TOPICS > Economy

Economic Woes Raise Questions on Bernanke

January 22, 2010 at 12:00 AM EDT
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David Wessel of the Wall Street Journal explains how the Massachusetts election affected Fed Chief Ben Bernanke's chances at a second term.
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JUDY WOODRUFF: President Obama ended one of the toughest weeks he’s had in office at a town hall meeting in Elyria, Ohio.

SCOTT BROWN, R-Mass. senator-elect: Thank you very, very much.

JUDY WOODRUFF: It came three days after Tuesday’s stinging loss of a Massachusetts Senate seat, an outcome that derailed Democratic hopes of a quick final vote on health care.

Mr. Obama acknowledged today it was like hitting a little bit of a buzz saw, but he insisted he won’t give up on health care.

U.S. PRESIDENT BARACK OBAMA: I didn’t take this up to boost my poll numbers. You know, the way to boost your poll numbers is not do anything.

That’s how you do it. You don’t offend anybody.

I would have real high poll numbers. All of Washington would be saying, “What a genius!”

And I’m not going to walk away just because it’s hard. We are going to keep on working to get this done — with Democrats, I hope with Republicans — anybody who’s willing to step up.

JUDY WOODRUFF: The president also brought a new populist edge to his message on jobs and the economy in a state where unemployment is near 11 percent.

BARACK OBAMA: So long as I have the privilege of serving as your President, I will not stop fighting for you. I will take my lumps, but I won’t stop fighting to bring back jobs here.

I won’t stop fighting for an economy where hard work is rewarded. I won’t stop fighting to make sure there’s accountability in our financial system.

JUDY WOODRUFF: That focus on the financial system was on display Thursday, when the president announced new proposals to curb the size of the biggest banks and limit their risk-taking.

BARACK OBAMA: We have come through a terrible crisis. The American people have paid a very high price. We simply cannot return to business as usual.

JUDY WOODRUFF: The president and his top aides deny they are simply responding to election results.

This was Treasury Secretary Tim Geithner on the “NewsHour” last night.

TIMOTHY GEITHNER: That’s not what’s behind this. I have read that, I have heard that, but the president asked us to work on this going back several weeks. We provided these recommendations to him two weeks ago.

JUDY WOODRUFF: Still, there was further evidence today of how quickly the political landscape in Washington has shifted. This time, it involved growing opposition to confirming Ben Bernanke to chair the Federal Reserve Board for a second term. His current term expires at the end of this month.

Two Senate Democrats, Russ Feingold of Wisconsin and Barbara Boxer of California, announced they will oppose Bernanke. They criticized the Fed’s handling of the financial bailouts. That left the White House to issue a statement, saying the president still has a great deal of confidence in Bernanke and believes he will be confirmed.

But Wall Street sold off again today, amid the uncertainty both about Bernanke and the president’s plan to go after big banks. The Dow Jones industrial average fell nearly 217 points to close below 10,173, the lowest since last November. The Nasdaq index was down 60 to finish at 2,205.

And for more about the Bernanke story and how it connects to the economic and political fallout from this week, we’re joined by David Wessel, economics editor for The Wall Street Journal.

David, good to see you again.

Let’s start with the market drop. Do you have a sense, an understanding of how much of that is due to the concern that Bernanke might not be reconfirmed or how much is due to the president’s bank proposal?

DAVID WESSEL: Well, you know, it’s very hard to figure out what the market does and why it does it, but I do think that there is a realization in the markets that the attitude in Washington has turned distinctly populist, and that’s not good for banks and businesses.

So, it’s kind of a double-whammy. First, the president comes and takes a shot at the banks and their stocks fall. And, then, today, the markets realize that — they thought Bernanke might have a hard time getting through, but he would get through. And that suddenly seemed in doubt. So, I think they are reflecting the same uneasiness that, post-Massachusetts, the legislative climate is not going to be very friendly to big business and Wall Street.

JUDY WOODRUFF: And are they seeing a contradiction; on the one hand, the president is talking more populist; on the other hand, he is backing Ben Bernanke?

DAVID WESSEL: Yes, that’s a good point, but I don’t think that that has sunk in yet. I think that populism is clear in the way the members of Congress are being — are acting. And that’s putting pressure on the president.

And the markets, like everybody else, realize that the president is going to have to kind of shift in his positions a little if he is going to survive and be a successful president. And they are afraid it is going to be a shift away from pro-business, pro-Wall Street kind of policies.

JUDY WOODRUFF: Well, how much trouble do you think Bernanke is in?

DAVID WESSEL: That’s a great question, Judy. You know, 24 hours ago, I would have told you that he would be bloodied and get through.

But today was a day marked by extraordinary uncertainty, and people giving odds 50/50 that he would get through or not. At The Wall Street Journal, we did a tally. We found that 25 senators are declared for him, 16 against. But, of course, that leaves 59 who haven’t said anything.

My guess is that the market reaction will push Congress towards giving him the votes they need and confirming him before January 31. But this has been such an extraordinary week that one trusts one’s own judgment less and less.

JUDY WOODRUFF: And one of those interesting developments was yesterday. The Senate Majority Leader Harry Reid was saying he didn’t know whether he would support Bernanke. And I guess, today, he put out a statement saying yes, that he would, but he would be watching him.

DAVID WESSEL: Right, exactly. So, I think that was one of the things that shook people up. If the Senate majority leader won’t back the president’s nominee for the Federal Reserve, a man who is facing a tough reelection fight in a state that has been devastated by the housing bust, would that mean that — wouldn’t have the 60 votes they need to get him through?

There was a lot of pressure on Harry Reid from the White House. And, at the end of the day today, he did put out a statement, but he made clear it was — his support wasn’t, as he put it, unconditional, that he was still holding Mr. Bernanke responsible for not only transparency and accountability at the Fed, but for the well-being of the people of his state.

JUDY WOODRUFF: You know a lot about Ben Bernanke. You have followed him. You have written a book about him. How do you explain this uneasiness over him, and really much of it all of a sudden? How much of it is due to this — the results Tuesday in Massachusetts?

DAVID WESSEL: I think that Ben Bernanke has become a lightning rod for the public anger that Wall Street got bailed out and Main Street didn’t.

He was, like Tim Geithner, the treasury secretary, one of the people at the scene of the crime. And, in my view, he did a lot that saved us from a second Great Depression. But, right now, people are seeing 10 percent unemployment and big profits on Wall Street, and they’re angry about that, and he is a very convenient target.

And the Fed has often been a target through our history for people’s anger about money and stuff like that. And, so, people are remembering the bailout and they are angry about that. And they are not convinced that, as Mr. Bernanke has said, it could have been worse had he not done what he did.

JUDY WOODRUFF: Now, the opposition from Democrats, David, is based — is for different reasons from the opposition from Republicans, right?

DAVID WESSEL: Well, I think it’s basically motivated by similar public pressure, that people are angry about the bailout and angry about the economy.

They may differ in their — in the tone. The Democrats think he should do more to help housing and maybe do different things on consumer regulation. The Republicans say he was — he’s not doing enough to rein in the banks and he has created a situation where we may be setting up the seeds of the next crisis.

But all sides are holding him responsible both for his role at the Fed in the days leading up to the crisis and the years leading up to the crisis, and because they’re not happy with the fact that the bailout is so unpopular with their constituents.

You know, Senator Boxer, Senator Reid, Senator Feingold, all of whom have come out today, are all senators who are facing reelection, so they are very sensitive to the public mood.

JUDY WOODRUFF: What would happen if he were not reconfirmed?

DAVID WESSEL: If the Senate does nothing, if they don’t have a vote, Mr. Bernanke can stay on the Federal Reserve Board. We expect that he would give up the job of chairman and turn that over to the vice chairman, Donald Kohn, and policy at the Fed probably wouldn’t change.

But it would be quite unnerving to the markets. Of course, if the Senate rejected him, refused to vote him, then I presume he would leave the post, even though he could stay as a governor, and the president would have to find somebody else.

JUDY WOODRUFF: Well, are there other names of potential successors floating around?

DAVID WESSEL: The White House tells us that they are not into hypotheticals, that they are still counting on him getting through.

But we know that, a few months ago, when they were trying to decide whether to reappoint Mr. Bernanke to a second four-year term, there were names floating around, Janet Yellen, a former Clinton adviser, a former Fed governor, who is now the president of the San Francisco Federal Reserve Bank, Roger Ferguson, the head of TIAA-CREF, who used to be at the Fed.

And, of course, Larry Summers, the president’s economic adviser, would, I’m sure, love to have the job, if the president needed somebody and thought that Larry Summers could get through the Senate.

JUDY WOODRUFF: So, David, is this truly up in the air?

DAVID WESSEL: I do think it’s up in the air. I think the odds still favor that Mr. Bernanke gets through. But there’s more uncertainty about that tonight than there was 24 hours ago. And that’s kind of unsettling.

JUDY WOODRUFF: David Wessel, Wall Street Journal, thanks.

DAVID WESSEL: You’re welcome.