Bernanke's calm hand, in finance

The Chairman remains the target of growing criticism in Congress, around the country and to some extent overseas. In the Senate, this has been concentrated among members up for reelection this year. They include Democrats Barbara Boxer of California and Russ Feingold of Wisconsin, and Republican John McCain of Arizona Incentives for such attacks are easy to identify. While there are strong signs of economic recovery in demand and investment, unemployment remains very high at approximately 10 percent. Latest figures show persistently high jobless levels have increased somewhat. Bank bonuses following federal subsidies fuel the fires.

For several decades, U.S. companies in particular have been notable for cutting costs through eliminating jobs. Technology in machines as well as computers facilitates the process. In consequence, unemployment will undoubtedly remain high even with recovery.

Plain speaking President Harry Truman said he longed for one-armed economists because when asked for advice, their response usually was along the line of “on the one hand, Mr. President, but on the other hand...” Bernanke breaks the stereotype. In the global financial meltdown and resulting recession, the Fed acted fast on varied fronts. Funds were loaned directly to investment banks, and new forms of consumer credit relief have been developed. The Fed has pursued fresh “swap” accords with other central banks even while pumping enormous amounts of money into the system.

More recently, the Chairman has pressed hard for regulatory reform, though as the Senate vote approached this has been put on temporary hold. With refreshing candor, he does not claim to have a complete blueprint. Rather, he argues for comprehensive analysis encompassing traditional banks and newer credit sources.

Effective policing will require integrated oversight. Monetary and interest rate policies alone are too limited and rigid. Now that the Senate vote is passed, Bernanke will be under great pressure to produce persuasive financial reform, especially given Congressional initiatives.

This past summer, Chairman Bernanke was stage center in discussion of the 'Three R's' of Recession, Recovery and Regulation. Public Television (PBS) and the Kansas City regional Fed collaborated on a special program with a studio audience town meeting. Exceptionally effective educational TV resulted.

Only about a decade ago, President Bill Clinton and long-term Fed Chairman Alan Greenspan were praising dramatic deregulation, which included abolition in 1999 of the Glass-Steagall Act, the New Deal reform which strictly separated commercial and investment banking. In the wake of the latest crash of investment markets that had turned into gambling casinos, public sentiment has sea changed back to pro-regulation.

An important Bernanke ally is Paul Volcker, prestigious former Fed head who chairs Pres. Obama's Economic Recovery Advisory Board. A strong advocate of greater regulation to separate commercial from investment banking, Volcker has been overshadowed until now by aggressive White House economics chief Lawrence Summers and Treasury Secretary Timothy Geithner. On January 21 however, after the stunning Republican Senate upset in Massachusetts, he was at Obama's side as new banking regulatory initiatives were announced.

Bernanke has spent most of his career as a professor. Volcker is 82. Academics, senior citizens, take heart.

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