The Obama administration insists that Federal Reserve Chairman Ben S. Bernanke must be reconfirmed for a second term or financial markets will panic. Other defenders, such as Sen. John Kerry, Massachusetts Democrat, claim that critics are scapegoating Mr. Bernanke for economic problems because they don't know whom else to blame. Both shots are off the mark. The Federal Reserve is a very powerful agency, and the truth of the matter is that Mr. Bernanke has abused that power. The Fed chairman should not be reconfirmed for another term.
The canard that the world is about to end is getting old. Such fear-mongering has been used to justify huge bailouts and increases in government spending. These purported fixes have produced higher unemployment and higher national debt. Decisions made in panic don't work out well, as Americans are learning the hard way.
Mr. Bernanke's reconfirmation is not vital for markets to function. If the Obama administration were serious about market stability, it would see many simple solutions: Stop threatening regulations that restrict bank size, that limit a bank's ability to diversify risks and that raise taxes on banks even more. Stop demonizing banks. Stop increasing the national debt to a point where soon it will become unsustainable. Even liberal New York Mayor Michael Bloomberg warns that limiting the size of banks will hurt their competitiveness in the global economy. Neither Mr. Bernanke nor any other Federal Reserve chairman can paper over these problems, which were caused by Obama administration policies Mr. Bernanke supported.
Mr. Bernanke has abused his power in breathtaking ways. When Merrill Lynch ran into financial problems during the fall of 2008, Mr. Bernanke tricked Bank of America into a merger by misrepresenting Merrill Lynch's financial condition. When Bank of America Chief Executive Ken Lewis discovered that Merrill Lynch was losing billions of dollars more than he had been told and tried to stop the merger, Mr. Bernanke threatened to forcibly replace Mr. Lewis and his entire board of directors to guarantee it. When Treasury Secretary Henry M. Paulson demanded that Mr. Lewis not disclose Merrill Lynch's true financial condition to Bank of America shareholders, Mr. Bernanke abetted the cover-up.
Mr. Bernanke and Mr. Paulson obviously feared that shareholders - not eager to lose billions - would demand that the merger be canceled, which would have been smart. Bank of America's financial troubles last year werelargely a result of the Merrill Lynch merger. There is no justification for forcing one company's shareholders to bear the financial burden of rescuing another company's shareholders. Being party to such thuggish behavior is enough to disqualify Mr. Bernanke from another term.
There's also the question of his veracity. Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program, took the unusual step in the fall of reporting Mr. Bernanke for knowingly making false statements about the financial health of institutions that received TARP bailout money. The report asserted that Mr. Bernanke's deception misled the public about the Fed's ability "to increase [bank] lending."
With our country in economic turmoil, Mr. Bernanke is the wrong man for the Fed job. The great power of the Federal Reserve means it's important for the chairman to remain politically independent. Instead, Mr. Bernanke has supported Obama administration policies that have worsened the economy. He thus has a stake in defending those mistakes, which further undermines his independence. Mr. Bernanke has shown he can't judge when it's improper to use the power of the Fed, so he should be discarded.