The tenuous ties that bind the political-financial nexus that in turn bind Washington to Wall Street are, as I write, being stretched to the breaking point as the US Senate determines whether to confirmation of Ben S Bernanke to a second term as chairman of the Federal Reserve. In dramatic last-minute moves, Vermont Senator Bernard that he would try to block the Senate vote by placing a “hold” on it. This move was believed to have support of at least one Republican senator, probably Jim Bunning of Kentucky.

So no matter what the outcome of the vote, the “hold” or filibuster can be applied in days to come, leaving the cozy Washington-New York relationship very cold indeed. The Fed, the most powerful financial institution on earth, may be rendered unable to act at a time when new financial crises threaten.

Bunning, the only senator to oppose Bernanke four years ago, was brutal on the man charged with upholding the integrity of the US financial system.

“In short,” Bunning told Bernanke and his fellow senators, “you are the definition of a moral hazard.”

The move to “hold” or filibuster, may be overturned but at present it represents a clear and present danger to  Bernanke and the Federal Reserve System and would require Bernanke’s supporters to garner 60 votes rather than a simple majority. The “hold” is intended to do just that, hold over the vote till next year when the senators have had a chance to gauge popular opinion on the matter. Yesterday a poll showed only 21% of Americans supported Bernanke. Another showed his support at 10%. The New York Times broke the Saunders story, describing Saunders as an independent. They did not add Saunders is a socialist.

The grilling of Bernanke, who sailed through confirmation four years ago, has been brutal with the Fed chairman attacked for working for the big end of town and printing money for “Zombie banks” Bunning added that Bernanke’s policies were repeating the same mistakes as Japan “but on a far greater scale”.

But what is really under attack here is not Bernanke but the Fed itself.

For what lies behind this attack is a deep desire by lawmakers in the US to carry out a complete public audit and investigation of the Fed.

“In this country, there is profound disgust at what happened on Wall Street,”  Sanders said in a telephone interview before the hearing began. “People want a new direction and people are asking, where was the Fed? How did the Fed allow this to happen, when one of their mandates to oversee the safety and soundness of the banking system?”

Given the globalised nature of modern finance and the Fed’s position at the very top of the octopus that reaches into every house on the planet, tomorrow’s battle is of immense importance. It will also give us a glimpse into how the Senate will vote on a full examination of the Fed when it gets its chance early next year.

Supporters of Bernanke will feel the hot breath of an angry electorate as they depart Washington for the sticks. For mainstream America is seething and senators will find where the true anger resides — not New York and Washington — where economic well-being is gauged by the performance of the markets but in their home towns and cities.

Adding to the tension are reports that Venezuela’s resident Hugo Chavez may default on the nation’s debt following his nationalisation of locally owned banks.

“We would not be surprised to see more sovereign debtors make unilateral announcement of debt moratoriums and/or restructurings, perhaps including even oil-rich Venezuela. We notice in that regard that Venezuela’s lider maximo, Hugo Chavez, is preparing to nationalise the few remaining private banks of that nation, usually a good indicator of an approaching sovereign default,” according to the influential Institutional Risk Analytics site.

The Wall Street Journal wrote yesterday: “Upping the ante significantly, Chavez said he would not hesitate to intervene in the country’s whole banking system. ‘You can be sure that if I need to intervene in all the banking system, I will do it,’ the self-declared socialist revolutionary said in a televised address Wednesday.”

Socialism is making quite a comeback.

And Nomi Prins, no socialist and a former managing director of Goldman Sachs and head of the international analytics group at Bear Stearns in London, said giant banks are manipulating their books to make themselves look profitable. Prins says that this might be worse than the fraud that occurred at Enron:

“Not a good day for the ‘change you can believe in team’. But I ceased to believe the day Barack Obama refused to dismiss reports he was contemplating appointing Timothy Geithner as Treasury Secretary and Warren Summers as economic adviser. That day, a year ago, the music died.”

Also at IRA, Martin Mayer has looked at Bernanke’s performance or the Fed’s performance under Bernanke and found it wanting.

“Over the course of the last year and a half, the Federal Reserve has created hundreds of billions of dollars and turned them over to the big banks and the big brokerage houses and the big insurance companies of American International Group.” This from a site not usually associated with wild-eyed radicals.

“Some of the losses,” Mayer continues, “that have been and will be associated with these activities  — especially those associated with AIG, Lehman Brothers and the government-sponsored enterprise Fannie Mae, are expenditures of the kind the Constitution says can be made only ‘in consequence of appropriations’. The public defence of these activities is essentially an assertion that ‘we were right to panic’.

“Even those who approve the actions doubt the process. The Fed can no longer interpose its standard claim that secrecy is a necessary part of the mystique of central banking. The American people deserve to know the details of how these decisions were made. The Congress has not just the right but the obligation to audit them.”

Bernanke’s supporters will be screaming that a lame duck Fed boss is worse than none at all given the US financial situation.

The cross-party nature of opposition to Bernanke, with a conservative Republican and a socialist independent uniting to block the appointment, shows the intensity of the feelings on the issue. “It’s great to see everyone come together — Democrats, Republicans, progressives and libertarians, against this Federal Reserve, which is not federal, and not a reserve, just a group printing money and giving it to their buddies,” one source said.

While most people think that the multiple holds would delay the process, it’s unclear whether or not it would succeed. Dodd would probably have the discretion to roll over the hold in committee, though he may be reluctant to do so, experts in Senate procedure said. Harry Reid could also seek closure on the motion to proceed on Bernanke’s nomination on the floor, which would require 60 votes.

At the very least, this delay and the publicity surrounding bipartisan opposition to Bernanke, would bring attention to the issue of the Federal Reserve and the desire for transparency, like the movement to audit the Fed.

So the battle for the heart and soul of America goes on, with more than 300 Congressmen and women determined on some sort of investigation.

What the Fed does best is work behind the scenes and water down any legislation that might reduce its near despotic powers. This has been its history since it was conceived in deepest secrecy in 1910 and passed through the Congress, the Senate and the desk of President Woodrow Wilson in the few days between Christmas and new Year 1913.

But opposition all over the US will be heard by Senators and Congressmen alike and even if Bernanke is confirmed and the “hold” withheld, the fight has really just begun.

Dow Jones reported that Senate Banking Committee chairman Christopher Dodd,  said on Thursday morning that a vote to confirm Federal Reserve chairman Ben Bernanke to a new term may not take place before Christmas.

Asked if he anticipated a confirmation vote on a second term for Bernanke, Dodd told reporters, “I don’t know. We’ll try. I have to talk to my colleagues.”

Dodd spoke to reporters as he left the hearing on Capitol Hill, which is winding down as Bernanke takes final questions.

Peter Fray

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