Jan 28 2010
U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, today spoke on the Senate floor regarding the nomination of Ben Bernanke to serve a second term as Chairman of the Board of Governors of the Federal Reserve System. Shelby took aim at Bernanke’s record at the Federal Reserve on a range of issues in calling for accountability and explaining why he will oppose the nomination. Excerpts of Shelby’s remarks are below in bold, followed by the full text of the speech.
“…The principal reason for my opposition to this nomination is that I believe in accountability. In particular, I believe that it is the duty of this body to hold accountable those regulators whose poor oversight of our financial institutions and markets helped produce the greatest economic crisis this country has experienced in eighty years…
“…I do not believe that Chairman Bernanke has executed sound judgment and oversight over the Fed’s monetary policy, lender of last resort, and regulatory and supervisory functions…
“…And yet, amazingly, given a history of failure in supervision and regulation, Chairman Bernanke continues to actively campaign for maintaining and further expanding the regulatory powers of the Fed…
“…Bernanke fiddled while our markets burned…
“…the full story of AIG has yet to be told…
“…What is clear, however, is that the Fed knew more about AIG’s problems than it has admitted so far…
“…I believe it is far more important to consider the facts surrounding Chairman Bernanke’s record than it is to speculate about the impact of his departure…
“…If we don’t hold Chairman Bernanke accountable, what precedent are we setting for future regulators? What incentive will they have to take the tough steps necessary to ensure that our financial institutions are adequately regulated?...
The full text of Shelby’s floor speech, as prepared, is as follows:
“Mr. President, I rise today to oppose the reappointment of Ben Bernanke for a second term as Chairman of the Board of Governors of the Federal Reserve System.
“The principal reason for my opposition to this nomination is that I believe in accountability. In particular, I believe that it is the duty of this body to hold accountable those regulators whose poor oversight of our financial institutions and markets helped produce the greatest economic crisis this country has experienced in eighty years.
“Because the Federal Reserve during Chairman Bernanke’s tenure failed to take the steps to ensure that our financial institutions were properly regulated and would not need Federal bailouts to survive, I do not believe he should be confirmed for another term.
“Prior to the recent financial crisis, as a member of the Board of Governors, Dr. Bernanke advocated monetary policies that contributed to excessive risk taking.
“Subsequently, as Board Chairman, he ignored or downplayed serious emerging risks; failed to use regulatory authority available to the Fed to prevent housing speculation and unsound lending practices; often misjudged the nature of problems in markets; contributed to market turbulence by appearing to act inconsistently and in an ad hoc manner; failed to ensure transparency of actions; and took actions damaging to the political independence of the Federal Reserve and our Nation’s monetary policy.
“I do not believe that Chairman Bernanke has executed sound judgment and oversight over the Fed’s monetary policy, lender of last resort, and regulatory and supervisory functions.
“Chairman Bernanke advocated a policy of remarkably low interest rates for an extended period of time following the 2001 recession, providing an environment that helped fuel a speculative bubble in real estate lending.
“Subsequently, in the face of rising home prices and risky mortgage underwriting practices, the Fed failed to act under Bernanke’s watch by choosing not to use its rule-making authority over mortgages to arrest the risky practices and address growing risks.
“And yet, amazingly, given a history of failure in supervision and regulation, Chairman Bernanke continues to actively campaign for maintaining and further expanding the regulatory powers of the Fed.
“The financial panic our markets experienced in 2008 was the most severe in modern memory. Its repercussions have resulted in our unemployment rate surging to more than 10 percent and the worst economic growth in a generation.
“Our present economic troubles, however, are no accident. In large measure, they stem directly from the actions of our financial regulators.
“It is the responsibility of our financial regulators to ensure that our financial institutions are properly supervised and that they promote, rather than threaten, our national economy.
“Unfortunately, the recent financial crisis demonstrated that our financial regulators did not do their jobs. Our banks were undercapitalized, mortgage lending standards were far too loose, and expectations of government bailouts were too prevalent.
“Ben Bernanke’s Federal Reserve played a key role in setting the stage for the financial crisis.
“First, it failed to ensure that our financial institutions were adequately capitalized.
“Indeed, the Federal Reserve led the effort to reduce capital in our largest financial institutions through the adoption of the Basel II capital accords. The Fed even considered abandoning the leverage ratio, which ensures that all banks maintain at least 4 percent capital.
“As a result, when the crisis struck, many of our financial institutions did not have the capital necessary to withstand the downturn.
“Not surprisingly, the Federal Reserve then argued that a taxpayer bailout of the banks was the only way to prevent an economic collapse. Rather than do its job and ensure that our financial institutions were adequately capitalized, the Fed waited until the crisis was at hand and then rescued its banks with taxpayer funds.
“Ben Bernanke’s Federal Reserve also failed to detect and address the decline in lending standards and growing use of subprime loans. At the core of our financial crisis is the fact that far too many home loans were made that borrowers will be unable to repay.
“The failures of Bear Stearns, Lehman, Washington Mutual, and AIG largely stem from the sharp declines in mortgage values.
“Although Congress gave the Federal Reserve authority to address lending standards and subprime loans when it passed the Home Ownership and Equity Protection Act in 1994, the Fed failed to enact strong regulations until 2008, more than two years into Chairman Bernanke’s term.
“In addition, Ben Bernanke’s Federal Reserve has failed to adequately supervise many of our largest financial institutions, most notably Citigroup.
“For years, the problems at Citigroup have been well known, but the Federal Reserve always sought to look the other way rather than deal with its complicated problems.
“By failing to address Citigroup during the good times, the Federal Reserve left our largest financial institution highly vulnerable to the next downturn.
“In the end, the Federal government had to inject 40 billion dollars and guarantee more than 300 billion dollars of Citigroup’s assets. The Fed’s failure to supervise Citigroup placed U.S. taxpayers and our economy directly at risk.
“Mr. President, regardless of how Chairman Bernanke performed during the financial crisis, the record of the Fed leading up to crisis should not be ignored.
“A close examination of Chairman Bernanke’s performance during the financial crisis reveals that he was slow to recognize how serious the situation was, and when he did react, he acted in an ad hoc fashion that greatly exacerbated the crisis.
“After the housing market bubble began to burst in 2006, Chairman Bernanke was slow to entertain possible spillovers from housing into the general economy and the financial system.
“Even after Bear Stearns failed, Chairman Bernanke did little to prepare for additional failures.
“In other words, Bernanke fiddled while our markets burned.
“In the six months between the failure of Bearn Stearns and Lehman, the Federal Reserve did very little to prevent either another taxpayer bailout or a sudden and disorderly collapse of Lehman, even though its problems were well known.
“As a result, when Lehman was ultimately allowed to fail, our markets responded sharply because they could not understand why the Fed let Lehman fail but rescued Bear Stearns.
“Markets need clarity about policy, especially in times of crisis. Yet, just when our markets needed clarity about Fed policy, Chairman Bernanke’s ad hoc responses left our markets in the dark. Consequently, the failure of Lehman was far more disruptive and damaging than it needed to be.
“Bernanke’s response to the financial crisis also raises questions about his judgment.
“In October 2008, he appeared before the Banking Committee to urge the passage of TARP. He testified that government purchase of toxic assets from banks was the best way to respond to the crisis.
“At the time, I opposed TARP because I did not believe that purchasing toxic assets was a workable solution. I argued that it risked making our financial woes worse by indirectly causing the failure of other financial institutions.
“Despite Chairman Bernanke’s urging that an asset purchase was the best solution, just days after the passage of TARP the Treasury Department and the Federal Reserve abandoned the very asset purchase plan that he judged to be the best course forward.
“Equity injections were employed because the asset purchase plan had proven to be unworkable.
“Mr. President, the full story of AIG has yet to be told.
“Unfortunately, the Fed and other regulators have gone out of their way to hide what really has gone on at AIG both before and after the bailout from Congress.
“What is clear, however, is that the Fed knew more about AIG’s problems than it has admitted so far.
“The Fed has repeatedly stated that it did not learn of AIG’s problems until the weekend of September 12, 2008, and that it was stunned to learn of its problems.
“Yet, in his recent book Too Big to Fail, Andrew Ross Sorkin reports that the CEO of AIG met with then-New York Fed President Tim Geithner about AIG’s problems on at least two occasions before September 12.
“On one occasion, AIG’s CEO gave President Geithner documents detailing AIG’s financial condition and its exposures to other financial institutions.
“We still do not know what Treasury Secretary Geithner did upon learning about the problems at AIG, or whether Chairman Bernanke knew of AIG’s meeting with the New York Fed.
“The fact that the Fed may have known about the problems at AIG before its collapse raises serious questions about whether they ignored early warnings and failed to take action before the situation became untenable without massive taxpayer bailouts.
“Mr. President, many have said that if Chairman Bernanke is not reappointed, financial markets will be rattled.
“The notion seems to be that continuity of leadership will be valued more by markets than the assurance of responsible and accountable leadership at the Fed. I believe this perspective is short-sighted and wrong.
“It is more important to find the most competent person available for the job than to simply adhere to the status quo.
“It also is wrong to speculate as to what ‘might’ happen should someone other than Ben Bernanke serve as Chairman.
“I believe it is far more important to consider the facts surrounding Chairman Bernanke’s record than it is to speculate about the impact of his departure.
“The record clearly indicates that considerable economic devastation occurred as a result of Chairman Bernanke’s loose monetary policy and weak regulatory oversight. Millions of people now are out of work and trillions of dollars in savings have been lost.
“Mr. President, those who try to frighten others with notions of what might happen are ignoring the hard reality of what already has happened.
“If we don’t hold Chairman Bernanke accountable, what precedent are we setting for future regulators? What incentive will they have to take the tough steps necessary to ensure that our financial institutions are adequately regulated?
“I fear that the prospects of a high-paying job on Wall Street will diminish their incentives to be good regulators unless they know that Congress will hold them accountable if they fail to do their job. How can we ever expect our regulators to perform if, after the greatest financial crisis in living memory, not a single culpable regulator is held accountable?
“Unfortunately, this is a theme that is repeated far too often here in Washington.
“Something terrible happens, and although Congress exposes both institutional and individual failures, nobody is held accountable and the only thing that ever seems to happen is that the failed institutions along with their failed leaders get more authority and more money. Mr. President, this needs to end.
“The American people rightly believe that when any one of us neglects to do our job, we should be held to account, not rewarded. Mr. President, I intend to do my job and vote no on a second term for Ben Bernanke.
“Mr. President, I yield the floor.”