Bernanke defends US Fed in stormy session on Capitol Hill

Second term seems likely for chairman, but senators expressed anger on bailouts
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The Independent Online

Ben Bernanke seemed set fair to win confirmation for a second term as chairman of the Federal Reserve last night, but not before politicians on Capitol Hill gave him a tongue-lashing over the central bank's performance before and during the credit crisis.

Confirmation hearings before the Senate banking committee yesterday provided lawmakers with an opportunity to take Mr Bernanke to task for the bailouts of AIG and other Wall Street firms last year, and to demand the Fed do a better job of regulating banks and the wider financial system. But while Mr Bernanke admitted there had been mistakes during his tumultuous first term, he mounted a robust defence of the Fed's independence and its powers against suggestions it should stripped of some of its regulatory functions and subject to greater oversight by Congress.

A majority of the members of the influential banking committee signalled that they would support his nomination to a second four-year term, so the debate was largely focused on the structure and role of the Fed in a reformed financial system.

But Mr Bernanke, a former Princeton University economics professor and one of the foremost experts on the causes of the Great Depression, was assailed by some members who vowed to try to derail, or at least to delay, his reappointment.

Jim Bunning, a Senator for Kentucky, told him that "the AIG bailout alone is reason enough to send you back to Princeton". He said that the insurance giant and other Wall Street firms should have been allowed to collapse, rather than suck in hundreds of billions of dollars of taxpayer money while the rest of the economy was reeling. "Where I come from we punish failure, not reward it. We must put an end to your and the Fed's failure and there's no better time than now."

Mr Bernanke defended last year's bailouts, saying they were necessary to prevent a financial catastrophe that could have turned the recession into another depression, but he also turned his attention to the next steps, which include a "smooth and timely" winding down of the unprecedented government aid to the banking system and the credit markets.

The Fed's policies to date helped finance 3.3 million loans to households, more than 100 million credit-card accounts, 480,000 loans to small businesses and 100,000 to larger businesses, he said. "Yet our task is far from complete. Far too many Americans are without jobs, and unemployment could remain high for some time even if, as we anticipate, moderate economic growth continues."

Bernie Sanders, an independent from Vermont, said he is so upset about the bailouts he plans to try to block Mr Bernanke's nomination by putting a "hold" on it when it reaches the Senate floor. That means the Senate would need 60 votes to approve the nomination, rather than a simple majority, which might slow the approval process.