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Bye-Bye Bernanke: Let's Get Bush's Banker Out of the Federal Reserve

Bernanke's defeat would be a repudiation of President Obama's close alliance with Wall Street -- but it would be extremely salutary for him and for the public.

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Kucinich: "So it's the Federal Reserve that decides when to exit the TARP and the Federal Reserve does it at their choosing, or who chooses? How do we know who makes the choice whether to exit the TARP? How do we know if it's the banks that are deciding or the Federal Reserve? Do you know?"

Allison: "The regulators decide, Mr. Chairman, on when it's appropriate for a bank to repay the Treasury."

Kucinich: "Is that a transparent process, Mr. Allison, or is that pretty much done over at the Fed without any report to you?"

Allison: "That's a matter for the regulator, that's --"

Kucinich: "Well, they're the regulator, but we're the shareholder. When do we find out? When do you find out? Do you find out when you read about it in the newspaper?"

Allison: "When the regulator informs us...

This claim is complete malarkey. Treasury, since the program began, has been the prime agency supervising the distribution of the TARP money. And the negotiations over when the banks are strong enough to quit the TARP program (and escape its limits on executive pay) have been with the Treasury. But the ease with which Treasury officials have hidden behind the non-transparent Federal Reserve is a prime example of why the Fed needs both a complete overhaul and new leadership.

In October 2008, when Republican Treasury Secretary Hank Paulson's TARP legislation was railroaded through Congress, it was Republicans more than Democrats who nearly killed it, and the Democrats who saved it. Now, many Democrats are having second thoughts. In this climate, Republicans are playing the preposterous role of the more populist of the two parties. And, as the fight over a badly flawed health bill shows, Obama's policies are making their jobs easier.

With a majority of Republican senators apparently ready to vote against Bernanke, Democratic senators risk finding themselves on the wrong side of another populist backlash. If half of the Democrats decide to vote against him, his nomination could go down.

I have argued in this space, along with such good progressive friends as Peter Dreier, that Democratic legislators ought to hold their noses and vote for a badly flawed health bill. To kill the bill would hand a huge victory to the Republican right.

But the Bernanke re-nomination is another story. It is not a signature, make-or-break initiative of the administration. Bernanke's defeat would be a repudiation of President Obama's close alliance with Wall Street -- but it would be extremely salutary for him and for us. It might even get the president's attention for the proposition that his presidency and America's economic future depend on an entirely different strategy of economic recovery. Bernanke is not just the symbol of everything that's wrong with Wall Street's dominance of economic policy, but the substance.

Robert Kuttner is co-editor of The American Prospect.

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