The populist political storm aimed at Wall Street has taken a turn toward Federal Reserve Chairman Ben S. Bernanke in recent days, threatening to stall his appointment to a second term and raising the risk of intense turmoil in the financial markets in coming days.
The stock market is in a fragile state after having lost 5 percent of its value last week, with the Dow Jones Industrial Average falling 537 points in its worst week since March. The downturn was precipitated largely by dimming prospects for big banks in the wake of President Obama’s populist proposals to tax them and limit their size and trading activities to prevent any further need for government bailouts.
But the rout could worsen this week as populist sentiment against Wall Street bailouts widens to encompass Mr. Bernanke, whose term as chairman expires on Sunday.
Four Democratic senators — under pressure from angry constituents — on Friday announced they would oppose reconfirmation, throwing into question whether the Fed chairman will garner the 60 votes needed to overcome a filibuster threat. Several more senators took their sides in a potential Bernanke battle over the weekend.
Senate Banking, Housing and Urban Affairs Committee Christopher J. Dodd, Connecticut Democrat, warned of “huge economic implications” if Mr. Bernanke’s nomination falters and urged his colleagues to think hard about how they will vote.
“If you wanted to send the worst signal to the markets right now in the country and send us into a tailspin, it would be to reject this nomination,” he said. “This is not naming someone to be an assistant secretary to something. This is the most important central banker in the world.”
While the stock market faces renewed peril, analysts say the U.S. dollar and Treasury market also would be hit hard by a vote of no confidence in the Fed chairman. The Treasury must raise more than $1 trillion a year to finance congressional deficit spending, and is especially beholden to foreign investors who are particularly sensitive to any sign of politicization or congressional interference in the Fed’s mission of heading off inflation.
Moreover, the Fed is at a particularly delicate juncture, where it is trying to gradually remove the massive stimulus it put into financial markets last year and prevent a possible uptick in inflation, while it continues to nurture a budding recovery in the economy. The Fed’s interest-rate-setting committee is scheduled to meet Tuesday and Wednesday at the same time the Senate may be moving to vote on the Bernanke nomination.
Billionaire investor Warren Buffett encapsulated the angst among investors last week and warned of a major market drop if Mr. Bernanke’s nomination runs into serious trouble.
“Just tell me a day ahead of time, so I can sell some stocks,” he told CNBC. “If Congress essentially said we can do this better than Ben Bernanke, I would get very worried.”
The Senate has never rejected a president’s nominee for Fed chief, or even come close. The White House on Friday said it stood behind Mr. Bernanke and expressed confidence that he would be confirmed.
On Sunday’s political talk shows, White House spokesman Robert Gibbs warned against what he called political bickering over the Bernanke nod, saying senators should “support some of that stability in our financial system by ensuring the renomination of the Fed chairman.”
“I think now would be a particularly bad time to send a signal to the international community and to our overall financial system by playing politics in any way with this upcoming vote,” Mr. Gibbs told “Fox News Sunday”
More pushback came on Sunday’s talk shows from the pro-Bernanke side on Capitol Hill, with Senate Minority Leader Mitch McConnell and Senate Majority Whip Richard J. Durbin both predicting a Bernanke confirmation, though neither man called it a lock.
“Some of my members do” have problems with the nomination “but I think he’s going to be confirmed,” Mr. McConnell said, declining to say how he would vote.
Should he not be confirmed by Sunday, the Fed’s vice chairman, Donald Kohn, would become temporary chairman while Mr. Bernanke continued as a regular member of the Fed’s board of directors.
Mr. Bernanke went out of his way last week to garner support by addressing a principal criticism in Congress concerning his role in arranging a record-breaking $182 billion bailout of insurance giant American International Group. He invited Congress’ watchdog, the Government Accountability Office, to conduct a comprehensive review of the AIG episode.
Mr. Bernanke also met with Senate Majority Leader Harry Reid on Thursday night to discuss his concerns about banks not doing much to lend to small businesses and help homeowners facing foreclosure. The Nevada Democrat after the meeting said he expects to see evidence soon that the Fed is addressing those issues.
“The American people expect our economic leaders to keep Wall Street honest and level the playing field for middle-class families, and I will continue to hold their feet to the fire to ensure this happens,” Mr. Reid said.
Nevertheless, between 10 and 15 Democrats have indicated they may vote against Mr. Bernanke, including the four who declared their votes on Friday. With a filibuster threatened by Sen. Bernard Sanders, a Vermont independent who caucuses with the Democrats, their announcements sent Senate leaders scrambling to determine whether they have the 60 votes needed to break a filibuster.
Three conservative Republicans — Sens. Jim DeMint of South Carolina, Jim Bunning of Kentucky and David Vitter of Louisiana — have joined forces with Mr. Sanders in threatening to block the nomination. Mr. DeMint seized on the GAO investigation of the AIG bailout as a reason to postpone indefinitely a vote on the Fed chairman.
“We cannot rush ahead with the Bernanke nomination while examinations by Congress and the GAO of the Fed’s AIG bailout are ongoing,” he said. “Senators should not be put in a position to vote before they know the full story.”
Sen. John Cornyn, Texas Republican, joined their number on Sunday, telling Fox News that “regretfully, I will vote ‘no’ on his confirmation.”
“I think they need a fresh start” at the Fed, he said.
Sen. Jeff Sessions, Alabama Republican, also has said he will oppose the Bernanke nomination.
While many conservatives have expressed opposition to Mr. Bernanke, four Republicans on the Senate banking committee voted to send his nomination to the floor, and congressional aides say they expect him to pick up additional Republican support in the full Senate. That would be critical to make up for eroding support among Democrats.