose monetary policy, the run-up in housing prices, and the collapse?
• Does the Fed’s guarantee that some firms are too big to fail create a moral hazard of excessive risk taking? How does this relate to the current round of giant bonuses?
• What did you know and when did you know it? Why does the Fed demand a five year waiting period before releasing its meeting transcripts? The TARP Inspector General of the New York Federal Reserve recently disclosed that AIG’s failure to meet obligations on credit-default swaps did not pose a systemic risk. You say it did. Clarify. What was your role in deciding to pay full price for the defaulting assets?
Meanwhile, the Audit the Fed movement is asking a more urgent and personal question: What did you do with my money?! During the current economic crisis, Congress, the Treasury, and the Federal Reserve have put us on the hook for over $12 trillion in bailouts and loans. That’s the same size as our entire national debt. But Bernanke refuses to disclose which institutions have received this money, on what conditions or why.
Behind the financial crisis lies a real world of jobs. This isn't a distraction; it's part of Bernanke's mandate. The statute that creates the Federal Reserve says:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
How’s our employment doing? Anywhere close to “maximum”?
The Federal Reserve’s responsibility is usually described as fighting inflation. True enough, but that’s not all. The statute says it’s supposed to help create jobs. That means aid to banks should be conditioned to revive the real economy — supporting business that create jobs, not supporting a self-perpetuating bail-out club.
On the day of the President’s Jobs Summit, maybe someone can ask the Chair of the Federal Reserve about jobs.