Affordable Housing Institute : US

As we predicted – reading the tea leaves wasn’t hard at all – my classmate Ben Bernanke has been renominated as Federal Reserve chairman, and will be reconfirmed sometime this fall, and for the reason we predicted, as made clear in this pair of Wall Street Journal articles:

File under ‘unflappable’

Obama Sticks With ‘Bold, Persistent’ Chief, but Next Term Could Be Tense if Rates Rise

By JON HILSENRATH, ELIZABETH WILLIAMSON and JONATHAN WEISMAN

President Barack Obama, standing in a sweaty elementary-school gym on Martha’s Vineyard, nominated Ben Bernanke for a second term as Federal Reserve chairman, the culmination of several weeks of carefully orchestrated and closely guarded discussions among the president and a handful of top advisers.

That’s curious phrasing. ‘Closely guarded’ one can understand, but ‘carefully orchestrated’?

“Thanks for bringing the tie, Ben, but it wasn’t necessary.”

Mr. Obama is the President. He can nominate anybody he wants. For whom or with whom needed he to orchestrate carefully?

“Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic free fall,” Mr. Obama said, with the Fed chairman standing at his side.

First clue: Mr. Obama wants to reassure us, so he offers us a reassuring figure of continuity. As I put it two months ago, when I posted about this:

Reading the Times article, I found three reasons, each in its way compelling, that clearly signal Mr. Summers will not be the next Fed Chairman. (Yes, another AHI exclusive!)

1. The market likes the incumbent, Ben Bernanke

Although I never posted directly on the subject, I thought Ben Bernanke an excellent choice to succeed Alan Greenspan, the more so as he’s one of the nation’s leading experts on the Great Depression.

And besides, I inspire a soothing confidence

But Mr. Bernanke’s aggressive response to the crisis has so improved his reputation that people close to Mr. Obama increasingly suggest the president could well reappoint him in the interests of financial stability —

The markets are skittish enough as it is, particularly with the Administration’s economic recovery projections proving to have been very optimistic and support for the recently-enacted stimulus legislation dropping rapidly.

A graphic that scares the bananas out of me

You don’t change horses in mid-stream remains a political adage, especially when Mr. Bernanke has been the voice of fiscal restraint.

[Snip]

2. Mr. Summers is perceived as erratic and uncontrollable

Who says I’m uncontrollable?

3. Somebody in the White house doesn’t like him

Somebody doesn’t want Mr. Summers to be Fed Chairman. Maybe that somebody is the President.

Gotta watch my back at all times

We have to remember that Mr. Summers was picked by President-Elect Obama within only a few weeks after his election victory, long before the economy became the sole political preoccupation; before stimulus bill; before the mounting deficits; before the long tough summer the economy is experiencing.

[Said Mr. Obama of Mr. Bernanke]: His “bold, persistent experimentation has brought our economy back from the brink.”

Mr. Bernanke’s willingness to print billions in new money had something to do with it.

The brains behind the supply of bucks

In the two years since the onset of the global financial crisis, Mr. Bernanke’s Fed has cut short-term interest rates nearly to zero, has initiated a slew of ways to bypass banks to keep credit flowing in the economy, and is on course to purchase up to $1.25 trillion in mortgage-backed securities and $300 billion in long-term U.S. Treasurys.

As I’ve posted at length before, I believe that the Paulson-Bernanke-Geithner triumvirate’s aggressive actions in spring 2008, banking on value, basically staved off the Second Great Depression. It was a coup over three days, a coup both in the sense of masterstroke and that of power grasp, and it was essential, because the world was watching Washington.

Megalomaniac? Me?

Ever since then, Mr. Bernanke’s been managing against depression, and he’s been a money-supply expander.

When will he reverse?

“Now Ben, I’m showing you this courtesy, you’ll remember it, won’t you?”

If the economy recovers as anticipated, Mr. Bernanke is expected to move – probably not until next year – to raise interest rates and tighten credit to avoid inflation. History suggests that moment will arrive sooner than many elected politicians and White House advisers prefer.

Like Supreme Court justices, the Fed chairman is independent once appointed, but must be appointed. Unlike Supreme Court justices, Fed chairs serve for a fixed term (four years) that often straddles a change in presidency.

Moreover, with another four-year term in hand, he may feel he has a freer hand to take actions the White House and Congress don’t support.

Of course he will. In fact, I – and probably most of the financial markets – am counting on it.

You think I’m expanding … maybe I’m contracting

Inside the White House, Messrs. Obama, Geithner and Emanuel began weighing the reappointment decision early in the summer.

When there came that curious leak about which I posted, with its incredibly obvious Kremlinology.

Who’s smiling and who’s scowling?

Looks like a Presidium, doesn’t it?

Happy smiling Soviets

Catch the iconography? Everyone the Times showed was friendly … except Mr. Summers, whose scowl is set at the end of the line.

About three weeks ago, Mr. Obama and his advisers reached a consensus that Mr. Bernanke should stay.

Actually, I think the consensus was reached back in May, if not earlier, and the only question was, how do we manage Larry?

Who says I need managing?

Mr. Bernanke may have helped his case for reappointment by launching an unusually high-profile public-relations campaign, ostensibly to explain and defend the Fed to the American public. He appeared on television’s “60 Minutes” in March and at a town-hall meeting on public television in July.

Until he became Fed chair, Mr. Bernanke shunned the limelight. I cannot believe he did this without hearing in some way or another that the White House thought it might be helpful.

Plotting a slow exit from these programs is among Mr. Bernanke’s top priorities now. If he moves too soon, it could stall a nascent recovery –

And his hopes for confirmation.

I can trust you on this, can’t I, Ben?

– if he moves too late, he could spur inflation.

Economists believe the Fed will start to increase short-term interest rates by the middle of next year.

Now enter the politics. Next summer will be mid-year elections cycle, not a good time for the party in power to be presiding over an economic downturn.

Will Mr. Bernanke be as popular with his nominator when he starts reeling in the money?

Once I’m reconfirmed, I won’t have to pray for approval

Another priority of Mr. Bernanke is to keep the pressure on Congress to adopt changes to the financial-regulatory system to fix flaws revealed by the economic turmoil.

Absolutely necessary, but maybe the problem isn’t Congress, but turf-conscious administrators?

“Consideration of Chairman Bernanke’s nomination to serve a second term raises several important issues,” Sen. Richard Shelby of Alabama, senior Republican on the Senate Banking Committee, said on Tuesday. “The Banking Committee should carefully examine the impact of the Fed’s failures as a bank regulator, how such failures contributed to the financial crisis, and whether Chairman Bernanke’s performance as the chief regulator merits his reconfirmation.”

True enough, Senator Shelby, but who would you nominate instead?

“Oh, I know he’s the best I could possibly get, but I have to growl, don’t I?”

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