Simon Johnson

Is Bernanke Right for the New, Anti-Bank Obama?

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Update: the Senate needs to hold a new hearing for Ben Bernanke--here’s the full proposal.

Ben Bernanke’s reconfirmation as chair of the Federal Reserve is in disarray. With President Obama having launched, on Thursday morning, a major new initiative to rein in the power of--and danger posed by--our leading banks, key Senators rightly begin to wonder: Where does Ben Bernanke stand on the central issue of the day?

There are three specific questions that Bernanke must answer, in some convincing detail, if he is to shore up his weakening cause in the Senate.

(1) Does he support the President’s proposed emphasis on limiting the scope and scale of big banks?

(2) With regard to the key detail, is it his view that the size of big banks can be capped “as is” or--more reasonably--should we require these banks to contract or divest so as to return to the profile of system risk that prevailed say 15 or 20 years ago?

(3) If Congress cannot act in the short-term, because of opposition from Republicans and some Democrats, does he see the Fed’s role as taking the initiative in this arena--or will he wait passively for the legislature to act?

As running hard against the “too big to fail” banks is now a major theme of 2010 and beyond for the Democrats, how can any Democratic Senators feel comfortable voting for Ben Bernanke unless they know exactly what his position is on all of these points?

And given what we know about Bernanke’s record and positions relative to these questions, absent new information it is not a surprise to see his support dwindling.

[Cross-posted at the Baseline Scenario.]

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