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Chairman Ben Bernanke confronts challenges to Federal Reserve's record

Although the worst of the financial crisis has seemingly passed, he and his institution have come under intense attack for their response. Now he's taking his case to the public.

July 26, 2009|Don Lee

WASHINGTON — The long nights of sleeping on his office couch are over. Nowadays Ben S. Bernanke goes home most evenings for dinner. He finds time to watch TV with his wife of 31 years, Anna, and read books on his Kindle.

Yet even as the worst of the great financial crisis has seemingly passed, and with it the government's furious moves to bail out firms and quell panicked markets, the Federal Reserve chairman faces the most severe challenge to his institution and his own reputation since he replaced the once-venerated Alan Greenspan in 2006.

Bernanke and the Fed have come under intense attack from members of Congress and others who accuse the central bank of failing to stop the financial problem as it snowballed, and then later responding too aggressively, overstepping its authority of setting interest rates by engineering bailouts and other programs that some critics allege put billions of taxpayer dollars at risk and could later ignite inflation.

With his term expiring Jan. 31 and his reappointment a question mark, Bernanke makes a rare public appearance today in a nationally televised forum that has all the earmarks of a reelection campaign.

At a town hall meeting in Kansas City, Mo., the soft-spoken, longtime economics professor can be expected to defend the Fed's record, explaining why the controversial bailouts and other efforts to revive moribund credit markets were necessary. A student of the Great Depression, Bernanke wanted to move quickly and aggressively to prevent the financial contagion from developing into a global economic collapse. In congressional testimony, he has staunchly defended the Fed's integrity.

This won't be the first time that Bernanke, 55, has made his case directly to the American public. Perhaps more than any other Fed chief, he has sought to open up the nearly century-old institution to the outside and communicate with the media and public alike.

"This is an extraordinary time," he told The Times. "It's important for me to hear from people outside of Washington. And I want to answer the questions that I know people have about the economy, the Fed and the Fed's actions during this crisis."

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Fed under fire

Bernanke, who came to Washington in 2002 as a Fed governor after 23 years of teaching at Stanford and Princeton, has exhibited a steely cool during often-hostile grilling on Capitol Hill. Lawmakers on both sides of the aisle are pressing to expand audits of the central bank, which could threaten the Fed's ability to make monetary policy decisions free from political influence.

Under President Obama's proposal for financial regulatory reform, the Fed could be given expanded oversight powers to go with its mandate to ensure price stability and full employment. But at the same time, the Obama plan would strip the Fed of its existing consumer protection authority and give those responsibilities to a new agency.

Both steps require action by Congress, where there is significant opposition to the Fed. What's more, some lawmakers want to even dismantle the dozen Federal Reserve banks around the country, traditionally centers for check clearing.

"This is a period of great vulnerability for the Fed," said Laurence Meyer, a Washington economist and former Fed governor.

Meyer and many others, however, say odds favor Bernanke to be reappointed by Obama. Bernanke has strong backing from economists and is well regarded in the White House, where he has had a long and good relationship with the president's economics team, including Christina Romer, with whom Bernanke played bridge when they were both teaching at Princeton, and former Treasury Secretary Lawrence H. Summers. The latter is often mentioned as a potential candidate for Fed chief, but is generally seen as an underdog because of his forceful style.

Bernanke's tenure also could hinge on how the fragile economy performs as well as the overall standing of the Fed, which until the financial crisis last fall was little known to the public beyond the occasional larger-than-life chairmen with whom the Fed came to be identified.

When Bernanke took over the mantle from Greenspan, his aim was to de-emphasize the chairman's role and put the focus on the institution, its board of governors and Fed Bank presidents who set monetary policy, and the 2,000 economists, researchers and others that constitute the Federal Reserve System.

At board meetings around the big mahogany and granite table inside Fed headquarters in Washington, Bernanke set a tone of collegiality and more consensus building than Greenspan or other dominant Fed leaders such as cigar-chomping Paul Volcker, preferring not to raise his profile. But that didn't last long.

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