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Updated Sunday, November 15, 2009 12:08 am TWN, By Arthur I. Cyr, Special to The China Post

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Financial reform, chairman Bernanke and Senator Dodd

In the recent financial meltdown, Fed chairman Ben Bernanke has provided aggressive and imaginative leadership. The Fed no longer controls the overall money supply, given very substantial dollar holdings overseas. Lowering interest rates to nearly zero to forestall total economic collapse has removed this second main lever of financial policy influence.

Bernanke quickly came up with other tools to attack the monetary meltdown. Funds were loaned directly to investment banks, and new forms of consumer credit relief have been developed. The Fed has pumped enormous amounts of money into the system, justifiable given the scale of the emergency.

The chairman has also actively promoted global cooperation, especially among the G-20 rich nations, including financial swap agreements with central banks. Switzerland and other governments are cooperating in promoting financial transparency. Confronting Bank of America and other major financial firms has demonstrated courage and a commitment to managing private capital for the public good.

No doubt partly in anticipation of Dodd's proposed legislation, the Fed has just announced new regulations to protect consumers from overdraft fees on debit cards and ATM withdrawals. New limits have already been placed on mortgage and credit card lenders. This mitigates the traditional image of the Fed as aloof and focused only on the banking and related financial system as a whole.

Despite lengthy senate tenure, Dodd faces a very daunting re-election challenge next year. Close ties with large financial firms, and notoriety regarding a sweetheart mortgage arrangement with Countrywide Financial, have badly damaged his public support.

Chairman Bernanke, initially nominated by Pres. Bush, has been renominated by Pres. Obama for another four-year term. Dodd has more quietly noted he anticipates the Senate will confirm Bernanke before Christmas.

Arthur I. Cyr is Clausen Distinguished Professor at Carthage College and author of “After the Cold War” (NYU Press and Palgrave/Macmillan). He can be reached at acyr@carthage.edu.

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