Bernanke stands up to House grilling

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By Patrice Hill

Federal Reserve Chairman Ben S. Bernanke withstood a grilling Thursday from lawmakers on the far left and far right about his handling of the banking crisis last winter, displaying a grace and authority that likely will improve his chances of being reappointed in January.

Mr. Bernanke's four-year term ends in 2010 and the capital is rife with speculation about whether President Obama, who has repeatedly voiced support for the Fed chairman, will give him another term.

The president has not showed his hand. But opponents of Mr. Bernanke's reappointment appear to be isolated and mostly from the political right. That fact probably enhances his chances with Mr. Obama, because Mr. Bernanke was appointed by President Bush and is a Republican, albeit one who has demonstrated a strong pragmatic bent that enables him to work with Democrats.

Mr. Obama has praised Mr. Bernanke's performance during the financial crisis that started in 2007. But he recently noted that the Fed's performance before the crisis -- both under Mr. Bernanke, who became chairman in 2006, and his predecessor, Alan Greenspan -- left much to be desired because they both failed to act to prevent the meltdown in the mortgage market that eventually triggered a worldwide financial collapse.

The Fed's failure to draft strong consumer protection regulations that could have blunted the crisis is a principal criticism from congressional Democrats as well, although many give Mr. Bernanke credit for moving quickly to draft stronger rules guarding consumers against the most risky subprime and exotic mortgages after congressional banking chairmen raised the issue in early 2007.

"In the past few months, the Bernanke Fed has become much more aggressive on consumer protection issues -- mortgages and credit cards -- and has received some pretty good reviews on the handling of the financial crisis," said Brian Gardner, a Washington analyst with Keefe, Bruyette & Woods Inc.who thinks Mr. Bernanke's chances of being reappointed are growing.

"Some think that Larry Summers will succeed Chairman Bernanke next year," he said, referring to the White House National Economic Council chairman who previously was President Clinton's Treasury secretary. Mr. Gardner does not expect the president to make a decision until the fall.

Worries about the Fed chairman's future surfaced on Wall Street late Wednesday after Republicans on the House Oversight and Government Reform Committee issued a memo attacking Mr. Bernanke for purportedly putting undue pressure on Bank of America in December to complete its acquisition of Merrill Lynch, and then "engaged in a cover-up" of its actions.

Stocks plummeted in late trading Wednesday as a result of the news, but then rallied strongly Thursday after several Democrats came to Mr. Bernanke's defense as he presented a strong rebuttal before the committee. The Dow Jones Industrial Average closed up 178 points.

The markets' preference for Mr. Bernanke is an important factor that weighs in his favor. President Clinton reappointed Alan Greenspan, a Republican, in 1994 in part because he already had won the confidence of financial markets. Then, as now, the economy was in the early, fragile stages of recovery from a recession and the White House did not want to risk a period of financial instability that often comes as markets adjust to a new Fed chairman.