WASHINGTON, December 2 ? Sen. Bernie Sanders (I-Vt.) today placed a hold on the nomination of Ben Bernanke for a second term as chairman of the Federal Reserve.
“The American people overwhelmingly voted last year for a change in our national priorities to put the interests of ordinary people ahead of the greed of Wall Street and the wealthy few,” Sanders said. “What the American people did not bargain for was another four years for one of the key architects of the Bush economy.”
Bernie Sanders, as he did earlier in the year with the nomination of Gary Gensler of the CFTC, is placing a hold on the re-nomination of Ben Bernanke to the chairmanship of the Fed. I wonder sometimes if Bernie is the only Senator who is actually worrying about who is running our key financial institutions.
The problem with the Fed is that almost nobody outside the financial community understands how it works, and as a result the popular outrage over its behavior is not nearly at the level it should be. The Greenspan legacy of providing a sort of permanent, built-in backstop for Wall Street by continually loosening the money supply every time the financial services sector blows itself up in this or that idiotic speculative craze is something that should make every citizen muy enojado. Now it’s even worse ? direct bailouts of companies and billions in discount window lending coupled with zero transparency, zero taxpayer access to the Fed’s books.
Bernanke doesn’t bear as much responsibility for the financial crisis as Greenspan, but his policies have certainly been in many ways a continuation of the the Greenspan era, which combined an extreme soft-touch regulatory posture (to put it mildly; it might be more accurate to say that the Fed hasn’t had a regulatory record for the last decade or so) with a Dionysan, drink-and-be-merry, fully enabling attitude toward the risk-taking crowd on Wall Street.
The Sanders release summed up Bernanke’s record:
As head of the central bank since 2006, Bernanke could have demanded that Wall Street provide adequate credit to small and medium-sized businesses to create decent-paying jobs in a productive economy, but he did not.
He could have insisted that large bailed-out banks end the usurious practice of charging interest rates of 30 percent or more on credit cards, but he did not.
He could have broken up too-big-to-fail financial institutions that took Federal Reserve assistance, but he did not.
He could have revealed which banks took more than $2 trillion in taxpayer-backed secret loans, but he did not.
Incidentally, Los Angeles congressman Brad Sherman got an excellent measure passed a few weeks back reworking section 13 (3) of the Federal Reserve Act, which until now had given the Fed basically unlimited power to directly lend money to private bodies in “unusual and exigent circumstances.” Sherman’s achievement was to get a cap placed on the amount of money the Fed can lend out under 13(3) at $4 trillion. That it took a fairly Herculean negotiation in committee to get even that high a cap passed tells you how much juice the financial services sector has on the Hill.
Earlier in the summer, Sherman had asked Bernanke if he would accept a $12 trillion cap, and Bernanke had sort of laughed off the question. Like his predecessor, who got off on stiffing inquiries by congress via opaque utterances and oracular pronouncements, Bernanke is already developing a reputation for being something of a narcissistic tool who enjoys having the world hang on his every word. Another reason to ditch him: it’s impossible to see how the Obama administration and the Democrats can have any legitimacy in claiming distance from the Bush bailout policies if Bernanke is allowed to stay.
Anyway, it’ll be interesting to see just how much opposition there will be to a second Bernanke term. I’m guessing not much, not this time. But it does seem that popular interest in what the Fed actually does is on the rise, and eventually people are going to demand a different sort of person in that seat.
That’s where all these billions in bonuses for the major banks are coming from this year. It’s almost impossible to not make mountains of money when your cost of capital is next to nothing because you’re borrowing your money from the government basically for free. Moreover we issued government guarantees for all the least responsible banks in the country – so while you and I have to keep our same old shitty credit scores, all the people who leveraged themselves to the hilt and bet the farm on subprime mortgages that we ended up bailing out now get squeaky clean, brand-new AAA credit ratings to borrow from. The cost of credit for them plummeted thanks to these guarantees, while we’re paying the same old rates to borrow our money.
This, again, is perfectly in line with the basic premise of the article. Geithner and Ben Bernanke continued a bailout policy that rewarded the very people who were most responsible for the crisis. The rest of the population did not see those same benefits. We can argue about the motives behind Obama’s bailout decision, but the numbers are not really a factual issue.
Then there’s this:
“It’s the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin’s fuck-up-rich tenure at Citi.” Actually, the U.S. structural deficit and resultant national debt is mainly a hangover from the Bush Administration, with economic remedies to the financial crisis and the recession making a relatively small piece of the pie. Obama will be rolling back most of Bush’s tax cuts for the wealthy, but Taibbi deigns not to mention that.
I have no idea what he’s talking about here. I was referring specifically to the Citigroup bailout, which was indeed a sweetheart deal and does indeed put working-stiff taxpayers on the hook to pay for Bob Rubin’s fuckups. Not generally speaking, not metaphorically speaking, but literally. Rubin encouraged Citi to leverage up to invest in subprime crap; it blew up; we’re paying for it. I’m not sure what the factual issue is here.
Lastly, there’s this bit about the “resolution authority” part of Frank’s regulatory reform bill:
“Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts.” The legislation actually only allows federal regulators to use funds taxed from banks to assist them in a crisis; if they want to use taxpayer money, Congress can say no.
The writer is correct – thanks to late intervention in committee by congressmen like Brad Sherman well after my piece went to print, Congress does now indeed have veto power over future bailouts in the House version of the bill. When we went to print, however, the measure concocted by Frank’s staff in conjunction with Geithner specifically excluded any requirement for congressional approval. In fact, as we went to press, Sherman and others were fighting just to obtain a compromise in the form of a “resolution of disapproval,” which would have given Congress the right to vote on future bailouts only after they had been implemented.
And even then, if both houses passed such a resolution, the White House could have overturned it using a Presidential veto. That was what was on the table as we went to press; ultimately Sherman and the rest overcame opposition from the more senior Democrats to restore congressional approval. But that was no thanks to the Obama White House. Undeniably, the original proposal that was drawn up by Frank’s committee in conjunction with Geithner did not include any sort of congressional oversight over future bailouts.
As for the idea that only funds taxed from banks can be used for bailouts, that is indeed how it’s supposed to work. But the original legislation had the actual money for future bailouts coming via a several stage process. First it would be borrowed directly from the Treasury (or from other agencies like the FDIC). Later, that money would be recouped through a tax imposed by the White House on financial businesses with assets larger than $10 billion.
That sounded great – except that the measure contained no specific formula for when and how to recoup that money. The tax on these financial businesses could come in any amount, large or small, in any year. It could be put off indefinitely. In other words, the money could be borrowed first from the taxpayer and then later, eventually, would be collected via some unspecified vague taxation process from large financial companies. That has been corrected to a degree in the House version since we went to print, but that was the original scheme as envisioned by Obama’s appointee Geithner.
The writer’s interpretation of “no equity in any form” is interesting and clashes directly with what I was told by two different congressmen. Sherman, for instance, said that the measure, along with the lack of oversight, meant that future bailouts would be “Warren-less and warrant-less,” meaning no oversight (i.e. no meddling of the sort demonstrated by Elizabeth Warren’s congressional oversight panel) and no warrants – “no share in the upside,” as he put it.
“The House of Representatives had proven last year to be an unreliable partner of Wall Street,” Sherman said. “That’s why these things were included.”
In journalism one always comes across issues where one set of sources interprets facts one way and another sees it a different way. This resolution authority business is a classic example. Congressmen like Sherman and Paul Kanjorski were appalled by portions of the new bailout authority sections and worked to correct them, while others I spoke to seemed less concerned and, like the Prospect writer, said that they were uncontroversial technical matters merely describing a liquidation process similar to what the FDIC does. Their disagreement over how to interpret the facts extended to actual votes in the committee, where those who were alarmed by the bailout sections voted one way and those who weren’t, for whatever, reason, voted the other way.
I felt that Sherman and the others who opposed the bailout sections and fought to change them were more believable. Among other things this was because Sherman spent almost two hours walking me through the original bill line-by-line. On balance, all the evidence to me suggested that the original bill would have given the White House basically unlimited bailout authority, and it was only late-stage opposition from junior Democrats and Republicans that curbed that authority, restored congressional oversight, more clearly defined which firms could be taxed to pay for bailouts (the original version put forward by Geithner basically had medium-sized firms paying taxes for bailouts that could only go to the 20-25 largest firms), and moreover gave the government the authority to break up the so-called too-big-to-fail firms before they reached the stage where bailouts would be necessary.
So what this writer describes as a factual error is actually a question of me throwing in with one set of sources and him throwing in with another. And that’s basically what is going on with this whole Prospect post. My sources tell me that Austan Goolsbee doesn’t have the president’s ear (“Goolsbee answers his own phone,” was how one put it), point out that Goolsbee didn’t have a job in the transition, and note that the one genuine progressive in the administration, Jared Bernstein, works in the Vice President’s office in a job they had to invent for him.
This Prospect writer interprets the same facts this way: Goolsbee “skipped” transition work to immediately start working for the PERAB (which didn’t meet until May), while Bernstein now has an important job in the Vice President’s office! I don’t mind that he disagrees with my interpretation of things, but to couch those disagreements as factual errors on my part is, frankly, a little douchey.
Again, I do absolutely admit to mixing up that biographical passage about Jamie Rubin. But the rest of these issues are not issues of fact but differences of opinion. I understand the argument that the fact that Obama happened to name a dozen or so people with ties to Bob Rubin to key posts does not indicate a conspiracy, and undoubtedly I left out a great many good things that Obama has done, even in the realm of economic policy. But it’s not my job to give equal time to both the naughty and nice lists.
It is my job to point out that many of the same people who bear direct responsibility for the financial crisis were given positions of great power in the Obama White House, and that in many important ways the Obama appointments represented a resounding reaffirmation of the status quo (I didn’t even mention the renomination of Ben Bernanke), and the exact opposite of “change.” One can argue about the extent to which this is true, but I don’t think the facts are really in question.
p.s. The Prospect writer argues that “the problems Taibbi tries to describe aren’t some ridiculous cabal” but instead “come from group-think and structural influences.” Correct me if I’m wrong, but this was exactly the point of the article. The issue with the modern Democratic party is that its leaders all share a world view that’s extremely narrow. They genuinely believe in Rubinite ideas, have grown accustomed to an incestuous relationship with Wall Street, and they probably think that the right people were put in charge. Their failure to look beyond their own “group-think” for solutions to economic problems is exactly the issue.
Update Not that he did it for my benefit, but thanks to Felix Salmon at Reuters for this post fact-checking the Prospect fact-check.