Bernanke Doesn't Deserve a Second Term

Treasury Secretary Timothy Geithner has been warning that a refusal by the Senate to reconfirm Federal Reserve Chairman Ben S. Bernanke will be "very troubling" for financial markets. But this is just the lawmakers usual scare tactics: do as they like or else we are in for a disaster. We are getting tired of hearing it. Looming imminent “disaster” has been conjured up to motivate us to fund bailouts, massive government spending programs and huge increases in the national debt. Those fears weren't justified then, and they aren't justified now.

Despite Mr. Bernanke's obvious academic expertise on the Great Depression, he shouldn't be reconfirmed. The Federal Reserve's extreme powers have rarely been as overused and misused as they have been by Mr. Bernanke.

To name just one example, his mishandling of the Bank of America and Merrill Lynch merger is very disturbing. When Merrill Lynch ran into financial problems during the fall of 2008, Mr. Bernanke tricked Bank of America into merging with Merrill Lynch by claiming that Merrill was in better financial shape than it really was. When Bank of America CEO Ken Lewis discovered that Merrill was losing billions of dollars more than he had been told, he tried to stop the merger by warning his shareholders about how much money the firm was losing. But Bernanke then threatened to replace Lewis and his entire board of directors, if necessary, to ensure the merger. Bernanke also stood by while then Treasury Secretary Henry Paulson demanded that Lewis not disclose to Bank of America's shareholders Merrill’s true financial condition. Apparently, Bernanke and Paulson feared, quite understandably, that the shareholders would demand that the merger be cancelled. But there is no justification, moral or economic, for why Bank of America shareholders should have born the burden of rescuing Merrill Lynch.

But there are other questionable cases as well. According to Neil Barofsky, the Inspector General for the Troubled Asset Relief Program Special Inspector, Mr. Bernanke knowingly overstated the financial health of institutions that received TARP bailout money and that these false claims mislead the public about the ability of the Feds actions "to increase [bank] lending."

Further, Mr. Bernanke has chosen to either endorse or remain silent on most of President Obama's new proposed banking regulations. Hopefully, this is simply his desire to curry Mr. Obama's endorsement for a second term, for these regulations will harm the banking industry. Even liberal New York Mayor Michael Bloomberg points out the obvious: that limiting the size of banks will hurt their competitiveness in the global economy. And long-time Obama supporter Warren Buffett ridiculed the proposed bank tax: “I don’t see any reason why they should be paying a special tax,” said Buffett. “Look at the damage Fannie and Freddie caused, and they were run by the Congress. Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”

Ironically, at the same time that the Obama administration is demonizing banks for their massive profits and obscene bonuses," it was the Federal Reserve -- with the complicity of the Obama administration -- who was responsible for creating these profits. The Fed has been lending money to banks at virtually zero interest, which allows banks, even those not in distress, to make money simply by using those loans to buy Treasury bonds. This policy is a rather clumsy and less than transparent way to subsidize banks.

With all the new threatened bank taxes and regulations driving down stock prices, we need a strong, independent Federal Reserve chairman, not someone who is trying to curry favor with the president. In addition, Bernanke’s thuggish behavior with Bank of America alone warrants him not being rewarded with another term as head of the powerful Federal Reserve.

*John Lott is the author of Freedomnomics.